<PAGE> 1
As filed with the Securities and Exchange Commission on January 24, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
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 being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
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================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Unit Aggregate Offering Price Registration
Securities to be Registered Registered (1) (1) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$130,000,000
Principal Amount
9 7/8% Series B Senior Notes due 2003 (2) 100% $130,000,000 $39,393.94
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended.
(2) The maximum principal amount of 9 7/8% Series B Senior Notes due 2003 that
may be issued in connection with the exchange offer to which this Registration
Statement relates.
-----------------------------
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
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<S> <C> <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 Summary Consolidated Financial Data
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>
2
<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 January 24, 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, for the benefit
of the holders of the Exchange 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 June 30, 1996,
after giving pro forma effect to the offering of the Old Notes and the
application of the net proceeds therefrom and the Exchange Offer, the Issuer's
subsidiaries would have had no outstanding indebtedness for money borrowed
other than intercompany indebtedness and approximately $3.4 million of trade
payables.
SEE "RISK FACTORS" FROM PAGES 14 TO 21 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 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."
The Issuer will not receive any proceeds from the Exchange
Offer and will pay all of its the 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 a 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 will bear interest from and including October 31, 1996, the date
of issuance of the Old Notes. Holders whose Old Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued 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 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
2
<PAGE> 5
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 2.72 = $1.00, the
exchange rate quoted by the National Bank of Poland ("NBP") at noon on June 30,
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.
-----------------------------
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.
3
<PAGE> 6
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 intends 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 June
30, 1996, and include approximately 23,000 subscribers and approximately 52,000
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
and approximately 15,000 additional subscribers and approximately 27,000 homes
passed attributable to cable systems recently acquired by the Company which the
Company has contracted to take control of by January 31, 1997. 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 900,000 homes passed and
approximately 398,000 total subscribers (of which approximately 354,000 are
basic subscribers), the Company estimates that it has more than three times 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 six regional
clusters encompassing six 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 398,000 as of
June 30, 1996. Approximately 60% 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, 1995, the Company
generated growth in revenues and EBITDA (as defined) at average annual rates of
approximately 64% and 176%, respectively.
The Company has invested more than $68 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.
4
<PAGE> 7
PCI's principal executive 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 five cable television systems in Poland
(collectively, the "Pending Acquisitions"). The aggregate consideration to be
paid by the Company in connection with the Pending Acquisitions is expected to
be approximately $29.2 million. The cable systems expected to be acquired in
the Pending Acquisitions serve approximately 115,700 subscribers and pass
approximately 230,300 homes. The consummation of the Pending Acquisitions will
result in the expansion of the Company's existing operations within its
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. See "Business--Pending Acquisitions."
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 51%, and ECO Holdings III Limited Partnership ("ECO"), which
owns approximately 40%. The general partner of ECO is Advent International
Corporation ("Advent"). As of June 30, 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."
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<PAGE> 8
CORPORATE ORGANIZATIONAL STRUCTURE
The following chart 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.
Chart shows Poland Communications, Inc. ("PCI" or the
"Issuer") owns 92.3%(a) of Poland Cablevision (Netherlands) B.V. ("PCBV"), 100%
of Polska Telewizja Kablowa-Szczecin Sp. z o.o. ("PTK-Szczecin"), 100% of
Telkat Sp. z o.o. ("Telkat"), 49% of Poltelkab Sp. z o.o. ("Poltelkab"), 100%
of PCI Programming, Inc. ("PCI Programming")(b), 33% of ProCable Sp z o.o., and
49% of TV KABEL Sp z o.o. ("TV Kabel"). PCBV owns 100% of Polska Telewizja
Kablowa-Krakow, S.A. ("PTK-Krakow"), 100% of Polska Telewizja Kablowa, S.A.
("PTK, S.A.")(c), Polska Telewizja Kablowa-Warszawa, S.A. ("PTK-Warsaw"),
Polska Telewizja Kablowa-Ryntronik, S.A. ("PTK-Ryntronik")(d). Poltelkab owns
100% of Polska Telewizja Kablowa-Lablin, S.A. ("PTK-Lublin") and 2% of TV
Kabel. PTK-Warsaw owns 99.2% of ETV Sp. z o.o.
- --------
(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 49% of the shares of PTK-Ryntronik and
holds convertible debt that, if converted, would bring its
total ownership of PTK-Ryntronik to approximately 76% as of
June 30, 1996. The Company intends to purchase the remaining
shares of capital stock of PTK-Ryntronik, and Poltelkab will
be issued approximately 4% of the capital stock of
PTK-Ryntronik. See "Certain Relationships and Related
Transactions--Ryntronik."
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 [ ______________] (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 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),
6
<PAGE> 9
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 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."
7
<PAGE> 10
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 [_____________] 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--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 October 31, 1996, the date
of the issuance of the Old Notes (the "Issue Date") or from the last day
interest was paid on the Notes. The holders of Old Notes whose Old Notes are
accepted for exchange for Exchange Notes will be deemed to have waived the
right to receive any interest accrued on the Old Notes.
8
<PAGE> 11
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 operations 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 intercompany 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 June 30, 1996, after giving
pro forma effect to the offering of the Old
Notes and the application of the proceeds
therefrom and the Exchange Offer, the Issuer's
subsidiaries would have had no indebtedness
other than intercompany indebtedness and
approximately $3.4 million of trade payables.
9
<PAGE> 12
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."
10
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below as
of and for the three years ended December 31, 1995 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. The summary consolidated financial data as of and for the six months
ended June 30, 1995 and June 30, 1996, have been derived from unaudited
financial statements of the Company. In the opinion of management of the
Company, each of such unaudited financial statements contains all adjustments
necessary for a fair presentation of the financial position of the Company as
of such dates and the results of operations for such periods. The results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of results to be expected for the full year. 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 SIX
FOR THE YEAR ENDED MONTHS
DECEMBER 31, ENDED JUNE 30,
------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue $ 6,562 $ 8,776 $18,557 $ 8,197 $12,025
Depreciation and
amortization (2,257) (3,459) (5,199) (2,421) (3,550)
Operating income (loss) (1,205) 380 3,545 1,197 2,366
Interest expense (51) (2,249) (4,199) (1,846) (1,662)
Net loss (2,383) (1,289) (853) (789) (2,342)
OTHER DATA:
EBITDA(a) $ 1,052 $ 3,839 $ 8,744 $ 3,618 $ 5,916
Expenditures for
construction of cable
television systems(b) 5,490 11,695 16,014 6,291 13,347
RATIOS:
EBITDA to interest expense N.M. 1.71x 2.08x 1.96x 3.56x
Earnings to fixed charges(c) N.M. 0.37x 0.86x 0.72x 1.31x
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets $34,165 $47,376 $68,058 $57,640 $ 96,048
Total debt 20,073 35,988 59,405 45,106 9,636
Total stockholders' equity 3,250 1,479 190 626 35,275
PRO FORMA DATA(d):
Pro forma annualized
EBITDA(e) -- -- -- -- $ 14,748
Pro forma interest
expense(f) -- -- -- -- 12,838
Pro forma annualized
EBITDA to pro forma
interest expense -- -- -- -- 1.15x
Pro forma total debt -- -- -- -- $130,000
</TABLE>
- -------------
(a) EBITDA consists of net 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 (loss) income as an indicator of the Company's
operating performance or to cash flows from operations as a measure of
liquidity.
11
<PAGE> 14
(b) 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.
(c) 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 year ended December 31, 1993
earnings were insufficient to cover fixed charges by $1,140,000.
(d) Pro forma to reflect the offering of the Old Notes and the application
of the proceeds therefrom and the Exchange Offer.
(e) Pro forma annualized EBITDA represents the sum of the following
multiplied by two: (i) EBITDA for the Company for the six months ended
June 30, 1996; (ii) cost savings of approximately $282,000 resulting
from a work force rationalization plan implemented by the Company
during the six months ended June 30, 1996; (iii) EBITDA of $203,000 for
the six months ended June 30, 1996 relating to a cable system the
Company acquired in 1996 which the Company has contracted to take
control of by January, 1997 (the "Completed Acquisition"); and (iv)
EBITDA after adjustment to reflect the Company's pro forma ownership
percentage, of approximately $973,000 for the six months ended June 30,
1996 relating to three of the Pending Acquisitions. EBITDA for the
Company's Pending Acquisitions excludes the EBITDA relating to two of
the Pending Acquisitions aggregating 20,000 subscribers for which
financial information is unavailable. EBITDA for the Completed
Acquisition was compiled by Company management through the examination
of the system's internal accounting records, testing subscriber data
and significant expense items. EBITDA for the Pending Acquisitions
included in the pro forma was compiled by management from Polish
statutory statements filed with the Polish government, modified to
conform to U.S. GAAP. Pro Forma annualized EBITDA has not been
independently reviewed or audited by the Company or an independent
accounting firm and does not necessarily represent what the Company's
EBITDA would have been for the six months ended June 30, 1996 had the
transactions described above actually been completed as of January 1,
1996. There can be no assurance as to the Company's operating results
for any future periods.
(f) Pro forma interest expense excludes approximately $2.6 million of
anticipated interest income associated with proceeds from the offering
of the Old Notes held in cash and cash equivalents pending use. See
"Capitalization".
12
<PAGE> 15
SUMMARY OPERATING DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------ --------------
PRO FORMA
1993 1994 1995 1995 1996(a) 1996(b)
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(c) . . . . . 177,875 298,316 711,545 618,609 900,435 1,173,935
Basic subscribers . . . . 74,194 112,534 262,077 218,916 353,600 492,100
Basic penetration(d) . . 41.7% 37.7% 36.8% 35.4% 39.3% 41.9%
EBITDA margin(e) . . . . 16.0% 43.7% 47.1% 44.1% 49.2%(f) 51.3%(g)
Annual churn rates . . . 8.2% 9.1% 9.2% 9.2% 7.8%(h)
</TABLE>
- ---------------
(a) Includes approximately 23,000 subscribers and approximately 52,000
homes passed attributable to cable systems recently acquired by the
Company which the Company took control of after June 30, 1996 and prior
to the date hereof and approximately 15,000 additional subscribers and
approximately 27,000 homes passed attributable to cable systems
recently acquired by the Company which the Company has contracted to
take control of by January 31, 1997 (the "Completed Acquisition").
(b) Pro forma to reflect the offering of the Old Notes and the application
of the proceeds therefrom and the Exchange Offer, including
consummation of the Pending Acquisitions.
(c) 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.
(d) Basic subscribers as a percentage of homes passed.
(e) Represents EBITDA as a percentage of revenues.
(f) Excludes EBITDA relating to acquisitions completed by the Company after
June 30, 1996.
(g) Also includes EBITDA relating to the Completed Acquisition. Excludes
EBITDA relating to two Pending Acquisitions for which financial
information is unavailable.
(h) Annualized based on actual results for the six month period.
13
<PAGE> 16
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 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 pusuant 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.
14
<PAGE> 17
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. As of June 30,
1996, after giving pro forma effect to the offering of the Old Notes and the
application of the proceeds therefrom and the Exchange Offer, the Issuer's
subsidiaries would have had no outstanding indebtedness other than intercompany
indebtedness and approximately $3.4 million of trade payables. 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, including
Poltelkab, PTK-Ryntronik and PTK-Lublin, 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 June 30, 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 June 30, 1996, on a pro forma
basis after giving effect to the issuance of the Old Notes and the application
of the proceeds therefrom and the Exchange Offer, the Company would have had,
on a consolidated basis, approximately $130 million in principal amount of
indebtedness outstanding. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by the Company, and the Company in the
future may enter into an agreement with one or more banks to provide a
liquidity facility. 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.
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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, John S. Frelas, Chief Financial
Officer of PCI, George Makowski, Chief Operating Officer of PCI, Andrzej Muras,
Executive Vice President of PTK-Warsaw, Gilbert Tash, Vice President of PCI,
and Michael Houlehan, Chief Executive Officer of PCI Programming. 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. Muras, Tash, Frelas, Makowski and Houleham.
Mr. Muras's employment agreement with PTK-Warsaw expires on January 1, 1998,
and is terminable without cause upon six months written notice by PTK-Warsaw.
Mr. Tash's employment agreement is for an indeterminate period of time and may
be terminated without cause by PCI upon three months written notice. Mr.
Frelas' employment agreement with PCI expires on September 1, 2001, and is
terminable by PCI without cause upon six months written notice. Mr. Makowski's
employment agreement with PCI expires January 21, 2002, and is terminable by
PCI without cause upon six months written notice. 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. The Company is negotiating an
employment agreement with Mr. Fowler. 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
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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 20 permits from PAR,
the Company does not have valid Permits covering certain of the areas in which
it operates cable networks. Of the approximately 144,000 basic subscribers as
of September 15, 1996 located in the areas for which the Company does not
currently have valid Permits, approximately 74% 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) and approximately 26% 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 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 may adopt the Rome Convention, which would 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 Office for Protection
of Competition and Consumers ("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 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 the Company's
business, strategy, financial condition or results of operations. See
"Regulation--Anti-Monopoly Act."
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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 September 15, 1996, over 54% of
the Company's 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 believes that the ownership structure of ProCable satisfies 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 structure violates Polish regulatory restrictions
on foreign ownership of broadcasters. If the ownership structure of ProCable 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 into compliance with the regulations, it
might be forced to dispose of its ownership interests in ProCable or ProCable
could lose its broadcasting licenses. These regulatory restrictions may
materially adversely affect the Company's ability to enter into relationships
with ProCable, 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".
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 June 30, 1996, approximately 70% 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.
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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 138,500 total
subscribers and pass approximately 273,500 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
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
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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 agreements with the American Bank in
Poland, S.A. ("AmerBank") which, in the aggregate, provide for credit
facilities of approximately $9 million. As of the date hereof, there are no
amounts outstanding under these facilities. The Company will be able to
utilize these facilities 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'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 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 22% in 1995. 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.
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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".
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 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 current ownership of the outstanding shares of PCI, however, PCI does
not expect to satisfy the shareholder ownership test for PHC status and
therefore 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.
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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
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 "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 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
22
<PAGE> 25
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.
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.
23
<PAGE> 26
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 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.
24
<PAGE> 27
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.
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:
25
<PAGE> 28
(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
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.
EXCHANGE AGENT
[_______________] 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: [_______________] Exchange Agent
26
<PAGE> 29
By Mail or By Hand: [_______________________]
[____________________]
[____________________]
[______________________________]
[____________________]
Attention: [________________]
Telephone: [________________]
By Facsimile:
[_____________________]
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 $[__________] 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."
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."
27
<PAGE> 30
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 June 30, 1996, such rate was PLN 2.72 = $1.00, and on October 22,
1996, such rate was PLN 2.83 = $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
SIX MONTHS
AS OF AND FOR THE YEAR ENDED
ENDED DECEMBER 31, JUNE 30,
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Exchange rate at end of period 2.13 2.44 2.47 2.72
Average exchange rate
during period(a) 1.81 2.27 2.43 2.61
Highest exchange rate
during period 2.13 2.45 2.54 2.74
Lowest exchange rate during
period 2.13 2.32 2.47 1.57
</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.
28
<PAGE> 31
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company as of June 30, 1996 and the capitalization of the Company as adjusted
to give effect to the offering of the Old Notes and the application of the net
proceeds therefrom and the Exchange Offer, including the consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash and cash equivalents $ 6,353 $ 69,362(a)
======== ========
Current portion long-term debt $ 1,379 $ --
Long-term debt:
Notes payable 8,257 --
Notes offered hereby -- 130,000
-------- --------
Total long-term debt: 8,257 130,000
Minority interest 3,123 --
Redeemable preferred stock 36,265 36,265
Stockholders' equity:
Common stock 1 1
Paid-in capital 52,721 52,721
Cumulative translation component 539 539
Accumulated deficit (17,986) (20,286)(b)
-------- --------
Total stockholders' equity 35,275 32,975
Total capitalization $ 79,797 $199,240
======== ========
</TABLE>
- ------------
(a) A portion of the net proceeds from the offering of the Old Notes was
invested in cash and cash equivalents pending use.
(b) Includes the write-off of deferred financing costs associated with the
retirement of debt in connection with the offering.
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<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for
the three years ended December 31, 1995 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. The
selected consolidated financial data as of and for the two years ended December
31, 1992 and as of and for the six months ended June 30, 1995 and June 30,
1996, have been derived from unaudited financial statements of the Company. In
the opinion of management of the Company, each of such unaudited financial
statements contains all adjustments necessary for a fair presentation of the
financial position of the Company as of such dates and the results of
operations for such periods. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of results to be expected
for the full year. 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
AS OF AND FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue $ 1,191 $ 4,490 $ 6,562 $ 8,776 $18,557 $ 8,197 $ 12,025
Operating expenses:
Direct operating expenses (3,050) (1,099) (1,481) (2,119) (5,129) (2,369) (3,244)
Selling, general and administrative (3,368) (6,418) (4,029) (2,818) (4,684) (2,210) (2,865)
Depreciation and amortization (840) (1,618) (2,257) (3,459) (5,199) (2,421) (3,550)
------- ------- ------- ------- ------- ------- --------
Operating income (loss) (6,067) (4,645) (1,205) 380 3,545 1,197 2,366
Interest expense 367 7 (51) (2,249) (4,199) (1,846) (1,662)
Foreign currency translation (loss) gain 301 406 (315) (27) (17) 13 (60)
------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes
and minority interest (5,399) (4,232) (1,571) (1,896) (671) (636) 644
Income tax expense (914) (920) (976) (803) (600) (300) (1,453)
Minority interest in subsidiary
(income) loss 822 650 205 316 (18) 83 20
------- ------- ------- ------- ------- ------- --------
Net income (loss) $(5,491) $(4,502) $(2,342) $(2,383) $(1,289) $ (853) $ (789)
======= ======= ======= ======= ======= ======= ========
OTHER DATA:
EBITDA(a) $(5,227) $(3,027) $ 1,052 $ 3,839 $ 8,744 $ 3,618 $ 5,916
Expenditures for construction of cable
television systems(b) 17,652 3,476 5,490 11,695 16,014 6,291 13,347
RATIOS:
EBITDA to interest expense NM NM NM 1.71x 2.08x 1.96x 3.56x
Earnings to cover fixed charges(c) NM NM NM 0.37x 0.86x 0.72x 1.31x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $25,231 $28,857 $34,165 $47,376 $68,058 $57,640 $ 96,048
Total debt 3,598 13,832 20,073 35,988 59,405 45,106 9,636
Total stockholders' equity 10,094 5,592 3,250 1,479 190 626 35,275
PRO FORMA DATA (d):
Pro forma annualized EBITDA(e) -- -- -- -- -- -- $ 14,748
Pro forma interest expense(f) -- -- -- -- -- -- 12,838
Pro forma annualized EBITDA to Pro
forma interest expense -- -- -- -- -- -- 1.15x
Pro forma total debt -- -- -- -- -- -- $130,000
</TABLE>
Footnotes appear on following page
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<PAGE> 33
(a) 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 (loss) income as an indicator of the Company's
operating performance or to cash flows from operations as a measure of
liquidity.
(b) 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.
(c) 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. During the year ended December 31,
1991, the Company did not incur fixed charges. 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.
(d) Pro forma to reflect the offering of the Old Notes and the application
of the proceeds therefrom and the Exchange Offer.
(e) PRO FORMA annualized EBITDA represents the sum of the following
multiplied by two: (i) EBITDA for the Company for the six months ended
June 30, 1996; (ii) cost savings of approximately $282,000 resulting
from a work force rationalization plan implemented by the Company
during the six months ended June 30, 1996; (iii) EBITDA of $203,000
for the six months ended June 30, 1996 relating to a cable system the
Company acquired in 1996 which the Company has contracted to take
control of by January, 1997 (the "Completed Acquisition"); and (iv)
EBITDA after adjustment to reflect the Company's pro forma ownership
percentage, of approximately $973,000 for the six months ended June
30, 1996 relating to three of the Pending Acquisitions. EBITDA for
the Pending Acquisitions excludes the EBITDA related to two of the
Pending Acquisitions aggregating 20,000 subscribers for which
financial information is unavailable. EBITDA for the Completed
Acquisition was compiled by Company management through the examination
of the system's internal accounting records, testing subscriber data
and significant expense items. EBITDA for the Pending Acquisitions
included in the PRO FORMA was compiled by Company management from
Polish statutory statements filed with the Polish government, modified
to conform to U.S. GAAP. Pro forma annualized EBITDA has not been
independently reviewed or audited by the Company or an independent
accounting firm and does not necessarily represent what the Company's
EBITDA would have been for the six months ended June 30, 1996 had the
transactions described above actually been completed as of January 1,
1996. There can be no assurance as to the Company's operating results
for any future periods.
(f) PRO FORMA interest expense excludes $2.6 million of anticipated
interest income associated with proceeds from the offering of the Old
Notes held in cash and cash equivalents pending use.
31
<PAGE> 34
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
more than 24 acquisitions. The Company currently owns and operates fiber-optic
cable television networks in six regional clusters encompassing six of the ten
largest cities in Poland and had a subscriber base as of June 30, 1996 of
approximately 398,000 total subscribers. Approximately 60% 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 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 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 June 30, 1996, approximately 87.7% of the Company's subscribers received
basic service. In the first six months of 1996, approximately 85.5% 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.
The Company has experienced low churn rates during all years of its
operations. The Company's annual churn rates for 1994 and 1995 were 9.1% and
9.2%, respectively, and its annualized churn rate for the first six months of
1996 was 7.8%. 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
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<PAGE> 35
and equipment and amortization of intangible assets. Total operating expenses
have increased in each of the periods discussed herein, but at a slower rate
than revenues, leading to increases in operating margins.
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, however, generated operating income of $0.4 million
and $3.5 million in 1994 and 1995, respectively, and had operating income of
$2.4 million for the first six months of 1996. The Company's recent operating
results reflect the expansion of the Company's cable networks and subscriber
base, as well as the achievement of operating efficiencies.
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 and 1995 was $1.1 million, $3.8 million and $8.7
million, respectively, and EBITDA for the first six months of 1996 was $5.9
million. Pro forma annualized EBITDA for the first six months of 1996 (as
described in "Prospectus Summary -- Summary Consolidated Financial Data") would
have been $14.7 million. The Company expects EBITDA to continue 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 since January 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.
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the
capital stock or assets of five cable television systems in Poland. The
aggregate consideration to be paid by the Company in connection with the
Pending Acquisitions is expected to be approximately $29.2 million. The cable
systems expected to be acquired in the Pending Acquisitions serve approximately
115,700 subscribers and pass approximately 230,300 homes. The consummation of
the Pending Acquisitions will result in the expansion of the Company's existing
operations within its 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." The pro forma annualized EBITDA presented
herein excludes data related to two of the Pending Acquisitions because such
financial information has not yet been made available to the Company. See
"Selected Consolidated Financial Data."
FIRST SIX MONTHS OF 1996 COMPARED TO FIRST SIX MONTHS OF 1995
CABLE TELEVISION REVENUES. Revenues increased $3.8 million, or 46.7%,
from $8.2 million in the first six months of 1995 to $12.0 million in the first
six months of 1996. This increase was primarily attributable to a 44.5%
increase in the number of basic subscribers from approximately 219,000 as of
June 30, 1995 to approximately 316,000 as of June 30, 1996. Approximately 81%
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 85.5% of cable
television revenues for the first six months of 1996. Installation fee revenue
increased by 104.6% from $852,000 in the first six months of 1995 to
approximately $1.7 million in the first six months
33
<PAGE> 36
of 1996 primarily as a result of several remarketing campaigns implemented in
the first six months of 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 $0.9
million, or 36.9%, from $2.4 million in the first six months of 1995 to $3.2
million in the first six months of 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 system. Programming expense grew from $1.0 million for the
first six months of 1995 to $1.3 million for the first six months of 1996,
reflecting the increased number of subscribers partially offset by more
favorable per subscriber programming rates negotiated with certain satellite
programming providers. Primarily as a result of these renegotiated rates,
direct operating expenses declined from 28.9% of revenues for the first six
months of 1995 to 27.0% of revenues for the first six months of 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased $0.7 million, or 29.6%, from $2.2 million in
the first six months of 1995 to $2.9 million in the first six months of 1996 as
a result of an increase in sales and marketing expenses incurred in newly
acquired networks and the introduction of several remarketing campaigns
throughout the areas covered by the Company's networks. However,
administrative efficiencies gained through economies of scale from the
Company's increased subscriber levels, cost containment efforts in existing
systems and expense reductions in acquired systems helped reduce selling,
general and administrative expenses as a percentage of revenue from
approximately 27.0% for the first six months of 1995 to approximately 23.8% for
the first six months of 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
rose $1.1 million, or 46.6%, from $2.4 million in the first six months of 1995
to $3.6 million in the first six months of 1996 principally as a result of
depreciation of additional cable television assets acquired in connection with
the build-out of the Company's networks and acquisitions. Depreciation and
amortization expenses as a percentage of revenues remained constant at 29.5%
during both six-month periods.
INTEREST EXPENSE. Interest expense decreased $0.2 million, or 10.0%,
from $1.8 million in the first six months of 1995 to $1.7 million in the first
six months of 1996 primarily due to reductions in interest expense as a result
of the repayment of $55 million of indebtedness in March 1996 with a portion of
the proceeds from the issuance of securities to PCI's principal shareholders,
partially offset by increased interest expense resulting from additional
borrowings prior to such repayment.
NET LOSS. Net loss declined from a loss of $(0.9) million in the
first six months of 1995 to a loss of $(0.8) million in the first six months of
1996 as a result of the factors discussed above.
EBITDA. EBITDA increased $2.3 million, or 63.5%, from $3.6 million
for the first six months of 1995 to $5.9 million for the first six months of
1996. The Company's EBITDA margin improved from 44.1% to 49.2% 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.
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<PAGE> 37
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 EXPENSE. Interest expense increased $2.0 million, or 86.7%,
from $2.2 million in 1994 to $4.2 million in 1995. This change primarily
resulted from an increase in the Company's indebtedness during 1995.
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.
1994 COMPARED TO 1993
CABLE TELEVISION REVENUES. Revenues increased $2.2 million, or 33.7%,
from $6.6 million in 1993 to $8.8 million in 1994. This increase was primarily
attributable to a 51.7% increase in the number of basic subscribers from
approximately 74,000 as of December 31, 1993 to approximately 113,000 as of
December 31, 1994. Approximately 97.7% of this increase in subscribers resulted
from build-out of the Company's existing networks. Revenue from monthly
subscription fees represented approximately 84.9% of cable television revenue
in 1994. Installation fee revenue was $1.3 million in 1994 as compared to $1.2
million in 1993.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $0.6
million, or 43.1%, from $1.5 million in 1993 to $2.1 million in 1994.
Programming expenses accounted for $0.6 million of direct operating expenses in
1993 and $1.0 million in 1994. Direct operating expenses as a percentage of
revenues increased from 22.6% to 24.1% over this period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased $1.2 million, or 30.1%, from $4.0 million in
1993 to $2.8 million in 1994, primarily as a result of reductions in
administrative staffing, including relatively highly compensated expatriate
management personnel. As a percentage of revenue, selling, general and
administrative expenses declined from 61.4% to 32.1% over this period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $1.2 million, or 53.3%, from $2.3 million in 1993 to $3.5 million in
1994, primarily as a result of depreciation of additional cable television
assets obtained in connection with the build-out of the Company's networks.
Depreciation and amortization as a percentage of revenues increased to 39.4% in
1994 as compared with 34.4% in 1993.
INTEREST EXPENSE. Interest expense increased from $0.1 in 1993 to
$2.2 million in 1994, primarily due to an increase in the Company's
indebtedness.
NET LOSS. The Company's net loss increased from $(2.3) million in
1993 to $(2.4) million in 1994, as a result of the factors discussed above.
EBITDA. EBITDA increased $2.8 million, or 264.9%, from $1.1 million
in 1993 to $3.8 million in 1994. The Company's EBITDA margin increased from
16.0% to 43.7% 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. The
Company had positive cash flow from operating activities in 1993, 1994 and 1995
of $2.7 million, $1.6 million and $3.8 million, respectively. Cash flow from
operations declined $2.5 million from $4.5 million in the first six months of
1995 to $2.0 million in the first six months of 1996, primarily due to the
payment of interest in cash. Previously, a large portion of the Company's
interest expense was accrued and added to the balance of notes payable, but not
paid in cash.
As of June 30, 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.
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<PAGE> 38
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 $5.5 million, $11.7
million, $16.0 million and $13.3 million in 1993, 1994, 1995 and the first six
months of 1996, respectively. Cash used for acquisition of cable networks, net
of cash received, was $4.1 million in 1995 and $1.3 million for the first six
months of 1996.
On October 31, 1996 the 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.
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 agreements with AmerBank which, in the
aggregate, provide for credit facilities of approximately $9 million. As of
the date hereof, there are no amounts outstanding under these facilities. The
Company will be able to utilize these facilities 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.
In January 1994, PTK, S.A. entered into a financing agreement with
the Overseas Private Investment Corporation ("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 bear interest at the floating 91-day U.S. Treasury bill
yield (compounded annually). The OPIC loan facility is 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
$221,000.
The Company is highly leveraged. As of June 30, 1996, on a pro forma
basis after giving effect to the issuance of the Old Notes and the use of the
proceeds therefrom and the Exchange Offer, the Company would have had, on a
consolidated basis, approximately $130 million in principal amount of
indebtedness outstanding. See "Capitalization" and "Risk Factors --
Substantial Leverage; Ability to Service Debt."
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 22% in 1995. 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.
36
<PAGE> 39
THE INDUSTRY
GENERAL
The Company conducts its operations exclusively in Poland. With
approximately 39 million people and 11.8 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% and
7.0% in 1994 and 1995, respectively, which were the highest growth rates in
Europe for each of those two years. In recent years, the government has
encouraged foreign private investment which has risen from $0.1 billion in 1990
to $2.5 billion in 1995 and was approximately $1.0 billion for the first
quarter of 1996. Poland has also successfully reduced its annual inflation
rate from approximately 250% in 1990 to approximately 22% in 1995, and
following a period of rising unemployment, unemployment in Poland recently
declined to 13.8% as of August 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 4% in 1995 and the first six months of 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 4.9% as of
August 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 would extend copyright protection to
programs of foreign producers as well. According to published sources, Poland
may adopt the Rome Convention in 1997. 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:
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<PAGE> 40
Chart shows number of subscribers plotted against the number of homes
passed demonstrating growth in Polish cable television industry from 1990 to
1995 from approximately 100 subscribers and 500 homes passed to approximately
1300 subscriberes and 2400 homes passed.
Source: Baskerville Communications Corp., TV International Sourcebook 1996.
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
Poland in order to build systems and acquire a critical mass of subscribers.
The Company also has actively pursued acquisitions, acquiring more than 24
cable television operators since 1992. These acquisitions have added
approximately 158,000 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 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.
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:
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.
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<PAGE> 41
POLISH CABLE MARKET CHARACTERISTICS
Poland is Europe's fifth largest cable television market with
approximately 11.8 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 strong take-up rates, with an average penetration rate as of June
30, 1996 of 39% for the Company as a whole, and approximately 45% 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 VCR AS A % OF
HOUSEHOLDS MINUTES COLOR TV PENE- TELEVISION ANNUALIZED
(IN MILLIONS) PER DAY PENETRATION TRATION(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 1996
and Zenith Media, European Market and Media Fact (1996).
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.
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<PAGE> 42
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 to 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 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.
40
<PAGE> 43
BUSINESS
GENERAL
The Company is the largest provider of multi-channel television
services in Poland. With over 900,000 homes passed and approximately 398,000
total subscribers (of which approximately 354,000 are basic subscribers), the
Company estimates that it has more than three times 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 six regional
clusters encompassing six 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 398,000 as of June 30, 1996.
Approximately 60% 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, 1995, the Company generated growth in
revenues and EBITDA at average annual rates of approximately 64% and 176%,
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 398,000 subscribers
is more than three times larger than that of the next largest
cable operator in Poland. The Company has established six
regional clusters encompassing six 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 49% for
the Company as a whole and approximately 65% in its Gdansk
regional cluster for the six months ended June 30, 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 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 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.
41
<PAGE> 44
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, if the Rome Convention is adopted by Poland, 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 six 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 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 the Polish national telephone company 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
June 30, 1996, approximately 70% 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
42
<PAGE> 45
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 provides local knowledge and facilitates
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 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 $71 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
43
<PAGE> 46
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, the
Company intends to package and deliver over satellite its
proprietary programming 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 $0.90. 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 16 to 24 channels for monthly fees of
approximately $1.10 to $3.00. 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 18 to 45 channels of
high-quality, popular programming for monthly fees of approximately $3.10 to
$7.50. As of June 30, 1996, approximately 86.4% of the Company's subscribers
received the basic tier, 2.4% received the intermediate tier and approximately
11.2% 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 $44.00 to
$72.00 in MDUs and approximately $108.00 to $172.00 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
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<PAGE> 47
for programming that is currently being obtained free of charge. The Company
believes that these trends will 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 and has historically averaged bad debts of
less than 1% 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 18 to 45 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 all of the Company's major markets include 12 Polish-language
channels (including PTK1 and PTK2), nine English-language channels, eight
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
TVP Local(b) Local state-owned terrestrial general entertainment Polish
TV POLONIA State-owned satellite general entertainment Polish
Tri-City TV(c) Local cable general entertainment Polish
Polsat Terrestrial and satellite general entertainment Polish
Local(d) Local terrestrial general entertainment Polish
Atomic (e) Cable music Polish
RTL7 Satellite general entertainment Polish
Eurosport Satellite sports English/Polish(f)
Discovery(g) Satellite documentaries English/Polish(h)
Worldnet Satellite general entertainment and information English
TNT/Cartoon Network Satellite general entertainment and cartoons English
MTV(g) Satellite music English
Super Channel Satellite general entertainment English
Travel Satellite travel and documentaries English
CNN Satellite news and information English
CMT-E(g) Satellite country music English
BBC Prime(g) Satellite general entertainment English
BBC World Satellite news and information English
ARD 1 plus 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
M6 Satellite general entertainment French
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) Larger cities only.
(c) Gdansk region only.
(d) In some larger markets.
(e) Atomic is currently carried on PTK2 for two hours per day. It is
expected to become a separate satellite delivered channel in early
1997.
(f) Limited amount (at least three hours per day) of Polish-language
commentary, with audio encryptions.
45
<PAGE> 48
(g) Encrypted signal.
(h) 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 FilmNet. Both feature
movies and also carry live sports and other entertainment. Home Box
Office ("HBO") plans to enter the Polish market in 1997 Within the
last 12 months, the Company has made either Canal+ or FilmNet
available in certain locations to determine market acceptance. The
Company believes that while the demand for Polish-language premium
movie channels is high, these channels are priced beyond what the
majority of subscribers are willing to pay, because the incremental
cost for one premium channel is significantly higher than the cost of
the basic cable service. The price to the subscriber of Canal+ is
approximately $14.30 per month, and FilmNet is approximately $9.00 per
month plus, in each case, the cost of a decoder or decoder deposit.
Nevertheless, the Company believes that significant premium channel
revenues can be attained. The Company is in discussions with HBO to
offer a Polish-language version of HBO at a price of approximately
$6.00 per month. The Company believes that it should generate
significant subscriber interest at this price level and that its
offering of a competitively priced HBO product will encourage FilmNet
and Canal+ to reduce their pricing, thereby stimulating demand for
premium channels.
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 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 early 1997,
ProCable plans to begin distributing PTK2 and Atomic TV over satellite
to other cable system operators.
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.
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<PAGE> 49
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 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.
REGIONAL CLUSTERS
The Company has established six regional clusters encompassing six 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:
47
<PAGE> 50
OVERVIEW OF THE COMPANY'S EXISTING SYSTEMS(a)
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
SUBSCRIPTION
HOMES TOTAL SUBSCRIBERS BASIC REVENUE PER EBITDA
REGION TOTAL HOMES PASSED SUBSCRIBERS(b) (b)(c) PENETRATION(c) SUBSCRIBER MARGINS
- ------ ----------- ------ -------------- ------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gdansk 250,000 196,586 90,441 88,149 44.8% $7.32 64.7%
Katowice 1,200,000 351,314 129,857 126,559 36.0 5.41 47.0
Warsaw 800,000 173,987 79,242 65,279 37.5 5.25 42.9
Krakow 300,000 126,305 56,984 53,424 42.3 5.69 34.2
Lublin 100,000 34,161 31,450 13,579 39.8 5.41 33.9
Szczecin 160,000 18,082 10,265 6,610 36.6 4.41 2.5
--------- ------- ------- ------- ---- ------- ------
Total 2,810,000 900,435 398,239 353,600 39.3% $5.94(d) 48.4%(d)
========= ======= ======= ======= ==== ======= ======
</TABLE>
(a) All data as of June 30, 1996. Includes approximately 23,000
subscribers and approximately 52,000 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 and
approximately 15,000 additional subscribers and approximately 27,000
homes passed attributable to cable systems recently acquired by the
Company which the Company has contracted to take control of by January
31, 1997.
(b) Average of beginning of and end of period subscribers for the six
months ended June 30, 1996.
(c) Includes basic and intermediate tiers.
(d) Represents a weighted average for the Company based on the total
number of basic subscribers during the period.
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
six 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 34% of the Company's revenues and 44% of
its EBITDA for the six-month period ended June 30, 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.
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 33%,
respectively, for the six-month period ended June 30, 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.
48
<PAGE> 51
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 13%,
respectively, for the six-month period ended June 30, 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 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 past. 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.
The Company's system in the Lublin regional cluster has been
enhanced by the opportunity for developing a pilot joint venture
project with TPSA. The Company is considering the development of
joint cable and telephony operations with TPSA in order to assess the
feasibility of offering telephony and cable services throughout the
Company's cable networks. The Company has received a grant from the
U.S. Trade and Development Agency to explore technical, regulatory and
economic feasibility of this project.
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.
49
<PAGE> 52
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the
capital stock or assets of five cable television systems in Poland. The
aggregate consideration to be paid by the Company in connection with the
Pending Acquisitions is expected to be approximately $29.2 million. The cable
systems expected to be acquired in the Pending Acquisitions serve approximately
115,700 subscribers and pass approximately 230,300 homes. The consummation of
the Pending Acquisitions will result in the expansion of the Company's existing
operations within its 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 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. 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 KOLOR-SAT Sp. z o.o. ("Kolor-Sat") on December 20, 1996. Kolor-Sat's
networks, which are located in Opale (Southwest), serve approximately 12,300
subscribers and pass approximately 22,000 homes. The consummation of the
acquisition of 100% of the shares of Kolor-Sat is
subject to the approval of the Anti-Monopoly Office.
The Company has also entered into a purchase agreement with VEGA Sp. z
o.o. ("Vega") pursuant to which it will acquire all of the cable television
assets of Vega. Vega's networks, which are located in Wroclaw (Southwest),
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 March 1997.
The Company has entered into a purchase agreement with the owner of
the DAMI cable television system located in Krakow. Pursuant to that agreement
the Company will acquire that system, which serves approximately 14,500
subscribers and passes approximately 26,400 homes. The transaction is subject
to the approval of the Anti-monopoly Office.
The Company is in negotiations and expects to enter an agreement with
a cable television operator 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
135,000 homes. The consummation of this acquisition, which is currently
expected to occur in early 1997, is subject to the satisfaction of certain
normal customary closing conditions. In connection with this transaction, the
Company may agree to lend up to $500,000 to the company it intends to acquire
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 early 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.
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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 many of its systems
at less than 50% 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 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 June 30, 1996, approximately
70% of the Company's cable plant utilized preexisting 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.
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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% ownership interest) and Bresnan
Communications and TCI Communications Inc. (with an aggregate 49% ownership
interest) with an estimated 120,000 subscribers, and Porion, a Polish entity,
with an estimated 80,000 subscribers.
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 June 30, 1996, the Company owned equipment, including 62
headends, and approximately 2,200 kilometers of cable plant. The Company has
approximately 40 lease agreements for offices, storage spaces and land adjacent
to the buildings. The total area leased amounts to approximately 25,000 square
meters (most of which is land adjacent to buildings). The areas leased by the
Company range from approximately 20 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.
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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.
EMPLOYEES
As of June 30, 1996, the Company had approximately 620 permanent
full-time employees and approximately 50 part-time employees. In addition, as
of such date the Company employed approximately 80 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 conditions 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, 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
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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 September 15, 1996, over 54% of the Company's
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.
The Company's Permits. The Company has received approximately 20
Permits from PAR, covering approximately 202,000 of the Company's
approximately 346,000 basic subscribers as of September 15, 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 21,000 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 144,000 basic subscribers as of
September 15, 1996 located in areas for which the Company does not currently
have Valid Permits, approximately 50% 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 24% are located in areas
serviced by recently acquired or constructed networks in Warsaw, Krakow and
the areas surrounding these cities, which the Company will be transferring to
PTK, S.A. in order to more efficiently comply with foreign ownership
restrictions, and approximately 26% 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
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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 programs to be
transmitted thereon ("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 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
believes that the ownership structure of ProCable complies with 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 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
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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.
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 the Agreement
on Trade Related Aspects of Intellectual Property Rights ("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 if it is adopted by Poland.
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.
The Company expects that Poland may be bound by the Rome Convention
in April 1997. Poland's adoption of the Rome Convention would result in the
intellectual property rights of programming producers who are located in other
signatory countries being protected in Poland to the same extent that such
rights of Polish producers are protected. 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.
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
57
<PAGE> 60
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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<PAGE> 61
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) 37 Director and Chief Executive Officer
Arnold L. Chase(a) 45 Director
Scott A. Lanphere(c) 30 Director
Jerzy Z. Swirski(c) 39 Director
Richard B. Steele 36 President
Cheryl Anne Chase 43 Executive Vice President and Secretary
John S. Frelas 46 Chief Financial Officer and Treasurer
George Makowski 42 Chief Operating Officer
John P. Redding 38 Vice President
Gilbert L. Tash 60 Vice President
Michael J. Houlehan 37 Chief Executive Officer of PCI Programming
Andrzej Muras 47 Executive Vice President of Corporate
Development of PTK, S.A.
Marek Sowa 35 Vice President of Poltelkab
</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.
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.
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<PAGE> 62
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.
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.
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.
GEORGE MAKOWSKI has been the Chief Operating Officer of PCI since
January 1997. From 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.
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.
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.
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.
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.
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<PAGE> 63
MAREK SOWA has 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.
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 (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 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;
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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;
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.
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 $100,000 per annum.
Columns relating to long-term compensation have been omitted from the table as
the Company did not have capital stock-related award plans and there has been
no compensation arising from long-term incentive plans during the years
reflected in the table.
