<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997
REGISTRATION NO. 333-20307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
POLAND COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 4825 06-1070447
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT E. FOWLER, III
POLAND COMMUNICATIONS, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860)-549-1674
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MARC R. PAUL, ESQ.
BAKER & MCKENZIE
815 CONNECTICUT AVE, N.W.
WASHINGTON, D.C. 20006
(202) 452-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the Securities registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
POLAND COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 404(a) AND ITEM 501(b) OF REGULATION S-K
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<CAPTION>
ITEM AND HEADING ON FORM S-4 HEADING OR LOCATION IN PROSPECTUS
--------------------------------------------- ---------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Cover Pages of Registration Statement and
Prospectus; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Summary Consolidated
Financial Data; Risk Factors
4. Terms of the Transaction..................... Prospectus Summary; The Exchange Offer;
Income Tax Considerations; Description of the
Notes
5. Pro Forma Financial Information.............. Not Applicable
6. Material Contracts with the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel....... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants................................ Available Information; Prospectus Summary;
Risk Factors; Use of Proceeds
11. Incorporation of Certain Information By
Reference.................................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants................ Not Applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Prospectus Summary; The Exchange Offer; Use
of Proceeds
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<PAGE> 3
SUBJECT TO COMPLETION, DATED MAY 12, 1997
POLAND COMMUNICATIONS, INC.
OFFER TO EXCHANGE
9 7/8% SERIES B SENIOR NOTES DUE 2003 FOR ANY AND ALL
OF ITS OUTSTANDING 9 7/8% SENIOR NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED; PROVIDED IT MAY NOT BE EXTENDED BEYOND
, 1997.
Poland Communications, Inc., a New York corporation ("PCI" or the
"Issuer"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of its
9 7/8% Series B Senior Notes due 2003 (the "Exchange Notes") for each $1,000
principal amount of its outstanding 9 7/8% Senior Notes due 2003 (the "Old
Notes") of which $130.0 million in aggregate principal amount are outstanding as
of the date hereof, which exchange has been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a registration statement
of which this Prospectus is a part (the "Registration Statement"). The form and
terms of the Exchange Notes are the same as the form and terms of the Old Notes
except that (i) the exchange will have been registered under the Securities Act
and therefore the Exchange Notes will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of the Old Notes under the Registration Rights Agreement (as
defined herein), which rights with respect to Old Notes will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes -- Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be entitled to the benefits of an
indenture dated as of October 31, 1996 governing the Old Notes and the Exchange
Notes (the "Indenture"), such that both series will be treated as a single class
of debt securities under the Indenture. The Old Notes and the Exchange Notes are
sometimes referred to herein collectively as the "Notes." See "The Exchange
Offer" and "Description of the Notes."
The Issuer will accept for exchange any and all validly tendered Old Notes
not withdrawn prior to 5:00 p.m., New York City time, on , 1997
("Expiration Date"); provided, however, that if the Issuer, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended; provided further, that in no event will the Exchange
Offer be extended beyond , 1997. Tenders of Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. Old Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer -- Certain Conditions to
the Exchange Offer."
The Exchange Notes will mature on November 1, 2003. Upon a Change of
Control (as defined herein), each holder of the Exchange Notes may require the
Issuer to repurchase all or a portion of such holder's Exchange Notes at 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of such purchase. In addition, the Issuer may be required to use the net
cash proceeds of certain Asset Sales (as defined herein) to make an offer to
purchase the Exchange Notes at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. At any time prior to November 1, 1999, the Issuer may redeem up to 33%
of the aggregate principal amount of the Notes originally issued with the net
cash proceeds of one or more Public Equity Offerings (as defined herein) at
109.875% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption; provided that not less than $87 million
aggregate principal amount of Notes would remain outstanding immediately after
giving effect to any such redemption.
The Exchange Notes are senior obligations of the Issuer ranking pari passu
in right of payment with all other existing and future unsubordinated
obligations of the Issuer. The Issuer is a holding company with limited assets
of its own that conducts substantially all of its business through subsidiaries.
The Issuer has pledged to the Trustee (as hereinafter defined), for the benefit
of the holders of the Notes, intercompany notes (the "Pledged Debt") issued by
Poland Cablevision (Netherlands) B.V. ("PCBV"), a subsidiary of the Issuer. The
assets of PCBV consist principally of capital stock of its subsidiaries and
intercompany notes from such subsidiaries. The Exchange Notes will be
effectively subordinated to all indebtedness for money borrowed by the
subsidiaries of the Issuer (other than the Pledged Debt). As of December 31,
1996, the Issuer's subsidiaries had no outstanding indebtedness for money
borrowed other than intercompany indebtedness and approximately $3.2 million of
trade payables.
SEE "RISK FACTORS" FROM PAGES 18 TO 28 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.
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.
<PAGE> 4
(continued from previous page)
The Old Notes were sold by the Issuer on October 31, 1996 to Merrill,
Lynch, Pierce, Fenner & Smith Incorporated (the "Initial Purchaser") pursuant to
a Purchase Agreement dated October 24, 1996 by and among the Issuer and the
Initial Purchaser (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Issuer and the Initial Purchaser entered into a Registration
Rights Agreement dated as of October 31, 1996 ("Registration Rights Agreement")
which granted the holders of the Old Notes certain exchange and registration
rights. The Exchange Offer is being made to satisfy certain of the Issuer's
obligations under the Registration Rights Agreement.
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuer believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold or otherwise transferred by a holder
thereof (other than any holder which is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act or a holder that is a broker-dealer
who acquires Exchange Notes to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holder is not participating, does not intent to participate,
and has no arrangement with any person to participate in the distribution of
such Exchange Notes. However, the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Issuer that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer, where it acquired the Old Notes
exchanged for such Exchange Notes for its own account as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with the resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "The Exchange
Offer -- Resale of the Exchange Notes" and "Plan of Distribution."
The Issuer will not receive any proceeds from the Exchange Offer and will
pay all of its expenses incident thereto. Tenders of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the
event that the Issuer terminates the Exchange Offer and does not accept for
exchange any Old Notes, the Issuer will promptly return the Old Notes to the
holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Issuer does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Exchange Notes
will develop. To the extent that market for the Exchange Notes does develop, the
market value of the Exchange Notes will depend on market conditions, such as
yields on alternative investments, general economic conditions, the Issuer's
financial condition and other conditions. Such conditions might cause the
Exchange Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors -- Absence of Public
Market."
The Exchange Notes will bear interest at the same rate and on the same
terms as the Old Notes. Consequently, interest on the Exchange Notes will be
payable semi-annually in cash in arrears on May 1 and November 1 of each year,
commencing May 1, 1997, at the rate of 9 7/8% per annum. The Exchange Notes
issued in exchange for Old Notes will accrue interest from the later of October
31, 1996, the date of the issuance of the Old Notes (the "Issue Date"), or the
last day interest was paid on the Old Notes. Holders
2
<PAGE> 5
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any accrued but unpaid interest on the Old Notes.
The Issuer is organized under the laws of the State of New York. Although
investors in the Exchange Notes will be able to effect service of process in the
United States upon the Issuer and may be able to effect service of process upon
its directors, due to the fact that the Issuer is primarily a holding company
which holds stock in various entities in Poland and the Netherlands, all or a
substantial portion of the assets of the Company (as defined herein) are located
outside the United States. As a result, it may not be possible for investors to
enforce against the Company's assets judgments of U.S. courts predicated upon
the civil liability provisions of U.S. laws.
The Issuer has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Poland, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the laws of the United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may be unenforceable in
Poland.