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<PAGE> 65
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- --------------------------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Robert E. Fowler 1996 66,000(a) 66,000(a) -- 8,400(e)
Chief Executive Officer and Director 1995 66,000(a) 166,000(a) -- --
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. Steele,
Frelas, Makowski, Muras, Tash, Sowa and Houlehan.
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. 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
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<PAGE> 66
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 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 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 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. 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. 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 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 1996. 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.
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. 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. Sowa entered into a two-year employment agreement with Poltelkab
effective as of July 1996. Mr. Sowa was named Vice President of Poltelkab. Mr.
Sowa receives an annual salary (denominated in zloty) of approximately $33,000,
subject to adjustment for inflation, and is eligible to receive an annual
performance-based bonus of up to $10,000 per year. Poltelkab may terminate the
contract at any time upon four month's written notice. Notwithstanding such
right, Poltelkab may terminate the contract without further obligation for cause
(as defined in the agreement).
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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 June 30, 1996 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
NAME OF BENEFICIAL SHARES OF PERCENTAGE OF PREFERRED PREFERRED VOTING
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 54.37% -- --% 43.27%
ECO Holdings III Limited
Partnership(a)
c/o Advent International Corp.
101 Federal Street
Boston, MA 02110 4,662 24.60 2,500 100 40.00(b)
Steele LLC
19 Warren Terrace
Longmeadow, MA 01106 1,429 7.54 -- -- 6.00
Roger M. Freedman
One Commercial Plaza
Hartford, CT 06103 1,221 6.44 -- -- 5.13
Cheryl Anne Chase Marital Trust
One Commercial Plaza
Hartford, CT 06103 733 3.87 -- -- 3.08
DIRECTORS AND EXECUTIVE
OFFICERS:
David T. Chase(c) 13,686 72.22 -- -- 57.47
Richard B. Steele(d) 1,429 7.54 -- -- 6.00
Robert E. Fowler, III -- -- -- -- --
Scott A. Lanphere -- -- -- -- --
Jerzy Z. Swirski -- -- -- -- --
Cheryl Anne Chase(e) 11,036 58.24 -- -- 46.35
John S. Frelas -- -- -- -- --
John P. Redding -- -- --
Gilbert L. Tash -- -- -- -- --
Michael J. Houlehan -- -- -- -- --
George Makowski -- -- -- -- --
Andrzej Muras -- -- -- -- --
Marek Sowa -- -- -- -- --
------ ----- ---- ---- -----
ALL DIRECTORS AND OFFICERS AS A
GROUP (12 PERSONS):(f) 13,686 72.22% -- -- 57.47%
</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 (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;
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(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").
(d) Includes 1,429 shares of Common Stock owned by Steele LLC which may
be deemed to be beneficially owned by Mr. Steele.
(e) 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 the Cheryl Anne
Chase Marital Trust and by other members of the Chase Family.
(f) Consists of 13,686 Voting Agreement Shares.
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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.
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 June 30,
1996. The Company intends to purchase the shares of PTK-Ryntronik currently held
by such sole proprietor under an arrangement whereby the Company will acquire
certain contractual voting rights and security related thereto (including
non-compete covenants and loan covenants), powers of attorney and rights to
dividends with respect to such shares but will not acquire title to such shares
for approximately two years. In addition, Poltelkeb will be issued approximately
4% of the capital stock of PTK-Ryntronik. A portion of the proceeds of the
offering of the Notes may be used to pay for the acquisition of such shares. See
"Use of Proceeds."
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 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.
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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 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
constituent documents, management structures, and decision-making processes of
PCI's subsidiaries and those of PCBV.
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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 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, 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.
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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. Mr.
Chase was also 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 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. ETV and Telkat pay 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
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Agreement provides that such expenses shall be shared equally 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.
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DESCRIPTION OF INDEBTEDNESS
CREDIT AGREEMENTS WITH THE AMERICAN BANK IN POLAND, S.A.
The Company has entered into two agreements with the AmerBank which
established a zloty-denominated revolving loan facility of up to $897,000 (the
"1995 Facility"), and a U.S. Dollar denominated $1.5 million loan (the "1995
Loan"). The principal outstanding on the 1995 Facility was repaid during 1996
and the principal outstanding on the 1995 Loan is payable in 16 equal quarterly
payments commencing in October of 1996. In addition, 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 the
date hereof, there are no amounts outstanding under the 1995 Facility or the
1996 Facility. The Company will be able to utilize these facilities for future
borrowings.
Amounts outstanding under the 1995 Facility bear interest at the
Warsaw Interbank Offering Rate plus 3.5%, which was 29.2% at June 30, 1996. The
1995 Loan bears interest at the three-month London Interbank Offering Rate
("LIBOR") plus 3.0% and as of December 31, 1996, the interest rate on the 1995
Loan was 8.60%. There is a 1% prepayment penalty on amounts outstanding under
the 1995 Loan.
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.
INTER-COMPANY INDEBTEDNESS
PCI has entered into a series of grid notes pursuant to which, as of
December 31, 1996, it had loaned approximately $115 million to PCBV, $2.9
million to PTK-Szczecin, $.2 million to PTK-Lublin and $3.5 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 June 30, 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.
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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 October 31,1996 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 the Notes will bear
interest from October 31, 1996. Holders of Notes whose Notes are accepted for
exchange will be deemed to have waived the right to receive any interest on the
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."
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. As of June 30, 1996, after giving pro forma effect to the sale of the
Notes and the application of the proceeds therefrom and the Exchange Offer,
PCI's subsidiaries would have had no indebtedness other than intercompany
indebtedness and approximately $3.4 million of trade payables. 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.
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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
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
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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 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.
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
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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 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)
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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 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.
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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 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.
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.
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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.
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
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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
(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 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)
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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.
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
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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 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
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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.
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 "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).
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"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); (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
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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.
"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.
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"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.
"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 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.
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"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 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;
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(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;
(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;
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(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;
(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 Investment (other than a Permitted
Investment) in any Person (other than an Investment by a Subsidiary in PCI or an
Investment
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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.
"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
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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
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
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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 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 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.
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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 of Poland Communications, Inc.
and Poland Cablevision (Netherlands) B.V. as of December 31, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995, have
been included herein in reliance upon the report 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.
95
<PAGE> 98
POLAND COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1994 AND 1995 AND
JUNE 30, 1996
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report re: PCI F-2
Consolidated Balance Sheets of PCI F-3
Consolidated Statements of Operations of PCI F-5
Consolidated Statements of Changes in Stockholders' Equity of PCI F-6
Consolidated Statements of Cash Flows of PCI F-7
Notes to Consolidated Financial Statements of PCI F-8
Independent Auditors Report of PCBV F-16
Consolidated Balance Sheets of PCBV F-17
Consolidated Statements of Operations of PCBV F-19
Consolidated Statements of Cash Flows of PCBV F-20
Consolidated Statement of Changes in Stockholders'
Deficiency of PCBV F-21
Notes to Consolidated Financial Statements of PCBV F-22
F-1
<PAGE> 99
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three year period then ended in conformity with U.S. generally accepted
accounting principles.
Hartford, Connecticut
October 8, 1996
KPMG PEAT MARWICK LLP
F-2
<PAGE> 100
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash (note 6) $ 6,353 $ 2,343 $ 2,493
Accounts receivable, net of allowances of $507 in 1996,
$510 in 1995 and $132 in 1994 1,032 842 391
Due from affiliate (note 11) 1,839 1,699 750
Other current assets (note 4) 2,242 1,367 1,024
-------- -------- --------
Total current assets 11,466 6,251 4,658
-------- -------- --------
Investment in cable television systems, at cost (note 3):
Property, plant and equipment:
Cable television system assets 71,258 54,441 35,390
Construction in progress 7,182 6,758 2,925
Vehicles 1,181 896 596
Other 1,852 1,806 1,239
-------- -------- --------
Total property, plant and equipment 81,473 63,901 40,150
Less accumulated depreciation (14,815) (11,581) (6,915)
-------- -------- --------
Net property, plant and equipment 66,658 52,320 33,235
Inventories for construction 6,640 4,609 5,758
Intangibles, net 4,313 1,976 1,809
-------- -------- --------
Net investment in cable television systems 77,611 58,905 40,802
-------- -------- --------
Other investments (notes 2 and 13) 5,163 1,034 --
Other intangibles, net (note 3) 1,808 1,868 1,916
------- ------- -------
Total assets $ 96,048 $ 68,058 $47,376
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 101
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Accounts payable $2,732 $1,675 $1,049
Notes payable (note 6) 1,379 13,006 --
Deferred revenue 1,050 1,233 1,081
Other current liabilities (notes 4 and 7) 3,032 3,382 4,918
Total current liabilities 8,193 19,296 7,048
Other liabilities (notes 5 and 7) 4,935 4,138 4,722
Notes payable to affiliates (note 11) -- 37,512 28,988
Notes payable (note 6) 8,257 8,887 7,000
Total liabilities 21,385 69,833 47,758
Minority interest 3,123 (1,965) (1,861)
Redeemable preferred stock (note 9) (liquidation
value $85,000) 36,265 -- --
Stockholders' equity (note 8):
Preferred stock -- 10,311 10,311
Common stock:
Common stock ($.01 par, 23,810 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 4,992
Class B (no par value, 10,000 shares authorized,
1,000 shares issued and outstanding) -- 1 1
Paid-in capital 52,721 1,544 1,544
Cumulative translation component 539 599 616
Accumulated deficit (17,986) (17,257) (15,985)
Total stockholders' equity 35,275 190 1,479
Commitments and contingencies (notes 11 and 12) -- -- --
Total liabilities and stockholders' equity $96,048 $68,058 $47,376
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 102
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cable television revenue $12,025 $ 8,197 $ 18,557 $ 8,776 $ 6,562
------- ------- -------- -------- --------
Operating expenses:
Direct operating expenses 3,244 2,369 5,129 2,119 1,481
Selling, general and administrative 2,865 2,210 4,684 2,818 4,029
Depreciation and amortization 3,550 2,421 5,199 3,459 2,257
------- ------- -------- -------- --------
Total operating expenses 9,659 7,000 15,012 8,396 7,767
------- ------- -------- -------- --------
Operating income (loss) 2,366 1,197 3,545 380 (1,205)
Interest expense (1,662) (1,846) (4,199) (2,249) (51)
Foreign currency translation (loss) gain (60) 13 (17) (27) (315)
------- ------- -------- -------- --------
Income (loss) before income taxes
and minority interest 644 (636) (671) (1,896) (1,571)
Income tax expense (note 5) (1,453) (300) (600) (803) (976)
Minority interest in subsidiary
income (loss) 20 83 (18) 316 205
------- ------- -------- -------- --------
Net (loss) $ (789) $ (853) $ (1,289) $ (2,383) $ (2,342)
======= ======= ======== ======== ========
Net (loss) per share $(42.80) $(71.99) $(108.79) $(203.81) $(234.20)
======= ======= ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 18,433 11,849 11,849 11,692 10,000
======= ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 103
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1993 THROUGH JUNE 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------ CUMULATIVE ACCUMU-
NUMBER OF PAR NUMBER OF PAR PAID-IN TRANSLATION LATED
SHARES VALUE SHARES VALUE CAPITAL COMPONENT DEFICIT
------ ----- ------ ----- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 812 $ 8,500 9,188 $ 4,381 $ 3,355 $ 958 $(11,602)
Translation adjustment -- -- -- -- -- (315) 315
Net loss -- -- -- -- -- -- (2,342)
----- ------ ------ ----- ----- ------ -------
Balance December 31, 1993 812 8,500 9,188 4,381 3,355 643 (13,629)
Translation adjustment -- -- -- -- -- (27) 27
Net loss -- -- -- -- -- -- (2,383)
Stock dividend 173 1,811 -- -- (1,811) -- --
Issuance of stock -- -- 1,849 612 -- -- --
----- ------ ------ ----- ----- ------ -------
Balance December 31, 1994 985 10,311 11,037 4,993 1,544 616 (15,985)
Translation adjustment -- -- -- -- -- (17) 17
Net loss -- -- -- -- -- -- (1,289)
----- ------ ------ ----- ----- ------ -------
Balance December 31, 1995 985 10,311 11,037 4,993 1,544 599 (17,257)
Translation adjustment -- -- -- -- -- (60) 60
Net loss -- -- -- -- -- -- (789)
Stock dividend 166 1,738 -- -- (1,738) -- --
Issuance of stock -- -- 7,911 (4,992) 50,298 -- --
Preferred stock
redemption (1,151) (12,049) -- -- 3,549 -- --
Accretion of redeemable
preferred stock -- -- -- -- (932) -- --
----- ------ ------ ----- ----- ------ -------
Balance June 30, 1996 -- $ -- 18,948 $ 1 $52,721 $ 539 $(17,986)
===== ====== ====== ===== ===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 104
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (789) $ (853) $ (1,289) $ (2,383) $(2,342)
Adjustments to reconcile net (loss) to
net cash provided by operating
activities:
Minority interest in subsidiary
(income) loss (20) (83) 18 (316) (205)
Depreciation and amortization 3,550 2,421 5,199 3,459 2,257
Deferred income tax 797 300 600 780 950
Other 43 194 349 107 366
Interest expense added to notes
payable to affiliates -- 1,391 2,379 2,085 1,504
Changes in operating assets and
liabilities:
Accounts receivable (227) (549) (785) 49 (88)
Other current assets (875) (259) (343) (634) (355)
Accounts payable 1,057 66 1,003 470 (266)
Deferred revenue (183) 256 152 458 415
Other current liabilities (1,359) 1,635 (3,444) (2,476) 473
------- ------- -------- -------- -------
Net cash provided by
operating activities 1,994 4,519 3,839 1,599 2,709
------- ------- -------- -------- -------
Cash flows used by investing activities:
Construction of cable television
systems (13,347) (6,291) (16,014) (11,695) (5,490)
Purchase of other capital assets (386) (215) (701) (244) (133)
Other investments (4,177) (465) (1,207) (402) (194)
Purchase of subsidiaries, net of
cash received (1,267) (3,491) (4,063) -- --
------- ------- -------- -------- -------
Net cash used by
investing activities (19,177) (10,462) (21,985) (12,341) (5,817)
------- ------- -------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 72,450 -- -- -- --
Costs to obtain loans (80) (403) (1,036) (1,144) (193)
Proceeds from or (repayment of)
notes payable (12,257) -- 14,533 7,000 --
Borrowings from (repayments to)
affiliates (38,920) 6,339 4,499 6,830 3,525
------- ------- -------- -------- -------
Net cash provided by
financing activities 21,193 5,936 17,996 12,686 3,332
------- ------- -------- -------- -------
Net increase (decrease)
in cash 4,010 (7) (150) 1,944 224
Cash at beginning of period 2,343 2,493 2,493 549 325
------- ------- -------- -------- -------
Cash at end of period $ 6,353 2,486 2,343 2,493 549
======= ======= ======== ======== =======
Supplemental cash flow information:
Cash paid for interest $ 6,067 $ 302 $ 1,992 $ 209 $ 25
Cash paid for income taxes 199 -- -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 105
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING EQUITY
Poland Communications, Inc. ("PCI or the Company") a U.S. corporation,
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 interests in several Polish
cable television companies, collectively referred to as 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 foreign subsidiaries. Also
consolidated are two 49% owned subsidiaries for which the Company maintains
control of operating activities and has appointed the majority of members to the
Managing Boards. All significant intercompany balances and transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The Company's financial statements are presented in accordance with
generally accepted accounting principles. This requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of and for the six months
ended June 30, 1996 and 1995 are unaudited, however, they include all
adjustments (consisting of normal recurring adjustments) considered necessary by
management for presentation of the financial position and results of operations
for these periods. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the entire year.
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
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.
Foreign:
The Company is subject to foreign corporate income taxes, value added
tax (VAT) and various local taxes within Poland, as well as import taxes and
duties on materials imported by them into Poland. Under Polish law, the PTK
Companies are exempt from import taxes and 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. The PTK Companies had no significant items which gave rise to
deferred tax assets or 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.
INVESTMENT IN CABLE TELEVISION SYSTEMS
F-8
<PAGE> 106
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. These
assets are carried at cost, and in accordance with Statement of Financial
Accounting Standards (SFAS) No. 51 (Financial Reporting by Cable Television
Companies) as actual subscriber levels are achieved cable television assets are
deemed to be placed into service and depreciated. 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:
Cable television system assets 10 years
Vehicles 5 years
Other property, plant and equipment 5 years
INVENTORIES
Inventories are stated at the lower of cost, determined by the FIFO
method, or net realizable value. Inventories are principally related to
work-in-progress in the various cable television systems.
INTANGIBLES AND AMORTIZATION
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 over a
period of twenty 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). All monetary assets and liabilities are translated into U.S.
dollars at the exchange rate in effect at year end and non-monetary assets and
liabilities are translated at historical or transaction date rates. Revenues and
expenses are translated at the average exchange rate over the reporting period.
Foreign currency translation resulted in exchange losses of $17,000, $27,000 and
$315,000 for the years ended December 31, 1995, 1994, and 1993, respectively,
and an exchange loss of $60,000 and exchange gain of $13,000 for the six months
ended June 30, 1996 and 1995, respectively.
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 2.72 PLN, 2.468 PLN, 24,372zl, and 21,344zl to one U.S. dollar at June
30, 1996 and December 31, 1995, 1994, and 1993, 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,
1994 and 1993, 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 accounts receivable and
payable, other current assets and liabilities, notes payable and redeemable
preferred stock. The carrying value of the accounts receivable and payable
and the other current assets and liabilities on the 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 approximate 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 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. However,
the notes payable to affiliates have been repaid as of June 30, 1996.
ADOPTION OF ACCOUNTING PRINCIPLE
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This statement requires
a write down to fair value when
F-9
<PAGE> 107
long-lived assets to be held and used are impaired. The statement also requires
long-lived assets to be disposed of (e.g. real estate held for sale) to be
carried at the lower of cost or fair value less cost to sell, and does not allow
such assets to be depreciated. The adoption of this standard did not have a
material impact on the Company's financial condition, results of operations or
liquidity.
2. 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 and
liabilities assumed 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.
During the six months ended June 30, 1996 the Company acquired
substantially all of the cable television system assets of eight cable
television companies for aggregate consideration of $1,346,000. 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. The results of the acquired companies have been included with the
Company since their dates of acquisition. The pro forma six months results of
the Company had the acquired company's results been included with the Company
since January 1, 1996 is not material.
During December 1995 the Company entered into a preliminary purchase
agreement for a cable television system operating in the Krakow area. During
1996 the Company prepaid the purchase price of approximately $4,349,000 which is
included in other investments in the accompanying consolidated balance sheet at
June 30, 1996. The actual transfer of ownership is expected to occur on January
1, 1997.
3. INTANGIBLES
Intangible assets at June 30, 1996, December 31, 1995 and 1994 are
carried at cost and consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Conduit and franchise agreements $ 3,556 $ 1,230 $1,211
Deferred financing costs 2,164 2,131 1,789
Organization costs 886 864 767
Other 1,392 1,247 889
-------- --------- -------
7,998 5,472 4,656
Less accumulated amortization (1,877) (1,628) (931)
-------- --------- -------
Net intangible assets $ 6,121 $ 3,844 $3,725
======== ========= =======
</TABLE>
4. OTHER CURRENT ASSETS AND LIABILITIES
Included in other current assets is $776,000, $593,000 and $435,000 of
VAT receivables as of June 30, 1996, December 31, 1995 and 1994, respectively.
Included in other current liabilities at June 30, 1996, December 31,
1995 and 1994 is a liability of $501,000, $89,000, and $89,000 for income taxes
payable, respectively and approximately $730,000, $767,000, and $217,000 related
to accrued programming fees.
F-10
<PAGE> 108
5. INCOME TAXES
Income tax expense for the six months ended June 30, 1996 and 1995 and
for the years ended December 31, 1995, 1994, and 1993 is as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. Federal income taxes $ 493 $ -- $ -- $ -- $ --
Foreign jurisdictions 163 -- -- 23 26
------ ---- ---- ---- ----
Total current income taxes 656 -- -- 23 26
U.S. deferred income taxes 797 300 600 780 950
------ ---- ---- ---- ----
Total income tax expense $1,453 $300 $600 $803 $976
====== ==== ==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 1996 and December 31, 1995 and
1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation $ 181 $ 181 $ 719
Start-up costs -- 35 110
Bad debts reserve 26 26 40
Legal reserve -- -- 53
Other, net 86 7 5
---- ---- ----
Total deferred tax assets 293 249 927
Less valuation allowance (293) (249) (927)
---- ---- ----
Net deferred tax assets $ -- $ -- $ --
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to the
deferred tax liabilities were $797,000, $600,000 and $780,000 at June 30, 1996,
December 31, 1995 and December 31, 1994, respectively. Such amounts represent
unearned, contingent revenues not currently payable and are included in other
liabilities.
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for 1996, 1995, 1994, and 1993 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 deductible items and losses has been
eliminated through the recording of a valuation allowance. The valuation
allowance for deferred tax assets as of January 1, 1994 was $1,907,000. The net
changes in the valuation allowance for the years ended December 31, 1995 and
1994 was a decrease in the allowance of $678,000 for the year ended December 31,
1995 and an increase in the allowance of $20,000 during the year ended December
31, 1994. The net change in the valuation allowance for the six months ended
June 30, 1996 was an increase of $44,000, while for the six months ended June
30, 1995 a decrease of $339,000 occurred.
The Company had net operating loss carryforwards from foreign
jurisdictions of approximately $3.2 million, which will expire as follows (in
thousands of dollars):
F-11
<PAGE> 109
<TABLE>
<CAPTION>
FOREIGN
YEARS ENDING DECEMBER 31, JURISDICTIONS
- ------------------------- -------------
<S> <C>
1996 $1,178
1997 1,178
1998 and thereafter 874
-------
$3,230
=======
</TABLE>
6. NOTES PAYABLE
On January 31, 1994, the Company signed a $13,500,000 financing
agreement with Overseas Private Investment Corporation ("OPIC") in connection
with its development of cable television systems throughout Poland. Advances are
secured by the capital stock of a subsidiary of the Company and were made
available to the Company under the financing agreement through December 31, 1995
based upon certain criteria which the Company was required to meet. Under terms
of the financing agreement, the Company has agreed to maintain a compensating
balance of one principal payment and six months of interest and guarantee fees.
Cash of $1,007,000, $983,000 and $760,000 was restricted for this purpose at
June 30, 1996, December 31, 1995 and 1994, respectively.
OPIC advanced $7,000,000 to the Company during 1994 and an additional
$1,600,000 in 1995. Principal repayments of approximately $614,000 are due in
fourteen equal semi-annual payments beginning March 15, 1996. Prepayments of
principal are subject to a one to three percent penalty through 1998. Interest
is paid semi-annually commencing September 15, 1994 based upon U.S. Treasury
securities plus a guarantee fee, which in aggregate amounted to 7.51%, 7.53% and
7.99% at June 30, 1996, December 31, 1995 and 1994, respectively. At June 30,
1996 the Company was in compliance with all covenants included in the OPIC
financing agreement.
In October 1995, the Company entered into a Polish currency
denominated 2,440,460 PLN (approximately $897,000 at the June 30, 1996
conversion rate) revolving credit loan agreement and a U.S. dollar denominated
$1,500,000 promissory note with American Bank in Poland S.A. that are secured by
the capital stock of a subsidiary of the Company. The entire amount available
under the revolving credit agreement was advanced between October and December
1995. The revolving credit loan is due in October 1996 and bears interest at the
Warsaw Inter-Bank Offering Rate plus 3.5%, which was 29.2% and 29.0% in
aggregate at June 30, 1996 and December 31, 1995, respectively. The promissory
note bears interest at the three month London Inter Bank Offering Rate (LIBOR)
plus 3% (8.98% and 8.69% in aggregate at June 30, 1996 and December 31, 1995,
respectively), payable monthly, and principal is due in sixteen equal quarterly
payments commencing October 1996.
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.
7. OTHER 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 $832,000, $518,000
and $463,000 as of June 30, 1996, December 31, 1995 and 1994, respectively. The
deferred compensation expense associated with these agreements was $250,000,
$234,000 and $472,000 for the years ended December 31, 1995, 1994, and 1993,
respectively, and $314,000 and $113,000 for the six months ended June 30, 1996
and 1995, respectively.
The Company had compensation agreements with certain of its officers
and shareholders to defer a portion of their annual bonus and salary. The
outstanding balance at December 31, 1994 was $1,310,000. On January 1, 1995, the
deferred compensation liability was assumed by a shareholder of the Company.
The Company entered into a repayment agreement for $5,674,000 with a
supplier of cable television system materials allowing the Company to repay
amounts owed to the supplier in consecutive monthly payments of approximately
$170,000 through June 1997. The Company prepaid the supplier in full in April
1996. The Company was charged interest during the repayment period at rates
ranging from 6.00% to prime plus 2.00%.
8. STOCKHOLDERS' EQUITY
The Company had outstanding at December 31, 1995 and 1994, 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.
F-12
<PAGE> 110
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. Each 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 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 have redemption
provisions; the Series B Preferred Stock is also convertible into Common Stock
(see Note 9).
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 in exchange for $17,029,000.
9. 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 have the option to convert their shares to Common Stock.
The Preferred Stock has been recorded at its fair value represented by
the discounted cash flow of the mandatory redemption value. The discount rate
used was 10 %. Such valuation may change in the future when the Company
obtains an outside valuation of the Preferred Stock. The Company periodically
acretes from paid-in capital an amount that will provide for the redemption
value at October 21, 2004.
10. PENSION PLANS
The Company maintains a savings plan that is intended to meet the
requirements of a profit sharing plan under Section 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. The Company has funded its matching
obligation of $11,000, $0, and $1,000 under the profit sharing plan for the
years ended December 31, 1995, 1994, and 1993, respectively, and its matching
obligation of $6,000 and $4,000 under the profit sharing plan for the six
months ended June 30, 1996 and 1995, respectively.
11. 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
Notes payable to affiliates consist of unsecured demand notes. The
notes bear interest at 10% at December 31, 1995 and market rates which ranged
from 6.46% to 10.00% at December 31, 1994.
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.
12. COMMITMENTS
LEASES
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA more
fully discussed below. The TPSA leases expire at various times or provide for
three to six month cancellation notices. Rent expense for the six months ended
June 30, 1996 and 1995 was $446,000 and $267,000, respectively, and for the
years ended December 31, 1995, 1994 and 1993 was $711,000, $299,000 and $331,000
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
F-13
<PAGE> 111
the lease. Based upon the lease rates currently in effect, the Company is
charged approximately $1 to $3 per month for each 100 meters of duct space
utilized.
The Company entered into a lease agreement with Przedsiebiorstwo
ProduckyjnoHandlowo-Edsportowo- Importowe Ryntronik ("PPHEI-Ryntronik"), an
unrelated party, effective January 1, 1995 to lease the entire cable television
system of PPHEI-Ryntronik in contemplation of a business combination that was
finalized in February 1996. The lease term was 20 years but was terminated in
1996 upon the completion of the above referenced business combination. Pursuant
to the lease agreement, the Company was required to pay $9,000 to
PPHEI-Ryntronik for the entire lease term.
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 license fees be paid either
annually at a fixed amount or monthly based upon the number of subscribers
connected to the system each month. For the six months ended June 30, 1996 and
1995, the Company incurred programming fees of approximately $670,000 and
$695,000 respectively, pursuant to these agreements. For the years ended
December 31, 1995, 1994, and 1993, the Company incurred programming fees of
approximately $1,318,000, $681,000, and $198,000, respectively, pursuant to
these agreements.
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.
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.
13. SUBSEQUENT EVENTS (UNAUDITED)
The Company acquired cable television system assets in August 1996 for
approximately $1.1 million. The Company made initial prepayments of $412,000
which are included in other investments in the accompanying consolidated balance
sheet at June 30, 1996.
The Company entered into agreements during 1996 to purchase three
cable television systems for approximately $1.7 million.
In August 1996 the Company entered into a $6.5 million revolving
credit loan agreement with American Bank in Poland, S.A. Funds are available
under the credit agreement through December 31, 1998 and $4 million was advanced
on September 2, 1996. Interest is based on LIBOR plus 3% and is due quarterly.
All advances under the loan must be repaid by August 20, 1999.
F-14
<PAGE> 112
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Financial Statements
F-15
<PAGE> 113
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, 1995 and
1994, 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, 1995. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with U.S. generally
accepted accounting principles.
October 8, 1996
F-16
<PAGE> 114
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Balance Sheets
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Assets
------
(Unaudited)
June 30, December 31,
----------- ------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash (note 6) $2,499 2,278 2,492
Accounts receivable, net of allowances of $506
in 1996, $510 in 1995 and $132 in 1994 744 654 289
Due from affiliate (note 7) 2,307 1,660 138
Other current assets (note 4) 1,538 1,678 854
-------- --------- ---------
Total current assets 7,088 6,270 3,773
-------- --------- ---------
Investment in cable television systems, at cost (note 3):
Property, plant and equipment:
Cable television system assets 69,393 57,242 39,588
Construction in progress 6,341 6,052 2,925
Vehicles 1,113 880 596
Other 1,770 1,738 1,239
-------- --------- ---------
Total property, plant and equipment 78,617 65,912 44,348
Less accumulated depreciation (15,012) (11,841) (6,957)
-------- --------- ---------
Net property, plant and equipment 63,605 54,071 37,391
Inventories for construction 5,157 4,503 5,758
Intangibles, net 5,959 4,307 3,532
-------- --------- ---------
Net investment in cable television systems 74,721 62,881 46,681
-------- --------- ---------
Other investments (notes 2 and 9) 5,120 331 --
-------- --------- ---------
Total assets $86,929 69,482 50,454
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 115
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Balance Sheets, Continued
(in thousands of U.S. dollars)
Liabilities and Stockholders' Deficiency
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
----------- --------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current liabilities:
Accounts payable $1,898 2,931 1,582
Notes payable (note 6) 1,379 2,893 --
Deferred revenue 889 1,133 1,081
Other current liabilities (note 4) 1,422 210 413
-------- --------- ---------
Total current liabilities 5,588 7,167 3,076
Due to affiliate (note 7) -- 5,371 7,441
Notes payable to affiliates (note 7) 89,948 67,587 48,303
Notes payable (note 6) 8,257 8,777 7,000
-------- --------- ---------
Total liabilities 103,793 88,902 65,820
-------- --------- ---------
Minority interest 4,181 (1,200) (1,163)
-------- --------- ---------
Stockholders' deficiency:
Capital stock par value 1 Dfl (200,000 shares
authorized, issued and outstanding) 100 100 100
Cumulative translation component 535 594 616
Accumulated deficit (21,680) (18,914) (14,919)
-------- --------- ---------
Total stockholders' deficiency (21,045) (18,220) (14,203)
-------- --------- ---------
Commitments and contingencies (notes 7 and 8) -- -- --
-------- --------- ---------
Total liabilities and stockholders' deficiency $86,929 69,482 50,454
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 116
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Statements of Operations
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
(Unaudited)
For the six months For the years ended
ended June 30, December 31,
--------------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cable television revenue $11,517 8,080 18,156 8,776 6,562
--------- --------- --------- ----------- -----------
Operating expenses:
Direct operating expenses 3,070 2,316 4,986 2,119 1,481
Selling, general and administrative (note 7) 2,710 2,556 5,542 3,619 2,828
Depreciation and amortization 3,486 2,325 5,229 3,308 2,066
--------- --------- --------- ----------- -----------
Total operating expenses 9,266 7,197 15,757 9,046 6,375
--------- --------- --------- ----------- -----------
Operating income (loss) 2,251 883 2,399 (270) 187
Interest expense (4,617) (2,937) (6,435) (4,380) (1,951)
Foreign currency translation loss (59) (97) (22) (27) (280)
--------- --------- --------- ----------- -----------
Loss before income taxes
and minority interest (2,425) (2,151) (4,058) (4,677) (2,044)
Income tax expense (note 5) (163) -- -- (23) (26)
Minority interest in subsidiary (income) loss (237) 8 41 180 203
--------- --------- --------- ----------- -----------
Net loss $ (2,825) (2,143) (4,017) (4,520) (1,867)
========= ========= ========= =========== ===========
Net loss per share $ (14.13) (10.72) (20.09) (22.60) (9.34)
========== ======= ========= =========== ===========
Weighted average number of capital
shares outstanding 200,000 200,000 200,000 200,000 200,000
========= ========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 117
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
(Unaudited)
For the six months For the years ended
ended June 30, December 31,
---------------------- ---------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,825) (2,143) (4,017) (4,520) (1,867)
Adjustments to reconcile net loss to
net cash (used) provided by operating activities:
Minority interest in subsidiary income (loss) 237 (8) (41) (180) (203)
Depreciation and amortization 3,486 2,325 5,229 3,308 2,066
Other (597) 194 356 107 52
Interest expense added to notes payable
to affiliates 2,990 2,495 5,139 4,231 1,974
Changes in operating assets and liabilities:
Accounts receivable (126) (535) (723) 49 (98)
Other current assets (397) (172) (263) (573) (282)
Accounts payable (331) 204 1,349 525 465
Deferred revenue (328) 256 52 458 415
Amounts due to affiliates -- -- (4,918) (1,664) 130
Other current liabilities (3,912) 2,542 (203) 24 (108)
--------- --------- --------- ----------- -----------
Net cash (used) provided by
operating activities (1,803) 5,158 1,960 1,765 2,544
--------- --------- --------- ----------- -----------
Cash flows used by investing activities:
Construction of cable television systems (10,836) (6,281) (16,014) (11,695) (3,041)
Purchase of other capital assets (341) (215) (694) (244) (133)
Other investments (4,330) (411) (1,207) (402) (124)
Purchase of subsidiaries, net of cash received (1,227) (3,203) (4,063) -- --
--------- --------- --------- ----------- -----------
Net cash used by investing activities (16,734) (10,110) (20,578) (12,341) (3,298)
--------- --------- --------- ----------- -----------
Cash flows from financing activities:
Costs to obtain loans -- (403) (956) (1,142) --
Proceeds from (repayment of) notes payable (614) -- 4,590 7,000 --
Borrowings from affiliates 19,372 4,255 14,770 6,661 1,076
--------- --------- --------- ----------- -----------
Net cash provided by financing activities 18,758 3,852 18,404 12,519 1,076
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash 221 (1,100) (214) 1,943 322
Cash at beginning of period 2,278 2,492 2,492 549 227
--------- --------- --------- ----------- -----------
Cash at end of period $ 2,499 1,392 2,278 2,492 549
========= ========= ========= =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 5,930 312 1,120 138 25
Cash paid for income taxes 69 -- -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 118
POLAND CABLEVISION (NETHERLANDS) B.V.
Consolidated Statement of Changes in Stockholders' Deficiency
From January 1, 1993 through June 30, 1996
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Capital Stock Cumulative
Par Translation Accumulated
Value Component Deficit Total
----- --------- ------- -----
<S> <C> <C> <C> <C>
Balance January 1, 1993 $ 100 $ 923 $ (8,839) $(7,816)
Translation adjustment -- (280) 280 --
Net loss -- -- (1,867) (1,867)
------ ------- ---------- ----------
Balance December 31, 1993 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 -- (59) 59 --
Net loss -- -- (2,825) (2,825)
------ ------- ---------- ----------
Balance June 30, 1996 $100 $ 535 $(21,680) $(21,045)
====== ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 119
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
June 30, 1996 (Unaudited)
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Reporting Entity
Poland Cablevision (Netherlands) B.V. ("PCBV or the Company"), a
Netherlands corporation, is a holding company that holds controlling
interest in several 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 appointed the majority of members
to the Managing Board. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The Company's financial statements are presented in accordance with
generally accepted accounting principles. This requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of and for the six months ended
June 30, 1996 and 1995 are unaudited, however, they include all
adjustments (consisting of normal recurring adjustments) considered
necessary by management for presentation of the financial position and
results of operations for these periods. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the entire year.
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.
(Continued)
F-22
<PAGE> 120
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Taxation
The Kingdom of the Netherlands generally imposed a corporate income tax
at a rate of 40% on the first 250,000 Dfl ($125,000) of income and 35% on
income thereafter. Effective July 1, 1994 only the first 100,000 Dfl
($50,000) 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 Company is subject to foreign corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import taxes and
duties on materials imported by them into Poland. Under Polish law, the
PTK Companies are exempt from import taxes and 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. The PTK Companies had no
significant items which gave rise to deferred tax assets or liabilities.
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. These assets are carried at cost, and in accordance
with Statement of Financial Accounting Standards (SFAS) No. 51 (Financial
Reporting by Cable Television Companies) as actual subscriber levels are
achieved cable television assets are deemed to be placed into service and
depreciated. 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 years
</TABLE>
(Continued)
F-23
<PAGE> 121
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Inventories
Inventories are stated at the lower of cost, determined by the FIFO
method, or net realizable value. Inventories are principally related to
work-in-progress in the various cable television systems.
Intangibles and Amortization
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
over a period of twenty 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). All monetary assets and liabilities are translated into
U.S. dollars at the exchange rate in effect at year end and non-monetary
assets and liabilities are translated 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 2.72 PLN, 2.468 PLN, 24,372zl, and 21,344zl to one U.S.
dollar at June 30, 1996 and December 31, 1995, 1994, and 1993,
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.
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.
(Continued)
F-24
<PAGE> 122
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments (Cont'd)
The Company's financial instruments include accounts receivable and
payable, other current assets and liabilities and notes payable. The
carrying value of the accounts receivable and payable and the other
current assets and liabilities on the consolidated balance sheets
approximates fair value due to the short maturity of these instruments.
The recorded balance of the Company's notes payable approximate 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 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.
Adoption of Accounting Principle
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This
statement requires a write down to fair value when long-lived assets to
be held and used are impaired. The statement also requires long-lived
assets to be disposed of (e.g. real estate held for sale) to be carried
at the lower of cost or fair value less cost to sell, and does not allow
such assets to be depreciated. The adoption of this standard did not
have a material impact on the Company's financial condition, results of
operations or liquidity.
2. Acquisitions
During 1995 the Company acquired a cable television company 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.
During the six months ended June 30, 1996 the Company acquired
substantially all of the cable television system assets of six cable
television companies for aggregate consideration of $863,000. 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. The results of the acquired
companies have been included with the Company since their dates of
acquisition. The pro forma six months results of the Company had the
acquired company's results been included with the Company since January
1, 1996 is not material.
During December 1995 the Company entered into a preliminary purchase
agreement for a cable television system operating in the Krakow area.
During 1996 the Company prepaid the purchase price of approximately
$4,349,000 which is included in other investments in the accompanying
consolidated balance sheet at June 30, 1996. The actual transfer of
ownership is expected to occur on January 1, 1997.
(Continued)
F-25
<PAGE> 123
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
3. Intangibles
Intangible assets at June 30, 1996, December 31, 1995 and 1994 are
carried at cost and consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Conduit and franchise agreements $3,445 1,700 1,211
Deferred financing costs 2,164 2,131 1,787
Organization costs 1,008 986 672
Other 178 92 28
------- -------- -------
6,795 4,909 3,698
Less accumulated amortization (836) (602) (166)
------- -------- -------
Net intangible assets $5,959 4,307 3,532
======= ======== =======
</TABLE>
4. Other Current Assets and Liabilities
Included in other current assets is $618,000, $584,000 and $435,000 of
VAT receivables as of June 30, 1996, December 31, 1995 and 1994,
respectively.
Included in other current liabilities at June 30, 1996, December 31, 1995
and 1994 is a liability of $20,000, $89,000, and $89,000 for income taxes
payable, respectively and approximately $724,000, $767,000, and $217,000
related to accrued programming fees.
5. Income Taxes
PCBV is required to file a separate Netherlands tax return which does not
reflect the operating results of the PTK Companies. The income tax
expense for the six months ended June 30, 1996 and 1995 and for the years
ended December 31, 1995, 1994 and 1993 is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
(Unaudited)
For the six months For the years ended
ended June 30, December 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Netherlands income tax expense $ -- -- -- 23 26
Foreign jurisdictions 163 -- -- -- --
--------- --------- --------- --------- ----------
Income tax expense $ 163 -- -- 23 26
========= ========= ========= ========= ==========
</TABLE>
(Continued)
F-26
<PAGE> 124
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Income Taxes (Cont'd)
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, 1995 and 1994 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 $3.2 million, which will expire as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------
<S> <C>
1996 $1,178
1997 1,178
1998 and thereafter 874
---------
$3,230
=========
</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 June 30, 1996, December 31,
1995 and 1994.
6. Notes Payable
On January 31, 1994, the Company signed a $13,500,000 financing agreement
with Overseas Private Investment Corporation ("OPIC") in connection with
its development of cable television systems throughout Poland. Advances
are secured by the capital stock of a subsidiary of the Company and were
made available to the Company under the financing agreement through
December 31, 1995 based upon certain criteria which the Company was
required to meet. Under terms of the financing agreement, the Company
has agreed to maintain a compensating balance of one principal payment
and six months of interest and guarantee fees. Cash of $1,007,000,
$983,000 and $760,000 was restricted for this purpose at June 30, 1996,
December 31, 1995 and 1994, respectively.
OPIC advanced $7,000,000 to the Company during 1994 and an additional
$1,600,000 in 1995. Principal repayments of approximately $614,000 are
due in fourteen equal semi-annual payments beginning March 15, 1996.
Prepayments of principal are subject to a one to three percent penalty
through 1998. Interest is paid semi-annually commencing September 15,
1994 based upon U.S. Treasury securities plus a guarantee fee, which in
aggregate amounted to 7.51%, 7.53% and 7.99% at June 30, 1996, December
31, 1995 and 1994, respectively. At June 30, 1996 the Company was in
compliance with all covenants included in the OPIC financing agreement.
(Continued)
F-27
<PAGE> 125
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Notes Payable (Cont'd)
In October 1995, the Company entered into a Polish currency denominated
2,440,460 PLN (approximately $897,000 at the June 30, 1996 conversion
rate) revolving credit loan agreement and a U.S. dollar denominated
$1,500,000 promissory note with American Bank in Poland S.A. that are
secured by the capital stock of a subsidiary of the Company. The entire
amount available under the revolving credit agreement was advanced
between October and December 1995. The revolving credit loan is due in
October 1996 and bears interest at the Warsaw Inter-Bank Offering Rate
plus 3.5%, which was 29.2% and 29.0% in aggregate at June 30, 1996 and
December 31, 1995, respectively. The promissory note bears interest at
the three month London Inter Bank Offering Rate (LIBOR) plus 3% (8.98%
and 8.69% in aggregate at June 30, 1996 and December 31, 1995,
respectively), payable monthly, and principal is due in sixteen equal
quarterly payments commencing October 1996.
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
Notes payable to affiliates of $89,984,000 at June 30, 1996 consist of
unsecured demand notes and unpaid interest due to PCI. Notes payable to
affiliate of $67,587,000 and $48,303,000 as of December 31, 1995 and
1994, respectively, consist of unsecured demand notes and unpaid interest
due to PCI and Chase American Corporation ("CAC"), an affiliate of the
shareholders of PCI. The notes bear interest at 10% per annum, and
represent advances and purchases on behalf of PCBV and the PTK Companies.
Interest expense on these notes for the six months ended June 30, 1996
and 1995 was $2,988,000 and $2,533,000 respectively, while interest
expense of $5,777,000, $4,296,000 and $3,375,000 was incurred by the
Company in connection with these affiliate borrowings during the years
ended December 31, 1995, 1994 and 1993, respectively.
PCI has agreed not to seek current repayment of the above referenced
affiliate loans and advances until the Company generates sufficient cash
flow or liquidity to support such repayments.
(Continued)
F-28
<PAGE> 126
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Due to Affiliate
Amounts due to affiliate of $5,371,000 and $7,441,000 at December 31,
1995 and 1994, respectively, are non-interest bearing and primarily
represent amounts owed to PCI for management fees, purchases and services
received on or prior to December 31, 1995 and 1994, respectively.
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 by the PTK Companies are reimbursed and
are not material.
Pursuant to SFAS No. 51, reimbursed overhead costs of $755,000 at June
30, 1996 and $942,000 and $978,000 at December 31, 1995 and 1994,
respectively, have been capitalized and are included in construction in
progress and intangibles. The remaining overhead costs allocated to the
Company of $225,000 and $343,000 during the six months ended June 30,
1996 and 1995, respectively, and $395,000, $86,000, and $705,000 during
the years ended December 31, 1995, 1994 and 1993, respectively, are
included in corporate administration expense.
Management Consulting Agreement
In accordance with an understanding reached between the stockholders of
PTK, a foreign shareholder was entitled to receive an annual management
consulting fee equal to $320,000 per cable television system operating
within Poland in consideration for providing experienced western cable
television professionals who recommend, advise, and consult PTK as to
design, construction, development, and operation of the cable television
systems. The other PTK Companies entered into similar management
consulting agreements with PCI. Management consulting fees charged to
corporate administration expense was $1,280,000, $1,280,000 and $320,000
for the years ended December 31, 1995, 1994 and 1993, respectively and
$1,360,000 and $640,000 for the six months
(Continued)
F-29
<PAGE> 127
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
Management Consulting Agreement (Cont'd)
ended June 30, 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. Contingent management
consulting fees payable to PCI are reflected in amounts due to affiliate
in the accompanying consolidated balance sheets.
8. Commitments
Leases
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA
more fully discussed below. The TPSA leases expire at various times or
provide for three to six month cancellation notices. Rent expense for
the six months ended June 30, 1996 and 1995 was $417,000 and $257,000,
respectively, and for the years ended December 31, 1995, 1994 and 1993
was $701,000, $299,000 and $331,000 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 $3 per
month for each 100 meters of duct space utilized.
The Company entered into a lease agreement with Przedsiebiorstwo
Produckyjno-Handlowo-Edsportowo-Importowe Ryntronik ("PPHEI-Ryntronik"),
an unrelated party, effective January 1, 1995 to lease the entire cable
television system of PPHEI-Ryntronik in contemplation of a business
combination that was finalized in February 1996. The lease term was 20
years but was terminated in 1996 upon the completion of the above
referenced business combination. Pursuant to the lease agreement, the
Company was required to pay $9,000 to PPHEI-Ryntronik for the entire
lease term.
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 license fees be paid either
annually at a fixed amount or monthly based upon the number of
subscribers connected to the system each month. For the six months ended
June 30, 1996 and 1995, the Company incurred programming fees of
approximately $647,000 and $683,000 respectively, pursuant to these
agreements. For the years ended December 31, 1995, 1994, and 1993, the
Company incurred programming fees of approximately $1,298,000, $681,000,
and $198,000, respectively, pursuant to these agreements.
(Continued)
F-30
<PAGE> 128
POLAND CABLEVISION (NETHERLANDS) B.V.
Notes to Consolidated Financial Statements
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.
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.
9. Subsequent Events (Unaudited)
The Company acquired cable television system assets in August 1996 for
approximately $1.1 million. The Company made initial prepayments of
$412,000 which are included in other investments in the accompanying
consolidated balance sheet at June 30, 1996.
F-31
<PAGE> 129
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.
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.
A-1
<PAGE> 130
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> 131
================================================================================
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.............................. 2
Available Information.............................. 3
Prospectus Summary................................. 4
Summary Consolidated Financial Data ............... 11
Risk Factors....................................... 14
The Exchange Offer ................................ 22
Exchange Rate Data................................. 28
Use of Proceeds.................................... 28
Capitalization..................................... 29
Selected Consolidated Financial Data .............. 30
Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 32
The Industry....................................... 37
Business .......................................... 41
Regulation......................................... 54
Management......................................... 59
Principal Shareholders............................. 65
Certain Relationships and Related Transactions..... 67
Description of Indebtedness........................ 72
Description of the Notes........................... 73
Plan of Distribution............................... 94
Income Tax Considerations.......................... 94
Legal Matters...................................... 95
Experts .......................................... 95
Index to Consolidated Financial Statements......... F-1
Glossary........................................... A-1
Information not Required in Prospectus............. II-1
</TABLE>
================================================================================
================================================================================
$130,000,000
POLAND
COMMUNICATIONS, INC.
9 7/8% SERIES B SENIOR NOTES
DUE 2003
-------------
PROSPECTUS
-------------
January __, 1997
================================================================================
<PAGE> 132
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 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.
II-1
<PAGE> 133
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> 134
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
- ------ ----------------------
<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.*
11.1 Statement Regarding Calculation of Per Share Earnings.+
12.1 Statement Regarding Computation of Ratios.+
21 List of subsidiaries of the Company.+
23.1 Consent of KPMG Peat Marwick LLP.+
23.5 Consent of Baker & McKenzie (contained in Exhibit 5).*
24 Power of Attorney (included on the signature page in Part II of
this Regsitration 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>
- --------------
* Filed herewith
+ To be filed by amendment
(b) Financial Statement Schedules.
The following are included in Part II of this Registration Statement:
Schedule I -- Condensed Financial Information of the Registrant +
Schedule II -- Valuation and Qualifying Accounts +
+ To be filed by amendment
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
II-3
<PAGE> 135
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
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.
(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.
II-4
<PAGE> 136
(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-5
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hartford,
State of Connecticut, on the 24th day of January, 1997.
POLAND COMMUNICATIONS, INC.
By:
-----------------------------
Robert E. Fowler, III
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature to this
Registration Statement appears below hereby appoints Robert E. Fowler, III as
his attorney-in-fact to sign on his behalf, individually and in the capacities
stated below, and to file any and all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes and additions as such attorney-in-fact may deem necessary or
appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Robert E. Fowler, III
- -------------------------
Robert E. Fowler, III Chief Executive Officer and Director
(Principal Executive Officer) January 24, 1997
/s/John S. Frelas
- --------------------------
John S. Frelas Chief Financial Officer
(Principal Financial and Principal Accounting Officer) January 24, 1997
- --------------------------
David T. Chase Chairman of the Board of Directors January 24, 1997
/s/ Arnold L. Chase
- --------------------------
Arnold L. Chase Director January 24, 1997
/s/ Scott A. Lanphere
- --------------------------
Scott A. Lanphere Director January 24, 1997
- --------------------------
Jerry Z. Swirski Director January 24, 1997
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
POLAND COMMUNICATIONS, INC.
(a New York corporation)
$130,000,000
9 7/8% Senior Notes due 2003
PURCHASE AGREEMENT
Dated: October 24, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PURCHASE AGREEMENT..................................................................... 1
SECTION 1. Representations and Warranties....................................... 2
(a) Representations and Warranties by the Company................. 2
(i) Similar Offerings............................................. 2
(ii) Offering Memorandum........................................... 2
(iii) Independent Accountants....................................... 3
(iv) Financial Statements.......................................... 3
(v) No Material Adverse Change in Business........................ 3
(vi) Good Standing of the Company.................................. 3
(vii) Corporate Standing of Designated Subsidiaries................. 4
(viii) Capitalization................................................ 4
(ix) Authorization of Agreement.................................... 4
(x) Authorization of the Registration Rights Agreement............ 4
(xi) Authorization of the Indenture................................ 5
(xii) Authorization of the Securities............................... 5
(xiii) Authorization of the Pledge Agreement......................... 5
(xiv) Description of the Registration Rights Agreement, the
Securities, the Pledge Agreement and the Indenture............ 6
(xv) Absence of Defaults and Conflicts............................. 6
(xvi) Absence of Labor Dispute...................................... 7
(xvii) Absence of Proceedings........................................ 7
(xviii)Possession of Intellectual Property........................... 7
(xix) Absence of Further Requirements............................... 8
(xx) Possession of Licenses and Permits............................ 8
(xxi) No Additional Documents....................................... 8
(xxii) Management Agreements......................................... 9
(xxiii)Title to Property............................................. 9
(xxiv) Tax Returns................................................... 9
(xxv) Environmental Laws............................................ 9
(xxvi) Investment Company Act........................................ 10
(xxvii) Internal Controls......................................... 10
(xxviii) Taxes on Subsidiary Indebtedness........................... 10
(xxix) Rule 144A Eligibility.................................... 11
(xxx) No General Solicitation....................................... 11
(xxxi) No Registration Required...................................... 11
(xxxii) No Directed Selling Efforts............................... 11
(b) Officer's Certificates............................................... 11
SECTION 2. Sale and Delivery to Initial Purchaser; Closing...................... 11
(a) Securities........................................................... 11
(b) Payment.............................................................. 12
(c) Qualified Institutional Buyer........................................ 12
(d) Denominations; Registration.......................................... 12
SECTION 3. Covenants of the Company............................................. 12
(a) Offering Memorandum.................................................. 12
</TABLE>
<PAGE> 3
ii
<TABLE>
<S> <C> <C>
(b) Notice and Effect of Material Events................................. 12
(c) Amendment to Offering Memorandum and Supplements..................... 13
(d) Qualification of Securities for Offer and Sale....................... 13
(e) Rating of Securities................................................. 13
(f) DTC and PORTAL....................................................... 13
(g) Use of Proceeds...................................................... 13
(h) Restriction on Sale of Securities.................................... 14
SECTION 4. Payment of Expenses.................................................. 14
(a) Expenses............................................................. 14
(b) Termination of Agreement............................................. 14
SECTION 5. Conditions of Initial Purchaser's Obligations........................ 14
(a) Opinions of Counsel for Company...................................... 15
(b) Opinion of United States Counsel for Initial Purchaser............... 15
(c) Opinion of Polish Counsel for Initial Purchaser...................... 15
(d) Officers' Certificate................................................ 15
(e) Accountant's Comfort Letter.......................................... 16
(f) Bring-down Comfort Letter............................................ 16
(g) Maintenance of Rating................................................ 16
(h) PORTAL............................................................... 16
(i) Additional Documents................................................. 16
(k) Repayment of Certain Indebtedness.................................... 16
(l) Termination of Agreement............................................. 17
SECTION 6. Subsequent Offers and Resales of the Securities...................... 17
(a) Offer and Sale Procedures............................................ 17
(i) Offers and Sales only to Institutional Accredited Investors
or Qualified Institutional Buyers............................. 17
(ii) No General Solicitation....................................... 17
(iii) Purchases by Non-Bank Fiduciaries............................. 17
(iv) Subsequent Purchaser Notification............................. 18
(v) Restrictions on Transfer...................................... 18
(b) Covenants of the Company............................................. 18
(i) Due Diligence................................................. 18
(ii) Sales of Other Securities..................................... 19
(iii) Rule 144A Information......................................... 19
(iv) Restrictions on Repurchases................................... 19
(c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A............. 19
(d) Offers and Sales in Poland and Netherlands........................... 20
(e) Offers and Sales in the United Kingdom............................... 20
SECTION 7. Indemnification...................................................... 20
(a) Indemnification of Initial Purchaser................................. 20
(b) Indemnification of Company, Directors and Officers................... 21
(c) Actions against Parties; Notification................................ 22
(d) Settlement without Consent if Failure to Reimburse................... 22
SECTION 8. Contribution......................................................... 23
SECTION 9. Representations, Warranties and Agreements to Survive Delivery....... 24
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C> <C>
SECTION 10. Termination of Agreement.............................................. 24
(a) Termination; General.................................................. 24
(b) Liabilities........................................................... 25
SECTION 11. Notices............................................................... 25
SECTION 12. Parties............................................................... 25
SECTION 13. GOVERNING LAW AND TIME................................................ 25
SECTION 14. Effect of Headings.................................................... 25
SECTION 15. Counterparts.......................................................... 25
</TABLE>
<PAGE> 5
$130,000,000
POLAND COMMUNICATIONS, INC.
(a New York corporation)
9 7/8% Senior Notes due 2003
PURCHASE AGREEMENT
October 24, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Poland Communications, Inc., a New York corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or the "Initial
Purchaser"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchaser of $130,000,000 aggregate principal amount of the
Company's 97/8% Senior Notes due 2003 (the "Securities"). The Securities are to
be issued pursuant to an indenture dated as of October 29, 1996 (the
"Indenture") between the Company and State Street Bank and Trust Company, as
trustee (the "Trustee"). Securities issued in book-entry form will be issued to
Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a
letter agreement, to be dated as of the Closing Time (as defined in Section
2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC.
The Company understands that the Initial Purchaser proposes to
make an offering of the Securities on the terms and in the manner set forth
herein and agrees that the Initial Purchaser may resell, subject to the
conditions set forth herein, all or a portion of the Securities to purchasers
("Subsequent Purchasers") at any time after the date of this Agreement. The
Securities are to be offered and sold through the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "1933 Act"),
in reliance upon exemptions therefrom. Pursuant to the terms of the Securities
and the Indenture, investors that acquire Securities may only resell or
otherwise transfer such Securities if such Securities are hereafter registered
under the 1933 Act or if an exemption from the registration requirements of the
1933 Act is available (including, without limitation, the exemption afforded by
Rule 144A ("Rule 144A") or Regulation S ("Regulation S")
<PAGE> 6
2
of the rules and regulations promulgated under the 1933 Act by the Securities
and Exchange Commission (the "Commission")).
The holders of Securities will be entitled to the benefits of a
Registration Rights Agreement, in substantially the form attached hereto as
Exhibit A with such changes as shall be agreed to by the parties hereto (the
"Registration Rights Agreement"), pursuant to which the Company will file a
registration statement (the "Registration Statement") with the Commission
registering the Securities or the Exchange Securities referred to in the
Registration Rights Agreement under the 1933 Act.
The Securities will be secured by a first priority perfected
security interest in certain intercompany notes from the Company's subsidiary
Poland Cablevision (Netherlands) B.V. ("PCBV") to the Company pursuant to the
terms of a Pledge Agreement (the "Pledge Agreement") dated as of the date of the
Indenture made by the Company for the benefit of the Trustee and the holders of
the Securities.
The Company has prepared and delivered to the Initial Purchaser
copies of a preliminary offering memorandum dated October 9, 1996 (the
"Preliminary Offering Memorandum") and has prepared and will deliver to the
Initial Purchaser, on the date hereof or the next succeeding day, copies of a
final offering memorandum dated October 24, 1996 (the "Final Offering
Memorandum"), each for use by the Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Securities. "Offering
Memorandum" means, with respect to any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, and including any amendment or
supplement to either such document), including exhibits thereto and any
documents incorporated therein by reference, which has been prepared and
delivered by the Company to the Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Securities.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to the Initial Purchaser as of the date hereof and as of
the Closing Time referred to in Section 2(b) hereof, and agrees with the Initial
Purchaser as follows:
(i) Similar Offerings. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in
the United States or to any United States citizen or resident, any
security which is or would be integrated with the sale of the Securities
in a manner that would require the Securities to be registered under the
1933 Act.
(ii) Offering Memorandum. As of their respective dates, neither
the Preliminary Offering Memorandum nor the Final Offering Memorandum,
including any amendment or
<PAGE> 7
3
supplement thereto, nor as of the Closing Time, the Final Offering
Memorandum including any amendment or supplement thereto included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; except that this representation and warranty does not
apply to statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by the Initial
Purchaser expressly for use in the Preliminary Offering Memorandum or
the Final Offering Memorandum, including any amendment or supplement
thereto.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of Regulation S-X
under the 1933 Act.
(iv) Financial Statements. The financial statements, together
with the related schedules and notes, of the Company included in the
Offering Memorandum present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with United
States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Offering Memorandum present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included
in the Offering Memorandum present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Offering Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum,
except as otherwise stated therein, (A) there has been no material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise (a "Material Adverse Effect"),
whether or not arising in the ordinary course of business, (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than the Pending Acquisitions as described in the
Offering Memorandum and transactions entered into in the ordinary course
of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of New York and has corporate power and
authority to own, lease and operate its properties and to conduct
<PAGE> 8
4
its business as described in the Offering Memorandum and to enter into
and perform its obligations under this Agreement, the Registration
Rights Agreement, the Pledge Agreement, the Indenture and the
Securities; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction
in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) Corporate Standing of Designated Subsidiaries. Each
subsidiary of the Company that (i) is a "significant subsidiary" (as
that term is defined in Regulation S-X under the 1933 Act) or (ii) that
holds any valid Permits (as such term is defined in the Offering
Memorandum) is listed on Schedule B hereto (each subsidiary listed on
Schedule B hereto is hereinafter referred to as a "Designated
Subsidiary" and, collectively, the "Designated Subsidiaries"), and has
been duly organized and is validly existing as a corporation under the
laws of the jurisdiction of its incorporation, has corporate power and
corporate authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and is not
required to be qualified as a foreign corporation to transact business
or to own or lease property in any jurisdiction where it owns or leases
property or transacts business; except as otherwise disclosed in the
Offering Memorandum, all of the issued and outstanding capital stock of
each Designated Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable (except, in the case of any Polish
limited liability company, any statutory liability for taxes) and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of the
Designated Subsidiaries was issued in violation of any preemptive or
similar rights arising by operation of law, or under the statute or
by-laws (or other similar organizational documents) of any Designated
Subsidiary or under any agreement to which the Company or any Designated
Subsidiary is a party. The subsidiaries of the Company other than the
Designated Subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth under the caption
"Description of Capital Stock" (except for subsequent issuances, if any,
pursuant to the exercise of convertible securities or options referred
to in the Offering Memorandum).
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization of the Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company,
and, at the Closing Time, will have been duly executed and delivered by
the Company and will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms
<PAGE> 9
5
except as (x) the enforceability thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, (y)
the enforceability thereof may be limited by general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law) and (z) any rights to indemnity and contribution
may be limited by federal and state securities laws and public policy
considerations.
(xi) Authorization of the Indenture. The Indenture has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws relating to or affecting enforcement of creditors'
rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law)
and the waiver contained in Section 514 thereof may be unenforceable due
to interests of public policy.
(xii) Authorization of the Securities. The Securities have been
duly authorized and, at the Closing Time, will have been duly executed
by the Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor
will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditors' rights generally or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be in the form contemplated
by, and entitled to the benefits of, the Indenture.
(xiii) Authorization of the Pledge Agreement. The Pledge
Agreement has been duly authorized by the Company and, at the Closing
Time, will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditor's rights generally or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law); and the Pledged Collateral (as
defined in the Pledge Agreement) when pledged and delivered to the
Trustee in accordance with the terms of the Pledge Agreement will be
subject to a valid and perfected first priority security interest in
favor of the Trustee for the benefit of the holders of the Securities.
(xiv) Description of the Registration Rights Agreement, the
Securities, the Pledge
<PAGE> 10
6
Agreement and the Indenture. The Registration Rights Agreement, the
Securities, the Pledge Agreement and the Indenture will conform in all
material respects to the respective statements relating thereto
contained in the Offering Memorandum and will be in substantially the
respective forms previously delivered to the Initial Purchaser.
(xv) Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries is (1) in violation of its charter or statute,
as applicable, or by-laws (or other similar organizational documents),
(2) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which or any of them may be bound, or to which any of
the property or assets of the Company or any of its subsidiaries is
subject (collectively, "Agreements and Instruments"), except as
described in the Offering Memorandum and except for such defaults that
would not result in a Material Adverse Effect or (3) in violation of any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except as described
in the Offering Memorandum; and the execution, delivery and performance
of this Agreement, the Registration Rights Agreement, the Pledge
Agreement, the Indenture and the Securities and any other agreement or
instrument entered into or issued or to be entered into or issued by the
Company or any Designated Subsidiary in connection with the transactions
contemplated hereby or thereby or in the Offering Memorandum and the
consummation of the transactions contemplated herein and in the Offering
Memorandum (including the issuance and sale of the Securities and the
use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds") and compliance
by the Company with its obligations hereunder have been duly authorized
by all necessary corporate action and do not and will not, whether with
or without the giving of notice or passage of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
or any of its subsidiaries pursuant to, the Agreements and Instruments
except for such conflicts, breaches, Repayment Events or defaults or
liens, charges or encumbrances that, singly or in the aggregate, would
not result in a Material Adverse Effect, nor will such action result in
any violation of the provisions of the charter or statute, as
applicable, or by-laws (or other similar organizational documents) of
the Company or any of its subsidiaries or any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their
assets or properties, assuming that the Initial Purchaser complies with
all of its obligations under Section 6 hereof. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
<PAGE> 11
7
(xvi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any of its subsidiaries' principal suppliers, customers or
contractors, which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(xvii) Absence of Proceedings. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof,
which would be required to be disclosed in the Offering Memorandum
(other than as disclosed therein), if it were a prospectus filed as part
of a registration statement on Form S-1 under the 1933 Act, or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to adversely affect the properties or
assets of the Company or any of its subsidiaries in a manner that is
material and adverse to the Company and its subsidiaries considered as
one enterprise or the consummation of the transactions contemplated by
this Agreement, the Registration Rights Agreement, the Pledge Agreement,
the Indenture or the Securities, or the performance by the Company of
its obligations hereunder or thereunder. The aggregate of all pending
legal or governmental proceedings to which the Company or any subsidiary
thereof is a party or of which any of their respective property or
assets is the subject which are not described in the Offering
Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xviii) Possession of Intellectual Property. Except as disclosed
in the Offering Memorandum, the Company and its subsidiaries own or
possess, or can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated
by them. Except as disclosed in the Offering Memorandum, neither the
Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xix) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency (other than (A) under the 1933 Act and the rules and regulations
<PAGE> 12
8
thereunder with respect to the Registration Rights Agreement and the
transactions contemplated thereunder, and (B) under the securities or
"blue sky" laws of the various states) is necessary or required (x) for
the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities
hereunder or the consummation of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Offering Memorandum
or (y) to permit the Company to (1) effect payments of principal of and
premium and interest on the Securities and, if issued, the Exchange
Notes referred to in the Registration Rights Agreement, or (2) perform
its other obligations under the Indenture.
(xx) Possession of Licenses and Permits. Except as disclosed in
the Offering Memorandum, the Company and its subsidiaries possess such
permits, licenses, approvals, concessions, consents and other
authorizations (including, without limitation, all permits required for
the operation of the business of the Company and its subsidiaries by the
Republic of Poland) (collectively, "Governmental Licenses") issued by
the appropriate domestic or foreign regulatory agencies or bodies, other
governmental authorities or self regulatory organizations necessary to
conduct the business now operated by them; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except as disclosed in the Offering Memorandum
and except where the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except as disclosed in
the Offering Memorandum and except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be
in full force and effect would not have a Material Adverse Effect; and
except as disclosed in the Offering Memorandum, neither the Company nor
any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
To the knowledge of the Company, except as described in the Offering
Memorandum, there exists no reason or cause that could justify the
variation, suspension, cancellation or termination of any such
Governmental Licenses held by the Company or any of its subsidiaries
with respect to the construction or operation of their respective
businesses, which variation, suspension, cancellation or termination
could reasonably be expected to have a Material Adverse Effect.
(xxi) No Additional Documents. There are no contracts or
documents of a character that would be required to be described in the
Offering Memorandum, if it were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not
described as would be so required. All such contracts to which the
Company is party have been duly authorized, executed and delivered by
the Company and constitute valid and binding agreements of the Company.
(xxii) Management Agreements. Each of the Management Agreements
(as such term is defined in the Indenture) to which any subsidiary of
the Company is a party has been
<PAGE> 13
9
duly authorized, executed and delivered by each of the parties thereto
and constitutes a valid and binding agreement of each of the parties
thereto.
(xxiii) Title to Property. The Company and its subsidiaries own
no real property, and have good title to all other properties owned by
them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Offering Memorandum or (b) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries; and all of
the leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company
or any of its subsidiaries holds properties described in the Offering
Memorandum, are in full force and effect, and neither the Company nor
any of its subsidiaries has any notice of any claim of any sort that has
been asserted by anyone adverse to the rights of the Company or any of
its subsidiaries under any of the leases or subleases mentioned above,
or affecting or questioning the rights of such the Company or any
subsidiary thereof to the continued possession of the leased or
subleased premises under any such lease or sublease, except for such
claims as could not reasonably be expected to result in a Material
Adverse Effect.
(xxiv) Tax Returns. Except as disclosed in the Offering
Memorandum, the Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any
such tax, assessment, fine or penalty that is being contested in good
faith and by appropriate proceedings, and except for such claims as
could not result in a Material Adverse Effect; and adequate charges,
accruals and reserves have been provided for in the financial statements
referred to in Section 1(a)(iv) above in respect of all domestic and
foreign taxes for all periods as to which the tax liability of the
Company or any of its subsidiaries has not been finally determined or
remains open to examination by applicable taxing authorities.
(xxv) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any domestic or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and
approvals
<PAGE> 14
10
required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or Environmental Laws.
(xxvi) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xxvii) Internal Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with management's
general or specific authorization; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company and its subsidiaries have not
made, and, to the knowledge of the Company, no employee or agent of the
Company or any subsidiary has made, any payment of the Company's funds
or any subsidiary's funds or received or retained any funds (A) in
violation of the Foreign Corrupt Practices Act, as amended, or (B) in
violation of any other applicable law, regulation or rule (except, in
the case of this clause (B), for such violations as could not reasonably
be expected to result in a Material Adverse Effect) or that would be
required to be disclosed in the Offering Memorandum if it were a
prospectus filed as part of a registration statement on Form S-1 under
the 1933 Act.
(xxviii) Taxes on Subsidiary Indebtedness. Except as described in
the Offering Memorandum, as of the date hereof, no material income,
stamp or other taxes or levies, imposts, deductions, charges, compulsory
loans or withholdings whatsoever are or will be, under applicable law in
the Republic of Poland, imposed, assessed, levied or collected by the
Republic of Poland or any political subdivision or taxing authority
thereof or therein or on or in respect of principal, interest, premiums,
penalties or other amounts payable under any indebtedness of any of the
Company's subsidiaries held by the Company.
(xxix) Rule 144A Eligibility. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of
the same class as securities listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as
<PAGE> 15
11
amended (the "1934 Act"), or quoted in a U.S. automated interdealer
quotation system.
(xxx) No General Solicitation. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf
(other than the Initial Purchaser, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933
Act.
(xxxi) No Registration Required. Subject to compliance by the
Initial Purchaser with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchaser and to each Subsequent Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum to
register the Securities under the 1933 Act or to qualify the Indenture
under the Trust Indenture Act of 1939, as amended (the "1939 Act").
(xxxii) No Directed Selling Efforts. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company,
its Affiliates or any person acting on its or their behalf (other than
the Initial Purchaser, as to whom the Company makes no representation)
has engaged or will engage in any directed selling efforts within the
meaning of Regulation S and (B) each of the Company and its Affiliates
and any person acting on its or their behalf (other than the Initial
Purchaser, as to whom the Company makes no representation) has complied
and will comply with the offering restrictions requirement of Regulation
S.
(b) Officer's Certificates. Any certificate titled "Officer's
Certificate" or "Secretary's Certificate" signed by any officer of the Company
or any of its subsidiaries thereof which is delivered to the Initial Purchaser
or to counsel for the Initial Purchaser shall be deemed a representation and
warranty by the Company to the Initial Purchaser as to the matters covered
thereby.
SECTION 2. Sale and Delivery to Initial Purchaser; Closing.
(a) Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Initial Purchaser, and the Initial
Purchaser agrees to purchase from the Company, at the price set forth in
Schedule A, the aggregate principal amount of Securities set forth on the first
page hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022, or at such other place
as shall be agreed upon by the Initial Purchaser and the Company, at 9:00 A.M.
on the third business day after the date hereof, or such other time not
<PAGE> 16
12
later than ten business days after such date as shall be agreed upon by the
Initial Purchaser and the Company (such time and date of payment and delivery
being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by Company, against
delivery of certificates for the Securities to the Initial Purchaser.
(c) Qualified Institutional Buyer. The Initial Purchaser hereby
represents and warrants to, and agrees with, the Company that it is a "qualified
institutional buyer" within the meaning of Rule 144A under the 1933 Act (a
"Qualified Institutional Buyer") and an "accredited investor" within the meaning
of Rule 501(a) under the 1933 Act (an "Accredited Investor").
(d) Denominations; Registration. Certificates for the Securities
shall be in such denominations ($1,000 or integral multiples thereof) and
registered in such names as the Initial Purchaser may request in writing at
least one full business day before the Closing Time. The certificates for the
Securities will be made available for examination and packaging by the Initial
Purchaser in The City of New York not later than 10:00 A.M. on the business day
prior to the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with
the Initial Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible,
will furnish to the Initial Purchaser, without charge, such number of copies of
the Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as the Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will
immediately notify the Initial Purchaser, and confirm such notice in writing, of
(x) any filing made by the Company of information relating to the offering of
the Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchaser as evidenced by a notice in
writing from the Initial Purchaser to the Company, any material changes in or
affecting the earnings, business affairs or business prospects of the Company
and its subsidiaries which (i) make any statement in the Final Offering
Memorandum (as amended or supplemented) false or misleading or (ii) are not
disclosed in the Final Offering Memorandum (as amended or supplemented). In such
event or if during such time any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchaser or counsel for the Initial Purchaser, to amend or supplement the Final
Offering Memorandum in order that the Final Offering Memorandum not include any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in the light of the
circumstances then existing, the Company will forthwith amend or supplement the
Final Offering Memorandum by preparing and furnishing to the Initial Purchaser
an amendment or amendments of, or a supplement or supplements
<PAGE> 17
13
to, the Final Offering Memorandum (in form and substance satisfactory in the
reasonable opinion of counsel for the Initial Purchaser) so that, as so amended
or supplemented, the Final Offering Memorandum will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances existing at
the time it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company
will advise the Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchaser, which consent shall not
be unreasonably withheld. Neither the consent of the Initial Purchaser, nor the
Initial Purchaser's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company
will use its best efforts, in cooperation with the Initial Purchaser, to qualify
the Securities for offering and sale under the applicable securities laws of
such jurisdictions as the Initial Purchaser may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
(e) Rating of Securities. The Company shall take all reasonable
action necessary to enable Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc. ("S&P") and Moody's Investors Service, Inc. ("Moody's") to provide
their respective credit ratings of the Securities.
(f) DTC and PORTAL. The Company will cooperate with the Initial
Purchaser and use its best efforts to (i) permit the Securities to be eligible
for clearance and settlement through the facilities of DTC and (ii) include
quotation of the Securities on PORTAL.
(g) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Offering Memorandum under "Use of Proceeds".
(h) Restriction on Sale of Securities. During a period of 180
days from the date of the Offering Memorandum, the Company will not, without the
prior written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt securities of the Company or securities of the Company that
are convertible into, or exchangeable for, the Securities or such other debt
securities, other than the Exchange Securities referred to in the Registration
Rights Agreement.
<PAGE> 18
14
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any Schedules or exhibits and any document incorporated
therein by reference) as originally filed and of each amendment or supplement
thereto, (ii) the preparation, printing and delivery to the Initial Purchaser of
this Agreement, the Registration Rights Agreement, the Pledge Agreement, the
Indenture and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the Initial
Purchaser, including any charges of DTC in connection therewith; (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof and any filing for review of the offering with
the NASD, including filing fees and the reasonable fees and disbursements of
counsel for the Initial Purchaser in connection therewith and in connection with
the preparation of the Blue Sky Survey, any supplement thereto and any Legal
Investment Survey, (vi) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee in connection with the Indenture
and the Securities, (vii) any fees payable in connection with the rating of the
Securities, and (viii) any fees payable to the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the initial and
continued designation of the Securities as PORTAL securities under the PORTAL
Market Rules pursuant to NASD Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by
the Initial Purchaser in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchaser for all of
its out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchaser through the date of termination.
SECTION 5. Conditions of Initial Purchaser's Obligations. The
obligations of the Initial Purchaser hereunder are subject to the accuracy of
the representations and warranties of the Company contained in Section 1 hereof
or in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinions of Counsel for Company. (i) At the Closing Time, the
Initial Purchaser shall have received two favorable opinions, each dated as of
the Closing Time, of Baker & McKenzie, counsel to the Company, each in form and
substance satisfactory to counsel for the Initial Purchaser, one to the effect
set forth in Exhibit B hereto and to such further effect as counsel to the
Initial Purchaser may reasonably request, and one to the effect set forth in
Exhibit C hereto and to such further effect as counsel to the Initial Purchaser
may reasonably request.
(ii) At the Closing Time, the Initial Purchaser shall have
received the favorable opinion, dated as of the Closing Time, of Baker &
McKenzie, Amsterdam, special Dutch counsel to PCBV, in form and substance
satisfactory to counsel to the Initial Purchaser, to the effect set forth
<PAGE> 19
15
in Exhibit D hereto and to such other effect as counsel to the Initial Purchaser
may reasonably request.
(b) Opinion of United States Counsel for Initial Purchaser. At
the Closing Time, the Initial Purchaser shall have received the favorable
opinion, dated as of the Closing Time, of Shearman & Sterling, counsel to the
Initial Purchaser, with respect to the matters set forth in paragraphs (i),
(ii), (v), (vi), (vii), (viii), (ix), (xv) and (xviii) of Exhibit B hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon the opinions of counsel satisfactory to
the Initial Purchaser. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(c) Opinion of Polish Counsel for Initial Purchaser. At the
Closing Time, the Initial Purchaser shall have received the favorable opinion,
dated as of the Closing Time, of Soltysinsky Kawecki & Szlezak, special Polish
counsel to the Initial Purchaser, in form satisfactory to the Initial Purchaser
with respect to certain of the matters set forth in paragraphs (i) through
(vii), inclusive, of Exhibit C hereto.
(d) Officers' Certificate. At the Closing Time, there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Initial Purchaser shall have received a certificate of the chief executive
officer of the Company and of the chief financial or chief accounting officer of
the Company, dated as of the Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(e) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Initial Purchaser shall have received from KPMG Peat Marwick
LLP a letter dated such date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type ordinarily included
in accountants' "comfort letters" to initial purchasers with respect to the
financial statements and certain financial information contained in the Offering
Memorandum.
(f) Bring-down Comfort Letter. At the Closing Time the Initial
Purchaser shall have received from KPMG Peat Marwick LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section , except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
<PAGE> 20
16
(g) Maintenance of Rating. At the Closing Time, the Securities
shall be rated at least B2 by Moody's and BB- by S&P, and the Company shall have
delivered to the Initial Purchaser a letter dated the Closing Time, from each
such rating agency, or other evidence satisfactory to the Initial Purchaser,
confirming that the Securities have such ratings; and since the date of this
Agreement, there shall not have occurred a downgrading in the rating assigned to
the Securities or any of the Company's other securities by any nationally
recognized securities rating agency, and no such securities rating agency shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities or any of the Company's
other securities.
(h) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(i) Additional Documents. At the Closing Time counsel for the
Initial Purchaser shall have been furnished with such documents and opinions as
they may require for the purpose of enabling them to pass upon the issuance and
sale of the Securities as herein contemplated, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Initial Purchaser and counsel
for the Initial Purchaser.
(j) Execution of Agreements. At the Closing Time, the
Registration Rights Agreement, the Pledge Agreement, in form and substance
reasonably satisfactory to the Initial Purchaser, and the Indenture, in form and
substance reasonably satisfactory to the Initial Purchaser, shall have been duly
executed and delivered and shall be in full force and effect.
(k) Repayment of Certain Indebtedness. On or prior to the Closing
Time, the Company will, or cause a subsidiary to, send notice of prepayment of
all outstanding borrowings under that certain Financing Agreement, dated as of
January 1, 1994, as amended, between Polska Telewizja Kablowa, S.A. and the
Overseas Private Investment Corporation.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchaser by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. The Initial Purchaser and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
<PAGE> 21
17
(i) Offers and Sales only to Institutional Accredited Investors or Qualified
Institutional Buyers. Offers and sales of the Securities will be made only by
the Initial Purchaser or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer or sale
shall only be made (A) to persons whom the offeror or seller reasonably believes
to be qualified institutional buyers (as defined in Rule 144A under the 1933
Act), (B) to a limited number of other institutional accredited investors (as
such term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D) that
the offeror or seller reasonably believes to be, and with respect to sales and
deliveries, that are Accredited Investors ("Institutional Accredited
Investors"), provided, however that each such Institutional Accredited Investor
executes and delivers to the Company and to the Initial Purchaser, prior to the
consummation of any sale of Securities to such Institutional Accredited
Investor, a signed letter containing certain representations and agreements
substantially in the form of Annex A to the Offering Memorandum or (C) to
non-U.S. persons outside the United States to whom the offeror or seller
reasonably believes offers and sales of the Securities may be made in reliance
upon Regulation S under the 1933 Act; provided that, with respect to clause (B),
each such transfer of Securities is effected by the delivery to such purchaser
of Securities in definitive form and registered in its name (or its nominee's
name) on the books maintained by the Trustee.
(ii) No General Solicitation. The Securities will be offered by
the Initial Purchaser only by approaching prospective Subsequent
Purchasers on an individual basis. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will
be used in the United States in connection with the offering of the
Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for
one or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the
judgment of the Initial Purchaser, be an Institutional Accredited
Investor or a Qualified Institutional Buyer or a non-U.S. person outside
the United States.
(iv) Subsequent Purchaser Notification. The Initial Purchaser
will take reasonable steps to inform, and cause each of its U.S.
Affiliates to take reasonable steps to inform, persons acquiring
Securities from the Initial Purchaser or such affiliate, as the case may
be, in the United States that the Securities (A) have not been and will
not be registered under the 1933 Act, (B) are being sold to them without
registration under the 1933 Act in reliance on Rule 144A or in
accordance with another exemption from registration under the 1933 Act,
as the case may be, and (C) may not be offered, sold or otherwise
transferred prior to (x) the date which is three years (or such shorter
period of time as permitted by Rule 144(k) under the 1933 Act or any
successor provision thereunder) after the later of the date of original
issue of the Securities and (y) such later date, if any, as may be
required under applicable laws except (1) to the Company or any of its
Subsidiaries, (2) inside the United States to qualified institutional
buyers (as defined in Rule 144A under the 1933 Act), (3) inside the
United States to an Institutional Accredited Investor that, prior to
such transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements (the form of
<PAGE> 22
18
which can be obtained from the Trustee), (4) outside the United States
in accordance with Rule 904 of Regulation S, (5) pursuant to an
exemption from registration provided by Rule 144 under the 1933 Act (if
available), (6) pursuant to an effective registration statement or (7)
pursuant to another available exemption from the registration
requirements of the 1933 Act.
(v) Restrictions on Transfer. The transfer restrictions and the
other provisions set forth in Sections 202 and 307 of the Indenture,
including the legend required thereby, shall apply to the Securities
except as otherwise agreed by the Company and the Initial Purchaser.
Following the sale of the Securities by the Initial Purchaser to
Subsequent Purchasers pursuant to the terms hereof, the Initial
Purchaser shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the 1933 Act, arising
from or relating to any resale or transfer of any Security.
(b) Covenants of the Company. The Company covenants with the
Initial Purchaser as follows:
(i) Due Diligence. In connection with the original distribution
of the Securities, the Company agrees that, prior to any offer or resale
of the Securities by the Initial Purchaser, the Initial Purchaser and
counsel for the Initial Purchaser shall have the right to make
reasonable inquiries into the business of the Company and its
subsidiaries. The Company also agrees to provide answers to each
prospective Subsequent Purchaser of Securities who so requests
concerning the Company and its subsidiaries (to the extent that such
information is available or can be acquired and made available to
prospective Subsequent Purchasers without unreasonable effort or expense
and to the extent the provision thereof is not prohibited by applicable
law) and the terms and conditions of the offering of the Securities, as
provided in the Offering Memorandum.
(ii) Sales of Other Securities. Neither the Company nor any of
its Affiliates will, directly or indirectly, offer, sell or solicit
offers to buy or otherwise negotiate in respect of any security (as
defined in the 1933 Act) that would require the registration of any of
the Securities under the 1933 Act, other than the Exchange Securities
referred to in the Registration Rights Agreement.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under
the 1933 Act, while any of the Securities remain outstanding, it will
make available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
<PAGE> 23
19
(iv) Restrictions on Repurchases. Until the expiration of three
years after the original issuance of the Securities, the Company will
not, and will cause its Affiliates not to, purchase or agree to purchase
or otherwise acquire any Securities which are "restricted securities"
(as such term is defined under Rule 144(a)(3) under the 1933 Act),
whether as beneficial owner or otherwise (except as agent acting as a
securities broker or on behalf of and for the account of customers in
the ordinary course of business in unsolicited broker's transactions)
unless, immediately upon any such purchase, the Company or any Affiliate
shall submit such Securities to the Trustee for cancellation.
(c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A. The
Initial Purchaser understands that the Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the 1933 Act or pursuant to an exemption from
the registration requirements of the 1933 Act. The Initial Purchaser represents
and agrees that, in connection with sales of Securities outside of the United
States, except as permitted by Section 6(a) above, it has offered and sold
Securities and will offer and sell Securities (i) as part of their distribution
at any time and (ii) otherwise until forty days after the later of the date upon
which the offering of the Securities commences and the Closing Time, only in
accordance with Rule 903 of Regulation S or Rule 144A under the 1933 Act.
Accordingly, neither the Initial Purchaser, its affiliates nor any persons
acting on their behalf have engaged or will engage in any directed selling
efforts with respect to Securities, and the Initial Purchaser, its affiliates
and any person acting on their behalf have complied and will comply with the
offering restriction requirements of Regulation S. The Initial Purchaser agrees
that, at or prior to confirmation of a sale of Securities outside of the United
States (other than a sale of Securities pursuant to Rule 144A), it will have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Securities from it or through it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered
under the United States Securities Act of 1933 (the
"Securities Act") and may not be offered or sold within
the United States or to or for the account or benefit of
U.S. persons (i) as part of their distribution at any
time and (ii) otherwise until forty days after the later
of the date upon which the offering of the Securities
commenced and the date of closing, except in either case
in accordance with Regulation S or Rule 144A under the
Securities Act. Terms used above have the meaning given
to them by Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
(d) Offers and Sales in Poland and Netherlands. The Initial
Purchaser has advised the Company and hereby represents and warrants to and
agrees with the Company that it will not offer or sell the Securities in Poland
except under circumstances which do not constitute a public
<PAGE> 24
20
offering or distribution of securities under Polish laws and regulations. The
Initial Purchaser further agrees it will not offer or sell the Securities in the
Netherlands except under circumstances which do not constitute a public offering
or distribution (aanbod buiten besloten kring) of securities under the laws and
regulations of the Netherlands.