The Issuer also has been advised by its counsel, Baker & McKenzie, that a
final and conclusive judgment duly obtained in actions brought in the United
States will not be recognized and enforced by a Netherlands court and it will be
necessary to bring the matter before the competent Netherlands court. The
claimants may, in the course of these proceedings, submit the judgment rendered
by the court in the United States. If and to the extent that the Netherlands
court is of the opinion that fairness and good faith so require, it will give
binding effect to such foreign judgment, unless such foreign judgment
contravenes Netherlands principles of public policy.
------------------------
In this Prospectus, references to "U.S. Dollars" or "$" are to United
States currency, and references to "zloty" or "PLN" are to Polish currency. The
Issuer has presented its primary consolidated financial statements in accordance
with generally accepted accounting principles in the United States ("U.S. GAAP")
in U.S. Dollars. Amounts originally measured in zloty for all periods presented
have been translated into U.S. Dollars in accordance with the methodology set
forth in Statement of Financial Accounting Standards No. 52 ("SFAS No. 52"). For
the convenience of the reader, this Prospectus contains translations of certain
zloty amounts into U.S. Dollars which should not be construed as a
representation that such zloty amounts actually represent such U.S. Dollar
amounts or could be, or could have been, converted into U.S. Dollars at the
rates indicated or at any other rate. Unless otherwise stated, such U.S. Dollar
amounts have been derived by converting from zloty to U.S. Dollars at the rate
of PLN 2.875 = $1.00, the exchange rate quoted by the National Bank of Poland
("NBP") at noon on December 31, 1996. This rate may differ from the actual rates
in effect during the periods covered by the financial information discussed
herein. The Federal Reserve Bank of New York does not certify for customs
purposes a noon buying rate for zloty. See "Exchange Rate Data."
------------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
------------------------
This Prospectus contains statements which constitute forward looking
statements regarding the intent, belief or current expectations of the Issuer or
its officers with respect to, among other things, (i) the Issuer's financing
plans, (ii) trends affecting the Issuer's financial condition or results of
operations, (iii) the impact of competition, (iv) the start up of certain
operations, and (v) acquisition opportunities. Prospective investors are
cautioned that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Prospectus,
including, without limitation, the information under "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "The Industry" and "Business", identifies important factors that
could cause such differences.
3
<PAGE> 6
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes being offered by
this Prospectus. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Issuer and the Exchange
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, and the financial statements and notes filed as a part
thereof. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed with the Commission as an exhibit
are not necessarily complete. With respect to each such contract, agreement or
other document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. Poland Communications,
Inc. ("PCI" or the "Issuer") is the parent company of a group of subsidiaries
which develop, construct and operate cable television networks and conduct
related activities in Poland under the trade name Polska Telewizja Kablowa or
PTK. As used in this Prospectus, references to the "Company" mean PCI and its
subsidiaries, including Poltelkab Sp. z o.o. ("Poltelkab"), a company in which
PCI holds a 49% interest, and its subsidiaries, and Polska Telewizja
Kablowa-Ryntronik S.A., a company in which the Company owns a 49% interest and
has signed an agreement to purchase the remaining shares. For the convenience of
the reader, amounts in this Prospectus are expressed solely in U.S. Dollars.
Unless otherwise noted, data regarding the Company's subscribers are as of
December 31,1996, but include approximately 15,000 subscribers and approximately
27,000 homes passed attributable to a cable system recently acquired by the
Company which the Company took control of after such date and prior to the date
hereof. Certain terms used in this Prospectus are defined in the Glossary
included herein as Annex A. Prospective participants in the Exchange Offer
should carefully consider the information set forth under "Risk Factors."
THE COMPANY
GENERAL
The Company is the largest provider of multi-channel television services in
Poland. With over 1,088,000 homes passed and approximately 534,000 total
subscribers (of which approximately 461,000 are basic subscribers), the Company
estimates that it has approximately twice the number of subscribers as the next
largest cable operator in Poland. As one of the first Western-style cable
television operators in Poland, the Company's objective since commencement of
its operations in 1990 has been to rapidly increase its coverage areas and
provide a caliber of service comparable to that of world-class cable operators,
including modern, reliable technical plant, a broad selection of quality
programming, and professional customer service. The Company currently owns and
operates fiber-optic cable networks in seven regional clusters encompassing
seven of the ten largest cities in Poland, including cities which the Company
believes are among those with the strongest economies and most favorable
demographics for cable television in the country. The Company believes that it
has established a reputation in Poland as a high-quality cable system operator,
and that the strong awareness of PTK as a quality operator attracts subscribers
seeking its programming and customer service. PCI owns a 33% interest in a
programming company, ProCable Sp. z o.o. ("ProCable"), which was formed to
develop proprietary Polish-language programming. ProCable holds broadcast
licenses for two Polish-language channels which are currently distributed
exclusively over the Company's cable networks.
Since it began the construction of its first cable network in Gdansk in
1990, the Company has grown aggressively through acquisitions, generally of
smaller, poorly capitalized operators, and through the build-out of its own
cable networks. The Company's total subscribers have grown from approximately
45,000 as of December 31, 1992 to approximately 534,000 as of December 31, 1996.
Approximately 55% of this increase in subscribers has been achieved organically
through the build-out of the Company's existing cable networks. The Company's
results of operations have reflected the growth in its subscribers. For the
three-year period ended December 31, 1996, the Company generated growth in
revenues and EBITDA (as defined in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview") at average annual
rates of approximately 60% and 130%, respectively. The Company incurred
operating losses of $6.1 million, $4.6 million, and $1.2 million in 1991, 1992
and 1993, respectively. In 1994 and 1995, the Company generated operating income
of $0.4 million and $3.5 million, respectively. The Company had an operating
loss of $1.3 million in 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company has invested more than $80 million to construct fiber-optic
cable networks which it believes are among the most technologically advanced in
Poland and are comparable to modern cable networks in the United States. All of
the Company's networks (other than networks it has acquired from
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<PAGE> 8
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.
The Company has experienced low churn rates since its inception. The
Company's annual churn rates have historically averaged less than 10%. Churn
rates for 1994, 1995 and 1996 were 9.1%, 9.2% and 7.8%, respectively.
As a result of the offering of the Old Notes, the Company incurred
substantial debt. As of December 31, 1996, the Company had, on a consolidated
basis, approximately $130.1 million in principal amount of indebtedness
outstanding.
Subsequent to the Exchange Offer, PCI may merge with and into a wholly
owned Delaware subsidiary. The purpose of the merger would be to change its
state of incorporation from New York to Delaware. The change of PCI's state of
incorporation from New York to Delaware, if it occurs, should not have any
material adverse effects on the rights of the holders of the Notes.
PCI's principal executive office is located at One Commercial Plaza,
Hartford, Connecticut 06103-3585 and its telephone number is (860) 549-1674.
REGULATION
The operation of cable television systems in Poland is regulated under the
Communications Act of 1990, as amended (the "Communications Act"), by the
Minister of Communications (the "MOC") and the State Agency of
Radiocommunications ("PAR"), and under the Radio and Television Act of 1992, as
amended (the "Television Act"), by the National Radio and Television Council
(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 Law on Copyright and Neighboring
Rights of 1994 (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.
Although the Company has received permits to operate and construct
significant portions of its cable television networks, the Company does not have
valid permits covering portions of its cable network which serve approximately
119,000 basic subscribers for one or more of the following reasons: (i) the
cable networks have been recently acquired and must be upgraded to meet certain
technical requirements prior to filing an application for a permit; (ii)
agreements must be reached with the relevant co-operative housing authorities;
or (iii) foreign ownership restrictions must be met. Of the 119,000 basic
subscribers for which the Company does not have valid permits, the Company has
permit applications pending for the cable networks serving approximately 37% of
such basic subscribers. 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 valid permits.