(e) Offers and Sales in the United Kingdom. The Initial Purchaser
hereby represents, warrants and agrees that (i) it has not offered or sold and
prior to the expiration of the period six months after the date of issue of the
Securities will not offer to sell by means of any document any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on, and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
SECTION
7. Indemnification.
(a) Indemnification of Initial Purchaser. The Company agrees to
indemnify and hold harmless the Initial Purchaser and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum or the Final Offering Memorandum (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 7(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating,
<PAGE> 25
21
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchaser expressly for use in any Preliminary Offering Memorandum or
the Final Offering Memorandum (or any amendment or supplement thereto); and
provided further that the foregoing indemnity with respect to any untrue
statement contained in or omission from the Preliminary Offering Memorandum
shall not inure to the benefit of the Initial Purchaser (or any party
controlling the Initial Purchaser) if the person asserting any such loss,
liability, claim, damage or expense purchased the Securities which are the
subject thereof directly from the Initial Purchaser in the offering contemplated
by this Agreement and if the Company shall sustain the burden of proving that
such person did not receive a copy of the Final Offering Memorandum, or any
amendment or supplement thereto, at or prior to the written confirmation of the
sale of such Securities to such person and the untrue statement contained in or
omission from such Preliminary Offering Memorandum was corrected in the Final
Offering Memorandum, or such amendment or supplement thereto, subject to the
following: the failure to deliver a copy of the Final Offering Memorandum or
such amendment or supplement thereto does not result from non-compliance by the
Company with Sections 3(a) or 3(b) hereof.
(b) Indemnification of Company, Directors and Officers. The
Initial Purchaser agrees to indemnify and hold harmless the Company, its
directors, each of its officers, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section , as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in any Preliminary Offering Memorandum or
the Final Offering Memorandum (as amended or supplemented) in reliance upon and
in conformity with written information furnished to the Company by the Initial
Purchaser expressly for use in such Preliminary Offering Memorandum or the Final
Offering Memorandum (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 7(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may
<PAGE> 26
22
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for reasonable fees and expenses of counsel,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Initial Purchaser on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of the
Initial Purchaser on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and
the Initial Purchaser on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
<PAGE> 27
23
the Company and the total underwriting discount received by the Initial
Purchaser, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchaser on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls
the Initial Purchaser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser, and each director of the Company, each officer of the
Company, and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchaser.
<PAGE> 28
24
SECTION 10. Termination of Agreement.
(a) Termination; General. The Initial Purchaser may terminate
this Agreement, by notice to the Company, at any time at or prior to the Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, the
Republic of Poland or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, or in Polish taxation affecting the
Company or any subsidiary thereof or the transactions contemplated by the
Offering Memorandum, or currency exchange rates for the U.S. dollar into the
Polish Zloty or exchange controls applicable to the U.S. dollar or the Polish
Zloty, in each case the effect of which is such as to make it, in the judgment
of the Initial Purchaser, impracticable to market the Securities or to enforce
contracts for the sale of the Securities, or (iii) if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the NASDAQ National
Market System has been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by Polish, United States Federal
or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section , such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Initial Purchaser shall be directed to the Initial Purchaser at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Marisa D.
Drew; notices to the Company shall be directed to it at One Commercial Plaza,
24th Floor, Hartford, Connecticut 06103, attention of Richard Steele.
SECTION 12. Parties. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchaser and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchaser and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchaser and the
Company
<PAGE> 29
25
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any Initial
Purchaser shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one
or more counterparts and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
<PAGE> 30
26
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchaser and the Company in accordance with its terms.
Very truly yours,
POLAND COMMUNICATIONS, INC.
By
__________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _____________________________________
Authorized Signatory
<PAGE> 31
SCHEDULE A
POLAND COMMUNICATIONS, INC.
$130,000,000 9 7/8% Senior Notes due 2003
1. The initial public offering price of the Securities shall be
99.625% of the principal amount thereof, plus accrued interest, if any, from the
date of issuance.
2. The purchase price to be paid by the Initial Purchaser for the
Securities shall be 96.375% of the principal amount thereof.
3. The interest rate on the Securities shall be 9 7/8% per annum.
4. The following redemption provisions shall apply with respect
to the Securities:
(a) up to 33% of the outstanding aggregate principal amount of the
Securities may be redeemed at a price equal to 109 7/8% of the principal
amount thereof at any time prior to November 1, 1999 with the proceeds
of any Public Equity Offering (as defined in the Indenture) provided
that not less than $87 million aggregate principal amount of Securities
would remain outstanding immediately after giving effect to any such
redemption;
(b) the Company shall make an offer to purchase all outstanding
Securities at a price equal to 101% of the principal amount thereof upon
the occurrence of a Change of Control (as defined in the Indenture); and
(c) the Company may be obligated to make an offer to purchase all or a
portion of the outstanding Securities at a price equal to 100% of the
principal amount thereof upon the occurrence of, and with the proceeds
of, any Asset Sale (as defined in the Indenture).
<PAGE> 32
SCHEDULE B
DESIGNATED SUBSIDIARIES
<PAGE> 33
Exhibit A
REGISTRATION RIGHTS AGREEMENT
<PAGE> 34
Exhibit B
FORM OF UNITED STATES LAW OPINION OF COMPANY'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of New
York.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement, the Registration Rights Agreement, the Pledge Agreement, the
Indenture and the Securities.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to employee benefit plans referred to in the Offering Memorandum
or pursuant to the exercise of convertible securities or options referred to in
the Offering Memorandum); the shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of any preemptive or other similar rights of any
security holder of the Company.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and (assuming due authorization, execution
and delivery thereof by the Initial Purchaser) constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as (x) the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, (y) the enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and (z) any
rights to indemnity and contribution may be limited by federal and state
securities laws and public policy considerations.
(vii) The Indenture has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and
<PAGE> 35
B-2
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(viii) The Securities are in the form contemplated by the
Indenture, have been duly authorized by the Company and, when executed by the
Company and authenticated by the Trustee in the manner provided in the Indenture
(assuming the due authorization, execution and delivery of the Indenture by the
Trustee) and delivered against payment of the purchase price therefor will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be entitled to the benefits of the
Indenture.
(ix) The Registration Rights Agreement, the Securities, the
Pledge Agreement and the Indenture conform in all material respects to the
descriptions thereof contained in the Offering Memorandum.
(x) Except as described in the Offering Memorandum, there is not
pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary thereof is
subject, before or brought by any court or governmental agency or body, which
might reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of (1) the transactions contemplated in
the Purchase Agreement or the performance by the Company of its obligations
thereunder or (2) the transactions contemplated by the Offering Memorandum;
(xi) The information in the Offering Memorandum under "Certain
Relationships and Related Transactions", "Description of Indebtedness",
"Description of Notes", "Description of Capital Stock" and "Certain Federal
Income Tax Considerations", to the extent that it constitutes matters of law,
summaries of legal matters or legal proceedings, or legal conclusions, has been
reviewed by them and is correct in all material respects;
(xii) All descriptions in the Offering Memorandum of contracts
and other documents to which the Company or any of its subsidiaries is a party
are accurate in all material respects; to the best of their knowledge, there are
no franchises, contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments that would be required to be described in the Offering
Memorandum, if the Offering Memorandum were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not described or
referred to in the Offering Memorandum other than those described or referred to
therein or incorporated by reference thereto, and the descriptions thereof or
references thereto are correct in all material respects.
<PAGE> 36
B-3
(xiii) The Company is not in violation of its certificate of
incorporation or by-laws nor is the Company or any of its subsidiaries in
violation of any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their assets or properties, that is identified to such counsel by the
Company, except for such violations as are specifically identified as such and
described in the Offering Memorandum, and no default by the Company or any of
its subsidiaries exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Offering Memorandum, except
such defaults as are specifically identified as such and described in the
Offering Memorandum and except for such defaults that would not result in a
Material Adverse Effect.
(xiv) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be required under
the applicable securities laws of the various jurisdictions in which the
Securities will be offered or sold, as to which they need express no opinion) is
required in connection with the due authorization, execution and delivery of the
Purchase Agreement, the Registration Rights Agreement, the Pledge Agreement, or
the Indenture or for the offering, issuance, sale or delivery of the Securities
to the Initial Purchaser or the resale by the Initial Purchaser in accordance
with the Purchase Agreement.
(xv) It is not necessary in connection with the offer, sale and
delivery of the Notes to the Initial Purchaser and to each Subsequent Purchaser
in the manner contemplated by the Purchase Agreement and the Offering Memorandum
to register the Notes under the 1933 Act or to qualify the Indenture under the
Trust Indenture Act.
(xvi) The execution, delivery and performance of the Purchase
Agreement, the DTC Agreement, the Registration Rights Agreement, the Pledge
Agreement, the Indenture and the Securities and the consummation of the
transactions contemplated in the Purchase Agreement and in the Offering
Memorandum (including the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use Of Proceeds") and
compliance by the Company with its obligations under the Purchase Agreement, the
Registration Rights Agreement, the Pledge Agreement, the Indenture and the
Securities will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or Repayment
Event under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease or any other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company or any of
its subsidiaries is subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a Material Adverse Effect),
nor will such action result in any violation of the provisions of the charter or
by-laws of the Company, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary thereof or any of their respective properties, assets or operations,
that is identified to such counsel by the Company.
<PAGE> 37
B-4
(xvii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xviii)The Pledge Agreement has been duly authorized, executed
and delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(xix) The provisions of the Pledge Agreement are effective to
create a valid security interest in favor of the Trustee, for the ratable
benefit of the holders of the Securities, in the Pledged Debt. Such security
interest will be a valid, perfected first priority security interest if the
Pledged Debt is delivered to the Trustee and held in the Pledge Account (as
defined in the Pledge Agreement) in accordance with the terms of the Pledge
Agreement.
(xx) Under the laws of the State of New York relating to personal
jurisdiction, Poland Cablevision (Netherlands) B.V. ("PCBV") has, pursuant to
Section __ of the Pledge Agreement, validly and irrevocably submitted to the
personal jurisdiction of any state or federal court located in the Borough of
Manhattan, The City of New York, New York (each a "New York Court") in any
action arising out of or relating to the Pledge Agreement or the transactions
contemplated thereby, has validly and irrevocably waived any objection to the
venue of a proceeding in any such court, and has validly and irrevocably
appointed the Authorized Agent (as defined in the Pledge Agreement) as their
authorized agent for the purpose described in Section __ of the Pledge
Agreement; and service of process effected on such agent in the manner set forth
in Section __ of the Pledge Agreement will be effective to confer valid personal
jurisdiction over PCBV.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (xi) and (xii) above insofar as such
statements concern legal matters) and that they have participated in conferences
with the Company, representatives of the Initial Purchaser and its counsel and
the independent public accountants for the Company at which the Offering
Memorandum was prepared and the contents thereof and related matters were
discussed. In the course of these conferences and discussions, no facts have
come to their attention that would lead them to believe that the Offering
Memorandum (except for financial statements and schedules and other financial
data included or incorporated by reference therein as to which they need make no
statement), contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Offering Memorandum or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein, as to
which such counsel need make no statement), at the time the Offering Memorandum
was issued, at the time any such amended or supplemented Offering Memorandum was
issued or at the Closing Time, included or includes an untrue statement of a
material fact
<PAGE> 38
B-5
or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of Dutch law, upon the opinion of Caron &
Stevens, special Netherlands counsel to Poland Cablevision (Netherlands) B.V.
(which opinion shall be delivered to the Initial Purchaser at the Closing Time
pursuant to the provisions of Section 5(a)(ii)), provided that such counsel
shall state in their opinion that they believe that they and the Initial
Purchaser are justified in relying upon such opinions, and (B), as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
<PAGE> 39
Exhibit C
FORM OF POLISH LAW OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) Each Designated Subsidiary (other than PCBV) has been duly
incorporated and is validly existing as a corporation under the laws of the
Republic of Poland, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is not required to be qualified as a foreign corporation to
transact business in any jurisdiction in which it owns or leases property or
conducts business; all of the issued and outstanding capital stock of each
Designated Subsidiary (other than PCBV) has been duly authorized and validly
issued, is fully paid and non-assessable and, to the best of their knowledge and
information, except as otherwise disclosed in the Offering Memorandum, is owned
by the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(ii) Except as described in the Offering Memorandum, there is not
pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of (1) the Purchase Agreement or the
performance by the Company of its obligations thereunder or (2) the transactions
contemplated by the Offering Memorandum;
(iii) The information in the Offering Memorandum under
"Business--Property", "Business--Legal Proceedings", and "Regulation", to the
extent that it constitutes matters of law, summaries of legal matters, the
charter and bylaws (or similar organizational documents) of any subsidiaries of
the Company or legal proceedings, or legal conclusions, has been reviewed by
them and is correct in all material respects;
(iv) All descriptions in the Offering Memorandum of contracts and
other documents to which the Company or any of its subsidiaries is a party are
accurate in all material respects; to the best of their knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that would be required to be described in the Offering
Memorandum, if the Offering Memorandum were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not described or
referred to in the Offering Memorandum other than those described or referred to
therein or incorporated by reference thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(v) None of the Designated Subsidiaries (other than PCBV) is in
violation of its charter or by-laws (or other similar organizational documents)
nor is the Company or any of its subsidiaries in violation of any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their assets
or properties, identified to such counsel by the Company, except for such
violations as are specifically identified as such and described in the Offering
Memorandum and, to the
<PAGE> 40
C-2
best of their knowledge, no default by the Company or any of its subsidiaries
exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is described
or referred to in the Offering Memorandum or filed or incorporated by reference
as an exhibit to the Offering Memorandum, except such defaults as are
specifically identified and described in the Offering Memorandum and except for
such defaults that would not result in a Material Adverse Effect.
(vi) The execution, delivery and performance of the Purchase
Agreement, the DTC Agreement, the Registration Rights Agreement, the Pledge
Agreement, the Indenture and the Securities and the consummation of the
transactions contemplated in the Purchase Agreement and in the Offering
Memorandum (including the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use Of Proceeds") and
compliance by the Company with its obligations under the Purchase Agreement, the
Registration Rights Agreement, the Pledge Agreement, the Indenture and the
Securities will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or Repayment
Event under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary thereof
pursuant to any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known to them, to
which the Company or any subsidiary thereof is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company or
any subsidiary thereof is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws (or other similar organizational documents ) of any
subsidiary of the Company (other than PCBV), or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to them, that are
identified to such counsel by the Company, of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any subsidiary thereof or any of their respective properties, assets
or operations.
(vii) Except for such failures as are specifically identified and
described in the Offering Memorandum and except as would not result in a
Material Adverse Effect, each of the Designated Subsidiaries owns or possesses
or has obtained all material governmental licenses, certificates, permits,
concessions, consents, orders, approvals and other authorizations necessary to
hold all concessions, leases and permits or own its properties, including,
without limitation, all licenses and permits relating to intellectual property,
and to carry on its business as presently conducted, and, to the best of their
knowledge after due inquiry, none of the Designated Subsidiaries has received
any notice relating to the revocation or modification of any such concession,
license, certificate, permit, consent, order, approval or other authorizations.
(ix) Each of the Management Agreements and the Management Loans
(as such terms are defined in the Indenture) has been duly authorized, executed
and delivered by the parties thereto and constitutes a valid and binding
agreement of each of the parties thereto, enforceable against each of the
parties thereto in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by
<PAGE> 41
C-3
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
(x) There are no restrictions (legal, contractual or otherwise)
on the ability of the Designated Subsidiaries to declare and pay dividends or
make any payment or transfer of property or assets to their shareholder other
than those described in the Offering Memorandum and such restrictions as would
not result in a Material Adverse Effect; and such descriptions, if any, fairly
summarize such restrictions.
(xi) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the Securities
will be offered or sold, as to which they need express no opinion) is required
in connection with the due authorization, execution and delivery of the Purchase
Agreement, the Registration Rights Agreement, the Pledge Agreement, or the
Indenture or for the offering issuance, sale or delivery of the Securities to
the Initial Purchaser or the resale by the Initial Purchaser in accordance with
the Purchase Agreement.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (iii), (iv) and (x) above insofar as
such statements concern legal matters) and that they have participated in
conferences with the Company, representatives of the Initial Purchaser and its
counsel and the independent public accountants for the Company at which the
Offering Memorandum was prepared and the contents thereof and related matters
were discussed. In the course of these conferences and discussions, no facts
have come to their attention that would lead them to believe that the Offering
Memorandum (except for financial statements and schedules and other financial
data included or incorporated by reference therein as to which they need make no
statement), contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Offering Memorandum or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein, as to
which such counsel need make no statement), at the time the Offering Memorandum
was issued, at the time any such amended or supplemented Offering Memorandum was
issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely as to matters
involving the application of Netherlands law, upon the opinion of Caron &
Stevens, special Netherlands counsel to the Company (which opinion shall be
delivered to the Initial Purchaser at the Closing Time pursuant to the
provisions of section 5(a)(ii)), provided that such counsel shall state in their
opinion that they believe that they and the Initial Purchaser are justified in
relying on such opinion, and as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. Such opinion shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
<PAGE> 42
Exhibit D
FORM OF OPINION OF PCBV'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) PCBV has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Netherlands, has corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; all of the issued and outstanding capital stock of PCBV has been
duly authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(ii) There are no restrictions (legal, contractual or otherwise)
on the ability of PCBV to declare and pay dividends or make any payment or
transfer of property or assets to its shareholder other than those described in
the Offering Memorandum and such restrictions as would not have a material
adverse effect on the prospects, condition, financial or otherwise, or in the
earnings, business or operations of PCBV; and such descriptions, if any, fairly
summarize such restrictions.
(iii) The Pledged Debt (as defined in the Pledge Agreement)
constitutes a legal, valid and binding obligation of PCBV, enforceable against
PCBV in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
(iv) Under the Pledge Agreement, PCBV has validly submitted to
jurisdiction in the United States, and judgements in the United States against
PCBV would be enforceable against PCBV in the Netherlands.
(v) The interest of the Trustee in the Pledged Debt under the
Pledge Agreement would be protected and recognized under the laws of the
Netherlands.
In rendering such opinion, such counsel may rely as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
WORLD CABLE COMMUNICATIONS, INC.
(Pursuant to Section 807 of the
New York Business Corporation Law)
IT IS HEREBY CERTIFIED THAT:
FIRST: The name of the Corporation is:
WORLD CABLE COMMUNICATIONS, INC. (hereinafter the
"Corporation). The name under which the Corporation was
formed is Servus Management Corporation of New York.
SECOND: The original Certificate of Incorporation was filed by the
Department of State on August 27, 1982.
THIRD: The following amended and restated Certificate of
Incorporation amends the following Articles of the
Corporation's original Certificate of Incorporation as
modified by the first amended Certificate dated January 10,
1985, which Certificate was filed with the Secretary of State
of New York on January 25, 1985, the restated Certificate
dated April 16, 1991, and the amended Certificate dated June
21, 1991: Article IV relating to the authorized shares of the
Corporation, Article VI relating to preemptive rights of
shareholders, Article VIII relating to the number of
directors, and Article X, Section 2(C) relating to the scope
of indemnification. The amended and restated Certificate of
Incorporation adds Article VIII relating to actions requiring
supermajority vote. The amended and restated Certificate of
Incorporation eliminates Article VII relating to shareholders'
actions.
<PAGE> 2
FOURTH: The restatement of the Certificate of Incorporation herein
provided for was authorized by the unanimous written consent
of the Board of Directors of the Corporation and the holders
of all outstanding shares entitled to vote, all in accordance
with Sections 803 and 804 of the New York Business Corporation
Law.
FIFTH: The Corporation is authorized to issue 32,000 shares of
capital stock, 20,000 of which are Class A Common Shares,
10,000 of which are Class B Common Shares and 2,000 of which
are Series A Preferred Shares. There are currently 12,474
Class A Common Shares, 1,000 Class B Common Shares, and 1,151
Series A Preferred Shares issued and outstanding. Upon this
amendment becoming effective, the 20,000 authorized Class A
Common Shares shall be reduced to 13,810 authorized Class A
Common Shares. Following the reduction of the number of
authorized Class A Common Shares, each issued and outstanding
Class A Common Share shall be changed to one (1) validly
issued, fully paid and nonassessable share of common stock
with par value of $0.01 per share ("Common Stock") and each
authorized but unissued Class A Common Share shall be changed
to one (1) authorized but unissued share of Common Stock. The
rate of exchange for issued and outstanding Class A Common
Shares is one (1) issued and outstanding Class A Common Share
for one (1) issued and outstanding share of Common Stock and
the rate of exchange for authorized but unissued Class A
Common Shares is one (1) authorized but unissued Class A
Common Share for one (1) authorized but unissued share of
Common Stock. Upon this amendment becoming effective, each
issued and outstanding Class B Common Share shall be changed
to one (1) validly issued, fully paid and nonassessable share
of Common Stock and each authorized but unissued Class B
Common Share shall be changed to one (1) authorized but
unissued share of Common Stock. The rate of exchange for
issued and outstanding Class B Common Shares is one (1) issued
and outstanding Class B Common Share for one (1) issued and
outstanding share of Common Stock and the rate of exchange for
authorized but unissued Class B Common Shares is one (1)
authorized but unissued Class B Common Share for one (1)
authorized but unissued share of Common Stock. Also
2
<PAGE> 3
upon this amendment becoming effective, the 2,000 authorized
Series A Preferred Shares shall be reduced to 1,151 Series A
Preferred Shares. Following the reduction, each Series A
Preferred Share shall be changed to one (1) validly issued,
fully paid and nonassessable share of Series D Preferred Stock
with par value of $0.01 per share. The rate of exchange for
issued and outstanding Series A Preferred Shares is one (1)
issued and outstanding Series A Preferred Share for one (1)
issued and outstanding share of Series D Preferred Stock with
par value of $0.01 per share.
The Corporation is decreasing the number of authorized shares
of Common Stock to 23,810, increasing the number of authorized
shares of preferred stock to 9,651 and authorizing the
issuance of 4,000 shares of Series A Preferred Stock with
different rights and preferences than the Corporation's
current Series A Preferred Shares, 2,500 shares of Series B
Preferred Stock, 2,000 shares of Series C Preferred Stock and
1,151 shares of Series D Preferred Stock.
SIXTH: To accomplish the amendments described above, (i) Articles IV,
VI, and Article X, Section 2(C), are hereby amended to read as
set forth in the same numbered Articles of the Certificate of
Incorporation of the Corporation as hereafter restated; (ii)
Article VII has been deleted; (iii) the previous Article VIII
has been removed and placed, as amended, as Article VII; and
(iv) Article VIII is added as set forth in the Certificate of
Incorporation of the Corporation as herewith restated.
SEVENTH: The text of the Certificate of Incorporation of the
Corporation is hereby restated as further amended or changed
herein to read as follows:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is World Cable Communications, Inc.
3
<PAGE> 4
ARTICLE II
PURPOSE
To engage in any lawful act or activity for which Corporations may be
organized under the Business Corporation Law, provided that the Corporation is
not formed to engage in any act or activity requiring the consent or approval
of any state official, department, board, agency or other body without such
consent or approval first being obtained.
ARTICLE III
CORPORATE OFFICE
The office of the Corporation is to be located in the County of
Albany, State of New York.
ARTICLE IV
AUTHORIZED SHARES
Section 1. Authorized. The aggregate number of shares which the
Corporation is authorized to issue is thirty three thousand four hundred and
sixty-one (33,461), of which twenty three thousand eight hundred and ten
(23,810) shares are authorized for common stock, par value one cent (U.S.
$0.01) per share ("Common Stock"), four thousand (4,000) shares are authorized
for Series A Preferred Stock, par value of one dollar (U.S. $1.00) per share,
two thousand five hundred (2,500) shares are authorized for Series B Preferred
Stock, par value of one cent (U.S. $0.01) per share, two thousand (2,000)
shares are authorized for Series C Preferred Stock, par value of one cent (U.S.
$0.01) per share, and one thousand one hundred and fifty-one (1,151) shares are
authorized for Series D Preferred Stock, par value of one cent (U.S. $0.01) per
share. The Common Stock and the four series of preferred stock shall have the
voting rights, designations, preferences, qualifications, privileges,
limitations, options and other rights as follows:
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<PAGE> 5
Section 2. Common Stock.
A. Voting Rights. The holders of Common Stock shall be entitled
to one (1) vote per share on all matters submitted to the shareholders
of the Corporation.
B. Dividend Provisions. The holders of shares of Common Stock
shall be entitled to receive dividends when, as and if declared by the
Board of Directors.
Section 3. Series A Preferred Stock.
A. Voting Rights. The holders of Series A Preferred Stock shall not
be entitled to vote on any matters submitted to the shareholders of
the Corporation, except as otherwise required by applicable law.
B. Dividend Provisions. The holders of shares of Series A Preferred
Stock shall not be entitled to receive dividends.
C. Redemption.
(1) Mandatory Redemption. On March 31, 2003, the Corporation
shall be required to redeem the Series A Preferred Stock (the
"Series A Redemption Date").
(2) Optional Redemption. At the option of the Corporation,
the Series A Preferred Stock may be redeemed at any time, in
whole or in part. The Corporation may exercise said option by
providing notice of redemption in accordance with Article IV,
Section 3(C)(4).
(3) Redemption Price. The redemption price per share of
Series A Preferred Stock to be paid upon a redemption under
this Section 3(C) shall be ten thousand dollars (U.S. $10,000)
(the "Series A Redemption Price"). The Series A Redemption
Price shall be adjusted proportionately in the event the
Series A Preferred Stock is adjusted into a lesser number of
shares or subdivided into a greater number of shares.
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<PAGE> 6
(4) Redemption Notice. Notice of any redemption pursuant
to this Section 3(C) shall be given by the Corporation by
mailing notice (the "Series A Redemption Notice"), via
registered or certified mail, postage prepaid, or by hand
delivery to the holders of record of the Series A Preferred
Stock (as of the close of business on the business day next
preceding the day on which the Series A Redemption Notice is
given) at their respective addresses as the same shall appear
on the stock books of the Corporation, not less than 30 days
nor more than 60 days prior to the date of such redemption and
the Series A Redemption Notice shall state the time and place
fixed for such redemption.
(5) Surrender of Certificates. Upon surrender of a
certificate or certificates representing shares to be redeemed
pursuant to this Section 3(C), the Corporation shall remit an
amount equal to the product of (i) the Series A Redemption
Price, times (ii) the number of shares of Series A Preferred
Stock to be redeemed. If fewer than all of the shares
represented by any such certificate or certificates presented
for redemption are to be redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the
holder. If so required by the Corporation, any certificate
for Series A Preferred Stock surrendered for redemption shall
be accompanied by instruments of transfer, duly executed by
the holder of such Series A Preferred Stock or his duly
authorized representative.
(6) Rights After the Series A Redemption Date. From and
after the close of business on the Series A Redemption Date,
unless there shall have been a default in the payment of the
redemption price, all rights of holders of shares of Series A
Preferred Stock redeemed pursuant to Section 3(C) shall cease
with respect to such shares, and thereafter such shares shall
not be deemed to be outstanding for any purposes whatsoever.
(7) Cancellation of Redeemed Shares. Any shares of Series A
Preferred Stock that shall at any time have been redeemed or
repurchased by the Corporation shall, after such redemption or
repurchase, be cancelled by the Corporation and shall not be
available for reissuance.
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Section 4. Series B Preferred Stock.
A. Voting Rights. Except as otherwise required by law, the shares of
Series B Preferred Stock shall be entitled to vote on an equal basis
together with the shares of Common Stock and not as a separate class
or series or sub-series at any annual or special meeting of the
stockholders of the Corporation, or may act by written consent in the
same manner as the Common Stock, in either case upon the following
basis: each holder of shares of Series B Preferred Stock shall be
entitled to such number of votes for the Series B Preferred Stock held
by such holder on the record date fixed for such meeting, or on the
effective date of such written consent, as shall be equal to the
number of shares (rounded to the nearest whole share) of Common Stock
into which all shares of Series B Preferred Stock held by such holder
are convertible on such date.
B. Dividend Provisions. The holders of shares of Series B Preferred
Stock shall not be entitled to receive dividends.
C. Redemption.
(1) Mandatory Redemption. On March 31, 2003, the Corporation
shall be required to redeem the Series B Preferred Stock (the
"Series B Redemption Date"). Prior to the mandatory
redemption of the Series B Preferred Stock, subject to the
provisions of Section 4(D)(2), the holders of any shares
thereof shall have the option to convert their shares into
Common Stock. Prior to the mandatory redemption of the Series
B Preferred Stock, if no IPO Closing has occurred by such
date, all of the Series A Preferred Stock shall have been
exchanged, repurchased or redeemed in full or otherwise
cancelled.
(2) Optional Redemption. At the option of the Corporation,
the Series B Preferred Stock may be redeemed at any time, in
whole or in part. Prior to the date set for redemption of the
Series B Preferred Stock pursuant to this Section 4(C)(2), the
holders of any shares thereof shall have the option to convert
their shares into Common Stock in accordance with Section
4(D). The Corporation shall exercise said option by providing
notice of redemption in accordance with Article IV, Section
4(C)(4).
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<PAGE> 8
(3) Redemption Price. The redemption price per share of
Series B Preferred Stock to be paid upon a redemption under
this Section 4(C) shall be equal to ten thousand dollars (U.S.
$10,000) (the "Series B Redemption Price"). The Series B
Redemption Price shall be adjusted proportionately in the
event the Series B Preferred Stock is adjusted into a lesser
number of shares or subdivided into a greater number of
shares.
(4) Redemption Notice. Notice of any redemption pursuant
to this Section 4(C), shall be given by the Corporation by
mailing notice (the "Series B Redemption Notice"), via
registered or certified mail, postage prepaid, or by hand
delivery to the holders of record of the Series B Preferred
Stock (as the close of business on the business day next
preceding the day on which the Series B Redemption Notice is
given) at their respective addresses as the same shall appear
on the stock books of the Corporation, not less than 30 days
nor more than 60 days prior to the date of such redemption and
the Series B Redemption Notice shall state the time and place
fixed for such redemption.
(5) Surrender of Certificates. Upon surrender of a
certificate or certificates representing shares to be redeemed
pursuant to this Section 4(C), the Corporation shall remit an
amount equal to the product of, (i) the Series B Redemption
Price, times (ii) the number of shares of the Series B
Preferred Stock to be redeemed. If fewer than all of the
shares represented by any such certificate or certificates
presented for redemption are to be redeemed, a new certificate
shall be issued representing the unredeemed shares without
cost to the holder. If so required by the Corporation, any
certificate for Series B Preferred Stock surrendered for
redemption shall be accompanied by instruments of transfer,
duly executed by the holder of such Series B Preferred Stock
or his duly authorized representative.
(6) Rights After the Series B Redemption Date. From and
after the close of business on the Series B Redemption Date,
unless there shall have been a default in the payment of the
redemption price, all rights of holders of shares of Series B
Preferred Stock redeemed pursuant to Section 4(C) shall cease
with respect to such
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<PAGE> 9
shares, and thereafter such shares shall not be deemed to be
outstanding for any purposes whatsoever.
(7) Cancellation of Redeemed Shares. Any shares of Series B
preferred Stock that shall at any time have been redeemed or
repurchased by the Corporation shall, after such redemption or
repurchase, be cancelled by the Corporation and shall not be
available for reissuance.
D. Conversion Rights.
(1) Conversion Ratio. Subject to and in compliance with
the provisions of this Section 4(D), each holder of
outstanding shares of Series B Preferred Stock shall have the
right at any time, or from time to time, prior to March 31,
2003, at such holder's option, without charge by the
Corporation to such holder, to convert such shares of Series B
Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) equal to the
then applicable Conversion Ratio (as defined below) multiplied
by the number of shares of Series B Preferred Stock to be
converted pursuant to this Section 4(D). The Conversion Ratio
per share of Series B Preferred Stock shall be 1.9448 shares
of Common Stock for each share of Series B Preferred Stock,
subject to adjustment from time to time as provided in
Sections 4(D)(4) and 4(D)(5).
(2) Automatic Conversion. Notwithstanding any other
provision of this Section 4(D), each share of Series B
Preferred Stock shall automatically be converted into shares
of Common Stock at the then applicable Conversation Ratio for
such shares of Series B Preferred Stock (i) simultaneously
with the closing (the "IPO Closing") of an underwritten public
offering of shares 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 to the public
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<PAGE> 10
of at least twenty percent (20%) of the Common Stock of the
Corporation outstanding immediately after the IPO Closing or
(ii) immediately prior to the closing of a merger or
consolidation of the Corporation with or into another
corporation or entity which is not an affiliate of the
Corporation. For purposes of this Section 4(D)(2), "affiliate
of the Corporation" shall mean any person or entity that
controls, is controlled by or is under common control with the
Corporation.
(3) De Minimis Conversion. At no time shall any holder
of outstanding shares of Series B Preferred Stock convert less
than twenty-five percent (25%) of the total number of
authorized shares of Series B Preferred Stock into shares of
Common Stock pursuant to this Section 4(D), provided, however,
if at any time a holder of Series B Preferred Stock holds less
than twenty-five percent (25%) of the total number of
authorized shares of Series B Preferred Stock, such holder
shall have the right to convert all such holder's shares of
Series B Preferred Stock into Common Stock.
(4) Anti-Dilution. If at any time, or from time to time, the
Corporation shall declare and pay on or in respect of, Common
Stock any dividend payable in Common Stock or subdivide the
outstanding number of shares of Common Stock into a greater
number of shares, or contract the number of outstanding shares
of Series B Preferred Stock by combining such shares into a
smaller number of shares of Series B Preferred Stock, the
Conversion Ratio in effect at the time of the taking of a
record for such dividend or the taking of such other action
shall be proportionately increased as of such time;
(5) Anti-Dilution. If at any time, or from time to
time, the Corporation shall reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller
number of shares, or subdivide the outstanding shares of
Series B Preferred Stock into a greater number of shares of
Series B Preferred Stock, the Conversion Ratio in effect at
the time of the taking of any such action shall be
proportionately decreased as of such time;
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<PAGE> 11
(6) Merger, Consolidation or Reclassification. If the
Corporation shall consolidate with or merge into any
corporation (other than a merger or consolidation referred to
in clause (ii) of Section 4(D)(2) or reclassify its
outstanding Common Stock, each share of Series B Preferred
Stock shall thereafter be convertible into the number of
shares of stock or other securities or property of the
Corporation, or of the entity resulting from such
consolidation or merger, to which a holder of the number of
shares of Common Stock deliverable upon conversion of such
share of Series B Preferred Stock would have been entitled
upon such consolidation or merger or reclassification, had the
holder of such share of Series B Preferred Stock exercised his
right of conversion and had such shares been issued and
outstanding and had such holder been the holder of record of
such shares of Common Stock at the time of such consolidation,
merger or reclassification; and the Corporation shall make
lawful provision therefor as part of such consolidation,
merger or reclassification;
(7) Conversion Notice. In order to exercise his
conversion privilege, the holder of any Series B Preferred
Stock to be converted into Common Stock shall present and
surrender the certificate representing such Series B Preferred
Stock during usual business hours at any office or agency of
the Corporation and shall deliver a written notice of the
election of such holder to convert the shares represented by
such certificate or any portion thereof specified in such
notice, and shall fix a date for conversion which is not less
than five nor more than ten days ("conversion date") from the
date of the notice. Such notice shall also specify the name
or names (with addresses) in which the certificate or
certificates representing the Common Stock which shall be
issuable on such conversion shall be issued. If so required
by the Corporation, any certificate for Series B Preferred
Stock surrendered for conversion into Common Stock shall be
accompanied by instruments of transfer, duly executed by the
holder of such Series B Preferred Stock or his duly authorized
representative. Each conversion of Series B Preferred Stock
into Common Stock shall be deemed to have been effected on the
conversion date provided for in such notice, provided that the
certificates representing the Series B Preferred Stock, and
any
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<PAGE> 12
required instruments of transfer, shall have been received by
the Corporation as aforesaid, and thereafter the person or
persons in whose name or names any certificate or certificates
representing Common Stock which shall be issuable on such
conversion shall be deemed to have become, immediately prior
to the close of business on the conversion date, the holder or
holders of record of the Common Stock represented thereby;
(8) Lapse of Rights on Redemption. In case any of the
Series B Preferred Stock shall have been redeemed by the
Corporation, such rights of conversion shall cease and
terminate with respect to such shares so redeemed unless
default shall have been made in the payment of the redemption
price on the date fixed for the redemption of such shares;
(9) Corporation's Obligation. As promptly as practicable
after the presentation and surrender for conversion into
Common Stock, as herein provided, of any certificate
representing any Series B Preferred Stock, after the
conversion date, the Corporation shall issue and deliver to or
upon the written order of the holder thereof, certificates
representing the number of shares of Common Stock issuable
upon such conversion. In case any certificates representing
Series B Preferred Stock shall be surrendered for conversion
of only a part of the shares represented thereby into Common
Stock, the Corporation shall also deliver to or upon the
written order of the holder thereof, a certificate or
certificates representing the number of shares of Series B
Preferred Stock represented by such surrendered certificate
which are not being converted. The issuance of certificates
representing Common Stock issuable upon conversion of Series B
Preferred Shares shall be made without charge by the
Corporation to the converting holder including, without
limitation, charges for any tax imposed on the Corporation
with respect to the issuance thereof. The Corporation shall
not, however, be required to pay any tax which may be payable
with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the
holder of the shares being converted, and the Corporation
shall not be required to issue or deliver any such certificate
unless and until the person requesting the issue thereof shall
have paid to the
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<PAGE> 13
Corporation the amount of such tax or shall have established
to the satisfaction of the Corporation that such tax has been
paid;
(10) Rights of Converted Shares. All Series B Preferred
Stock which shall have been surrendered for conversion into
Common Stock as herein provided upon the conversion date shall
no longer be deemed to be outstanding, and all rights of the
holders of such surrendered shares including the rights, if
any, to receive dividends, proceeds from redemption or
liquidation and notices and to vote, shall thereupon cease and
terminate, except only the right of the holders thereof to
receive Common Stock in exchange therefor;
(11) Conversion Adjustment. If applicable, whenever the
Conversion Ratio is adjusted, as herein provided or as
provided in the appropriate amendment to this Certificate of
Incorporation, the Corporation shall promptly file with the
transfer agent, if any, for the Common Stock of the
Corporation a statement signed by the President or a Vice
President or the Secretary or the Treasurer setting forth the
adjusted Conversion Ratio determined as so provided. Such
statement shall set forth in reasonable detail such facts as
may be necessary to show the reason for and the manner of
computing such adjustment; and
(12) No Reissuance. Upon conversion of any shares of Series
B Preferred Stock into Common Stock, such shares of Series B
Preferred Stock so converted shall be cancelled and shall not
be reissued.
(13) No Fractional Shares. No fractional shares or
securities representing fractional shares of Common Stock
shall be issued upon conversion of the Series B Preferred
Stock. Any fractional interest in a share of Common Stock
resulting from conversion of Series B Preferred Stock shall be
paid in cash (computed to the nearest cent). Consideration
paid for each fractional share shall be an amount equal to (i)
the amount resulting from dividing (x) the fraction for such
fractional share by (y) the Conversion Ratio, multiplied by
(ii) the Series B Redemption Price.
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Section 5. Series C Preferred Stock.
A. Voting Rights. The holders of Series C Preferred Stock shall not
be entitled to vote on any matters submitted to the shareholders of
the Corporation, except as otherwise required by applicable law.
B. Dividend Provisions. The holders of shares of Series C Preferred
Stock shall not be entitled to receive dividends.
C. Mandatory Redemption.
(1) Mandatory Redemption. On March 31, 2003, the
Corporation shall be required to redeem the Series C Preferred
Stock (the "Series C Redemption Date"). Prior to the
mandatory redemption of the Series C Preferred Stock, if no
IPO Closing has occurred by such date, all of the Series A
Preferred Stock and all of the Series B Preferred Stock shall
have been converted, exchanged, repurchased or redeemed in
full or otherwise cancelled.
(2) Optional Redemption. At the option of the Corporation,
the Series C Preferred Stock may be redeemed at any time, in
whole or in part, provided that before any shares of Series C
Preferred Stock may be redeemed, the Series A Preferred Stock
and the Series B Preferred Stock shall have been converted,
exchanged, repurchased or redeemed in full or otherwise
cancelled. The Corporation shall exercise said option by
providing notice of redemption in accordance with Section
5(C)(4).
(3) Redemption Price. The redemption price per share of
Series C Preferred Stock to be paid upon a redemption under
this Section 5(C) shall be equal to ten thousand dollars (U.S.
$10,000) (the "Series C Redemption Price"). The Series C
Redemption Price shall be adjusted proportionately in the
event the Series C Preferred Stock is adjusted into a lesser
number of shares or subdivided into a greater number of
shares.
(4) Redemption Notice. Notice of any redemption pursuant to
this Section 5(C) shall be given by the Corporation by mailing
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<PAGE> 15
notice (the "Series C Redemption Notice"), via registered or
certified mail, postage prepaid, or by hand delivery to the
holders of record of the Series C Preferred Stock (as of the
close of business on the business day next preceding the day
on which the Series C Redemption Notice is given) at their
respective addresses as the same shall appear on the stock
books of the Corporation, not less than 30 days nor more than
60 days prior to the date of such redemption and the Series C
Redemption Notice shall state the time and place fixed for
such redemption.
(5) Surrender of Certificates. Upon surrender of certificate
or certificates representing shares to be redeemed pursuant to
this Section 5(C), the Corporation shall remit an amount equal
to the product of, (i) the Series C Redemption Price, times
(ii) the number of shares of the Series C Preferred Stock to
be redeemed. If fewer than all of the shares represented by
any such certificate or certificates presented for redemption
are to be redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder.
If so required by the Corporation, any certificate for Series
C Preferred Stock surrendered for redemption shall be
accompanied by instruments of transfer, duly executed by the
holder of such Series C Preferred Stock or his duly authorized
representative.
(6) Rights After the Series C Redemption Date. From and
after the close of business on the Series C Redemption Date,
unless there shall have been a default in the payment of the
redemption price, all rights of holders of shares of Series C
Preferred Stock redeemed pursuant to Section 5(C) shall cease
with respect to such shares, and thereafter such shares shall
not be deemed to be outstanding for any purposes whatsoever.
(7) Cancellation of Redeemed Shares. Any shares of Series C
Preferred Stock that shall at any time have been redeemed or
repurchased by the Corporation shall, after such redemption or
repurchase, be cancelled by the Corporation and shall not be
available for reissuance.
Section 6. Series D Preferred Stock.
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A. Voting Rights. The holders of Series D Preferred Stock shall not
be entitled to vote on any matters submitted to the shareholders of
the Corporation, except as otherwise required by applicable law.
B. Dividend Provisions. The holders of shares of Series D Preferred
Stock shall not be entitled to receive dividends.
C. Mandatory Redemption.
(1) Mandatory Redemption. The Corporation shall redeem
the Series D Preferred Stock on a date designated by the
Corporation in the Series D Redemption Notice (as hereinafter
defined) which date (the "Series D Redemption Date") shall be
not later than June 30, 1996.
(2) Redemption Price. The redemption price per share of
Series D Preferred Stock to be paid upon a redemption under
this Section 6(C) shall be equal to seven thousand three
hundred eighty-four dollars and eighty-eight cents (U.S.
$7,384.88) (the "Series D Redemption Price"). The Series D
Redemption Price shall be adjusted proportionately in the
event the Series D Preferred Stock is adjusted into a larger
number of shares or subdivided into a greater number of
shares.
(3) Mandatory Redemption Notice. Notice of any redemption
pursuant to this Section 6(C), shall be given by the
Corporation by mailing notice (the "Series D Redemption
Notice"), via registered or certified mail, postage prepaid,
or by hand delivery to the holders of record of the Series D
Preferred Stock (as of the close of business on the business
day next preceding the day on which the Series D Redemption
Notice is given) at their respective addresses as the same
shall appear on the stock books of the Corporation at least
one (1) day prior to the date of such mandatory redemption.
(4) Surrender of Certificates. Upon surrender of a
certificate or certificates representing shares to be redeemed
pursuant to this Section 6(C), the Corporation shall remit an
amount equal to the product of, (i) the Series D Redemption
Price, times (ii) the
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<PAGE> 17
number of shares of the Series D Preferred Stock to be
redeemed. If so required by the Corporation, any certificate
for Series D Preferred Stock surrendered for redemption shall
be accompanied by instruments of transfer, duly executed by
the holder of such Series D Preferred Stock or his duly
authorized representative.
(5) Rights After the Series D Redemption Date. From and
after the close of business on the Series D Redemption Date,
unless there shall have been a default in the payment of the
redemption price, all rights of holders of shares of Series D
Preferred Stock redeemed pursuant to this Section 6(C) shall
cease with respect to such shares, and thereafter such shares
shall not be deemed to be outstanding for any purposes
whatsoever.
(6) Cancellation of Redeemed Shares. Any shares of Series D
preferred Stock that shall at any time have been redeemed or
repurchased by the Corporation shall, after such redemption or
repurchase, be cancelled by the Corporation and shall not be
available for reissuance.
Section 7. Liquidation Preferences of Preferred Stock.
A. Subject to Section 7(B), upon the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, after payment or provisions for the payment of the
debts and other liabilities of the Corporation, the assets then
available for distribution to the shareholders shall be distributed as
follows:
(1) First to the holders of the Series A Preferred Stock,
to the extent available, in an amount equal to $10,000.00 per
share (the "Series A Liquidation Preference"), but if the
funds available therefor are insufficient, then to the holders
of Series A Preferred Stock on a pro rata basis in accordance
with the number of shares held by each holder.
(2) Second to the holders of the Series B Preferred
Stock, to the extent available, in an amount equal to
$10,000.00 per share (the "Series B Liquidation Preference"),
but if the funds available therefor are insufficient, then to
the holders of Series B Preferred
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<PAGE> 18
Stock on a pro-rata basis in accordance with the number of
shares held by each holder.
(3) Third to the holders of the Series C Preferred Stock,
to the extent available, in an amount equal to $10,000.00 per
share (the "Series C Liquidation Preference"), but if the
funds available therefor are insufficient, then to the holders
of Series C Preferred Stock on a pro-rata basis in accordance
with the number of shares held by each holder.
(4) Fourth to the holders of the Series D Preferred Stock, to
the extent available, in an amount equal to $7,384.88 per
share (the "Series D Liquidation Preference"), but if the
funds available therefor are insufficient, then to the holders
of Series D Preferred Stock on a pro-rata basis in accordance
with the number of shares held by each holder.
(5) After distribution in accordance with clauses (1), (2),
(3) and (4) above, all remaining assets available for
distribution to the shareholders shall be distributed to the
holders of shares of the outstanding Common Stock on a pro
rata basis in accordance with the number of shares held by
each holder.
B. Upon the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation that
occurs after the IPO Closing, after payment or provisions for the
payment of the debts and other liabilities of the Corporation, the
assets then available for distribution to the shareholders shall be
distributed as follows: first, an amount equal to the aggregate
Series A Liquidation Preference, Series B Liquidation Preference and
Series C Liquidation Preference for all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, respectively, shall be distributed pro rata among all holders
of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock based on the number of shares held by each
holder; second, an amount equal to the aggregate Series D Liquidation
Preference for all outstanding shares of Series D Preferred Stock
shall be distributed to the holders of the Series D Preferred Stock
pro rata based on the number of shares held by each holder; and third,
all remaining assets available for distribution to the shareholders
shall be
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<PAGE> 19
distributed to the holders of the outstanding Common Stock on a pro
rata basis in accordance with the number of shares held by each
holder.
C. Notwithstanding the foregoing, the Series A Liquidation
Preference, the Series B Liquidation Preference, the Series C
Liquidation Preference or the Series D Liquidation Preference, as the
case may be, shall be adjusted proportionately in the event that the
number of shares of such series of preferred stock is adjusted into a
lesser number of shares or adjusted into a greater number of shares.
ARTICLE V
AGENT FOR SERVICE OF PROCESS
The Secretary of State is designated as agent of the Corporation upon
whom process against it may be served. The post office address which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him is:
Cheryl Chase Freedman, Esq.
c/o Chase Enterprises
One Commercial Plaza, 24th Floor
Hartford, Connecticut 06103
ARTICLE VI
PREEMPTIVE RIGHTS
No shareholder of the Corporation shall have preemptive rights to
acquire shares of the Corporation, and such rights are specifically denied by
this Article VI.
ARTICLE VII
DIRECTORS
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The Board of Directors of the Corporation shall consist of five (5)
directors, unless a different number shall be established by amendment to this
Certificate of Incorporation.
ARTICLE VIII
ACTIONS REQUIRING SUPERMAJORITY VOTE
The following actions shall 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 shall be 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 shall require the affirmative vote of at least
sixty-one one-hundredths of the total number of shares of 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 shall also
require the approval of the Board of Directors at a special meeting of the
Board of Directors for which (and for no purposes other than the approval of
actions taken pursuant to this subsection (ii)) two-fifths of the total number
of directors shall constitute a quorum.
A. any action to effect a fundamental change in the business of
the Corporation or any wholly owned or partially owned, direct or
indirect subsidiary (whether in the form of a corporation, partnership
or otherwise) of the Corporation that the Corporation controls through
voting rights, contractual arrangements or otherwise (hereinafter a
"Subsidiary"). For the purposes of this Section, the term "business"
shall mean cable television, programming, telecommunications and
telephony in the geographic territories which as of March 1, 1996 were
within the boundaries of Poland, the Czech Republic, Russia, Ukraine,
Slovakia, Hungary, Romania, Bulgaria, Albania, Latvia, Lithuania,
Estonia, Slovenia, Yugoslavia, Bosnia-Hercegovina, Croatia, and
Macedonia.
B. The adoption of, and approval of any modification of, the
annual budget of the Corporation (the "Budget") for each fiscal year,
which
20
<PAGE> 21
Budget shall at a minimum include (i) an income statement that will
show in reasonable detail the revenues and expenses projected for the
fiscal year, (ii) a cash flow statement that will show in reasonable
detail the receipts and disbursements projected for the fiscal year as
well as any anticipated cash surplus or deficiency, and (iii) any
contemplated borrowings for the fiscal year.
C. the expenditure during any fiscal year of the Corporation,
whether by purchase, lease or otherwise, for securities, other capital
assets or in connection with entering into any joint venture,
partnership or consortium arrangement, of an amount in excess of
$5,000,000, provided, however, that such restrictions shall not apply
to expenditures included in the Budget for such fiscal year approved
by the Board of Directors in accordance with Subsection B or for
capital expenditures which, in the aggregate, do not exceed by five
percent (5%) the amount contained in the Budget for capital
expenditures;
D. a merger or other business combination or the sale, lease,
transfer or other disposition of all or any material portion of the
assets of the Corporation, whether by a single transaction or a series
of related transactions. For purposes of this subsection, any portion
of the assets of the Corporation accounting for 10% or more of the
gross revenue or net asset value of the Corporation shall be deemed to
be material;
E. the creation of an encumbrance on any material portion of the
assets of the Corporation or on any of the capital stock of any
Subsidiary, other than (i) security interests arising in connection
with actions not requiring approval under Subsections G or M, below,
(ii) encumbrances not requiring the consent of the Corporation, and
(iii) any encumbrance in existence, or required under agreements in
existence, as of March 21, 1996. For purposes of this subsection, any
portion of the assets of the Corporation accounting for 10% or more of
the gross revenues or net asset value of the Corporation shall be
deemed material. For the purpose of this subsection, the term
"encumbrance" shall mean any interest or equity of any person
(including any right to acquire, option or right of pre-emption),
voting arrangement, mortgage, charge, pledge, bill of sale, lien,
deposit, hypothecation, assignment or any other encumbrance, priority
or security interest or arrangement or interest under any contract
21
<PAGE> 22
or trust or any other third party interest of whatever nature over or
in the relevant property;
F. transactions with (i) a shareholder of the Corporation or of
any Subsidiary, (ii) a member of the immediate family of any such
shareholder, or (iii) any entity controlled by, controlling or under
common control with any such shareholder (the persons and entities in
(i)-(iii) being referred to herein as "Related Parties") and any
action permitting any Subsidiary to enter into a transaction with any
one or more Related Parties;
G. the issuance by the Corporation of, third party debt if as a
result thereof, the aggregate principal balance of all third party
debt owed by the Corporation, not including trade credit extended to
the Corporation in the normal course of business, would exceed U.S.
$25,000,000;
H. the issuance by the Corporation of any capital stock other
than (i) in connection with the issuance of capital stock which
underlies convertible debt, which convertible debt was previously
approved pursuant to subsection G or did not require approval
thereunder, (ii) issuance of Common Stock pursuant to conversion of
the Series B Preferred Stock, (iii) in an initial public offering at
an equity valuation, including any shares of preferred stock then
outstanding, in excess of $225,000,000;
I. the declaration of dividends or other distributions on
outstanding capital stock of the Corporation;
J. the repurchase or redemption of any capital stock of the
Corporation or the taking of any action that would cause an adjustment
in the Conversion Ratio under Sections 4(D)(4), 4(D)(5) or 4(D)(6) of
Article IV, except for any mandatory redemptions referenced in Article
IV;
K. the dissolution or liquidation of the Corporation;
L. amending the Certificate of Incorporation or Bylaws other than
in connection with an issuance of capital stock permitted under
subsection H,;
22
<PAGE> 23
M. the giving of any guarantee or indemnity, other than (i) in
connection with indebtedness permitted under subsection G of this
Article VIII and (ii) in the normal course of business in relation to
the purchase or supply of goods or services;
N. the election or removal of the Chief Executive Officer or the
Chairman of the Board;
O. the entering into, varying the terms of or termination of any
contract of employment of any director of the Corporation or of any
executive whose aggregate salary exceeds $100,000 per annum;
P. the changing of the auditors, the fiscal year end date or the
registered office of the Corporation;
Q. settling or otherwise resolving any claim by or against the
Corporation with respect to income taxes or any other type of tax, for
which the amount in dispute is greater than $250,000;
R. the commencement, prosecution, or compromise by the
Corporation of any legal or arbitration proceedings, other than (i)
routine debt collection (ii) any claim the amount in dispute under
which is less than $250,000 (iii) actions by the Corporation against
its shareholders, (iv) counterclaims and cross-claims in actions
brought against the Corporation, and (v) any settlement involving
expenditure by the Corporation of less than $250,000; and
S. the taking of any steps to have the Corporation wound up, or
voluntarily taking advantage of any provisions of any applicable
bankruptcy laws.
ARTICLE IX
LIMITED LIABILITY OF DIRECTORS
The personal liability of a director of the Corporation or its
shareholders for monetary damages for breach of duty as a director shall be
limited to an amount that is not less than the compensation received by the
director for
23
<PAGE> 24
serving the Corporation 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 Corporation under circumstances in which
the director was aware that his conduct or omission created an unjustifiable
risk of serious injury to the Corporation; (D) constitute a sustained and
unexcused pattern of inattention that amounted to an abdication of the
director's duty to the Corporation; or (E) create liability under an applicable
provision of the laws of the State of New York which cannot be limited or made
inapplicable by this Article. For purposes hereof, "Associate" of a director
means (A) 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; (B) 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 (C) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person.
ARTICLE X
INDEMNIFICATION
Section 1. Definitions. As used in this Article XI:
A. "Agent" means any person who is or was an agent of the
Corporation and any person who, while an agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another Enterprise.
B. "Corporation" includes any domestic or foreign predecessor
entity of the Corporation in a merger, consolidation or other transaction in
which the predecessor's existence ceased upon consummation of such transaction.
C. "Director" means any person who is or was a director of the
Corporation and who, while a director of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another Enterprise or as a fiduciary of an employee
benefit plan or
24
<PAGE> 25
trust maintained for the benefit of employees of the Corporation or employees
of any other Enterprise.
D. "Eligible Outside Party" means any person who, although not a
shareholder, director, officer, employee or agent of the Corporation, is or was
serving solely at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another Enterprise.
E. "Employee" means any person who is or was an employee of the
Corporation and any person who, while an employee of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another Enterprise or as a fiduciary of an
employee benefit plan or trust maintained for the benefit of employees of the
Corporation or employees of any other Enterprise.
F. "Enterprise" means any other foreign or domestic Corporation,
partnership, joint venture, trust or other enterprise, other than an employee
benefit plan or trust.
G. "Expenses" include attorneys' fees.
H. "Officer" means any person who is or was an officer of the
Corporation and any person who, while an officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another Enterprise or as a fiduciary of an
employee benefit plan or trust maintained for the benefit of employees of the
Corporation or employees of any other Enterprise.
I. "Party" includes a person who was, is, or is threatened to be
made, a defendant or respondent in a proceeding.
J. "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, and shall include any appeal therein.
K. "Shareholder" means any person who is or was a shareholder of
the Corporation and any person who, while a shareholder of the Corporation, is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another Enterprise.
25
<PAGE> 26
Section 2. Scope of Indemnification.
A. Except as otherwise provided in this Article X or in the laws
of the State of New York, the Corporation shall indemnify any person made a
Party to any Proceeding, other than an action by or in the right of the
Corporation, 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 Corporation, or an Eligible Outside Party, 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 Corporation shall not so indemnify any such person
unless (1) such person, and the person whose legal representative he is, was
successful on the merits in the defense of any proceeding referred to in this
subsection, or (2) it shall be concluded as provided in subsection C of this
Section 2 that such person, and the person whose legal representative he is,
acted in good faith and in a manner he reasonably believed to be in the best
interests of the Corporation, or in the case of a person serving as a fiduciary
of an employee benefit plan or trust, either in the best interests of the
Corporation or in the best interests of the participants and beneficiaries of
such employee benefit plan or trust and consistent with the provisions of such
employee benefit plan or trust and, with respect to any criminal action or
proceeding, that they had no reasonable cause to believe his conduct was
unlawful, or (3) the court, on application as provided in subsection D of this
Section 2, shall have determined that in view of all circumstances such person
is fairly and reasonably entitled to be indemnified, and then for such amount
as the court shall determine; except that, in connection with an alleged claim
based upon his purchase or sale of securities of the Corporation or another
Enterprise, which he serves or served at the request of the Corporation, the
Corporation shall only indemnify such person after the court shall have
determined, on application as provided in subsection D of this Section 2, 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 shall determine. The
termination of any Proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith or in a manner which he
did not reasonably believe to be in the best interests of the Corporation or of
the participants and beneficiaries of such employee benefit plan or trust and
consistent with the provisions of such employee benefit plan or trust, or, with
respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
26
<PAGE> 27
B. Except as otherwise provided in this Article X or in the laws
of the State of New York, the Corporation shall indemnify any person made a
Party to any Proceeding, by or in the right of the Corporation, 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 a Shareholder, director, officer, employee or
agent of the Corporation, or an Eligible Outside Party, against reasonable
Expenses actually incurred by him in connection with such proceeding in
relation to matters as to which such person, or the person whose legal
representative he is, is finally adjudged not to have breached his duty to the
Corporation, or where the court, on application as provided in subsection D of
this Section 2, shall have 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 shall determine. The Corporation shall not so
indemnify any such person for amounts paid to the Corporation, 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.
C. The conclusion provided for in subsection A of this Section 2
may be reached by any one of the following: (1) The Board of Directors of the
Corporation by a consent in writing signed by a majority of those directors who
were not Parties to such Proceeding; (2) independent legal counsel selected by
a consent in writing signed by a majority of those directors who were not
Parties to such Proceeding; (3) in the case of any Employee or Agent who is not
an officer or Director of the Corporation, the Corporation's general counsel
with respect to any matter for which the amount to be indemnified hereunder is
less than $100,000; or (4) the shareholders of the Corporation by the
affirmative vote of at least fifty-five percent (55%) of the voting power of
shares not owned by Parties to such Proceeding, represented at an annual or
special meeting of Shareholders, duly called with notice of such purpose
stated. Such person shall also be entitled to apply to a court for such
conclusion, upon application as provided in subsection D, even though the
conclusion reached by any of the foregoing shall have been adverse to him or to
the person whose legal representative he is.
D. Where an application for indemnification or for a conclusion
as provided in this Section 2 is made to a court, it shall be made to the court
for the judicial district where the principal office of the Corporation is
located. The application shall be made in such manner and form as any be
required by the applicable rules of the court, or in the absence thereof, by
direction of the court.
27
<PAGE> 28
The court may also direct that notice be given in such manner as it may require
at the expense of the Corporation to the Shareholders of the Corporation and to
such other persons as the court may designate. In the case of an application
to a court in which a Proceeding is pending in which the person seeking
indemnification is a Party by reason of the fact that he, or the person whose
legal representative he is, is or was serving at the request of the Corporation
as a Director, partner, trustee, Officer, Employee or Agent of another
Enterprise, or as a fiduciary of an employee benefit plan or trust maintained
for the benefit of employees of any other enterprise, timely notice of such
application shall be given by such person to the Corporation.
E. Expenses which may be indemnifiable under this section
incurred in defending a proceeding may be paid by the Corporation in advance of
the final disposition of such proceeding as authorized by the Board of
Directors upon agreement by or on behalf of the Shareholder, Director, Officer,
Employee, Agent or Eligible Outside Party, or his legal representative, to
repay such amount if he is later found not to be entitled to indemnification by
the Corporation as authorized in this Article X.
F. The Corporation shall not indemnify any Shareholder, Director,
Officer, Employee, Agent or Eligible Outside Party, other than a Shareholder,
Director, Officer, Employee, Agent or Eligible Outside Party who is or was
serving at the request of the Corporation as a Director, Officer, partner,
trustee, Employee or Agent of another enterprise, against judgments, fines,
penalties, amounts paid in settlement and expenses to an extent either greater
or less than the authorized in this Article X. Notwithstanding the foregoing,
the Corporation may procure insurance providing greater indemnification and may
share the premium cost with any Shareholder, Director, Officer, Employee, Agent
or Eligible Outside Party on such basis as may be agreed upon.
28
<PAGE> 29
Section 3. Validity. If this Article X or any portion thereof shall
be invalidated on any grounds by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director, Officer, Employee,
Agent and Shareholder of the Corporation as to expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, a grand jury proceeding any
action, suit or proceeding by or in the right of the Corporation, to the
fullest extent permitted by any applicable portion of this Article X that shall
not have been invalidated, by the Business Corporation Law of New York or by
any other applicable law.
IN WITNESS WHEREOF, we have subscribed this document as the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
March 25, 1996
Washington, D.C.
------------------------
Vice President
------------------------
Secretary
29
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
OF
WORLD CABLE COMMUNICATIONS, INC.
(under section 805 of the Business Corporation Law)
IT IS HEREBY CERTIFIED THAT:
FIRST: The name of the Company is World Cable Communications, Inc.
(hereinafter the "Corporation"). The name under which the
Company was formed is Servus Management Corporation of New
York.
SECOND: The original Certificate of Incorporation was filed by the
Department of State on August 27, 1982.
THIRD: This Certificate of Amendment effects amendments to the
following Articles of the Corporation's Restated Certificate
of Incorporation, dated March 25, 1996 and filed by the
Department of State on March 27, 1996 (hereinafter the
"Certificate of Incorporation"): Article I relating to the
name of the Corporation; Article IV, Section 1, in which an
additional two hundred forty-one (241) shares of common stock
are being authorized; Subparagraphs (C)(1) of each of Section
3, Section 4 and Section 5 of Article IV relating to the date
for mandatory redemption of the Preferred Stock of the
Corporation; and Subparagraph (D)(1) of Section 4 of Article
IV relating to the date for conversion of the Series B
Preferred Stock. The full texts of the provisions to be
substituted are set forth in Articles Fifth through Tenth of
this Certificate of Amendment.
FOURTH: The amendments of the Certificate of Incorporation herein
provided for were authorized by the unanimous written consent
of the Board of Directors of the Corporation and by the
unanimous written consent of the holders of all outstanding
shares entitled to vote, all in accordance with Sections 803
and 804 of the Business Corporation Law.
<PAGE> 2
FIFTH: Article I of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is Poland Communications, Inc.
SIXTH: Section 1 of Article IV of the Certificate of Incorporation is
hereby amended to read in its entirety as follows:
Section 1. Authorized. The aggregate number of shares which the
Corporation is authorized to issue is thirty three thousand seven hundred and
two (33,702), of which twenty-four thousand fifty-one (24,051) shares are
authorized for common stock, par value one cent (U.S. $0.01) per share ("Common
Stock"), four thousand (4,000) shares are authorized for Series A Preferred
Stock, par value of one dollar (U.S. $1.00) per share, two thousand five
hundred (2,500) shares are authorized for Series B Preferred Stock, par value
of one cent (U.S. $0.01) per share, two thousand (2,000) shares are authorized
for Series C Preferred Stock, par value of one cent (U.S. $0.01) per share, and
one thousand one hundred and fifty-one (1,151) shares are authorized for Series
D Preferred Stock, par value of one cent (U.S. $0.01) per share. The Common
Stock and the four series of preferred stock shall have the voting rights,
designations, preferences, qualifications, privileges, limitations, options and
other rights as follows:
SEVENTH: Subparagraph (C)(1) of Section 3 of Article IV of the
Certificate of Incorporation is hereby amended to read in its
entirety as follows:
(1) Mandatory Redemption. On September 30, 2004, the Corporation
shall be required to redeem the Series A Preferred Stock (the "Series
A Redemption Date").
EIGHTH: Subparagraph (C)(1) of Section 4 of Article IV of the
Certificate of Incorporation is hereby amended to read in its
entirety as follows:
(1) Mandatory Redemption. On September 30, 2004, the Corporation
shall be required to redeem the Series B Preferred Stock (the "Series
B Redemption Date"). Prior to the mandatory redemption of the Series
B Preferred Stock, subject to the provisions of Section 4(D)(2), the
holders of any shares thereof shall have the option to convert their
shares into Common Stock. Prior to the mandatory redemption of the
Series B Preferred Stock, if no IPO Closing has occurred by such date,
all of the Series A Preferred Stock shall have been exchanged,
repurchased or redeemed in full or otherwise cancelled.
<PAGE> 3
NINTH: Subparagraph (D)(1) of Section 4 of Article IV of the
Certificate of Incorporation is hereby amended to read in its
entirety as follows:
(1) Conversion Ratio. Subject to and in compliance with the
provisions of this Section 4(D), each holder of outstanding shares of
Series B Preferred Stock shall have the right at any time, or from
time to time, prior to September 30, 2004, at such holder's option,
without charge by the Corporation to such holder, to convert such
shares of Series B Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion
to the nearest 1/100th of a share) equal to the then applicable
Conversion Ratio (as defined below) multiplied by the number of shares
of Series B Preferred Stock to be converted pursuant to this Section
4(D). The Conversion Ratio per share of Series B Preferred Stock
shall be 1.9448 shares of Common Stock for each share of Series B
Preferred Stock, subject to adjustment from time to time as provided
in Sections 4(D)(4) and 4(D)(5).
TENTH: Subparagraph (C)(1) of Section 5 of Article IV of the
Certificate of Incorporation is hereby amended to read in its
entirety as follows:
(1) Mandatory Redemption. On September 30, 2004, the Corporation
shall be required to redeem the Series C Preferred Stock (the "Series
C Redemption Date"). Prior to the mandatory redemption of the Series
C Preferred Stock, if no IPO Closing has occurred by such date, all of
the Series A Preferred Stock and all of the Series B Preferred Stock
shall have been converted, exchanged, repurchased or redeemed in full
or otherwise cancelled.
IN WITNESS WHEREOF, we have subscribed this Certificate of Amendment
as of October ___, 1996, and do hereby affirm, under the penalties of perjury,
that the statements contained herein have been examined by us and are true and
correct.
-----------------------------------------
David Chase, Chairman of the Board, World
Cable Communications, Inc.
-----------------------------------------
Cheryl Chase Freedman, Secretary, World
Cable Communications, Inc.
<PAGE> 1
EXHIBIT 4.11
POLAND COMMUNICATIONS, INC.
TO
STATE STREET BANK AND TRUST COMPANY,
Trustee
--------------------
INDENTURE
Dated as of October 31, 1996
---------------------
$130,000,000
9 7/8% Senior Notes due 2003
and
9 7/8% Series B Senior Notes due 2003
<PAGE> 2
POLAND COMMUNICATIONS, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF OCTOBER 31, 1996
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
Section 310(a)(1) ........................................... 607
(a)(2) ............................................... 607
(b) .................................................. 608
Section 312(c) .............................................. 701
Section 314(a) .............................................. 703
(a)(4) ............................................... 1008(a)
(c)(1) ............................................... 102
(c)(2) ............................................... 102
(e) .................................................. 102
Section 315(b) .............................................. 601
Section 316(a)(last
sentence) ............................................ 101 ("Outstanding")
(a)(1)(A) ............................................ 502, 512
(a)(1)(B) ............................................ 513
(b) .................................................. 508
(c) .................................................. 104(d)
Section 317(a)(1) ........................................... 503
(a)(2) ............................................... 504
(b) .................................................. 1003
Section 318(a) .............................................. 111
</TABLE>
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
PAGE
PARTIES..................................................................... 1
RECITALS OF THE COMPANY..................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions ............................................... 1
Acquired Indebtedness ................................................... 2
Act ..................................................................... 2
Advent .................................................................. 2
Affiliate ............................................................... 2
Annualized Pro Forma Consolidated Operating Cash Flow ................... 3
Asset Acquisition ....................................................... 3
Asset Sale .............................................................. 3
Authorized Prior Owner .................................................. 4
Average Life ............................................................ 4
Bankruptcy Law .......................................................... 4
Board of Directors ...................................................... 4
Board Resolution ........................................................ 4
Business Day ............................................................ 4
Cable/Telecommunications Acquisition .................................... 4
Cable/Telecommunications Business ....................................... 5
Capital Stock ........................................................... 5
Capitalized Lease Obligation ............................................ 5
Cash Equivalents ........................................................ 5
Change of Control ....................................................... 5
Commission .............................................................. 6
Common Stock ............................................................ 6
Company ................................................................. 7
Company Request or Company Order ........................................ 7
Consolidated Income Tax Expense ......................................... 7
Consolidated Interest Expense ........................................... 7
Consolidated Net Income ................................................. 7
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 4
ii
PAGE
Consolidated Operating Cash Flow ........................................ 8
Corporate Trust Office .................................................. 8
Corporation ............................................................. 8
Cumulative Available Cash Flow .......................................... 8
Currency Agreement ...................................................... 9
Default ................................................................. 9
Defaulted Interest ...................................................... 9
Depositary .............................................................. 9
Disinterested Director .................................................. 9
ECO ..................................................................... 9
Event of Default ........................................................ 9
Exchange Act ............................................................ 9
Exchange Offer .......................................................... 9
Exchange Offer Registration Statement ................................... 9
Exchange Securities ..................................................... 9
Fair Market Value ....................................................... 10
Federal Bankruptcy Code ................................................. 10
Generally Accepted Accounting Principles or GAAP ........................ 10
Global Security ......................................................... 10
guarantee ............................................................... 10
Holder .................................................................. 10
Indebtedness ............................................................ 10
Indenture ............................................................... 11
Initial Securities ...................................................... 11
Interest Payment Date ................................................... 11
Interest Rate Agreements ................................................ 11
Investment .............................................................. 11
Issue Date .............................................................. 12
Lien .................................................................... 12
Majority Owned Subsidiary ............................................... 12
Management Agreement .................................................... 12
Management Company ...................................................... 12
Management Contract ..................................................... 12
Maturity ................................................................ 12
Moody's ................................................................. 12
Net Cash Proceeds ....................................................... 13
Officers Certificate .................................................... 13
Opinion of Counsel ...................................................... 13
Outstanding ............................................................. 13
<PAGE> 5
iii
PAGE
Overhead Agreement ...................................................... 14
Pari Passu Indebtedness ................................................. 14
Paying Agent ............................................................ 15
PCBV .................................................................... 15
Pending Acquisitions .................................................... 15
Permitted Holders ....................................................... 15
Permitted Indebtedness .................................................. 15
Permitted Investments ................................................... 17
Permitted Liens ......................................................... 17
Person .................................................................. 18
Pledge Agreement ........................................................ 18
Pledged Collateral ...................................................... 18
Pledged Debt ............................................................ 18
Poland Programming ...................................................... 19
Poltelkab ............................................................... 19
Predecessor Security .................................................... 19
Preferred Stock ......................................................... 19
ProCable ................................................................ 19
PTK-Ryntronik ........................................................... 19
Public Equity Offering .................................................. 19
Purchase Money Obligations .............................................. 19
Qualified Capital Stock ................................................. 19
Qualified Institutional Buyer or QIB .................................... 19
Redeemable Capital Stock ................................................ 20
Redemption Date ......................................................... 20
Redemption Price ........................................................ 20
Registration Rights Agreement ........................................... 20
Registration Statement .................................................. 20
Regular Record Date ..................................................... 20
Regulation S ............................................................ 20
Responsible Officer ..................................................... 20
Restricted Payment ...................................................... 20
Rule 144A ............................................................... 21
Ryntronik Agreement ..................................................... 21
S&P ..................................................................... 21
Securities .............................................................. 21
Security Register and Security Registrar ................................ 21
Senior Bank Indebtedness ................................................ 21
Service Agreement ....................................................... 22
<PAGE> 6
iv
PAGE
Shareholder Registration Rights Agreement................................ 22
Shelf Registration Statement............................................. 22
Significant Subsidiary................................................... 22
Special Record Date...................................................... 22
Stated Maturity.......................................................... 22
Subordinated Indebtedness................................................ 22
Subsidiary............................................................... 22
Total Consolidated Indebtedness.......................................... 23
Trust Indenture Act or TIA............................................... 23
Trustee ................................................................ 23
Unrestricted Subsidiary.................................................. 23
U.S. Dollar.............................................................. 24
U.S. Dollar Equivalent................................................... 24
Use of Proceeds Payments................................................. 24
Vice President........................................................... 24
Voting Stock............................................................. 24
Wholly Owned............................................................. 24
SECTION 102. Compliance Certificates and Opinions....................... 24
SECTION 103. Form of Documents Delivered to Trustee..................... 25
SECTION 104. Acts of Holders............................................ 26
SECTION 105. Notices, etc., to Trustee, Company......................... 27
SECTION 106. Notice to Holders; Waiver.................................. 27
SECTION 107. Effect of Headings and Table of Contents................... 28
SECTION 108. Successors and Assigns..................................... 28
SECTION 109. Separability Clause........................................ 28
SECTION 110. Benefits of Indenture...................................... 28
SECTION 111. Governing Law.............................................. 29
SECTION 112. Legal Holidays............................................. 29
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally............................................ 29
SECTION 202. Restrictive Legends........................................ 31
ARTICLE THREE
THE SECURITIES
<PAGE> 7
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PAGE
SECTION 301. Title and Terms............................................ 33
SECTION 302. Denominations.............................................. 34
SECTION 303. Execution, Authentication, Delivery and Dating............. 34
SECTION 304. Temporary Securities....................................... 35
SECTION 305. Registration, Registration of Transfer and Exchange........ 36
SECTION 306. Book-Entry Provisions for Global Securities................ 37
SECTION 307. Special Transfer Provisions................................ 39
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities........... 42
SECTION 309. Payment of Interest; Interest Rights Preserved............. 43
SECTION 310. Persons Deemed Owners...................................... 45
SECTION 311. Cancellation............................................... 45
SECTION 312. Computation of Interest.................................... 45
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.................... 46
SECTION 402. Application of Trust Money................................. 47
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.......................................... 47
SECTION 502. Acceleration of Maturity; Rescission and Annulment......... 49
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee......................................... 51
SECTION 504. Trustee May File Proofs of Claim........................... 51
SECTION 505. Trustee May Enforce Claims Without Possession of Securities 52
SECTION 506. Application of Money Collected............................. 53
SECTION 507. Limitation on Suits........................................ 53
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest............................ 54
SECTION 509. Restoration of Rights and Remedies......................... 54
SECTION 510. Rights and Remedies Cumulative............................. 54
SECTION 511. Delay or Omission Not Waiver............................... 55
SECTION 512. Control by Holders......................................... 55
SECTION 513. Waiver of Past Defaults.................................... 55
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PAGE
SECTION 514. Waiver of Stay or Extension Laws........................... 56
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults......................................... 56
SECTION 602. Certain Rights of Trustee.................................. 56
SECTION 603. Trustee Not Responsible for Recitals or
Issuance of Securities..................................... 58
SECTION 604. May Hold Securities........................................ 58
SECTION 605. Money Held in Trust........................................ 58
SECTION 606. Compensation and Reimbursement............................. 58
SECTION 607. Corporate Trustee Required; Eligibility.................... 59
SECTION 608. Resignation and Removal; Appointment of Successor.......... 60
SECTION 609. Acceptance of Appointment by Successor..................... 61
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business................................................ 61
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders............... 62
SECTION 702. Reports by Trustee......................................... 62
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms....... 63
SECTION 802. Successor Substituted...................................... 64
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders......... 65
SECTION 902. Supplemental Indentures with Consent of Holders............ 65
<PAGE> 9
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PAGE
SECTION 903. Execution of Supplemental Indentures....................... 66
SECTION 904. Effect of Supplemental Indentures.......................... 67
SECTION 905. Conformity with Trust Indenture Act........................ 67
SECTION 906. Reference in Securities to Supplemental Indentures......... 67
SECTION 907. Notice of Supplemental Indentures.......................... 67
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest....... 67
SECTION 1002. Maintenance of Office or Agency........................... 68
SECTION 1003. Money for Security Payments to Be Held in Trust........... 68
SECTION 1004. Corporate Existence....................................... 70
SECTION 1005. Payment of Taxes and Other Claims......................... 70
SECTION 1006. Maintenance of Properties................................. 70
SECTION 1007. Insurance................................................. 70
SECTION 1008. Statement by Officers As to Default....................... 71
SECTION 1009. Provision of Financial Statements and Reports............. 71
SECTION 1010. Limitation on Additional Indebtedness..................... 72
SECTION 1011. Limitation on Restricted Payments......................... 72
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of
Subsidiaries................................... 74
SECTION 1013. Limitation on Transactions with Affiliates................ 74
SECTION 1014. Limitation on Liens....................................... 76
SECTION 1015. Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries................................... 76
SECTION 1016. Purchase of Securities upon a Change of Control........... 77
SECTION 1017. Limitation on Sale of Assets.............................. 77
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries......................... 79
SECTION 1019. Limitation on Investments in Unrestricted Subsidiaries.... 80
SECTION 1020. Limitation on Lines of Business........................... 80
SECTION 1021. Waiver of Certain Covenants............................... 80
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
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PAGE
SECTION 1101. Right of Redemption....................................... 81
SECTION 1102. Applicability of Article.................................. 81
SECTION 1103. Election to Redeem; Notice to Trustee..................... 81
SECTION 1104. Selection by Trustee of Securities to Be Redeemed......... 81
SECTION 1105. Notice of Redemption...................................... 82
SECTION 1106. Deposit of Redemption Price............................... 83
SECTION 1107. Securities Payable on Redemption Date..................... 83
SECTION 1108. Securities Redeemed in Part............................... 83
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance..................................... 84
SECTION 1302. Defeasance and Discharge.................................. 84
SECTION 1303. Covenant Defeasance....................................... 85
SECTION 1304. Conditions to Defeasance or Covenant Defeasance........... 85
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.. 87
SECTION 1306. Reinstatement............................................. 88
ARTICLE FOURTEEN
SECURITY
SECTION 1401. Pledge Agreement.......................................... 88
SECTION 1402. Recording, etc............................................ 89
SECTION 1403. Suits to Protect the Pledged Collateral................... 89
SECTION 1404. Authorization of Receipt of Funds by the Trustee Under
the Pledge Agreement........................... 89
SECTION 1405. Additional Pledges........................................ 90
<PAGE> 11
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PAGE
TESTIMONIUM................................................................ 91
SIGNATURES AND SEALS....................................................... 91
<PAGE> 12
x
SCHEDULE A - Existing Management Contracts, Overhead Agreements and Service
Agreements
SCHEDULE B - Indebtedness Outstanding on the Issue Date
SCHEDULE C - Liens Existing on the Issue Date
SCHEDULE D - Agreements Not Restricted Under Section 1018
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered upon Termination of Restricted
Period
EXHIBIT C - Form of Certificate to Be Delivered in Connection with Transfers to
Non-QIB Institutional Accredited Investors
EXHIBIT D - Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S
<PAGE> 13
INDENTURE dated as of October 31, 1996, between POLAND
COMMUNICATIONS, INC., a corporation duly organized and existing under the laws
of the State of New York (herein called the "Company"), having its principal
office at One Commercial Plaza, 24th Floor, Hartford, Connecticut, and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation, Trustee
(herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
9 7/8% Senior Notes due 2003 (herein called the "Initial Securities"), and
9 7/8% Series B Senior Notes due 2003 (the "Exchange Securities" and, together
with the Initial Securities, the "Securities"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in
<PAGE> 14
2
this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted on the Issue Date;
and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"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
Section 1010, 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.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Advent" means Advent International Corporation, a Delaware
corporation.
"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.
<PAGE> 15
3
"Annualized Pro Forma Consolidated Operating Cash Flow" means
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (a) all Subsidiaries of the
Company 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 the Company 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 the Company 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 the Company or
any Subsidiary in any other Person, or any acquisition or purchase of Capital
Stock of any other Person by the Company or any Subsidiary, in either case
pursuant to which such Person shall become a Subsidiary or shall be merged with
or into the Company or any Subsidiary or (b) any acquisition by the Company 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 the Company 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 the Company or any Subsidiary pertaining to a
Cable/ Telecommunications Business, (c) any assets of the Company or any
Subsidiary which constitute substantially all of an operating unit or line of
business of the Company and its Subsidiaries or (d) any other property or asset
of the Company or any Subsidiary outside of the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include (a) any
disposition of properties and assets of the Company that is governed under
Section 801, (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 the Company or any Subsidiary, as the case may be, (c) for purposes
of Section 1017, any sale, conveyance, transfer, lease or other
<PAGE> 16
4
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 the Company or a Subsidiary of property or equipment to a Person
who is not an Affiliate of the Company 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), the Company 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 the
Company 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.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or the city in which the Corporate Trust Office is located are authorized
or obligated by law or executive order to close.
"Cable/Telecommunications Acquisition" means an Asset
Acquisition, including, without limitation, the portion of the consideration
paid for an Asset Acquisition that is allocated
<PAGE> 17
5
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 the Company 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 this 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 this 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); (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
the Company 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
<PAGE> 18
5
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company; (b) the Company 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 the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) 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 the Company as a Restricted Payment as described
under Section 1011 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 (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company, 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 then in
office; or (d) the Company is liquidated or dissolved or a special resolution is
passed by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under Section 801.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"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.
"Company" means the Person named as the "Company" in the first
paragraph of
<PAGE> 19
7
this Indenture, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the provision for United States corporation, local, foreign and other
income taxes of the Company 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 the Company 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 the Company, 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 the Company 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.
"Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company 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 the Company or a
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Subsidiary
in cash dividends or distributions during such period, (d) net income (or loss)
of any Person combined with the Company 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,
<PAGE> 20
8
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Subsidiary or its stockholders and (f) any non-cash items of
the Company 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 the Company 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
the Company 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 the Company and its Subsidiaries for such period and (d) amortization of the
Company 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 the Company 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.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at Two International Place, Corporate Trust Department, 4th
Floor, Boston, Massachusetts 02110, except that with respect to presentation of
Securities for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which, at any particular time,
its corporate agency business shall be conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"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 the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered into
by a Person that is designed to
<PAGE> 21
9
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.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"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 this
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.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first
recital of this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Rights Agreement and this Indenture.
"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.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
<PAGE> 22
10
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in effect in the United States on the
Issue Date.
"Global Security" has the meaning provided in Section 201.
"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.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"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
<PAGE> 23
11
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 this 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
Sections 1010 and 1011 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.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning provided in the recitals
to this Indenture.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"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 the time that such Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made
by the Company 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 October 31, 1996.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise),
<PAGE> 24
12
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 by the
Company or PCBV and (b) no outstanding Capital Stock of which is owned, directly
or indirectly (except through the Company), by any shareholder or Affiliate of a
shareholder of the Company.
"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 the Company or a Subsidiary.
"Management Company" means any Person, a portion of whose
Capital Stock is held by the Company 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 the Company
or any Subsidiary is a party pursuant to which, among other things, fees are
paid to the Company or a Subsidiary in exchange for organizational, consulting
or similar services, including, without limitation, the agreements listed on
Schedule A hereto under the subheading "Management Contracts".
"Maturity" means, with respect to any Security, the date on
which any principal of such Security 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 the Company or any Subsidiary), net of (i) brokerage
<PAGE> 25
13
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 the Company or any Subsidiary)
owning a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company 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 the Company 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 Section 1011, 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 the Company or any Subsidiary of the Company), 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.