See "Regulation."
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland (the "Pending
Acquisitions"). The aggregate consideration to be paid by the Company in
connection with the Pending Acquisitions (including amounts for shareholder
loans) is expected to be approximately $23.8 million. The cable systems expected
to be acquired in the Pending Acquisitions serve approximately 99,000 total
subscribers and pass approximately 181,000 homes. The consummation of the
Pending Acquisitions will result in the expansion of the Company's operations
within its existing regional
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<PAGE> 9
clusters and the establishment of one new regional cluster in southwest Poland.
The Company intends to use a portion of the net proceeds of the offering of the
Old Notes to consummate certain of the Pending Acquisitions. The Company
believes that it is required to obtain, and it has applied for, or is in the
process of preparing applications for, approval of the Polish Office for
Protection of Competition and Consumers ("Anti-Monopoly Office") for certain of
the Pending Acquisitions, and it may be required to obtain the Anti-Monopoly
Office's approval for certain of its future acquisitions as well. There can be
no assurance as to the timing of closing of any of the Pending Acquisitions or
as to whether or on what terms any of the Pending Acquisitions will actually be
consummated.
PRINCIPAL SHAREHOLDERS
PCI's common equity is beneficially owned on a fully diluted basis by two
principal shareholders: David T. Chase and certain members of his family and
family trusts (hereafter referred to as the "Chase Family"), which owns
approximately 40%, and ECO Holdings III Limited Partnership ("ECO"), which owns
approximately 37%. The general partner of ECO is Advent International
Corporation ("Advent"). As of December 31, 1996, the two principal shareholders
had invested approximately $86 million in the Company. The Chase Family has
provided the Company with significant management resources and technical support
in the early stages of its operations, and both shareholders currently provide
the Company with ongoing access to their extensive television and media
expertise. See "Management."
CORPORATE ORGANIZATIONAL STRUCTURE
The chart on the following page outlines the current organizational
structure of the Company without giving effect to the use of proceeds from the
offering of the Old Notes, the Pending Acquisitions or the Exchange Offer,
except where noted.
7
<PAGE> 10
[CHART DEPICTING OWNERSHIP PERCENTAGES]
8
<PAGE> 11
[Chart shows Poland Communications, Inc. ("PCI" or the "Issuer") owns 92.3%
(see note (a)) of Poland Cablevision (Netherlands) B.V., 49.0% of Poltelkab Sp.
z o.o. ("Poltelkalb"), 48.7% of Polska Telewizja Kablowa-Ryntronik S.A.
("PTK-Ryntronik") (see note (d)), 100.0% of PCI Programming Inc. ("PCIP") (see
note (b)), 33.0% of ProCable Sp. z o.o. ("ProCable") (see note (b)), 49.0% of TV
KABEL Sp. z o.o. ("TV KABEL"), 49.0% of Polska Telewizja Kablowa - Szczecin Sp.
z o.o. ("PTK-Szczecin"), 40.0% of Telkat Sp. z o.o. ("Telkat"). PCBV owns 100.0%
of Polska Telewizja Kablowa S.A. ("PTK, S.A.") (see note (c)), 100.0% of Polska
Telewizja Kablowa-Warszawa S.A. ("PTK-Warsaw") (see note (e)), 100.0% of Polska
Telewizja Kablowa-Krakow S.A. ("PTK-Krakow") (see note (e)) and 46.8% of PTK-
Ryntronik (see note (d)).]
[Poltelkab owns 100% of Polska Telewizja Kablowa-Lublin S.A.
("PTK-Lublin"), 100.0% of TV-SAT Ursus Sp. z o.o., 2.0% of TV KABEL, 51.0% of
PTK-Szczecin and 60% of Telkat. PTK-Szczecin owns 1.4% of Szczecinska TK Sp. z
o.o. and 50.0% of Otwocka TK Sp. z o.o. PTK-Warsaw owns 100.0% of ETV Sp. z o.o.