"Officers Certificate" means a certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
provided that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the
<PAGE> 26
14
Trustee has been made;
(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands the Securities are valid obligations
of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgees right so to act with
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Overhead Agreement" means any agreement to which the Company
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 Schedule A hereto under the subheading "Overhead
Agreements".
"Pari Passu Indebtedness" means Indebtedness of the Company
that is pari passu in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Securities on behalf of the Company. The initial
paying agent shall be the Trustee.
"PCBV" means Poland Cablevision (Netherlands) B.V., a
Netherlands corporation.
"Pending Acquisitions" has the meaning ascribed thereto in the
Company's
<PAGE> 27
15
Offering Memorandum, dated October 24, 1996, relating to the Offering of the
Securities.
"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 Securities (or any guarantee
thereof) and this Indenture;
(b) Indebtedness of the Company or any Subsidiary outstanding
on the date hereof and listed on Schedule B hereto;
(c) Indebtedness of the Company or any Subsidiary 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 the
Company or a Subsidiary and (ii) Indebtedness of the Company 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 the Company
or Subsidiary referred to in this clause (d) to a Person (other than
the Company or a Subsidiary) or (y) any sale or other disposition of
Capital Stock of a Subsidiary which holds Indebtedness of the Company
or another Subsidiary such that such Subsidiary, in any such case,
ceases to be a Subsidiary;
(e) Obligations under any Interest Rate Agreement of the
Company or any Subsidiary to the extent relating to (i) Indebtedness of
the Company 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 Section 1010), or (ii) Indebtedness for
which a lender has provided a commitment in an amount reasonably
anticipated to be incurred by the Company 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
<PAGE> 28
16
Agreement relates;
(f) Indebtedness of the Company or any Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the
Company or a Subsidiary (which Indebtedness is otherwise permitted to
be incurred under Section 1010) or (ii) obligations to purchase assets,
properties or services incurred in the ordinary course of business of
the Company or any Subsidiary; provided that such Currency Agreements
do not increase the Indebtedness or other obligations of the Company
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 the Company or any Subsidiary in respect
of performance bonds of the Company or any Subsidiary or surety bonds
provided by the Company or any Subsidiary incurred in the ordinary
course of business in connection with the construction or operation of
a Cable/Telecommunications Business;
(h) Indebtedness of the Company or any Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension
of outstanding Indebtedness of the Company or of any Subsidiary
incurred or outstanding pursuant to clause (b) of this definition or
the proviso of Section 1010; provided that (i) Indebtedness of the
Company may not be replaced, renewed, refinanced or extended to such
extent under this clause (h) 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 the Company of
Pari Passu Indebtedness or Subordinated Indebtedness, such new
Indebtedness is made pari passu with or subordinate to the Securities,
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 the Company 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.
<PAGE> 29
17
"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 Section 1017, provided that the Company 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 the Company or any Subsidiary;
(b) Liens securing the Securities;
(c) Liens securing Acquired Indebtedness created prior to (and
not in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary; provided that such Lien
does not extend to any property or assets of the Company 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 the Company 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 the Company 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;
<PAGE> 30
18
(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 the
Company; and
(m) Liens existing on the date hereof and listed on Schedule C
hereto.
"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.
"Pledge Agreement" means the Pledge Agreement, dated as of
October 31, 1996 made by the Company to the Trustee for the benefit of the
Holders of the Securities.
"Pledged Collateral" has the meaning provided therefor in the
Pledge Agreement.
"Pledged Debt" has the meaning provided therefor in the Pledge
Agreement
"Poland Programming" means PCI Programming, Inc., a Delaware
corporation.
"Poltelkab" means Poltelkab Sp. z o.o., a Polish limited
liability company.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
<PAGE> 31
19
"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 Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"ProCable" means ProCable Sp. z o.o., a Polish limited
liability company.
"PTK-Ryntronik" means Polska Telewizja Kablowa-Ryntronik S.A.,
a Polish joint stock company.
"Public Equity Offering" means an offer and sale of common
stock (which is Qualified Capital Stock) of the Company 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 the Company).
"Purchase Money Obligations" means Indebtedness of the Company
or any Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of the Company or any Subsidiary or (b) secured by a
Lien on any assets of the Company 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.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A.
"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 Securities 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 the
Company upon certain terminations of employment.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
<PAGE> 32
20
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Initial Purchasers named therein, dated as
of October 31, 1996, relating to the Securities, a copy of which has been filed
with the Trustee.
"Registration Statement" means the Registration Statement as
defined in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the April 15 or October 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee,
means any officer in its corporate trust department or similar group, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Payment" means any of the following: (a) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company (other than dividends
or distributions payable solely in Capital Stock (other than Redeemable Capital
Stock) of the Company or in options, warrants or other rights to purchase
Capital Stock (other than Redeemable Capital Stock) of the Company); (b) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company (other than any such Capital Stock owned by the Company or
a Subsidiary) or any affiliate of the Company (other than any Subsidiary of the
Company); (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 the Company (other than any Subordinated
Indebtedness held by a Subsidiary); (d) the making of any Investment (other than
a Permitted Investment ) in any Person (other than an Investment by a Subsidiary
in the Company or an Investment by the Company 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 the Company (other than (i) guarantees of any Indebtedness of
any Subsidiary by the Company or (ii) guarantees of the Securities 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 the Company or a Subsidiary or (b) pro
rata dividends or distributions on
<PAGE> 33
21
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 the Company or a
Subsidiary).
"Rule 144A" means Rule 144A under the Securities Act.
"Ryntronik Agreement" means a series of agreements dated
October 1996 between the Company, Poltelkab and Richard Rynkiewicz, in the form
existing on the Issue Date, by which the Company and Poltelkab will acquire the
remaining shares in PTK-Ryntronik.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Bank Indebtedness" means Indebtedness of the Company
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 the Company or any Subsidiary.
"Service Agreement" means any agreement to which the Company
or any Subsidiary is a party pursuant to which, among other things, the Company
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 Schedule A to this Indenture under the subheading "Service
Agreements".
"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 in the Company's Offering
Memorandum, dated October 24, 1996, relating to the offering of the Securities)
in the form existing on the Issue Date.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
<PAGE> 34
22
"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 the Company 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 the Company 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 the Company
and its Subsidiaries for such fiscal year.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which the principal of such Security 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 the Company
that is expressly subordinated in right of payment to the Securities.
"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 the Company or by one or more other Subsidiaries or by the Company 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 this 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
the Company and its Subsidiaries outstanding as of the date of determination.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors, as
<PAGE> 35
23
provided below), (b) any Subsidiary of an Unrestricted Subsidiary, (c) Poland
Programming, and (d) ProCable, in the event that a majority of the equity
ownership or Voting Stock of ProCable is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries. The Board of Directors, subject to the foregoing, may
designate any newly acquired or newly formed Subsidiary to be an Unrestricted
Subsidiary so long as (i) neither the Company 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 the
Company 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
Section 1019, (iv) neither the Company 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 the Company and (v) neither the
Company 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 shall be evidenced to the Trustee by
filing a board resolution with the Trustee giving effect to such designation.
The Board of Directors 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 this Indenture and the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 1010.
"U.S. Dollar" means United States currency.
"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 (Warsaw 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 the Company 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
<PAGE> 36
24
$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 in the Company's
Offering Memorandum, dated October 24, 1996, relating to the offering of the
Securities, under the heading "Use of Proceeds."
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"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 the Company or PCBV and
one or more Wholly Owned Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such
<PAGE> 37
25
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for
<PAGE> 38
26
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
<PAGE> 39
27
SECTION 105. Notices, etc., to Trustee, Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Manager, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
<PAGE> 40
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SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Security Registrar and their successors hereunder and the Holders any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. Upon issuance of
the Exchange Securities or the effectiveness of a Shelf Registration Statement,
this Indenture shall be subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions; and, if and to the extent that any
provision of the Indenture limits, qualifies or conflicts with any other
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act,
such required provision shall control.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at
<PAGE> 41
29
the Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The definitive Securities shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
The Initial Securities shall be known as the "9 7/8% Senior
Notes due 2003" and the Exchange Securities shall be known as the "9 7/8% Series
B Senior Notes due 2003". The Securities and the Trustee's certificate of
authentication shall be substantially in the form annexed hereto as Exhibit A.
The Securities may have such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture and may have
such letters, notations, numbers or other marks of identification and such
legends or endorsements placed thereon as the Company may deem appropriate (and
as are not prohibited by the terms of this Indenture) or as may be required or
appropriate to comply with any law or with any rules made pursuant thereto or
with any rules of any securities exchange on which such Securities may be
listed, or to conform to general usage, or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution of such Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security. The Company shall approve the form of the Securities and any
notation, legend or endorsement on the Securities. Each Security shall be dated
the date of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture. Each of the Company and the Trustee,
by its execution and delivery of this Indenture, expressly agrees to the terms
and provisions of the Securities applicable to it and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A
shall be issued initially in the form of a single permanent global Security in
registered form, substantially in the form set forth in Exhibit A (the "U.S.
Global Security"), deposited with the Trustee, as custodian
<PAGE> 42
30
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount at maturity of
the U.S. Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided.
Initial Securities offered and sold in offshore transactions
in reliance on Regulation S shall be initially issued in the form of a single
global Security in registered form, substantially in the form set forth in
Exhibit A (the "Offshore Global Security") deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount at maturity
of the Offshore Global Security may from time to time be increased or decreased
by adjustments made in the records of the Trustee, as custodian for the
Depositary or its nominee, as herein provided.
Initial Securities which are offered and sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. Persons) shall be
issued in the form of permanent certificated Securities in registered form in
substantially the form set forth in Exhibit A (the "U.S. Physical Securities").
Securities issued pursuant to Section 306 in exchange for interests in the U.S.
Global Security or the Offshore Global Security shall be in the form of U.S.
Physical Securities or in the form of permanent certificated Securities in
registered form substantially in the form set forth in Exhibit A (the "Offshore
Physical Securities"), respectively.
The Offshore Physical Securities and U.S. Physical Securities
are sometimes collectively herein referred to as the "Physical Securities." The
U.S. Global Security and the Offshore Global Security are sometimes collectively
referred to as the "Global Securities."
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for an
Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, (A) each U.S. Global
Security and each U.S. Physical Security shall bear the following legend set
forth below (the "Private Placement Legend") on the face thereof and (B) the
Offshore Physical Securities and the Offshore Global Security shall bear the
legend set forth below on the face thereof until at least 41 days after the
Issue Date and receipt by the Company and the Trustee of a certificate
substantially in the form of Exhibit B hereto.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
<PAGE> 43
31
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER
OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN "OFF-SHORE TRANSACTION"
PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES THAT
IT WILL NOT PRIOR TO (X) THE DATE WHICH IS THREE YEARS (OR
SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER
THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER)
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904
OF REGULATION S, (E) TO AN ACCREDITED INVESTOR THAT IS
ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN ACCREDITED INVESTOR, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3)
<PAGE> 44
32
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS SECURITY
UNDER (D), (E) AND (F) ABOVE ARE SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFERS, SALES OR OTHER
TRANSFERS (i) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY
TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING
ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Each Global Security, whether or not an Initial Security,
shall also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF
DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
<PAGE> 45
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ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $130,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 801, 1016, 1017 or 1108.
The Initial Securities shall be known and designated as the
"9 7/8% Senior Notes due 2003" of the Company. The Exchange Securities shall be
known and designated as the "9 7/8% Series B Senior Notes due 2003" of the
Company. The Stated Maturity of the Initial Securities and the Exchange
Securities shall be November 1, 2003, and, except as otherwise set forth herein,
they shall bear interest at the rate of 9 7/8% per annum from October 31, 1996,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable on May 1, 1997 and semi-annually thereafter on May 1
and November 1 in each year and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman, its President or a Vice President, under its corporate seal
reproduced thereon and attested by its Secretary or an Assistant Secretary. The
signature of any of these officers on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.
<PAGE> 46
34
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
<PAGE> 47
35
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Security Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. At all reasonable times, the Security
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the "Security Registrar") for the
purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered
<PAGE> 48
36
for exchange (including an exchange of Initial Securities for Exchange
Securities), the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive provided that no exchange of Initial Securities for Exchange Securities
shall occur until an Exchange Offer Registration Statement shall have been
declared effective by the Commission and that the Initial Securities to be
exchanged for the Exchange Securities shall be cancelled by the Trustee.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906, 801, 1016 or 1108
not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Securities.
(a) The U.S. Global Security and Offshore Global Security
initially shall (i) be registered in the name of the Depositary for such Global
Securities or the nominee of such Depositary, (ii) be delivered to the Trustee
as custodian for such Depositary and (iii) bear legends as set forth in Section
202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under any Global Security, and the Depositary may
<PAGE> 49
37
be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
beneficial owner of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees and, in part, in the circumstances
described in paragraph (d) hereof. Interests of beneficial owners in a Global
Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. Beneficial
owners may obtain Physical Securities (which shall bear the Private Placement
Legend if required by Section 202) in exchange for their beneficial interests in
a Global Security upon request in accordance with the Depositary's and the
Security Registrar's procedures (x) in the case of the Offshore Global Security,
at any time on or after the 41st day following the Issue Date upon receipt by
the Trustee and Company of a certificate substantially in the form of Exhibit B
hereto, and (y) in the case of the U.S. Global Security, at any time. In
addition, U.S. Physical Securities or Offshore Physical Securities shall be
transferred to all beneficial owners in exchange for their beneficial interests
in the U.S. Global Security or the Offshore Global Security, respectively, if
(i) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for the U.S. Global Security or the Offshore Global
Security, as the case may be, or the Depositary ceases to be a "Clearing Agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days or (ii) an Event of Default has occurred and Holders
of more than 25% in aggregate principal amount of the Securities at the time
outstanding represented by the Global Securities advise the Trustee through the
Depositary in writing that the continuation of a book-entry system through the
Depositary with respect to the Global Securities is no longer required.
(c) Any beneficial interest in one of the Global Securities
that is transferred to a person who takes delivery in the form of an interest in
the other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interest in the U.S. Global
Security to beneficial owners, upon receipt of written instructions from the
Depositary, the Security Registrar shall reflect on its books and records the
date and a decrease in the principal amount at maturity of the U.S. Global
Security in
<PAGE> 50
38
an amount equal to the principal amount at maturity of the beneficial interest
in the U.S. Global Security to be transferred, and the Company shall execute,
and the Trustee shall authenticate and deliver, one or more U.S. Physical
Securities of like tenor and amount.
(e) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interest in the Offshore Global
Security on or after the 41st day following the Issue Date, upon receipt of
written instructions from the Depositary, the Security Registrar shall reflect
on its books and records the date and a decrease in the principal amount at
maturity of the Offshore Global Security in an amount equal to the principal
amount at maturity of the beneficial interest in the Offshore Global Security to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Offshore Physical Securities of like tenor
and amount.
(f) In connection with the transfer of the entire U.S. Global
Security or Offshore Global Security to beneficial owners pursuant to paragraph
(b) of this Section , the U.S. Global Security or Offshore Global Security, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the U.S. Global Security or Offshore Global
Security, as the case may be, an equal aggregate principal amount at maturity of
U.S. Physical Securities or Offshore Physical Securities, as the case may be, of
authorized denominations.
(g) Any U.S. Physical Security delivered in exchange for an
interest in the U.S. Global Security pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph
(e) of Section 307, bear the legend regarding transfer restrictions applicable
to the U.S. Physical Security set forth in Section 202.
(h) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(i) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to Section 306(b), the Security Registrar shall reflect on its
books and records a decrease in the principal amount at maturity of the relevant
Global Security equal to the principal amount at maturity of such Physical
Securities and the Company shall execute and the Trustee shall authenticate and
deliver one or more Physical Securities having an equal aggregate principal
amount at maturity.
<PAGE> 51
39
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement, or (ii) an Initial Security is exchanged for
an Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration
of any proposed transfer of an Initial Security to any Institutional
Accredited Investor which is not a QIB (excluding Non-U.S. Persons):
(i) The Security Registrar shall register the
transfer of any Security, whether or not such Security bears
the Private Placement Legend, and the Company shall execute,
and the Trustee shall authenticate and deliver one or more
U.S. Physical certificates in like tenor and amount if (x) the
requested transfer is at least three years after the original
issue date of the Initial Securities, (y) the proposed
transferee has delivered to the Security Registrar a
certificate substantially in the form of Exhibit C hereto or
(z) if required by the Company or the Trustee, the proposed
transferee has delivered an opinion of counsel to the effect
required by the Company or the Trustee.
(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Security,
upon receipt by the Security Registrar of (x) the documents,
if any, required by paragraph (i), and (y) instructions given
in accordance with the Depositary's and the Security
Registrar's procedures therefor, the Security Registrar shall
reflect on its books and records the date and a decrease in
the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the beneficial interest in
the U.S. Global Security to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a U.S.
Physical Security or an interest in the U.S. Global Security to a QIB
(excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of (x)
U.S. Physical Securities, the Security Registrar shall
register the transfer and the Company shall execute and the
Trustee shall authenticate and deliver one or more U.S.
Physical certificates in like tenor and amount if such
transfer is being made by a proposed transferor who has
checked the box provided for on the form of Initial Security
<PAGE> 52
40
stating, or has otherwise advised the Company and the Security
Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee
who has signed the certification provided for on the form of
Initial Security stating, or has otherwise advised the Company
and the Security Registrar in writing, that it is purchasing
the Initial Security for its own account or an account with
respect to which it exercises sole investment discretion and
that it and any such account is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim
the exemption from registration provided by Rule 144A or (y)
an interest in the U.S. Global Security, the transfer of such
interest may be effected only through the book-entry system
maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member,
and the Security to be transferred consists of U.S. Physical
Securities, upon receipt by the Security Registrar of the
documents referred to in clause (i) and instructions given in
accordance with the Depositary's and the Security Registrar's
procedures, the Security Registrar shall reflect on its books
and records the date and an increase in the principal amount
at maturity of the U.S. Global Security in an amount equal to
the principal amount at maturity of the U.S. Physical
Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred.
(c) Transfers of Interests in the Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions
shall apply with respect to any transfer of interests in the Offshore
Global Security or Offshore Physical Securities to U.S. Persons:
(i) prior to the removal of the Private Placement
Legend from the Offshore Global Security or Offshore Physical
Securities pursuant to Section 202, the Security Registrar
shall refuse to register such transfer; and
(ii) after such removal, the Security Registrar shall
register the transfer of any such Security without requiring
any additional certification.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial
Security to a Non-U.S. Person:
(i) The Security Registrar shall register any
proposed transfer to any Non-U.S. Person if the Security to be
transferred is a U.S. Physical Security or an
<PAGE> 53
41
interest in the U.S. Global Security only upon receipt of a
certificate substantially in the form of Exhibit D from the
proposed transferor.
(ii) (x) If the proposed transferor is an Agent
Member holding a beneficial interest in the U.S. Global
Security, upon receipt by the Security Registrar of (1) the
document required by paragraph (i) and (2) instructions in
accordance with the Depositary's and the Security Registrar's
procedures, the Security Registrar shall reflect on its books
and records the date and a decrease in the principal amount at
maturity of the U.S. Global Security in an amount equal to the
principal amount at maturity of the beneficial interest in the
U.S. Global Security to be transferred, and (y) if the
proposed transferor is an Agent Member, upon receipt by the
Security Registrar of instructions given in accordance with
the Depositary's and the Security Registrar's procedures, the
Security Registrar shall reflect on its books and records the
date and an increase in the principal amount at maturity of
the Offshore Global Security in an amount equal to the
principal amount at maturity of the U.S. Physical Security or
the U.S. Global Security, as the case may be, to be
transferred, and the Trustee shall cancel the Physical
Security, if any, so transferred or decrease the amount of the
U.S. Global Security.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Security Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar
shall deliver only Securities that bear the Private Placement Legend
unless either (i) the Private Placement Legend is no longer required by
Section 202 or (ii) there is delivered to the Security Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(f) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of, or beneficial owner of an
interest in, such Security acknowledges the restrictions on transfer of
such Security set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Security only as provided
in this Indenture. The Security Registrar shall not register a transfer
of any Security unless such transfer complies with the restrictions on
transfer of such Security set forth in this Indenture. In connection
with any transfer of Securities to an Institutional Accredited
Investor, each such Holder or beneficial owner agrees by its acceptance
of the Securities to furnish the Security Registrar or the Company such
certifications, legal opinions or other information as such Person may
reasonably require to confirm that such transfer is being made pursuant
to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act; provided that the Security
Registrar shall
<PAGE> 54
42
not be required to determine (but may rely on a determination made by
the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information. Offshore Physical
Certificates that represent Initial Securities not bearing the Private
Placement Legend may, at the request of the holder thereof, be
exchanged for Exchange Securities by the Trustee after the consummation
of the Exchange Offer.
Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section , the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
<PAGE> 55
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SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; provided, however, that each installment of interest may at the
Company's option be paid by (i) mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 310,
to the address of such Person as it appears in the Security Register at the
close of business on the Regular Record Date for such interest payment or (ii)
transfer to an account located in the United States maintained by the payee.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered at
<PAGE> 56
44
the close of business on such Special Record Date and shall no longer
be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section , each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 309) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section , except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by
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45
Company Order the Company shall direct that cancelled Securities be returned to
it.
SECTION 312. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities expressly provided for herein or pursuant hereto) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 308 and (ii) Securities for whose
payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) 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 the
Company,
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and the Company, in the case of (i), (ii) or (iii) above, 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 Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest
to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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(1) default in the payment of any interest on any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity; or
(3) default in the performance, or breach, of the provisions
of Article Eight of this Indenture, the failure to make or consummate a
Change of Control Offer in accordance with the provisions of Section
1016 or the failure to make or consummate an Excess Proceeds Offer in
accordance with the provisions of Section 1017; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or agreement which is
specifically dealt with elsewhere in this Section), and continuance of
such default or breach for a period of 30 days after there has been
given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) (A) there shall have occurred one or more defaults by the
Company or any Significant Subsidiary in the payment of the principal
of (or premium, if any, on) Indebtedness aggregating $5,000,000 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 (B)
Indebtedness of the Company or any Significant Subsidiary aggregating
$5,000,000 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; or
(6) any Person entitled to take the actions described in this
Section 501(6), after the occurrence of any event of default under any
agreement or instrument evidencing any Indebtedness in excess of
$5,000,000 in the aggregate of the Company or any Significant
Subsidiary, shall notify the Trustee of the intended sale or
disposition of any assets of the Company 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 any action
(including by way of set-off) to retain in satisfaction of any
Indebtedness, or to collect on, seize, dispose of or apply, any such
assets of the Company or any Subsidiary (including funds on deposit or
held pursuant to lock-box and other similar arrangements), pursuant to
the terms of any agreement or instrument evidencing any such
Indebtedness of the Company or any Subsidiary or in accordance with
applicable law; or
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(7) one or more final judgments, orders or decrees of any
court or regulatory body shall be rendered against the Company or any
Significant Subsidiary or their respective properties which require the
payment in money, either individually or in an aggregate amount, that
is more than $5,000,000 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, order or decree, by reason of
pending appeal or otherwise, was not in effect; or
(8) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Significant Subsidiary under the
Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days; or
(9) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due; or
(10) breach by the Company of any material representation or
warranty set forth in the Pledge Agreement, or default by the Company
in the performance of any covenant set forth in the Pledge Agreement,
or repudiation by the Company of its obligations under the Pledge
Agreement or the unenforceability of any material provision of the
Pledge Agreement for any reason.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(8) or 501(9)) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the Securities Outstanding may declare the principal
<PAGE> 61
49
amount of all the Securities to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount shall become immediately due and payable.
If an Event of Default specified in Section 501(8) or 501(9) occurs and is
continuing, then the principal amount of all the Securities 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.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article, the Holders of a
majority in principal amount of the Securities Outstanding, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding
Securities,
(B) all unpaid principal of (and premium, if any, on)
any Outstanding Securities which has become due otherwise than
by such declaration of acceleration, and interest on such
unpaid principal at the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest on overdue interest at the rate borne by the
Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on
Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue
<PAGE> 63
51
principal, premium, if any, or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
and take such other actions, including participating as a member of any
official creditors committee appointed in the matter as it may deem
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
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SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
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53
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Article Twelve) and in such Security of the principal of (and premium, if any)
and (subject to Section 309) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture or the Pledge Agreement,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium,
if any) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any
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right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 30 days after the occurrence of any Default hereunder,
the Trustee shall transmit in the manner and to the extent provided in TIA
Section 313(c), notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except in
the case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 30 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
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(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other evidence in respect thereof is herein specifically
prescribed) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may
require and, in the absence of bad faith on its part, rely upon an
Officers Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(9) the Trustee shall not be deemed to have knowledge of any
default, breach or Event of Default or other matter upon the occurrence
of which it may be required to
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take action hereunder unless one of its Responsible Officers has actual
knowledge thereof.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Securities.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility on Form T-1 supplied to
the Company will be true and accurate, subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
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(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of investigating or defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; provided, however, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section , the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
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SECTION 608. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such
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resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the
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Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities. In case at that time any of the
Securities shall not have been authenticated, any successor Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor Trustee. In all such cases such certificates shall
have the full force and effect which this Indenture provides for the certificate
of authentication of the Trustee shall have; provided, however, that the right
to adopt the certificate of authentication of any predecessor Trustee or to
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.
The Company shall not, in a single transaction or through a
series of transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or
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otherwise dispose of all or substantially all of its properties and assets
substantially as an entirety to any other Person or Persons or permit any of its
Subsidiaries 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 the Company and its
Subsidiaries on a consolidated basis as an entirety to any other Person or
Persons, unless:
(1) either (A) the Company shall be the continuing corporation
or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Subsidiary is merged or
the Person which acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all of the properties and
assets of the Company and its Subsidiaries on a consolidated basis as
an entirety (the "Surviving Entity") (i) shall be a corporation duly
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and (ii) shall
expressly assume, by a supplemental indenture in form satisfactory to
the Trustee, the Company's obligation for the due and punctual payment
of the principal of, premium, if any, and interest on all the
Securities and the performance and observance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(2) immediately before and immediately after giving effect to
such transaction or series of transactions on a pro forma basis (and
treating any obligation of the Company or any Subsidiary incurred in
connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction),
no Default or Event of Default shall have occurred and be continuing;
(3) 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 most recent full fiscal quarter for which
consolidated financial statements of the Company 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), the Company
(or the Surviving Entity if the Company is not the continuing obligor
under this Indenture) could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso to
Section 1010;
(4) if any of the property or assets of the Company of any
Subsidiary would become subject to any Lien as a result of such
transaction or series of transactions, the provisions of Section 1014
are complied with; and
(5) the Company or the Surviving Entity shall have delivered
to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate
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(attaching the authentic computations to demonstrate compliance with
clause (3) above) and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposition, and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply
with the requirements of this Indenture and that all conditions
precedent therein provided for relating to such transaction have been
complied with.
Notwithstanding the foregoing, the provisions of clause (3)
above shall not apply to the merger of the Company 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.
SECTION 802. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein and, in the event of any such conveyance or
transfer, the Company (which term shall for this purpose mean the Person named
as the "Company" in the first paragraph of this Indenture or any successor
Person which shall theretofore become such in the manner described in Section
801), except in the case of a transfer by lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and may be
dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Securities; or
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(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided that such action shall
not adversely affect the interests of the Holders in any material
respect; or
(6) to secure the Securities pursuant to the requirements of
Section 1014 or otherwise; or
(7) to qualify, or maintain the qualification of, this
Indenture under the TIA.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof (or premium, if any) or the rate of interest thereon or
change the coin or currency in which any Security 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), or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
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(3) modify any of the provisions of this Section or Sections
513 and 1021, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, or
(4) amend, change or modify the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change
of Control or make and consummate an Excess Proceeds Offer with respect
to any Asset Sale or modify any of the provisions or definitions with
respect thereto.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If
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the Company shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Failure to provide such
notice shall not affect the validity of such amendment.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of State Street Bank and Trust Company, N.A.
at 61 Broadway shall be such office or agency of the Company, unless the Company
shall designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or
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agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 10:00 a.m. (New York City time) on each
due date of the principal of (or premium, if any) or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section , that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and
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discharge of this Indenture or for any other purpose, pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal, premium or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
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SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its
Subsidiaries properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 1008(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an officers certificate specifying such event, notice or
other action within five Business Days of its occurrence.
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SECTION 1009. Provision of Financial Statements and Reports.
(a) Prior to the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, the Company will make
available, upon request, to any holder of Securities or prospective purchasers
of Securities the information specified in Rule 144A(d)(4) under the Securities
Act, unless the Company 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, the Company will file on a
timely basis with the Commission, to the extent such filings are accepted by the
Commission and whether or not the Company has a class of securities registered
under the Exchange Act, the annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13 or 15 of the Exchange Act. The Company will also be required (a) to
file with the Trustee, and provide to each holder of Securities, without cost to
such holder, copies of such reports and documents within 15 days after the date
on which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company 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 the Company's cost copies of such reports and
documents to any prospective holder of Securities promptly upon written request.
SECTION 1010. Limitation on Additional Indebtedness.
The Company 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) the Company 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.
SECTION 1011. Limitation on Restricted Payments.
The Company 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;
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(b) immediately after giving effect to such Restricted
Payment, the Company would be able to incur at least $1.00 of
Indebtedness (other than Permitted Indebtedness) under the proviso of
Section 1010; 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 the Company determined for the period commencing on the Issue Date
and ending on the last day of the latest fiscal quarter for which
consolidated financial statements of the Company are available
preceding the date of such Restricted Payment (or if such difference
shall be a negative number, minus 100% of such number), plus (ii) the
aggregate Net Cash Proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from
the issue or sale (other than to a Subsidiary) of Capital Stock of the
Company (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 the Company 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
the Company 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 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 Section 1011 shall not 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 this 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 the Company 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 the Company (other than Redeemable
Capital Stock); (c) so long as no Default
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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 the Company 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 Securities; (d) so long as no Default shall
have occurred and be continuing, Investments by the Company 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 the Company 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 the Company or (ii) issue
or sale of Capital Stock (other than Redeemable Capital Stock) of the Company;
(g) so long as no Default shall have occurred and be continuing, Investments by
the Company 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 Section
1011, amounts expended pursuant to clauses (a), (d) and (g) above shall be
included as Restricted Payments.
SECTION 1012. Limitation on Issuances and Sales of Capital
Stock of Subsidiaries.
(a) The Company (i) will not permit any Subsidiary to issue
any Capital Stock (other than to the Company or a Subsidiary) and (ii) will not
permit any Person (other than the Company, an Authorized Prior Owner or a
Subsidiary) to own any Capital Stock of any Subsidiary; provided, however, that
this Section 1012 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 this Indenture, (x) issuances of Capital
Stock by a non-Wholly Owned Subsidiary if, after giving effect to such issuance,
the Company 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.
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(b) The Company will not permit the direct or indirect
ownership of the Company 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 the Company 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 Section 1017.
SECTION 1013. Limitation on Transactions with Affiliates.
(a) The Company 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 the Company (other than the Company or a Majority
Owned Subsidiary) unless (i) such transaction or series of related transactions
is on terms that are no less favorable to the Company 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, the Company 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, or the Company 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 the
Company 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, the Company 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 are Disinterested Directors with
respect to any transaction or series of transactions included in this clause
(iii), the Company 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 the Company 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)
the Company from paying reasonable and customary regular compensation and fees
to directors of the Company or any Subsidiary who are not employees of the
Company or any Subsidiary, or (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 of Directors, (4) any transactions
pursuant to a Management
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Agreement, (5) the Company or any Subsidiary from making any Restricted Payment
in compliance with Section 1011 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 on Schedule A hereto or the Ryntronik
Agreement or (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 the Company or any
Subsidiary than, the Management Contracts, Overhead Agreements or Service
Agreements, as the case may be, listed on Schedule A hereto.
(b) The Company will not, and will not permit any Subsidiary
to, amend, modify, or an 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 the Company 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 the Company'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.
SECTION 1014. Limitation on Liens.
The Company 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 hereof 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 Securities 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 Securities are equally and ratably secured.
SECTION 1015. Limitation on Issuances of Guarantees of
Indebtedness by Subsidiaries.
(a) The Company will not permit any Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless such Subsidiary simultaneously
executes and delivers a supplemental indenture providing for the guarantee of
payment of the Securities by such Subsidiary on a basis senior to any 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.
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(b) Notwithstanding the foregoing, any guarantee of the
Securities 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 the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Subsidiary
(which sale, exchange or transfer is not prohibited by this Indenture) or (ii)
the release by the holders of the Indebtedness of the Company 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 the Company 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).
SECTION 1016. Purchase of Securities upon a Change of Control.
If a Change of Control shall occur at any time, then each
holder of Securities shall have the right to require that the Company purchase
such holder's Securities, 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 Securities, 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 herein.
Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Securities 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 Security not tendered will continue to
accrue interest; (c) that, unless the Company defaults in the payment of the
purchase price, any Securities 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 Securities must
follow to accept a Change of Control Offer or to withdraw such acceptance.
The Company covenants to comply with the applicable tender
offer rules including Rule l4e-l under the Exchange Act, and any other
applicable securities laws and regulations in connection with a Change of
Control Offer.
The Company hereby covenants that it will not enter into any
agreement that
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would prohibit it from making a Change of Control Offer to purchase the
Securities or if such Change of Control Offer is made, to pay for the Securities
tendered for purchase.
SECTION 1017. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any Subsidiary
to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company 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, whose determination shall be conclusive and evidenced
by a Board Resolution) and (ii) the consideration received by the Company or the
relevant Subsidiary in respect of such Asset Sale consists of at least 85% cash
or Cash Equivalents.
(b) If the Company or any Subsidiary engages in an Asset Sale,
the Company 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 the
Company or a Subsidiary, (ii) to invest in any one or more business, capital
expenditure or other tangible asset of the Company or any Subsidiary, in each
case, engaged, used or useful in a Cable/Telecommunications Business of the
Company 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 the Company 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, the Company shall, within 30 business days, make an offer to
purchase (an "Excess Proceeds Offer") from all holders of Securities, 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 Securities that may be
purchased with the Excess Proceeds. The offer price as to each Security shall be
payable in cash in an amount equal to 100% of the principal amount of such
Security 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 Securities tendered pursuant to an Excess
Proceeds Offer is less than the Excess Proceeds relating thereto, the Company
may use such additional Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Securities validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Securities 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.
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(d) If the Company becomes obligated to make an Excess
Proceeds Offer pursuant to clause (c) above, the Securities shall be purchased
by the Company, 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 the Company 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 Securities tendered.
(e) The Company covenants to comply with the applicable tender
offer rules, including Rule 14e-1 under the Exchange Act, in connection with an
Excess Proceeds Offer.
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company 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 cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, (b) pay any Indebtedness
owed to the Company or any other Subsidiary, (c) make Investments in the Company
or any other Subsidiary, (d) transfer any of its properties or assets to the
Company or any other Subsidiary or (e) guarantee any Indebtedness of the Company
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 hereof and listed on Schedule D hereto, (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 the
Company or any Subsidiary, (iv) any agreement or other instrument of a Person
acquired by the Company 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 the Company or any Subsidiary after the date here 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 the Company's
Capital Stock in, or substantially all the assets of, such Subsidiary, (vii) the
refinancing of Indebtedness incurred under the agreements listed on Schedule D
hereto or described in clause (v) above, so long as such encumbrances or
restrictions are no less favorable in any material respect to the Company or any
Subsidiary than those contained in the respective agreement as in effect on the
date hereof, (viii) any such customary encumbrance or restriction contained in a
security document creating a Lien permitted under this 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
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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 Securities or this Indenture for interest, premium and principal (after
giving effect to any realization by the Company 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
the Company or any Subsidiary in any manner material to the Company or any
Subsidiary.
SECTION 1019. Limitation on Investments in Unrestricted
Subsidiaries.
The Company 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 Section 1011. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
Section 1019 (a) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company 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 (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)).
SECTION 1020. Limitation on Lines of Business.
The Company will not, and will not permit any Subsidiary to,
engage in any business other than the Cable/Telecommunications Business. In
addition, the Company will not transfer, and will not permit any Subsidiary to
transfer, to any Person (other than the Company or any Subsidiary) (a) any of
the licenses, permits or authorizations used in the Cable/ Telecommunications
Business of the Company and its Subsidiaries on the Issue Date or (b) any
material portion of the property and equipment of the Company or any Subsidiary
used in the territories covered by the Cable/Telecommunications Business of the
Company and the Subsidiaries as it exists on the Issue Date; provided that
Company and the Subsidiaries may make Asset Sales in compliance with Section
1017 and pledge property and assets to the extent permitted under Section 1014.
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SECTION 1021. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1007 through 1020,
inclusive, if before or after the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
At any time or from time to time prior to November 1, 1999 the Company
may redeem up to a maximum of 33% of the initially outstanding aggregate
principal amount of the Securities 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, 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 relevant interest payment dates);
provided that immediately after giving effect to such redemption, at least $87
million aggregate principal amount of the Securities remains outstanding.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee in writing of such
Redemption Date and of the principal amount of Securities to be redeemed and
shall deliver to the Trustee such documentation and records as shall enable the
Trustee to select
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the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be
Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities not
previously called for redemption, by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
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(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest,
if any, to the Redemption Date; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
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SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 1302 or
Section 1303 be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
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survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1304 and as more fully set forth in such Section , payments
in respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due, (B) the Company's obligations with
respect to such Securities under Sections 304, 305, 308, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(3) and in Sections 1007
through 1020 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(4), but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
money in
<PAGE> 96
84
an amount, or (C) a combination thereof, sufficient, in the opinion of
a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee)
to pay and discharge, (i) the principal of (and premium, if any) and
interest on the Outstanding Securities on the Stated Maturity (or
Redemption Date, if applicable) of such principal (and premium, if any)
or installment of interest and (ii) any mandatory redemption or
analogous payments applicable to the Outstanding Securities on the day
on which such payments are due and payable in accordance with the terms
of this Indenture and of such Securities; provided that the Trustee
shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to said payments with
respect to the Securities. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct obligations of the
United States of America for the timely payment of which its full faith
and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United
States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States
of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are
concerned, at any time during the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company is a
party or by which it is bound.
(4) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since
<PAGE> 97
85
October 24, 1996, there has been a change in the 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
Securities 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.
(5) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Securities 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.
(6) The Company 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.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes over the other creditors of
the Company with the intent of hindering, delaying or defrauding creditors of
the Company.
(8) The Company 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
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money
<PAGE> 98
86
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FOURTEEN
SECURITY
SECTION 1401. Pledge Agreement.
In order to secure the due and punctual payment of the
principal of (premium, if any) and interest on the Securities when and as the
same shall be due and payable, whether on an interest payment date, at maturity,
by acceleration, call for redemption, or otherwise, and interest on the overdue
principal, premium and interest, if any, of the Securities and performance of
all other obligations of the Company to the Holders or the Trustee under this
Indenture and the Securities, according to the terms hereunder or thereunder,
the Company will, on the date hereof,
<PAGE> 99
87
make an assignment of its right, title and interest in and to the Pledged
Collateral to the Trustee pursuant to the Pledge Agreement and to the extent
therein provided. Each Holder, by its acceptance of a Security, consents and
agrees to the terms of the Pledge Agreement (including, without limitation, the
provisions providing for foreclosure and release of Pledged Collateral) as the
same may be in effect or may be amended from time to time in accordance with the
terms thereof and hereof. The Company (a) will forever warrant and defend the
title to the Pledged Collateral against the claims of all persons whatsoever,
(b) will execute, acknowledge and deliver to the Trustee such further
assignments, transfers, assurances or other instruments, and (c) will do or
cause to be done all such acts and things as may be necessary or proper, in each
case to assure and confirm to the Trustee the security interest in the Pledged
Collateral contemplated hereby and by the Pledge Agreement or any part thereof,
as from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Securities secured hereby,
according to the intent and purposes herein expressed. The Company shall take,
or cause PCBV to take any and all actions reasonably required to cause the
Pledge Agreement to create and maintain, as security for the obligations of the
Company arising under the Securities, the Indenture and the Pledge Agreement, a
valid and enforceable first priority Lien in and on the Pledged Collateral, in
favor of the Trustee, subject to no other Liens.
SECTION 1402. Recording, etc.
(a) The Company will cause, at its own expense, the Pledge
Agreement and this Indenture and all amendments or supplements thereto, and any
financing statements related thereto, to be registered, recorded and filed or
re-recorded, re-filed and renewed in such manner and in such place or places, if
any, as may be required by law in order fully to preserve and protect the
security interests created under the Pledge Agreement and to effectuate and
preserve the security therein of the Holders and all rights of the Trustee.
SECTION 1403. Suits to Protect the Pledged Collateral.
The Trustee shall have power to institute and to maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Pledged Collateral by any acts which may be unlawful or in violation of the
Pledge Agreement or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Collateral (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security hereunder or be
prejudicial to the interests of the Holders or the Trustee).
<PAGE> 100
88
SECTION 1404. Authorization of Receipt of Funds by the Trustee
Under the Pledge Agreement.
The Trustee is authorized to receive any funds for the benefit
of the Holders distributed under the Pledge Agreement, and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture and of the Pledge Agreement. The Trustee is further authorized to
enter into such amendments to the Pledge Agreement as are required to add
additional Pledged Collateral or to release Pledged Collateral from the lien
created by the Pledge Agreement as provided by the terms of the Pledge
Agreement.
SECTION 1405. Additional Pledges.
The Company has covenanted in the Pledge Agreement that at all
times the Company will satisfy the Pledged Debt Requirements. The "Pledged Debt
Requirements" will be satisfied, at any point in time, if at such time (i) the
sum of (x) the aggregate principal amount of outstanding Pledged Debt (together
with funds constituting Pledged Collateral) and (y) the amount of cash and cash
equivalents held by the Company equals or exceeds the product of (x) 110% and
(y) the aggregate outstanding principal amount of the Securities and (ii) the
Pledged Debt, together with cash and cash equivalents held by the Company,
provides cash collateral or is scheduled to bear interest and provides for
principal repayments, as the case may be, in amounts sufficient to make all
scheduled interest payments on the Securities. If at any time the Pledged Debt
does not satisfy the Pledged Debt Requirements, the Company has covenanted to
immediately pledge additional indebtedness of PCBV to the Trustee for the
benefit of the Holders under the Pledge Agreement.
<PAGE> 101
89
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
POLAND COMMUNICATIONS, INC.
[SEAL] By
Title:
Attest:
Title:
STATE STREET BANK AND TRUST
COMPANY
[SEAL] By
Title:
Attest:
Title:
<PAGE> 102
SCHEDULE A
Existing Management Contracts, Overhead Agreements and Service Agreements
Management Contracts
Overhead Agreements
Service Agreements
<PAGE> 103
SCHEDULE B
Indebtedness Outstanding on the Issue Date
<PAGE> 104
SCHEDULE C
Liens Existing on the Issue Date
<PAGE> 105
SCHEDULE D
Agreements Not Restricted Under Section 1018
<PAGE> 106
Exhibit A
[FACE OF SECURITY]
POLAND COMMUNICATIONS, INC.
9 7/8% [Series B]** Senior Note due 2003
CUSIP _________
No. _______ $_________________
POLAND COMMUNICATIONS, INC., a New York corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ____________________________________
($___________), on November 1, 2003.
<TABLE>
<S> <C>
[Initial Interest Rate: 9 7/8% per annum.]*
[Interest Rate: 9 7/8% per annum.]**
Interest Payment Dates: May 1 and November 1 of each year
commencing May 1, 1997.
Regular Record Dates: April 15 and October 15 of each year.
</TABLE>
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
- --------
* Include only for Initial Securities.
** Include only for Exchange Securities.
<PAGE> 107
A-2
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Date: POLAND COMMUNICATIONS, INC.
By:
Title:
On the __ day of October, 1996, before me personally came
Richard B. Steele, to me known who, being by me duly sworn, did depose and say
that he is Chief Executive Officer of Poland Communications, Inc. and that he
signed his name to the foregoing instrument by authority of the Board of
Directors of said corporation.
By: ________________________________
<PAGE> 108
A-3
(Form of Trustee's Certificate of Authentication)
This is one of the 9 7/8% [Series B]* Senior Notes due 2003 described in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
Authorized Signatory
- --------
* Include only for Exchange Securities.
<PAGE> 109
A-4
[REVERSE SIDE OF SECURITY]
POLAND COMMUNICATIONS, INC.
9 7/8% [Series B]** Senior Note due 2003
1. Principal and Interest; Subordination.
The Company will pay the principal of this Security on
November 1, 2003.
The Company promises to pay interest on the principal amount
of this Security on each Interest Payment Date, as set forth below, at the rate
of [9 7/8% per annum (subject to adjustment as provided below)]* [9 7/8% per
annum, except that interest accrued on this Security pursuant to the penultimate
paragraph of this Section 1 for periods prior to the applicable Exchange Date
(as such term is defined in the Registration Rights Agreement referred to below)
will accrue at the rate or rates borne by the predecessor Security hereto from
time to time during such periods].**
Interest will be payable semiannually (to the holders of
record of the Securities (or any predecessor Securities) at the close of
business on the April 15 or October 15 immediately preceding the Interest
Payment Date) on each Interest Payment Date, commencing May 1, 1997.
[The Holder of this Security is entitled to the benefits of
the Registration Rights Agreement, dated October 31, 1996, between the Company
and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Registration Rights
Agreement"). In the event that (i) the Exchange Offer Registration Statement (as
defined in the Registration Rights Agreement) is not filed with the Securities
and Exchange Commission on or prior to the 90th calendar day following the date
of original issuance of the Securities, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 210th calendar day after
the date of original issuance of the Securities, (iii) the Exchange Offer (as
such term is defined in the Registration Rights Agreement) is not consummated on
or prior to the 240th calendar day after the date of original issuance of the
Securities or, as the case may be, a Shelf Registration Statement (as such term
is defined in the Registration Rights Agreement) with respect to the Securities
is not declared effective on or prior to the 270th day after the date of
original issuance of the Securities or (iv) the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared
- --------
* Include only for Initial Securities.
** Include only for Exchange Securities.
<PAGE> 110
A-5
effective but thereafter ceases to be effective or usable within the applicable
period as provided in the Registration Rights Agreement except pursuant to
Section 2(d)(ii) of the Registration Rights Agreement (each such event referred
to in clauses (i) through (iv) above, a "Registration Default"), the interest
borne by this Security 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. Such additional interest shall cease to
accrue when such Registration Default has been cured. Upon (x) the filing of the
Exchange Offer Registration Statement after the 90-day period described in
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 210-day period described in clause (ii) above or the period
during which it ceases to be effective or usable as described in clause (iv)
above or (z) the consummation of the Exchange Offer after the 240-day period or
the effectiveness of a Shelf Registration Statement after the 270-day period, as
the case may be, described in clause (iii) above or after the period during
which such Shelf Registration Statement ceases to be effective or usable as
described in clause (iv) above, and provided that none of the conditions set
forth in clauses (i), (ii), (iii) and (iv) above continues to exist, a
Registration Default will be deemed to be cured.]*
Interest on this Security will accrue from the most recent
date to which interest has been paid [on this Security or the Security
surrendered in exchange herefor]** or, if no interest has been paid, from
October 31, 1996; provided that, if there is no existing default in the payment
of interest and if this Security is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such Interest Payment Date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Securities.
2. Method of Payment
The Company will pay interest (except defaulted interest) on
the principal amount of the Securities on each May 1 and November 1 to the
persons who are Holders (as reflected in the Security Register at the close of
business on the April 15 and October 15 immediately
- --------
* Include only for Initial Securities.
** Include only for Exchange Securities
<PAGE> 111
A-6
preceding the Interest Payment Date), in each case, even if the Security is
cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Security to any
Paying Agent on or after November 1, 2003.
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Security Registrar.
Initially, the Trustee will act as Paying Agent and Security
Registrar. The Company may change any Paying Agent or Security Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Security Registrar or co-registrar.
4. Indenture; Limitations.
The Company issued the Securities under an Indenture dated as
of October 31, 1996 (the "Indenture"), between the Company and State Street Bank
and Trust Company, as trustee (the "Trustee"). Capitalized terms herein are used
as defined in the Indenture unless otherwise indicated. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The Securities are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this
Security and the terms of the Indenture, the terms of the Indenture shall
control.
The Securities are general obligations of the Company. The
Indenture limits the aggregate principal amount of the Securities to
$130,000,000.
5. Optional Redemption upon a Public Equity Offering.
At any time on or prior to November 1, 1999, the Company may
redeem up to a
<PAGE> 112
A-7
maximum of 33% of the initially outstanding aggregate principal amount of the
Securities 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 $87,000,000 aggregate principal
amount of the Securities remains outstanding.
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Security Register. Securities in
original denominations larger than $1,000 may be redeemed in part in integral
multiples of $1,000. On and after the Redemption Date, interest will cease to
accrue on Securities or portions of Securities called for redemption, unless the
Company defaults in the payment of the Redemption Price.
6. Repurchase upon a Change in Control and Asset Sales.
(a) Upon the occurrence of a Change of Control, each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities, in whole or in part in integral multiples of $1,000, at a
purchase price in cash of 101% of the principal amount thereof, 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, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Securities with a portion of the Net Cash Proceeds of such Asset
Sale at a redemption price of 100% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase.
7. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. A Holder may register
the transfer or exchange of Securities in accordance with the Indenture. The
Security Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Security Registrar need not
register the transfer or exchange of any Securities selected for redemption
(except the unredeemed portion of any Security being redeemed in part). Also, it
need not register the transfer or exchange of any Securities for a period of 15
days before a selection of Securities to be redeemed is made.
<PAGE> 113
A-8
8. Persons Deemed Owners.
A Holder may be treated as the owner of a Security for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
Securities then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity or inconsistency and make any change that
does not materially adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Securities upon a Change of Control, (viii)
Asset Sales and disposition of the proceeds thereof; (ix) dividends and other
payment restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries (xi) merger and certain transfers of assets and (xii) lines of
business. At the end of each fiscal year, the Company must report to the Trustee
on compliance with such limitations.
<PAGE> 114
A-9
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Securities and the Indenture, the
predecessor person will be released from those obligations.
14. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Securities then outstanding, by written notice to the Company (and
to the Trustee, if such notice is given by the Holders) may declare all the
Securities to be immediately due and payable and upon any such declaration all
such amounts payable in respect of the Securities shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Securities
and all such amounts payable in respect of the Securities shall automatically
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder of Securities. Holders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of at least a majority in
principal amount of the Securities then outstanding may direct the Trustee in
its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may make loans
to, accept deposits from, perform services for, and otherwise deal with, the
Company and its Affiliates as if it were not the Trustee.
16. Authentication.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
<PAGE> 115
A-10
17. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. Defeasance.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Security or the covenants governing the
Indebtedness represented by this Security, upon compliance by the Company with
certain conditions set forth in the Indenture.
<PAGE> 116
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
(Please print or typewrite name and address including zip code of assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring
prior to the date which is the earlier of the date of an effective Registration
Statement or October 31, 1999, the undersigned confirms that without utilizing
any general solicitation or general advertising that:
[Check One]
[ ](a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ](b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
<PAGE> 117
A-12
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date:
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, as amended, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an
executive officer
<PAGE> 118
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 1016 or Section 1017 of the Indenture, state the
amount (in original principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
<PAGE> 119
Exhibit B
Form of Certificate
to Be Delivered upon
Termination of Restricted Period
On or after December 11, 1996
Poland Communications, Inc.
One Commercial Plaza
24th Floor
Hartford, CT 06103
Re: Poland Communications, Inc. (the "Company")
9 7/8% Senior Notes due 2003 (the "Securities")
Ladies and Gentlemen:
Capitalized terms used herein without definitions shall have
the meanings ascribed thereto in the Indenture dated as of October 31, 1996
between you and State Street Bank and Trust Company, a Massachusetts banking
corporation, as trustee. This letter relates to U.S. $__________ principal
amount of Securities represented by the Offshore Global Security. Pursuant to
Section 202 of the Indenture, we hereby certify that (1) we are the beneficial
owner of such principal amount of Securities represented by the Offshore Global
Security and (2) we are a person outside the United States to whom the
Securities could be transferred in accordance with Rule 904 of Regulation S
promulgated under the U.S. Securities Act of 1933, as amended. Accordingly, you
are hereby requested to issue an Offshore Physical Security representing the
undersigned's interest in the principal amount of Securities represented by the
Offshore Global Security, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
<PAGE> 120
B-2
By:
Authorized Signature
<PAGE> 121
Exhibit C
<PAGE> 122
C-2
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
_________________, ____
Poland Communications, Inc.
One Commercial Plaza
24th Floor
Hartford, CT. 06103
c/o State Street Bank and Trust Company
Dear Sirs:
In connection with our proposed purchase of $________ aggregate
principal amount of the 9 7/8% Senior Notes due 2003 (the "Notes") of POLAND
COMMUNICATIONS, INC., a New York corporation (the "Issuer"), we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be sold
except as permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing Notes to offer, sell
or otherwise transfer such Notes prior to the date which is three years after
the later of the date of original issue and the last date on which the Issuer or
any affiliate of the Issuer was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Issuer, (b)
pursuant to a registration statement which has been declared effective under the
Securities Act, (c) for so long as the Notes are eligible for resale pursuant to
Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales to non-U.S. persons that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a) (1), (2), (3) or
(7) of Rule 501 under the Securities Act that is acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act, or (f) pursuant to
any other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement of law
that the disposition of our property or the property of such investor account or
accounts be at
<PAGE> 123
C-3
all times within our or their control and to compliance with any applicable
state securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or other
transfer of the Notes is proposed to be made pursuant to clause (e) above prior
to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a) (1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Issuer and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Notes pursuant to clauses (d), (e) and (f)
above to require the delivery of an opinion of counsel, certifications and/or
other information satisfactory to the Issuer and the Trustee.
2. We are an institutional "accredited investor" (as defined in Rule
501(a) (1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor", and we are acquiring the Notes for investment purposes and not with a
view to, or for offer or sale in connection with, any distribution in violation
of the Securities Act and we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.
3. We are acquiring the Notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
______________________________________
By: (Name of Purchaser)
Date:
<PAGE> 124
C-4
Upon transfer the Notes would be registered in the name of the new
beneficial owner as follows:
Name:_______________________________
Address:____________________________
Taxpayer ID Number:_________________
<PAGE> 125
Exhibit D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
_________________, ___
State Street Bank and Trust Company
Two International Place
Corporate Trust Department, 4th Floor
Boston, MA 02110
Re: Poland Communications, Inc. (the "Company")
9 7/8% Senior Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the U.S. Securities Act of 1933, as
amended.
<PAGE> 126
D-2
In addition, if the sale is made during a restricted period
and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has been made in accordance with
the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may
be.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
Authorized Signature
<PAGE> 1
Exhibit 5
__________, 1997
Poland Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Ladies and Gentlemen:
We have acted as counsel to Poland Communications, Inc., a New York
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-4 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the registration of
$130.0 million aggregate principal amount of 9 7/8% Series B Senior Notes due
2003 ("Exchange Notes") to be issued under an Indenture, dated as of October 31,
1996 (the "Indenture"), among the Company and State Street Bank and Trust
Company, as Trustee.
We have examined the originals, or photostatic or certified copies, of
such records of the Company, certificates of officers of the Company and of
public officials, and such other documents as we have deemed relevant and
necessary as the basis of the opinion set forth below. In such examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as photostatic or certified copies and the
authenticity of the originals of such copies.
We are the members of the Bar of the District of Columbia. We have made
such examination of federal law and of the New York Business Corporation Law as
we have deemed relevant for purposes of this opinion, and we express no opinion
as to laws of any other state or jurisdiction.
<PAGE> 2
Poland Communications, Inc.
______________, 1997
Page 2
Based upon our examination, we are of the opinion that:
1. The Indenture has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except (a) as the
enforcement may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law) and (b)
the waiver in Section 514 of the Indenture may be unenforceable due to
interests of public policy.
2. The Exchange Notes are in the form contemplated by the Indenture, have been
duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided under the Indenture and
delivered in exchange for outstanding 9 7/8% Senior Notes due 2003 of the
Company, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
will be entitled to the benefits of the Indenture.
<PAGE> 3
Poland Communications, Inc.
______________, 1997
Page 3
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act.
Very truly yours,
Baker & McKenzie
<PAGE> 1
EXHIBIT 10.1
Registration Rights Agreement
Dated as of October 31, 1996
among
Poland Communications, Inc.
and
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated October
31, 1996 is made and entered into among POLAND COMMUNICATIONS, INC. (the
"Company"), a New York corporation, and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement dated
October 24, 1996 between the Company and the Initial Purchaser (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial Purchaser
of $130,000,000 aggregate principal amount of the Company's 9 7/8% Senior Notes
due 2003 (the "Notes"). In order to induce the Initial Purchaser to enter into
the Purchase Agreement, the Company has agreed to provide to the Initial
Purchaser and its direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Company" shall have the meaning set forth in the preamble and also
includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; provided, however, that such
depositary must have an address in the Borough of Manhattan in the City of
New York.
"Exchange Notes" shall mean the 9 7/8% Series B Senior Notes due
2003 issued by the Company under the Indenture containing terms identical
to the Notes (except that (i) interest thereon shall accrue from the last
date on which interest was paid on the Notes or, if no such interest has
been paid, from the date on which the Notes were issued, (ii) the transfer
restrictions thereon pertaining to United States securities laws shall be
eliminated and (iii) certain provisions relating to an increase in the
stated rate of interest thereon shall be eliminated), to be offered to
Holders of Registrable Notes in exchange for Notes pursuant to the
Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
<PAGE> 3
2
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchaser, for so long as it owns
any Registrable Notes, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes
under the Indenture.
"Indenture" shall mean the Indenture relating to the Notes dated as
of October 31, 1996 between the Company and State Street Bank and Trust
Company as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Purchaser" shall have the meaning set forth in the
preamble.
"Issue Date" means October 31, 1996
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"Notes" shall have the meaning set forth in the preamble and shall
also include the Exchange Notes and the Registrable Notes.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(f).
"Person" shall mean an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Notes" shall mean the Notes; provided, however, that
the Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have
<PAGE> 4
3
been declared effective under the 1933 Act and such Notes shall have been
disposed of pursuant to such Registration Statement, (ii) such Notes shall
have been sold to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the 1933 Act, (iii) such
Notes shall have ceased to be outstanding or (iv) such Notes have been
exchanged for Exchange Notes upon consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state
securities or blue sky laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of United States and local
counsel for any underwriters or Holders in connection with blue sky
qualification of any of the Exchange Notes or Registrable Notes), (iii)
all expenses of the Company in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Notes on any securities
exchange or exchanges, (vi) the fees and disbursements of counsel for the
Company and of the independent public accountants of the Company,
including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, (vii) the fees
and expenses of the Trustee, and any escrow agent or custodian, and (viii)
in the case of any Underwritten Offering, any fees and disbursements of
the underwriters customarily required to be paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts
retained by the Company in connection with any Registration Statement, but
excluding (except as otherwise provided herein) fees of United States,
Polish and other counsel to the underwriters or the Holders and
underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a shelf registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Notes on an appropriate
form under Rule 415 under the 1933 Act, or any similar rule that may be
adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
<PAGE> 5
4
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
"Underwritten Offering" shall mean an underwritten offering of a
minimum of US$15 million aggregate principal amount of Notes.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
To the extent not prohibited by any applicable law or applicable interpretation
of the Staff of the SEC, the Company shall use its best efforts (A) to file
within 90 days after the Issue Date an Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Notes for Exchange Notes, (B) to cause such Exchange Offer
Registration Statement to be declared effective by the SEC within 210 days after
the Issue Date, (C) to cause such Registration Statement to remain effective
until the closing of the Exchange Offer and (D) to consummate the Exchange Offer
within 240 days following the Issue Date. The Exchange Notes will be issued
under the Indenture. As soon as practicable, but in no event more than one week,
after the effectiveness of the Exchange Offer Registration Statement, the
Company shall commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder (other than Participating Broker-Dealers)
eligible and electing to exchange Registrable Notes for Exchange Notes (assuming
that such Holder (i) is not an affiliate of the Company within the meaning of
Rule 405 under the 1933 Act, (ii) acquires the Exchange Notes in the ordinary
course of such Holder's business and (iii) has no arrangements or understandings
with any Person to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes) to trade such Exchange Notes from and after
their receipt without any limitations or restrictions under the 1933 Act and
without material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30 days after
the date notice thereof is mailed to the Holders (or longer if required by
applicable law);
(iii) use the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to 5:00 P.M. New York City time, on the last business day on
which the Exchange Offer shall remain open, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Registrable Notes delivered for exchange, and a statement that such Holder
is withdrawing his election to have such Notes exchanged; and
(v) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
<PAGE> 6
5
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in principal
amount to the principal amount of the Registrable Notes of such Holder so
accepted for exchange.
Interest on each Exchange Note will accrue from the last date on
which interest was paid on the Registrable Notes surrendered in exchange
therefor or, if no interest has been paid on the Registrable Notes, from the
date on which the Registrable Notes were issued. The Exchange Offer shall not be
subject to any conditions, other than (i) that the Exchange Offer, or the making
of any exchange by a Holder, does not violate applicable law or any applicable
interpretation of the Staff of the SEC, and (ii) the due tendering of
Registrable Notes in accordance with the Exchange Offer. Each Holder of
Registrable Notes (other than Participating Broker-Dealers) who wishes to
exchange such Registrable Notes for Exchange Notes in the Exchange Offer shall
represent that (i) it is not an affiliate of the Company, (ii) any Exchange
Notes to be received by it will be acquired in the ordinary course of business
and (iii) at the time of the commencement of the Exchange Offer it has no
arrangement with any Person to participate in the distribution (within the
meaning of the 1933 Act) of the Exchange Notes and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or another
appropriate form under the 1933 Act available. To the extent permitted by law,
the Company shall inform the Initial Purchaser of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Initial Purchaser shall have
the right to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
(b) Shelf Registration. In the event that (i) any changes in law or
the applicable interpretations of the Staff of the SEC do not permit the Company
to effect the Exchange Offer; (ii) for any reason the Exchange Offer is not
consummated within 240 days following the Issue Date; (iii) any Holder of Notes
notifies the Company that (A) due to a change in law or SEC policy it is not
entitled to participate in the Exchange Offer, (B) due to a change in law or SEC
policy it may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the Prospectus is not
appropriate or available for such resales by such Holder, (C) it is a
broker-dealer and owns Registrable Notes acquired directly from the Company or
an affiliate of the Company or (D) the Holders of a majority of the Registrable
Notes may not resell the Exchange Notes acquired by them in the Exchange Offer
to the public without restriction under the 1933 Act and without restriction
under applicable blue sky or state securities laws, the Company shall, at its
cost,
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the Registrable
Notes by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders of such Registrable Notes and
set forth in such Shelf Registration Statement, and use its best efforts
to cause such
<PAGE> 7
6
Shelf Registration Statement to be declared effective by the SEC within
270 days after the Issue Date. In the event that the Company is required
to file a Shelf Registration Statement upon the request of any Holder
(other than the Initial Purchaser) not eligible to participate in the
Exchange Offer pursuant to clause (iii) above or upon the request of the
Initial Purchaser pursuant to clause (iii)(C) above, the Company shall
file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or the Initial Purchaser after completion of the Exchange
Offer.
(B) subject to clause d(ii) below, use its best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of
three years from the date the Shelf Registration Statement is declared
effective by the SEC (or one year from the date the Shelf Registration
Statement is declared effective if such Shelf Registration Statement is
filed upon the request of the Initial Purchaser pursuant to clause
(iii)(C) above) or such shorter period which will terminate when all of
the Registrable Notes covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement.
(C) notwithstanding any other provisions hereof, use its best
efforts to ensure that (x) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto comply in all material respects with the 1933 Act and
the rules and regulations thereunder, (y) any Shelf Registration Statement
and any amendment thereto do not, upon effectiveness, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (z) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), do not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements, in light of the circumstances under which they were made,
not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
thereafter practicable and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or the
Initial Purchaser for the reasonable fees and disbursements of one United States
firm or counsel and one Polish firm or counsel designated in writing by the
Majority Holders to act as counsel for the Holders of the Registrable Notes in
connection therewith. Each Holder shall pay all expenses of its counsel other
than as set forth in the preceding sentence, underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable
<PAGE> 8
7
Notes pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed
not to have used its best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being declared
effective or in the Holders of Registrable Notes covered thereby not being able
to exchange or offer and sell such Registrable Notes during that period unless
(A) such action is required by applicable law or (B) such action is taken by the
Company in good faith and for valid business reasons (not including avoidance of
the Company's obligations hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly complies with the requirements of
Section 3(k) hereof, if applicable.
(ii) The Company may suspend the availability of the Shelf
Registration Statement and the use of the Prospectus for a period not to exceed
an aggregate of 60 days in any four month period or four periods not to exceed
an aggregate of 120 days in any 12 month period if such suspension is effected
in good faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or divestiture of
assets, the filing of public reports with the SEC and during the pendency of
material corporate developments, so long as the Company promptly complies with
the requirements of Section 3(k) hereof (including compliance with the
obligation to prepare a supplement or amendment to a Registration Statement and
related Prospectus if necessary) promptly after the termination of such
suspension.
(iii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the Exchange
Offer Registration Statement is not filed with the SEC on or prior to the 90th
calendar day after the Issue Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 210th calendar day after
the Issue Date, (iii) the Exchange Offer is not consummated on or prior to the
240th calendar day after the Issue Date or, as the case may be, a Shelf
Registration Statement with respect to the Registrable Notes is not declared
effective on or prior to the 270th day after the Issue Date or (iv) the Exchange
Offer Registration Statement or the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable within the applicable
period as provided in this Agreement except pursuant to Section 2(d)(ii) (each
such event referred to in clauses (i) through (iv) above, a "Registration
Default"), the interest 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
<PAGE> 9
8
maximum of one and one-half percent (1.5%) per annum. Such additional interest
shall cease to accrue when such Registration Default has been cured. Upon (x)
the filing of the Exchange Offer Registration Statement after the 90-day period
described in clause (i) above, (y) the effectiveness of the Exchange Offer
Registration Statement after the 210-day period described in clause (ii) above
or the period during which it ceases to be effective or usable as described in
clause (iv) above or (z) the consummation of the Exchange Offer after the
240-day period or the effectiveness of a Shelf Registration Statement after the
270-day period, as the case may be, described in clause (iii) above or after the
period during which such Shelf Registration Statement ceases to be effective or
usable as described in clause (iv) above, and provided that none of the
conditions set forth in clauses (i), (ii), (iii) and (iv) above continues to
exist, a Registration Default will be deemed to be cured.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchaser and the Holders, the Company acknowledges that any failure
by the Company to comply with its obligations under Section 2(a) and Section
2(b) hereof may result in material irreparable injury to the Initial Purchaser
or the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchaser or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Section 2(a) and Section 2(b) hereof.
3. Registration Procedures. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the
Registrable Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the non-financial statement
requirements of the applicable form and (except with respect to the
Exchange Offer Registration Statement) include or incorporate by reference
all financial statements required by the SEC to be filed therewith, and
use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; cause each Prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the 1933 Act; and comply with the provisions of
the 1933 Act with respect to the disposition of all Notes covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being
filed and advising such Holders that the distribution of Registrable Notes
will be
<PAGE> 10
9
made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Notes, to counsel for the
Initial Purchaser, to counsel for the Holders and to each underwriter of
an Underwritten Offering of Registrable Notes, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such
Holder or underwriter may reasonably request, including financial
statements and schedules and, if the Holder so requests, all exhibits
(including those incorporated by reference) in order to facilitate the
public sale or other disposition of the Registrable Notes; and (iii)
subject to the last paragraph of this Section 3, hereby consent to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Notes in connection with the offering and
sale of the Registrable Notes covered by the Prospectus or any amendment
or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Notes under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement and each underwriter of an Underwritten Offering of Registrable
Notes shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Notes owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d) or
(ii) take any action which would subject it to general service of process
or taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and U.S. counsel for the Initial Purchaser promptly and,
if requested by such Holder or counsel, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Notes covered thereby, the
representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct
in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the suspension of
the availability of the Shelf Registration Statement and the use of the
Prospectus pursuant to Section 2(d)(ii) hereof or of the happening of any
event or the discovery of any facts during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which
<PAGE> 11
10
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and
(vii) of any determination by the Company that a post-effective amendment
to a Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (iii) include in the Exchange Offer
Registration Statement a statement that any broker-dealer which holds
Registrable Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer"), and who receives Exchange Notes for Registrable Notes
pursuant to the Exchange Offer, may be a statutory underwriter and must
deliver a Prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes, (iv) subject to the
last paragraph of this Section 3, hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or
any amendment or supplement thereto, by any broker-dealer in connection
with the sale or transfer of the Exchange Notes covered by the Prospectus
or any amendment or supplement thereto, and (v) include in the transmittal
letter or similar documentation to be executed by an exchange offeree in
order to participate in the Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a Prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the 1933 Act";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus
in connection with the exchange of registrable Notes, the broker-dealer
will not be deemed to admit that it is an underwriter within the meaning
of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be the Initial Purchaser, unless it
elects not to act as such representative) only one, if any, "cold comfort"
letter with respect to
<PAGE> 12
11
the Prospectus in the form existing on the last date for which exchanges
are accepted pursuant to the Exchange Offer and with respect to each
subsequent amendment or supplement, if any, effected during the period
specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period of
180 days following the closing of the Exchange Offer or such shorter
period which will terminate when the Participating Broker-Dealers have
completed all resales subject to applicable prospectus-delivery
requirements; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b) hereof, or take any other action
as a result of this Section 3(f), for a period exceeding 180 days after
the last date for which exchanges are accepted pursuant to the Exchange
Offer (as such period may be extended by the Company) and Participating
Broker-Dealers shall not be authorized by the Company to, and shall not,
deliver such Prospectus after such period in connection with resales
contemplated by this Section 3.
(g) in the case of an Exchange Offer or a Shelf Registration,
furnish U.S. counsel for the Initial Purchaser copies of any request by
the SEC or any state securities authority for amendments or supplements to
a Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide prompt notice to each Holder of the withdrawal of
any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends pertaining to U.S. securities laws; and
cause such Registrable Notes to be in such denominations (consistent with
the provisions of the Indenture) and registered in such names as the
selling Holders or the underwriters, if any, may reasonably request at
least two business days prior to the closing of any sale of Registrable
Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use its best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required
<PAGE> 13
12
document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such numbers of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably
request;
(l) obtain a CUSIP number for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes or the Registrable Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may
be, (ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the Holders of a majority in principal amount of the
Registrable Notes being sold) addressed to each selling Holder and
the underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested by
such Holders and underwriters;
<PAGE> 14
13
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and will use reasonable best efforts to
have such letter addressed to the selling Holders of Registrable
Notes, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters to
underwriters in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be
in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case
of an Underwritten Offering, cause the same to set forth
indemnification provisions and procedures substantially equivalent
to the indemnification provisions and procedures set forth in
Section 5 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section ; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to
the extent required thereunder. In the case of any Underwritten Offering,
the Company shall provide written notice to the Holders of all Registrable
Notes of such Underwritten Offering at least 30 days prior to the filing
of a prospectus supplement for such Underwritten Offering. Such notice
shall (x) offer each such Holder the right to participate in such
Underwritten Offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such Underwritten
Offering and (z) include the instructions such Holder must follow in order
to participate in such Underwritten Offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any U.S. counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by
any such persons, and cause the respective officers, directors, employees,
and any other agents of the Company to supply all information reasonably
requested by any such representative, underwriter, special counsel or
accountant in connection with a Registration Statement; provided that any
such records, documents, properties and such information that is
designated in writing by the Company, in good faith, as confidential at
the time of delivery of such records, documents, properties or information
shall be kept confidential by any such representative, underwriter,
special counsel or accountant and shall be used only in connection with
such Registration Statement, unless such
<PAGE> 15
14
information has become available (not in violation of this agreement) to
the public generally or through a third party without an accompanying
obligation of confidentiality, and except that such representative,
underwriter, special counsel or accountant shall have no liability, and
shall not be in breach of this provision, if disclosure of such
confidential information is made in connection with a court proceeding or
required by law, and the Company shall be entitled to request that such
representative, underwriter, special counsel or accountant sign a
confidentiality agreement to the foregoing effect;
(p) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to a Prospectus, provide a copy of such document to the Initial
Purchaser, and make such changes in any such document prior to the filing
thereof as the Initial Purchaser or its U.S. counsel may reasonably
request; (ii) in the case of a Shelf Registration, a reasonable time prior
to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to the
Holders of Registrable Notes, to the Initial Purchaser, to U.S. counsel on
behalf of the Holders and to the underwriter or underwriters of an
Underwritten Offering of Registrable Notes, if any, and make such changes
in any such document prior to the filing thereof as the Holders of
Registrable Notes, the Initial Purchaser on behalf of such Holders, the
Initial Purchaser's counsel and any underwriter may reasonably request;
and (iii) cause the representatives of the Company to be available for
discussion of such document as shall be reasonably requested by the
Holders of Registrable Notes, the Initial Purchaser on behalf of such
Holders or any underwriter and shall not at any time make any filing of
any such document of which such Holders, the Initial Purchaser on behalf
of such Holders, the Initial Purchaser's U.S. counsel or any underwriter
shall not have previously been advised and furnished a copy or to which
such Holders, the Initial Purchaser on behalf of such Holders, the Initial
Purchaser's counsel or any underwriter shall reasonably object;
(q) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of
an Underwritten Offering of Registrable Notes, if any;
(r) in the case of a Shelf Registration, use its best efforts to
cause the Registrable Notes to be rated with the appropriate rating
agencies, if so requested by the Majority Holders or by the underwriter or
underwriters of an Underwritten Offering of Registrable Notes, if any,
unless the Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the 1933 Act and Rule 158 thereunder; and
<PAGE> 16
15
(t) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its U.S. counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Notes current at the time of receipt of such notice.
If the Company shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension provided that the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Shelf Registration Statement and shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date when the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an Underwritten Offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless the Initial Purchaser, each Holder, including Participating
Broker-Dealers, each underwriter who participates in an offering of Registrable
Notes, their respective affiliates, and the respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
<PAGE> 17
16
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Notes or
Registrable Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
5(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of United States and Polish counsel chosen by
any indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened in connection with,
or any claim whatsoever based upon, any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) of this Section
5(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent (A) arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in or omitted from a
preliminary Prospectus or registration statement and corrected or cured in a
subsequent Prospectus or registration statement or any amendment or supplement
thereto, (ii) made in reliance upon and in conformity with information furnished
to the Company by the Initial Purchaser, any Holder, including Participating
Broker-Dealers, or any underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto), or (B) resulting from the use of the Prospectus during a
period when the use of the Prospectus has been suspended in accordance with
Section 2(d)(ii) or Section 3(e)(vi) hereof, provided, in each case, that
Holders received prior notice of such suspension;
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Initial Purchaser, each underwriter who
participates in an offering of Registrable Notes and the other selling Holders
and each of their respective directors and officers (including each officer of
the Company who signed the Registration Statement) and each Person, if any, who
controls the Company, the Initial Purchaser, any underwriter or any other
selling Holder within the meaning of Section 15 of the 1933 Act, against any and
all loss, liability, claim, damage and expense described in the indemnity
contained in Section 5(a) hereof, as incurred, but only with respect to untrue
statements or
<PAGE> 18
17
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with information
furnished to the Company by such Holder, as the case may be, expressly for use
in the Registration Statement (or any amendment thereto), or the Prospectus (or
any amendment or supplement thereto);
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel, in addition to any local counsel, separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 hereof
(whether or not the indemnified parties are actual or potential parties
thereof), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel for which they are entitled to indemnification hereunder,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 5(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party for such reasonable fees
and expenses of counsel in accordance with such request prior to the date of
such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, the Initial Purchaser on
another hand, and the Holders on another hand, from the offering of the Exchange
Notes or Registrable Notes included in such
<PAGE> 19
18
offering or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand, the Initial Purchaser on another hand, and the
Holders on another hand, in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand, the Initial Purchasers on another hand, and the Holders on
another hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Initial Purchaser or the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Initial Purchaser and the Holders of the
Registrable Notes agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by another method of
allocation which does not take account of the equitable considerations referred
to above in Section 5. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 5 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by an governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1993 Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each Person, if any, who controls the Initial Purchaser or a Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Initial Purchaser or such Holder, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each Person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The parties hereto agree
that any underwriting discount or commission or reimbursement of fees paid to
the Initial Purchaser pursuant to the Purchase Agreement shall not be deemed to
be a benefit received by the Initial Purchaser in connection with the offering
of the Exchange Notes or Registrable Notes included in such offering.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file or furnish the reports required to
be filed or furnished by it under the 1933 Act and Section 13(a) or 15(d) of the
1934 Act and the rules and regulations adopted by the SEC thereunder, that if it
ceases to be so required to file or furnish such reports, it will upon the
request of any Holder of Registrable Notes (i) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (ii) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act and it will take such
further action as any Holder of Registrable Notes may reasonably request, and
(iii) take such further action that is reasonable in the circumstances, in each
case, to the extent required from time to time to enable such Holder to sell its
Registrable Notes without registration under the 1933 Act within the limitation
of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may
be amended from time to time, (y) Rule 144A under the 1993 Act, as such Rule may
be amended from time to time, or (z) any similar rules
<PAGE> 20
19
or regulations hereafter adopted by the SEC.
(b) No Inconsistent Agreements. The Company has not entered into and
the Company on or after the date of this Agreement will not enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any air courier (i) if to a Holder, at
the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 6(d), which
address initially is, with respect to the Initial Purchaser, the address set
forth in the Purchase Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; at the time
received, if mailed or sent by air courier; when answered back, if telexed; and
when receipt is acknowledged, by recipient's telecopy operator, if telecopied.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive
<PAGE> 21
20
the benefits hereof.
(f) Third Party Beneficiary. The Initial Purchaser shall be a third
party beneficiary to the agreements made hereunder between the Company, on the
one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
Other than the foregoing sentence, nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchaser, the Holders, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the Company and their
respective successors and the controlling persons and directors, officers,
employees, and agents referred to in Section 5 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole benefit of
the Initial Purchaser, the Holders and the Company and the other persons
referenced by the preceding sentence and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
POLAND COMMUNICATIONS, INC.
By: ____________________________
Name:
Title:
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: __________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.2
MANAGEMENT AGREEMENT
Entered into as of ________________ in C between:
A with an office in Hartford, this Agreement as A represented by:
B , referred to in this Agreement as B , represented by:
Article 1
B is a Polish economic entity conducting activities in the territory of the
Republic of Poland and outside its borders.
Article 2
A is a United States of America economic entity.
Article 3
A will provide to B organizational and consulting services pertaining to
the realization of B's objectives according to Article 5 of B's Deed of
Association.
Article 4
Obligations outlined in Article 3 of this Agreement relate, in particular, to
the construction and exploitation of a cable television system in the region of
C (the " C System").
Article 5
The parties agree that A will receive from B a consulting management fee as
compensation for services provided pursuant to Article 3 and 4 of this
Agreement.
Article 6
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<PAGE> 2
The services and expenses for which the consulting management fee described in
Article 5 is due include:
1. Organization consulting on behalf of B .
2. Organization activity directed to the fulfillment of
Article of B Deed of Association.
Article 7
The parties agree that for the fiscal year and for each year thereafter
the consulting management fee defined in Article 5 of this Agreement will be
equal to an equivalent of USD $ (Dollars 00/100) for the System.
Accrued management fees will become payable when and to the extent that B net
income exceeds zero.
Article 8
The amount determined in Article 7 was based on the feasibility study which
served as a basis for the issuance of the permit .
Article 9
The agreement shall continue until and shall be automatically
renewed for successive one (1) year periods unless terminated in writing by
either party at least thirty (30) days prior to the then existing term.
Article 10
This Agreement shall be binding on and inure to the parties' successors and
assigns. This Agreement relates to the operation of the C System. A hereby
acknowledges and agrees the B may assign all or a portion of rights granted
to it herein to any entity(ies) continuing to operate the C System without
the prior consent of A . Any such entity(ies) shall consent to be bound by
the obligations of B to A hereunder. A may assign its rights and
obligations hereunder to an affiliated entity capable of performing the
services hereunder without the prior consent of B .
Article 11
Matters unregulated by this Agreement will be governed by the Civil Code.
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<PAGE> 3
Article 12
Potential disputes will be resolved by courts headquartered in the United
States.
Article 13
This Agreement was prepared in two counterparts, one for each party.
A
By:
------------------------------
B
By:
------------------------------
3
<PAGE> 1
EXHIBIT 10.3
SERVICE AGREEMENT
dated as of
among
[ PTK Company ] - Owner
A
and
B , As Agent
<PAGE> 2
Service Agreement ("Agreement") effective as of among [PTK Company]
("Owner"), A and B ("Agent"), as agent of A .
WHEREAS, Owner is currently engaged in the construction, development,
operation and management of a cable communications system (the "System") within
the city of C and the surrounding area in the Republic of Poland;
WHEREAS, A , through Agent, and otherwise, has available and has access
to financial, administrative, technical, managerial, supervisory, architectural,
operational, programming, marketing, sales and promotional, personnel, computer
analysts, and other professional and experienced personnel knowledgeable in the
construction, development, operation and management of cable facilities,
including cable communications systems;
WHEREAS, Owner has experienced logistical and economic constraints in
obtaining and maintaining the necessary supply of qualified personnel, materials
and other services and products required to achieve its business goals without
the assistance of an intermediary outside the Republic of Poland, and desires to
engage the services of A , and Agent on a non-exclusive basis to more
efficiently and economically conduct its business;
WHEREAS, Owner desires to engage A to perform, or cause to be
performed, certain services on a non-exclusive basis, and A desires to perform,
or will cause to be performed, said services, in accordance with the terms of
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual premises
and covenants hereinafter set forth, the parties agree with each other as
follows:
ARTICLE 1
THE PARTIES
Section 1.1 Description of the Parties.
(a) Owner is a
(b) A is a
(c) Agent is a
ARTICLE 2
THE SYSTEM
Section 2.1 The-Business of the Owner.
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<PAGE> 3
The existing business of the Owner is to acquire, construct, own and
operate cable television systems to service the city of C and surrounding areas
in the Republic of Poland. The business of the Owner includes the construction
and development and promotion of the System in the Republic of Poland, the
purchase of equipment, supplies, and other goods and materials for the System,
the evaluation and acquisition of cable television systems, the operation and
maintenance of the Systems and managing personnel needed to carry out its
business goals and objectives and all other functions relating to the successful
operation of a cable television system. The activities as described in this
Section are referred to below as the "Business of the Owner".
ARTICLE 3
SERVICES/FEES/EXPENSES
Section 3.1 Agency Services/Fees/Expenses.
(a) Agency Services: A shall (or may cause its Agent or affiliates, in
its sole discretion, to) provide services to and at the request of Owner
relating to technical, managerial, supervisory, purchasing, operational,
financial and administrative functions ("Agency Services"), as follows:
(i) A shall engage (or cause to be engaged) personnel for the
benefit of and on behalf of Owner as A shall deem necessary and as requested by
Owner to perform the Agency Services. Such personnel, whether located in Poland,
the United States, or elsewhere, shall be engaged substantially full-time in
providing such services. All reasonable out-of-pocket costs and expenses
incurred by A (or Agent or affiliates) relating to these personnel (including,
without limitation, salaries, social security, insurance and other benefits,
housing allowances, travel and entertainment expenses and any other related and
sundry costs) (collectively "Personnel Costs") shall be reimbursed by Owner
pursuant to this Section;
(ii) With the consent of Owner, A shall purchase (or may cause
to be purchased) from unaffiliated third parties, as A shall deem necessary, any
equipment, supplies or other goods or materials to be used or useful for the
Business of Owner. Upon receipt of consideration for such purchases from Owner,
title to the foregoing shall be in Owner. All reasonable out-of-pocket costs and
expenses of unaffiliated third parties incurred by A or Agent or affiliates)
relating to these purchases (including without limitation, any and all
transportation, freight, shipping, import taxes, other taxes, fees, insurance
and brokerage fees) (collectively "Purchasing Costs") shall be reimbursed by
Owner pursuant to this Section;
(iii) A shall, at Owner's request, supervise the
2
<PAGE> 4
payment of, or at A 's election pay, any operating expenses relating to the
Business of the Owner ("Operating Expenses"). Expenses incurred by A or Agent in
accordance with this Subsection shall be reimbursed in full (with interest, if
applicable) by Owner pursuant to this Section;
(iv) A shall be entitled to reimbursement for all reasonable
out-of-pocket costs and expenses charged by unaffiliated third parties and
incurred by A or Agent or any of its affiliates on behalf of Owner in connection
with providing the Agency Services in accordance with this Agreement, including
without limitation, travel, lodging, entertainment, postage, or telephone costs
and expenses.
(v) All reimbursements by Owner shall be in the same currency
as payments, costs and expenses were made or incurred, unless otherwise agreed
to by the parties.