("ETV"). PTK-Ryntronik owns 75.1% of Opolskie TT S.A., and 100% of Czestochowska
TK Sp. z o.o. PCIP owns 100.0% of Mozaic Entertainment Sp. z o.o. and 45.0% of
Ground Zero Media Sp. z o.o. ("GZM"). ProCable owns 22.0% of Polskie Media S.A.
("Polskie Media").
- ---------------
(a) The minority shareholders of PCBV have a claim against 7.7% of the profits
and equity of PCI's subsidiaries that compete with PCBV and PCI has agreed
to share the profits of such subsidiaries with the minority PCBV
shareholders on a pro rata basis. In addition, PCI has made an offer to buy
the outstanding shares of PCBV held by the minority PCBV shareholders. See
"Certain Relationships and Related Transactions -- PCBV Shareholders'
Agreement."
(b) Represents companies that are not subject to the restrictive covenants in
the Indenture.
(c) Currently, PCBV owns 97.9% of the shares of PTK, S.A. PCI has entered into
an agreement to purchase the remaining shares of PTK, S.A. held by
Poltelkab.
(d) Currently PCBV owns 46.8% and Poltelkab owns 4.5% of the shares of
PTK-Ryntronik and PCBV holds convertible debt that, if converted, would
bring its total ownership of PTK-Ryntronik to approximately 72% as of
December 31, 1996. The Company has signed agreements to purchase the
remaining shares of capital stock of PTK-Ryntronik which sale agreements are
subject to certain conditions. See "Certain Relationships and Related
Transactions -- Ryntronik."
(e) PTK-Krakow has transferred, and PTK-Warsaw intends to transfer, their cable
television assets to PTK, S.A.
MINORITY OWNERSHIP INTEREST STRUCTURE
The chart on the following page outlines the organizational structure of
the Company with the current minority ownership interests 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.
9
<PAGE> 12
[CHART DEPICTING OWNERSHIP PERCENTAGES]
10
<PAGE> 13
[Chart shows Poland Communications, Inc. ("PCI" or the "Issuer") owns 92.3%
of Poland Cablevision (Netherlands) B.V. (see note (a)), 49.0% of Poltelkab Sp.
z o.o. ("Poltelkalb") (see note (b)), 48.7% of Polska Telewizja
Kablowa-Ryntronik S.A. ("PTK-Ryntronik"), 100.0% of PCI Programming Inc.
("PCIP"), 33.0% of ProCable Sp. z o.o. ("ProCable") (see note (c)), 49.0% of TV
KABEL Sp. z o.o. ("TV KABEL") (see note (g)), 49.0% of Polska Telewizja Kablowa
- -Szczecin Sp. z o.o. ("PTK-Szczecin"), 40.0% of Telkat Sp. z o.o. ("Telkat").
PCBV owns 100.0% of Polska Telewizja Kablowa S.A. ("PTK, S.A."), 100.0% of
Polska Telewizja Kablowa-Warszawa S.A. ("PTK-Warsaw"), 100.0% of Polska
Telewizja Kablowa-Krakow S.A. ("PTK-Krakow") and 46.8% of PTK-Ryntronik.]
[Poltelkab owns 100% of Polska Telewizja Kablowa-Lublin S.A.
("PTK-Lublin"), 100.0% of TV-SAT Ursus Sp. z o.o., 2.0% of TV KABEL (see note
(g)), 51.0% of PTK-Szczecin and 60.0% of Telkat. PTK-Szczecin owns 1.4% of
Szczecinska TK Sp. z o.o. (see note (h)) and 50.0% of Otwocka TK Sp. z o.o. (see
note (i)) PTK-Warsaw owns 100.0% of ETV Sp. z o.o. ("ETV"). PTK-Ryntronik owns
75.1% of Opolskie TT S.A. (see note (d)), and 100% of Czestochowska TK Sp. z
o.o. PCIP owns 100.0% of Mozaic Entertainment Sp. z o.o. and 45.0% of Ground
Zero Media Sp. z o.o. ("GZM"). ProCable owns 22.0% of Polskie Media S.A.