(b) A shall submit to Owner, within 30 days after each calendar
quarter, a statement indicating all payments, costs and expenses made or
incurred by A or Agent or affiliate during such calendar quarter and for which A
seeks to be reimbursed by Owner (each statement being referred to herein
individually as a "Statement" and collectively as "Statements"). Such amounts
shall be reimbursed within thirty (30) days of the date such Statement is
rendered unless otherwise agreed to by the parties. In no event shall any delay
or failure to list any cost or expense on a Statement waive any of A 's rights
to reimbursement upon submission of a Statement by A or its Agent setting forth
such cost or expense.
(c) Owner shall be deemed to have conclusively and irrevocably approved
any and all payments, costs and expenses made or incurred by A or Agent in
accordance with this Agreement (except for any payments, costs and expenses made
or incurred resulting from willful misconduct or gross negligence on the part of
A or Agent as described in Section 6.2 as it relates to Owner's indemnification
obligations set forth in Section 6.2) unless, as to each Statement , written
objection is given, as to each payment, cost or expense objected to, within
thirty (30) days of Owner's receipt of such Statement, specifying either that
(i) Owner notified A or Agent of its disapproval of such payment, cost or
expense prior to its having been made or incurred by WCCI29 A or Agent and
setting forth the specific facts regarding such disapproval, or (ii) A or Agent
was acting with gross negligence or willful misconduct in making or incurring
such payment, cost or expense. If Owner and A or Agent are in disagreement as to
right to reimbursement of a particular payment, cost or expense, the provisions
of Section 8.2 shall apply.
(d) Notwithstanding anything herein to the contrary, neither A nor
Agent nor any of their affiliates shall have any obligation
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<PAGE> 5
to advance any payments to third parties on behalf of Owner, or make or incur
any fees, costs or expenses required to be paid directly by A , Agent or
affiliates, and such decision shall be within the sole discretion of A or Agent,
and upon making or incurring any such costs and expenses, A (or Agent or
affiliates, if applicable) shall be entitled to reimbursement. This Section
3.1(d) shall not apply to the General Services provided below in Section 3.2(a),
so long as Owner is not in default under Section 3.2(b) or otherwise in material
default under this Agreement. Further, Owner shall continue to have all rights
and powers to make, incur and/or pay directly to any creditor any fees, costs or
expenses related to its Business or otherwise on its own behalf, including,
without limitation, payments and reimbursements made directly to employees of A
or its Agent.
(e) In providing the Services hereunder, A and Agent shall make
reasonable efforts to comply with legal requirements actually known to A , or
Agent, which are applicable to the System and the conduct of the Business of the
Owner. In providing the Services hereunder, A and Agent shall make reasonable
efforts to comply with the requirements actually known to A of the insurance
companies with which insurance covering the System is carried.
Section 3.2 General Services/Fees/Expenses.
(a) General Services: At Owner's request, A or Agent or any of its
affiliates shall provide, on a non-exclusive basis, general administrative
services (other than as described in Section 3.3) to Owner, relating to the use
of A 's and its affiliates phone system(s), office machine(s), office space,
office supplies, computer services, receptionist and other general office
services;
(b) (i) In consideration for the General Services provided under this
Agreement, Owner shall pay A a fee of per calendar quarter, payable in arrears
in legal tender of the United States of America, on or before the last day of
each March, June, September and December, commencing .
(ii) Notwithstanding the provision of Section 3.2 (b)(i) above, if
Owner is obligated to pay management fees to A pursuant to any applicable
management agreement, the fees set forth in Section 3.2(b)(i) are waived for the
period such management agreement is in effect.
Section 3.3 Specific Services/Fees/Expenses.
(a) Specific Services: A shall provide or cause to be provided to
Owner, at Owner's request, legal, financial and other professional services, at
commercially reasonable rates, for specified activities, which services may be
performed by personnel of A or Agent or their affiliates, or by third parties
engaged by
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<PAGE> 6
A or Agent on behalf of Owner at A 's or Agent's sole discretion ("Specific
Services").
(b) All fees, costs and expenses for Specific Services made, rendered,
or incurred by A , Agent or any of their affiliates from time to time in
accordance with Section 3.3(a), including reasonable out-of-pocket expenses,
shall be separately billed and shall be paid or reimbursed by Owner within
thirty (30) days of receipt of the bill.
(c) The provisions of Section 3.1(d) shall apply to this Section.
Section 3.4 Advances/Interest.
A , Agent or any of their affiliates, may, in accordance with this
Agreement but in no event shall A or its Agent have any obligation to, advance
funds to or on behalf of Owner or make or incur costs or expenses on behalf of
Owner. Any such funds advanced to or on behalf of Owner, or any such costs or
expenses or incurred by A , Agent or any of their affiliates on behalf of Owner
(individually "Advance", collectively "Advances"), shall bear interest at the
Market Interest Rate, as defined hereafter, accruing from and after the date
advanced, made or incurred, as applicable, until paid or reimbursed in full. The
Market Interest Rate shall be the rate of ten percent (10%) per annum for U.S.
dollar denominated advances.
Section 3.5 Documentation.
A and Agent shall promptly supply to Owner on request all supporting
documentation with respect to any payments or reimbursements asserted to be due
from Owner hereunder.
ARTICLE 4
THE ENGAGEMENT
Section 4.1 Engagement of A and Agent.
Owner engages A and Agent, on an non-exclusive basis, to perform the
various Services described in Article 3 of the Systems for the term of this
Agreement. A and Agent each accepts the engagement and agrees to perform the
Services in accordance with this Agreement. The parties acknowledge that, for
the purposes of this Agreement, Agent is acting solely on behalf of and as the
agent for A in carrying out A 's obligations under the terms of this Agreement
and its liability in all respects shall be limited to that status and as
otherwise set forth in Article 6 herein.
Section 4.2 Term of Agreement.
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<PAGE> 7
(a) The term of this Agreement shall commence as of the date of this
Agreement and terminate on .
(b) The term of this Agreement shall be extended automatically for
successive periods of one calendar year unless a party notifies the others on or
before January 31 of any calendar year (after the year ) of its desire that the
term of this Agreement shall end on December 31 of the same calendar year, and,
in that event, this Agreement shall terminate on the December 31 of that
calendar year.
Section 4.3 Control and Compliance.
(a) It is the intention of the parties that the management and
operation of the System and the Business of the Owner be in compliance with the
pertinent rules, regulations and policies of Polish law. Nothing in this
Agreement shall serve, or shall be construed to serve, to prevent or hinder the
Owner from retaining and exercising full and complete control over the System
and the Business of the Owner, including but not limited to its assets, its
policies and practices, its personnel and the advertising and broadcast on the
System. In the event that the Polish government indicates to Owner, by formal or
informal means, that any term or provision of this Agreement is objectionable
under Polish law, the parties shall promptly make reasonable efforts to modify
this Agreement to the extent necessary to remove the objection of the Polish
government.
(b) No payments shall be made under this Agreement which require the
permission of the National Bank of Poland without the receipt of such
permission.
ARTICLE 5
AUTHORITY OF A AND AGENT
Section 5.1 Grant of Authority.
A (together with its Agent or any affiliates acting on its behalf
pursuant to this Agreement) is an independent contractor respect to the Agency
Services provided in Section 3.1.
ARTICLE 6
RELEASE/INDEMNIFICATION/LIABILITY
Section 6.1 Release.
Owner releases A , Agent, their affiliates, officers, directors,
stockholders, employees, partners, joint ventures, successors and assigns, from
any loss, liability or damage which may arise as a result of or in connection
with:
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<PAGE> 8
(a) any occurrence to the extent which such loss, liability or damage
is covered by fire insurance or any of the perils covered by extended coverage
or difference of condition endorsements; and/or
(b) act or omission of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners or joint
venturers,successors and assigns other than willful misconduct or gross
negligence in the conduct of its duties unless such action shall have been in
good faith reliance on the opinion of counsel.
Section 6.2 Indemnification and Liability.
(a) Owner hereby indemnifies and holds harmless A , Agent, their
successors and assigns, their affiliates, officers, directors, stockholders,
employees, partners or joint venturers (jointly and severally, "Indemnitee")
from and against all claims and liabilities, whether they proceed to judgment or
are settled, and from and against all out-of-pocket expenses incurred by the
Indemnitee which are payable to any unaffiliated third party in defense of such
claims and liabilities, including reasonable attorney's fees, to which the
Indemnitee may become subject by reason of providing the Agency Services,
General Services, or Specific Services in accordance with this Agreement,
including, without limitation: (1) the choice, manner or extent of any Services
provided; (2) the entering into contractual relationships of any sort, whether
in the name of Indemnitee or Owner, on behalf of the Owner; and (3) the filing
or failure to file reports, notices, certificates or accounting required by any
law, rule, regulation or agreement of any country, state or other governmental
authority; provided, however, that the Indemnitee shall not be indemnified or
reimbursed in relation to any matter with respect to which it shall be
determined in a final judgment by a court of competent jurisdiction that
Indemnitee's action constituted gross negligence or willful misconduct in the
conduct of its duties unless such action shall have been determined to be in
good faith reliance on the opinion of counsel.
(b) The rights accruing to the Indemnitee hereunder shall not exclude
any other right to which it may be or come to be lawfully entitled, nor shall
anything contained herein restrict the right of the Owner to reimburse any
Indemnitee, in any lawful cause, even though not specifically provided for
herein.
(c) A and Agent shall not be liable in any respect for any act or
omission on the part of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners, or joint venturers,
unless a final judgment is rendered by a court of competent jurisdiction that
such act or failure to act constitutes willful misconduct or gross negligence in
the conduct of A 's (or Agent's) duties hereunder unless such action
7
<PAGE> 9
shall have been in good faith reliance on the opinion of counsel. In no event
shall the officers, directors, stockholders, or employees of A or Agent have any
individual liability in any respect for any act or failure to act under the
terms of this Agreement.
ARTICLE 7
ASSIGNMENT AND SUBORDINATION
Section 7.1 Assignment.
A or Agent may assign its rights under this Agreement to a parent,
affiliate or subsidiary of A or Agent, or as collateral security to any lending
institution providing credit to A or Agent.
Section 7.2 Assignment by Owner.
Owner may assign its rights and interest under this Agreement to any
lending or financial institution providing financing to Owner or to a new owner
of the System.
Section 7.3 Conditions to Assignment.
The following shall apply if any party assigns its interest, by law or
agreement. No assignment, other than to a lender as collateral security, shall
be effective unless and until the assignee assumes in writing or by law (i.e.,
merger or otherwise) all of the obligations of the assignor under this
Agreement. Such assignment shall not relieve the assignor of its obligations
under this Agreement.
ARTICLE 8
DEFAULTS AND DISPUTES
Section 8.1 Termination for Cause.
Owner or A or its Agent on its behalf may terminate this Agreement for
cause upon delivery of a written notice to the other parties.
(a) Owner shall have cause for termination if A or Agent shall default
in the performance of any material covenant, agreement, term or provision of
this Agreement, and the default shall continue for a period of sixty days after
written notice to A or Agent from Owner setting forth the specific default,
provided however, that if A or Agent commences to cure a default within the 60
day period but is unable to complete the cure within the 60 days despite the
exercise of reasonable diligence, A or Agent shall have the right to cure as
long as A or its Agent diligently
8
<PAGE> 10
prosecutes the cure thereafter.
(b) A or Agent may terminate this Agreement for cause:
(i) If the Owner shall default in the performance of any
material covenant, agreement, term or provision of this Agreement (other than as
contemplated in clause (v) below) and the default shall continue for a period of
60 days after written notice to Owner from A or Agent stating the specific
default.
(ii) If the System shall be damaged by fire or other casualty
and if the Owner fails to commence repairing, restoring, rebuilding or replacing
the portion of the System damaged or destroyed within 60 days after the fire or
other casualty, or shall fail to complete the work within a reasonable period of
time; or
(iii) If the license of or franchise for of the System cannot
be obtained or renewed, or is at any time suspended, terminated, or revoked; or
(iv) If, in the sole discretion of A or its Agent, a material
adverse change occurs or exists at any time in the Business, the System, and/or
the financial condition of Owner; or
(v) If Owner shall fail to make any material payment due
hereunder to A or Agent within 30 days after receiving written notice from A or
Agent of such failure.
In the event this Agreement is terminated for cause under one or more
of the terms of this section, all fees and payments due to A or its Agent
pursuant to this Agreement will remain payable and will be paid by Owner in
full.
Section 8.2 Disputes.
Any dispute arising under this Agreement which Owner, on the one hand,
and A or Agent, on the other hand, cannot resolve within a reasonable time shall
be resolved by arbitration by a board of three arbitrators in the United States,
one to be designated by Owner, one to be designated by A or Agent, and the third
to be designated by the first two arbitrators. The board of arbitrators shall
adopt procedures for the arbitration and, for this purpose, may adopt some or
all of the rules and regulations of the American Arbitration Association. The
cost of any arbitration shall be borne as determined by the board of
arbitrators. The decision of the board shall be in writing and shall be final
and unappealable.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Notice.
9
<PAGE> 11
Notices given under this Agreement shall be valid only if in writing
and properly mailed. A notice shall be properly mailed only if delivered by
overnight courier, with signature required, or if mailed by certified or
registered mail, if postage is prepaid, and if the notice if properly addressed.
A notice to a party shall be properly addressed only if addressed to the address
of the party set forth under Section 1 or to any other address the party may
designate by giving notice to the other party.
Section 9.2 Interpretation.
Captions and headings used in this Agreement are for reference only and
shall not be considered in connection with the interpretation of any provision
of this Agreement.
A male or female person may be referred to in this Agreement by a
neuter pronoun. A provision of this Agreement which requires a party to perform
an action shall be construed so as to require the party to perform the action or
to cause the action to be performed. The word "include" and variations of the
word such as "includes" and "including" shall not be construed as to limit the
generality of the statements they follow or precede and the phrase "shall not be
limited to" shall be deemed to follow every reference to the word "include" and
its variations. The singular includes the plural, and the plural includes the
singular. "Any" means "any and all".
"Notices" includes notices, consents, "approvals" and other
communications. This Agreement may not be changed or cancelled orally. No person
shall be regarded as a third party beneficiary of this Agreement.
Section 9.3 Status Reports.
Recognizing that each party may find it necessary, from time to time,
to establish to third parties, such as accountants, banks, mortgagees,
shareholders or the like, the financial status of its interest in this
Agreement, Owner and A agree to furnish, as promptly as practicable upon written
request of the other party a written statement as to the status of any matter
pertaining to this Agreement and the rights and obligations created by this
Agreement.
Section 9.4 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. The submission of an
unexecuted copy of this Agreement shall not constitute an offer to be legally
bound by the provisions of the copy submitted; and no party shall be bound by
this Agreement until it is executed by all of the parties. This Agreement may be
executed in counterparts, and each counterpart constitutes an original document.
10
<PAGE> 12
Section 9.5 Governing Law.
This Agreement shall be governed and construed in accordance with the
laws of the State of Connecticut.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by duly authorized representatives.
[PTK Company]
By:
------------------------------
Its:
By:
------------------------------
Its:
A
By:
------------------------------
Its:
B
By:
------------------------------
Its:
11
<PAGE> 1
EXHIBIT 10.4
CORPORATE OVERHEAD ALLOCATION AGREEMENT
dated as of
among
(PTK Companies)
A
and
B
<PAGE> 2
CORPORATE OVERHEAD ALLOCATION AGREEMENT ("Agreement") dated as of
January 1, 1996 among [PTK Companies] B and A
WHEREAS, (collectively the "PTK Companies") are currently engaged in
the construction, development, operation and management of cable communications
systems in different cities/areas within the Republic of Poland;
WHEREAS, (collectively the "PTK Companies") are either affiliates or
majority owned subsidiaries of B , a majority owned subsidiary of A ;
WHEREAS, each of the PTK Companies has engaged B or A or their
affiliates to perform certain services on a non-exclusive basis relating to the
construction, development, operation and management assistance of cable
television facilities through individual Service Agreements with A or B ;
WHEREAS, one or more of the PTK Companies are performing certain other
services in Poland for the benefit of some or all of the PTK Companies; and
WHEREAS, the parties need to clarify certain aspects of the Service
Agreement and the allocation of other such shared costs;
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants hereinafter set forth, the parties agree with each other as
follows:
ARTICLE 1
THE PARTIES
Section 1.1 Names of the Parties.
The parties to this Agreement are B ; and A, and any future affiliates
that may become a party to this agreement.
Section 1.2 Description of the Parties.
(a) (i) [PTK Company] is a ______________________ formed
under the Polish Commercial Code of Poland with a principal office
at ________________________________.
(ii) [PTK Company] is a ______________________ formed
under the Polish Commercial Code of Poland with a principal office
at ________________________________.
(iii) [PTK Company] is a ______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
1
<PAGE> 3
(iv) [PTK Company] is a _______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
(v) [PTK Company] is a _______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
(vi) [PTK Company] is a _______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
(vii) [PTK Company] is a _______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
(viii) [PTK Company] is a _______________________ formed
under the Polish Commercial Code of Poland with a principal office
at _______________________________.
The companies set forth in (i) to (viii) above are collectively
referred to as the "PTK Companies", or individually as a "PTK Company". Any
entities which are formed or acquired by any of the parties to this agreement
subsequent to the execution of this Agreement may become a party to this
Agreement by execution of a separate letter or agreement to be bound by the
terms contain herein.
(b) A is a ______________________. It is referred to below
as " A ".
(c) B is a ______________________. It is referred to below
as " B ".
ARTICLE 2
THE SYSTEMS
Section 2.1 The Systems.
The PTK Companies have been authorized to construct, own and
operate cable television systems in the Republic of Poland. The
cable systems are referred to as the "Systems".
Section 2.2 The Business of the PTK Companies.
The existing business of the PTK Companies is to construct, acquire,
own and operate cable television systems, to service areas in the Republic of
Poland. The business of the PTK Companies includes the construction, development
and promotion of the Systems
2
<PAGE> 4
in various cities in the Republic of Poland, the purchase of equipment,
supplies, and other goods and materials for the Systems, the operation and
maintenance of the Systems and managing personnel needed to carry out its
business goals and objectives and all other functions relating to the successful
operation of a cable television system.
ARTICLE 3
COSTS
Section 3.1 Services and Costs of A and/or B .
(a) Hartford Costs: A shall (or may cause B or affiliates,
in its sole discretion) provide services on behalf of, and at the request of,
the PTK Companies under the Service Agreements and management related services
and overhead costs as otherwise requested by the PTK Companies. The costs
associated with such services are called "Hartford Costs".
(b) Allocation of Hartford Costs
(i) Those Hartford Costs that can be clearly and directly attributed to
or for the benefit of specific PTK Companies shall be allocated and charged only
to those particular PTK Companies.
(ii) Those Hartford Costs that are not clearly and directly attributed
to or for the benefit of specific PTK Companies shall be allocated equally among
each of the PTK Companies, provided on Schedule A, as such schedule shall be
amended from time to time by A in its sole discretion.
(iii) A and/or B shall determine the allocations in 3.1(b)(i) and (ii)
above as described on Schedule A, and the PTK Companies agree to be bound by
such allocations.
(c) Billing: The PTK Companies shall be invoiced on a quarterly basis
in arrears, and the PTK Companies shall each agree to make payment to the
designated party on a timely basis in accordance with the terms of the invoice.
3.2 Services and Costs of PTK - Warsaw
(a) Poland Corporate Overhead Costs: At times certain PTK Company(ies)
shall perform certain services and maintain certain equipment and materials
which benefit all or some of the PTK Companies. Such services and expenses
include costs associated with maintaining a central office in Warsaw (including
but not limited to office equipment and telephone); legal expenses; expenses
relating to governmental relationships and approvals; programming services;
accounting; MIS services; and certain
3
<PAGE> 5
personnel whose duties clearly benefit more than just the PTK Company(ies)
performing the services and those incurring the costs. These costs are called
the "Poland Corporate Overhead Costs".
(b) Allocation of Poland Corporate Overhead Costs:
The Poland Corporate Overhead Costs shall be calculated and
allocated as follows:
(i) On a quarterly basis, each of the PTK Companies shall
submit to A or B (as designated by A ) a statement of any Poland Corporate
Overhead Costs it has incurred. Such statement shall describe the nature and
dates of the Poland Corporate Overhead Costs and the PTK Company(ies) on whose
behalf such costs were incurred.
(ii) A or B shall review the statement to determine the
appropriate Poland Corporate Overhead Costs to be allocated among the PTK
Companies.
(iii) A or B shall invoice the PTK Companies for their equal
pro rata share as set forth in Schedule A (based upon the number of PTK
Companies) of the Poland Corporate Overhead Costs, collect the net amounts due
and owing and reimburse the PTK Companies pursuant to the appropriate
allocation.
(c) Billing: The PTK Companies shall be invoiced on a quarterly basis
in arrears, and the PTK Companies shall each agree to make payment to the
designated party on a timely basis in accordance with the terms of the invoice.
(d) Resolution of Disputes: If any PTK Company has a dispute regarding
any Poland Corporate Overhead Costs allocated to it or due it under this
Agreement, it shall notify A in writing within fifteen (15) business days after
receipt of such invoice.
The parties shall then use their best efforts to resolve such
disputes. If no settlement is reached within thirty (30) days, parties hereby
agree to submit to arbitration under Section 5.4 of this Agreement.
Section 3.3 Consent
(a) The parties to this agreement understand that
consummated a loan with The parties agree and consent that
no allocation of Poland Corporate Overhead Costs to shall exceed its equal
pro rata share, as set forth on Schedule A attached, unless and until OPIC has
consented in writing to such allocation. [NOW VOID]
ARTICLE 4
TERM AND TERMINATION
4
<PAGE> 6
Section 4.1 Term
This Agreement shall commence on _____________________ and shall remain
in effect until __________________. This Agreement shall automatically renew for
successive one (1) year periods unless written notice is given at least thirty
(30) days prior to the end of the Term and sent by A or B to one or more of the
PTK Companies or by one or more of the PTK Companies to A and B , such
termination to be effective on the last day of the then existing term. If any of
the PTK Companies terminates this Agreement, the termination shall be effective
only for the specific PTK Company giving notice of termination.
Section 4.2 Termination
Notwithstanding the provisions of 4.1 above, at any time during this
Agreement, any party may terminate this Agreement by giving 30 days prior
written notice. If any of the PTK Companies terminates this Agreement, the
termination shall be effective as to only those PTK Companies giving notice of
termination.
Upon termination of the Agreement by any of the PTK Companies for any
reason, any costs incurred after termination subject to this Agreement shall be
reallocated pursuant to the provisions of this Agreement.
ARTICLE 5
MISCELLANEOUS PROVISIONS
Section 5.1 Governing Law
This Agreement shall be governed in accordance with the laws of the
State of Connecticut.
Section 5.2 Binding Effect
This Agreement shall be binding on and inure to the parties' successors
and assigns.
Section 5.3 Notices
Notices given under this Agreement shall be valid only if in writing
and properly mailed. A notice shall be properly mailed only if delivered by
overnight courier, with signature required, or if mailed by certified or
registered mailed, if postage is prepaid, and if the notice is properly
addressed. A notice to a party shall be properly addressed only if addressed to
the address of the party
5
<PAGE> 7
set forth in Section 1.2 or to any other address the party may designate by
giving notice to the other parties.
Section 5.4 Disputes
Any dispute arising under this Agreement shall be resolved by
arbitration by a board of three arbitrators, one to be designated by the PTK
Company(ies) involved in the dispute, one to be designated by A or B , and the
third to be designated by the first two arbitrators. The board of arbitrators
shall adopt procedures for the arbitration and, for this purpose, may adopt some
or all of the rules and regulations of the American Arbitration Association. The
cost of any arbitration shall be borne equally by the parties. The decision of
the board shall be final and unappealable.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by their duly authorized representatives.
[PTK Companies]
By:
------------------------------
Its:
-----------------------------
A
By:
------------------------------
Its:
-----------------------------
B
By:
------------------------------
Its:
-----------------------------
6
<PAGE> 8
Schedule A
7
<PAGE> 9
A
Date
Re: Corporate Overhead Allocation Agreement dated as of January 1,
1996
Gentlemen:
This letter is in reference to a certain Corporate Overhead Allocation Agreement
("1996 Corporate Overhead Allocation Agreement") dated as of January 1, 1996
among (collectively the "PTK Companies"), A , and B .
Unless otherwise defined herein, all capitalized terms have the same meaning as
defined in the 1996 Corporate Overhead Allocation Agreement.
Effective , C is entering into a Service Agreement with A and
B . In connection with that agreement, C agrees to become a party to the 1996
Corporate Overhead Allocation Agreement as a PTK Company and to abide by all the
terms and conditions as stated herein.
Effective , Schedule A of the 1996 Corporate Overhead Allocation
Agreement shall be replaced with the Schedule A attached to this letter,
evidencing C participation as a PTK Company. A shall be responsible for
distributing revised Schedule A to the remaining PTK Companies.
<PAGE> 10
To signify C understanding and acceptance of the terms as stated herein, please
sign in the space indicated below.
Very truly yours,
A
By:
-------------------------------
Its:
------------------------------
Acknowledged & Accepted:
C
By:
-----------------------------------
Its:
----------------------------------
B
By:
-----------------------------------
Its:
----------------------------------
<PAGE> 11
Revised - Schedule A
<PAGE> 1
EXHIBIT 10.5
AMENDMENT
Amendment effective as of ______________ to Service Agreement
(dated as of _____________) among [PTK Company] - "Owner", B and
A, as Agent.
For the consideration of One ($1.00) Dollar and for the good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Section 3.2(b) is hereby deleted in its entirety and replaced
with the following:
(b) (i) In consideration for the General Services provided
under this Agreement, Owner shall pay A a fee of ____________________
________ Dollars per calendar quarter, payable in arrears in legal
tender of the United States of America, on or before the last day of
each March, June, September and December, commencing January 1, 1995.
(ii) Notwithstanding the provision of Section 3.2(b)(i) above, if
Owner is obligated to pay management fees to A pursuant to any
applicable management agreement, the fees set forth in Section
3.2(b)(i) are waived for the period such management agreement is in
effect.
2. All other terms of the Service Agreement shall remain in
effect.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by their duly authorized representatives.
[PTK Company]
By:
----------------------------
Its:
A
By:
----------------------------
Its:
B
By:
----------------------------
Its:
<PAGE> 1
EXHIBIT 10.6
WORLD CABLE COMMUNICATIONS, INC.
c/o Chase Enterprises
One Commercial Plaza
Hartford, CT 06103
Effective as of _______________, 1996
PCBV
c/o Chase Enterprises
One Commercial Plaza
Hartford, CT 06103
and
[PTK Company]
Poland
Re: World Cable Communications, Inc.: Service Agreement dated as
of ____________ among __________, World Cable Communications,
Inc. and Poland Cablevision (Netherlands) B.V. as Agent.
Gentlemen:
This letter is in reference to a certain Service Agreement among
_______________, ("Owner"), World Cable Communications, Inc. ("WCCI") and Poland
Cablevision (Netherlands) B.V. as Agent ("PCBV") dated as of ____________
("Service Agreement"). Unless otherwise indicated in this letter, all
capitalized terms have the same meaning as in the Service Agreement.
WCCI, PCBV and Owner hereby clarify and confirm that the term
"Operating Expenses", as set forth in Section 3.1(a)(ii) of the Service
Agreement, shall be deemed to include, but not be limited to, any and all costs,
fees, payments, assessments and/or charges related to the programming agreements
or arrangements for the System.
This clarification letter may be executed in counterparts, but each
counterpart shall constitute one and the same original.
<PAGE> 2
Please acknowledge your understanding of the terms stated herein by
signing in the space below.
Very truly yours,
WORLD CABLE COMMUNICATIONS, INC.
By:
--------------------------------
Its:
-------------------------------
POLAND CABLEVISION (NETHERLANDS) B.V.
By:
-------------------------------
Richard B. Steele
Its: Managing Director
[COMPANY NAME]
By:
-------------------------------
Its:
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
(POLAND COMMUNICATIONS, INC.)
-----------------------------
(Exact name of obligor as specified in its charter)
(NEW YORK) (06-1070447)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POLAND COMMUNICATIONS, INC.
C/O CHASE ENTERPRISES
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103
(Address of principal executive offices) (Zip Code)
--------------------
POLAND COMMUNICATIONS, INC., 9-7/8% SERIES B SENIOR NOTES DUE 2003
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and
is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement of Morse
Shoe, Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a part
hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 23RD day of JANUARY, 1997.
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
HENRY W. SEEMORE
ASSISTANT VICE PRESIDENT
DATED: JANUARY 23, 1997
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by POLAND
COMMUNICATIONS, INC.. of its POLAND COMMUNICATIONS, INC., 9-7/8% SERIES B
SENIOR NOTES DUE 2003, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
HENRY W. SEEMORE
ASSISTANT VICE PRESIDENT
DATED: JANUARY 23, 1997
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business June 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . 1,787,130
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,756,486
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,430,910
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,090,665
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . 4,426,059
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,088
Loans and leases, net of unearned income and allowances . . . . . . . . . . . . . . . . . 4,355,971
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880,647
Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367,731
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067
Investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 65,772
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . 33,530
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,505
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002,465
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,840,879
============
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,531,683
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,387,924
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,143,759
In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 12,050,265
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,768
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,003,497
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,337,231
Demand notes issued to the U.S. Treasury and Trading Liabilities . . . . . . . . . . . . . . . 871,847
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794,349
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . 33,530
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,616
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,284,521
------------
EQUITY CAPITAL
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,915
Undivided profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247,942
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . 1,570
------------
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,556,358
------------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,840,879
============
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
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
PURSUANT TO THE PROSPECTUS, DATED ______ __, 1997
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________,
1997 UNLESS EXTENDED ("THE EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
Delivery to: [ ], Exchange Agent
----------------------
By Mail or by Hand
[ ]
-----------------------------
[ ]
-----------------------------
[ ]
-----------------------------
Attention: [ ]
-------------
Telephone: [ ]
-------------
By Facsimile:
[ ]
---------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the
Prospectus, dated _________, 1997 (the "Prospectus"), of Poland Communications,
Inc., a New York corporation ("PCI"), and this Letter of Transmittal (the
"Letter"), which together constitute PCI's offer (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 million in aggregate
principal amount are outstanding from the holders thereof.
With respect to the Old Notes accepted for exchange, the holders of
such Old Notes will receive Exchange Notes in such aggregate principal amount
equal to that of the surrendered Old Notes. 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 will bear interest from
and including October 31, 1996, the date of issuance of the Old Notes. Holders
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Old Notes.
<PAGE> 2
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Holders of Old Notes whose certificates are not immediately available, or who
are unable to deliver their certificates or confirmation of the book-entry
tender of their Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents
required by this Letter to the Exchange Agent on or prior to the Expiration
Date, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures"
section of the Prospectus. See Instruction 1. Delivery of Documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company 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 this Letter 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 power from the registered holder of Old Notes. The
transfer of record ownership may take considerable time.
The undersigned has completed the appropriate boxes below and signed
this letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and aggregate principal
amount of the Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF
OLD NOTES 1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Principal
Amount Aggregate Principal
Name(s) and Address(es) of Registered Holder(s) Certificate of 9 7/8% Senior Notes Amount
(Please fill in, if blank) Number(s)* due 2003 Tendered**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes indicated
in column 2. See Instruction 2.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------
Account Number Transaction Code Number
---------------- --------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Names(s) of Registered Holder(s)
------------------------------------------------
Window Ticket Number (if any)
---------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------
Name of Institution which guaranteed delivery
-----------------------------------
<PAGE> 3
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
-------------------------
Transaction Code Number
--------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
-----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to PCI the aggregate Specified Amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, PCI all right, title and
interest in and to such Old Notes as are being tendered hereby, and hereby
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as agent of PCI) of such
holder of Old Notes, in order to transfer ownership of such Old Notes on the
account books maintained by The Depositary Trust Company (together, in any such
case, with all accompanying evidences of transfer and authenticity) to PCI, (i)
present and deliver such Old Notes for transfer on the books of PCI and (ii)
receive all benefits and otherwise exercise all rights and incidents of
beneficial ownership with respect to such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that PCI will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same is accepted by PCI. The undersigned
hereby further represents that any Exchange Notes acquired in exchange for Old
Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such
person is the undersigned, that neither the holder of such Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and that neither the
holder of such Old Notes nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act"), of PCI.
The undersigned also acknowledges that this Exchange Offer is being
made based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") which lead PCI to believe that the Exchange Notes
issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any such holder that is an "affiliate" of PCI within the meaning of Rule
405 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 holders have no arrangement with any person to participate in the
distribution of such Exchange Notes. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange of Old Notes, it represents that the Old Notes
to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes pursuant to the Exchange
Offer; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If any holder is an affiliate of PCI or is
engaged in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by PCI to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the Old Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box
entitled "Special Delivery Instructions" below, please send the Exchange Notes
(and, if applicable, substitute certificates
<PAGE> 5
representing Old Notes for any Old Notes not exchanged) to the undersigned at
the address shown above in the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<S> <C>
- ---------------------------------------------------------------- ----------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old To be completed ONLY if certificates for Old Notes not
Notes not exchanged and/or Exchange Notes are to be issued in exchanged and/or Exchange Notes are to be sent to someone
the name of and sent to someone other than the person or other than the person or persons whose signature(s)
persons whose signature(s) appear(s) on this Letter above, or appear(s) on this Letter above or to such person or persons
if Old Notes delivered by book-entry transfer which are not at an address other than shown in the box entitled
accepted for exchange are to be returned by credit to an "Description of Old Notes" on this Letter above.
account maintained at the Book-Entry Transfer Facility other
than the account indicated above.
Mail: Exchange Notes and/or Old Notes to:
Issue: Exchange Notes and/or Old Notes to:
Name(s) Name(s)
----------------------------------------------------- -----------------------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
------------------------------------------------------------- -------------------------------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address Address
----------------------------------------------------- -----------------------------------------------------
------------------------------------------------------------- -------------------------------------------------------------
(ZIP CODE) (ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry
transfer to the Book-Entry Transfer Facility set forth
below.
- ----------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- ---------------------------------------------------------------- ----------------------------------------------------------------
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<TABLE>
-------------------------------------------------------------------------------
<S> <C>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: 1997
---------------------------------------------------------
X 1997
-------------------------------------------------------------
X 1997
-------------------------------------------------------------
SIGNATURE(S) OF OWNER DATE
Area Code and telephone Number . . . . . . . . . . . . . .
If a holder is tendering any Old Notes, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s):
-------------------------------------
-----------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-------------------------------------
Address:
-------------------------------------
-----------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
---------------------
(AUTHORIZED SIGNATURE)
-----------------------------------------------
(TITLE)
-----------------------------------------------
(NAME AND FIRM)
-----------------------------------------------
Dated: , 1997
-------------------------------------
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER OF
9 7/8% SERIES B SENIOR NOTES DUE 2003
FOR ANY AND ALL OF ITS OUTSTANDING
9 7/8% SENIOR NOTES DUE 2003
OF POLAND COMMUNICATIONS, INC.
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY
PROCEDURES.
This letter is to be completed by securityholders either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates
for all physically tendered Old Notes, or Book-Entry Confirmation, as the case
may be, as well as a properly completed and duly executed Letter (or manually
signed facsimile hereof) and any other documents required by this Letter, must
be received by the Exchange Agent at the address set forth herein on or prior
to the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Securityholders whose certificates for Old Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis,
may tender their Old Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
must receive from such Eligible Institution a properly completed and duly
executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by PCI (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within 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, or
a Book-Entry Confirmation, and any other documents required by the Letter 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 Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Notes and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed
by the Exchange Agent. If Old Notes are sent by mail, it is suggested that
registered mail, properly insured, with return receipt requested, be used and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time,
on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO SECURITYHOLDERS WHO TENDER
BY BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted
certificate is to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above
entitled "Description of Old Notes--Aggregate Amount Tendered." A reissued
certificate representing the balance of nontendered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO
THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter is signed by the registered holder of the Old
Notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more
joint owners, all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
<PAGE> 7
When this Letter is signed by the registered holder or holders
of the Old Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered
holder or holders of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter or any or any certificates or bond powers 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
PCI, proper evidence satisfactory to PCI of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON
BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH
IS A MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR
TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN
"ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (i) BY A REGISTERED
HOLDER OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES
ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS
ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (ii) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the
applicable box the name and address to which Exchange Notes issued pursuant to
the Exchange Offer and/or substitute certificates evidencing Old Notes not
exchange are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Securityholders tendering Old Notes by book-entry transfer may
request that Old Notes not exchanged be credited to such account maintained at
the Book-Entry Transfer Facility as such securityholder may designate hereon.
If no such instructions are given, such Old Notes not exchanged will be
returned to the name or address of the person signing this Letter.
<PAGE> 8
5. TRANSFER TAXES.
PCI will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If
however, Exchange Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to PCI or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE
NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN
THIS LETTER.
6. WAIVER OF CONDITIONS.
PCI reserves the absolute right to waive satisfaction of any
or all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders of Old Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their Old
Notes for exchange.
Neither PCI, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes has been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
<PAGE> 1
EXHIBIT 99.2
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
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Poland Communications, Inc. ("PCI") is offering, upon and subject to
the terms and conditions set forth in the Prospectus, dated ________, 1997 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of
its 9 7/8% Series B Senior Notes due 2003 (the "Exchange Notes") pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement") 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. The Exchange Offer is being made
in order to satisfy certain obligations of PCI contained in the Registration
Rights Agreement dated as of October 31, 1996 between PCI and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated (the "Initial Purchaser").
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Notes registered in your name or in the name
of your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ________, 1997;
2. The Letter of Transmittal for your use and for the information
of your clients;
3. A Notice of Guaranteed Delivery to be used to accept the
Exchange Offer, if certificates for Old Notes are not immediately available, or
time will not permit all required documents to reach the Exchange Agent prior
to the Expiration Date (as defined below), or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9; and
6. Return envelopes addressed to ____________________, the
Exchange Agent for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at
5:00 p.m., New York City time, [_______________], 1997 unless extended by PCI,
provided it may not be extended beyond ___, 1997 (the "Expiration Date"). Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent, and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for
them to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a timely
basis, a
<PAGE> 2
tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
PCI will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. PCI
will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
________________, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
POLAND COMMUNICATIONS, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF POLAND COMMUNICATIONS, INC. OR THE EXCHANGE AGENT,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS
OF BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR
STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE> 1
EXHIBIT 99.3
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
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ________ __,
1997 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Poland
Communications, Inc. ("PCI") to exchange $1,000 principal amount of its 9
7/8% Series B Senior Notes due 2003 (the "Exchange Notes"), which exchange has
been registered under the Securities Act of 1933, as amended, pursuant to a
registration statement of which the Prospectus is part, 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, upon the terms and subject to the conditions described
in the Prospectus and the Letter of Transmittal. The Exchange Offer is being
made in order to satisfy certain obligations of PCI contained in the
Registration Rights Agreement dated as of October 31, 1996 between PCI and
Merrill, Lynch, Pierce, Fenner & Smith Incorporated .
This material is being forwarded to you as the beneficial owner of the
Old Notes carried by us in your account but not registered in your name. A
tender of such Old Notes may only be made by us as the holder of record and
pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to
tender on your behalf the Old Notes held by us for your account, pursuant to
the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on _______________________, 1997, unless extended by
PCI. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth
in the Prospectus in the section captioned "The Exchange Offer--Certain
Conditions to the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from
the holder to PCI will be paid by PCI, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time,
on ______________, 1997, unless extended by PCI, provided it may not be
extended beyond ___, 1997.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Poland
Communications, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated
below:
<TABLE>
<S> <C>
Aggregate Principal Amount
of Old Notes
9 7/8% SENIOR NOTES DUE 2003 . . . . . . . . . . --------------------------------------------------
[ ] Please do not tender any Old Notes
held by you for my account.
Dated: , 1997 --------------------------------------------------
-----------------------------
--------------------------------------------------
Signature(s)
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Please print name(s) here
--------------------------------------------------
--------------------------------------------------
Address(es)
--------------------------------------------------
--------------------------------------------------
Area Code and Telephone Number
--------------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Notes held by us
for your account.
<PAGE> 1
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY FOR
POLAND COMMUNICATIONS, INC.
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer of Poland Communications, ("PCI") made pursuant to
the Prospectus, dated ______ __, 1997 (the "Prospectus"), if certificates for 9
7/8% Senior Notes due 2003 of PCI are not immediately available or if the
procedure for book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach PCI prior to 5:00 p.m., New
York City time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by telegram, mail or hand delivery to_________________
(the "Exchange Agent") as set forth below. In addition, in order to utilize the
guaranteed delivery procedure to tender Series A Preferred Stock pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal must also be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. Capitalized terms not defined herein are defined in the
Prospectus.
Delivery to: __________, the Exchange Agent
By Facsimile: By Mail, By Hand and Confirm by Telephone:
Overnight Courier:
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the one
listed above will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to PCI the
aggregate principal amount of 9 7/8% Senior Notes due 2003 set forth below,
pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Aggregate Principal
Amount of 9 7/8% Senior Notes due 2003 Tendered:
$
-----------------------------------------------
Certificate Nos. (if available):
- -----------------------------------------------
Aggregate Number of Shares Represented by Old If 9 7/8% Senior Notes due 2003 will be delivered by
Certificates(s): book-entry transfer to The Depository Trust Company,
provide account number.
$ Account Number
----------------------------------------------- --------------------------------------
</TABLE>
<PAGE> 2
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X , 1997
---------------------------- -------
X ,1997
---------------------------- --------
Signature(s) of Owners(s) Date
or Authorized Signatory
Area Code and Telephone
Number:
---------------------
Must be signed by the holder(s) of 9 7/8% Senior Notes due 2003 as
their name(s) appear(s) on certificates for 9 7/8% Senior Notes due 2003 or on
a security position listing, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Capacity: --------------------------------------------------------
Address(es):
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
GUARANTEE
The undersigned, a member of a registered national securities
exchange, or a member of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees that the certificates representing the shares
of 9 7/8% Senior Notes due 2003 tendered hereby in proper form for transfer, or
timely confirmation of the book-entry transfer of such 9 7/8% Senior Notes due
2003 into the Exchange Agent's account at The Depository Trust Company pursuant
to the procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus, together with a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof)
with any required signature guarantee and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent at the address
set forth above, no later than five New York Stock Exchange trading days after
the date of execution hereof.
- ---------------------------------------- ------------------------------------
Name of Firm Authorized Signature
- ---------------------------------------- ------------------------------------
Address Title
Name:
- ---------------------------------------- -------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
------------------ ------------------------------
<PAGE> 3
NOTE: DO NOT SEND CERTIFICATES FOR 9 7/8% SENIOR NOTES DUE 2003 WITH THIS
FORM. CERTIFICATES FOR 9 7/8% SENIOR NOTES DUE 2003 SHOULD ONLY BE
SENT WITH YOUR LETTER OF TRANSMITTAL.