("Polskie Media") (see note (f)).
- ---------------
(a) Reece Communications Inc. owns 6.0%, Rutler-Dunn Communications, Inc. owns
1.0%, Frank N. Cooper owns 0.4%, and Poland Cablevision U.S.A. Inc. owns
0.3% of the shares of PCBV.
(b) Andrzej Muras owns 14.0%, Leszek Ekiert owns 10.0%, Ryszard Pospieszynski
owns 10.0%, Marek Sowa owns 8.5%, and Waclaw Czepinski owns 8.5% of the
shares of Poltelkab.
(c) Jacek Skurtys owns 47.0% and Fundacja Przyjaciele Szpitala Dzieciecego przy
Litewskiej owns 20.0% of the shares of ProCable.
(d) Ryszard Baginski owns 20.0% of the preferred shares A and 504 individuals
(subscribers) each own one common share B of Opolskie Towarzystwo
Telewizyjno Telegraficzne S.A.
(e) Polygram International Holdings B.V. owns 21.0%, Planet 24 Productions
Limited owns 14.0%, Stephen R. Groth owns 7.0%, Marc A. Bushala owns 6.0%,
and Todd Stump owns 7.0% of the shares of GZM.
(f) Wincenty Zeszuta owns 0.3%, "El Trade" Sp. z o.o. owns 0.3%, "Ambresa" Sp. z
o.o. owns 5.3%, Zdzislaw Bialy owns 40.3%, and founding shareholders
(including Iwona Buchner, Henryk Chodysz, Januariusz Goscimski, Lech
Jaworowicz, Leonard Prasniewski, Janusz Wojcik, and Tadeusz Przezdziecki)
own 31.8% of the shares of Polskie Media.
(g) Miroslaw Knocinski owns 49.0% of the shares of TV Kabel.
(h) SM "Srodmiescie" owns 37.4% and SM "Dab" owns 61.2% of the shares of
Szczecinska Telewizja Kablowa Sp. z o.o.
(i) Otwocka Spoldzielnia Mieszkaniowa owns 50.0% of the shares of Otwocka TK Sp.
z o.o.
11
<PAGE> 14
THE EXCHANGE OFFER
The Exchange Offer......... The Issuer is offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal
amount of Old Notes that is properly tendered and
accepted. The form and terms of the Exchange Notes
are the same as the form and terms of the Old Notes
except that (i) the exchange will have been
registered under the Securities Act and therefore
the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders
of the Exchange Notes will not be entitled to
certain rights of holders of the Old Notes under
the Registration Rights Agreement (as defined
herein), which rights with respect to Old Notes
will terminate upon the consummation of the
Exchange Offer. See "-- Summary Description of
Exchange Notes." The issuance of the Exchange Notes
is intended to satisfy certain obligations of the
Issuer contained in the Registration Rights
Agreement. Subject to certain conditions, a holder
who wishes to tender must transmit a properly
completed and duly executed Letter of Transmittal
to State Street Bank and Trust Company (the
"Exchange Agent") on or prior to the Expiration
Date. For procedures for tendering, see "The
Exchange Offer."
Based upon no-action letters issued by the staff of
the Commission to third parties, the Issuer
believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred
by a holder thereof (other than any holder which is
an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act or a holder that
is a broker-dealer who acquires Exchange Notes to
resell pursuant to Rule 144A or any other available
exemption under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act; provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holder is not participating, does not intend to
participate, and has no arrangement with any person
to participate in the distribution of such Exchange
Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff
of the Commission would make a similar
determination with respect to the Exchange Offer as
in such other circumstances. Holders of Old Notes
wishing to accept the Exchange Offer must represent
to the Issuer that such conditions have been met.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such
Exchange Notes for its own account as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with the resale of such Exchange Notes.
See "The Exchange Offer -- Resale of the Exchange
Notes" and "Plan of Distribution."
Registration Rights
Agreement.................. The Old Notes were sold by the Issuer on October
31, 1996 to the Initial Purchaser pursuant to the
Purchase Agreement. Pursuant to the Purchase
Agreement, the Issuer and the Initial Purchaser
entered into the Registration Rights Agreement.
This Exchange Offer is intended to satisfy certain
rights under the Registration Rights Agreement,
which terminate upon the consummation of the
Exchange Offer. The holders of the Exchange Notes
are not entitled to any exchange or registration
rights with respect to the Exchange Notes. The Old
Notes are subject to
12
<PAGE> 15
the payment of additional interest under certain
circumstances if the Issuer is not in compliance
with its obligations under the Registration Rights
Agreement. See "Description of the
Notes -- Exchange Offer; Registration Rights."
Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on the "Expiration Date." As used
herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on [ ], 1997;
provided, however, that if the Issuer, in its sole
discretion, has extended the period of time for
which the Exchange Offer is to remain open, the
term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended;
provided further that in no event will the Exchange
Offer be extended beyond [ ], 1997.
The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date by sending a written notice of
withdrawal to the Exchange Agent. Any Old Notes so
withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange
Offer. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of the
Exchange Offer; Period for Tendering Old Notes."
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuer. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
Federal Income Tax
Consequences............. For Federal income tax purposes, the exchange
pursuant to the Exchange Offer will not result in
any income, gain or loss to the holders or the
Issuer. See "Income Tax Considerations."
Use of Proceeds............ There will be no proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. Accordingly, such Old Notes may be resold
only (i) to a person whom the seller reasonably believes is a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (iii) outside the United
States to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act or (iv) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Issuer so requests), (v) to the Issuer or (vi) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction. The Issuer does not currently anticipate that it will
register the Old Notes under the Securities Act. See "Risk Factors --
13
<PAGE> 16
Consequences of Failure to Exchange Old Notes" and "The Exchange
Offer -- Consequences of Exchanging Old Notes; Consequences of Failure to
Exchange."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will have been registered under
the Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement, which rights with respect to Old Notes will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes -- Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture, which also authorized the issuance of the Old
Notes, such that both series will be treated as a single class of debt
securities under the Indenture. See "Description of the Notes" for further
information and for definitions of certain capitalized terms used below.
In the Exchange Offer, the holders of Old Notes will receive Exchange Notes
with the same interest rate. The Exchange Notes issued in exchange for Old Notes
will accrue interest from the later of October 31, 1996, the Issue Date, or the
last day interest was paid on the Old Notes. Holders whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
accrued but unpaid interest on the Old Notes.
Maturity Date.............. November 1, 2003.
Interest Payment Dates..... May 1 and November 1 of each year, commencing May
1, 1997.
Redemption................. Prior to November 1, 1999, the Issuer may redeem up
to a maximum of 33% of the initially outstanding
aggregate principal amount of the Notes with some
or all of the net proceeds of one or more Public
Equity Offerings (as defined in "Description of the
Notes -- Certain Definitions") at a redemption
price equal to 109.875% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the date of redemption; provided that
immediately after giving effect to such redemption,
at least $87 million aggregate principal amount of
the Notes remains outstanding. See "Description of
the Notes -- Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined in "Description of the Notes -- Certain
Definitions"), each holder of Exchange Notes has
the right to require that the Issuer purchase such
holder's Exchange Notes, in whole or in part in
integral multiples of $1,000, at a purchase price
in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. See "Description
of the Notes -- Certain Covenants -- Purchase of
Notes upon a Change of Control."
Asset Sale................. The Issuer may be required to use the net cash
proceeds of certain Asset Sales (as defined in
"Description of the Notes -- Certain Definitions")
to make an offer to purchase all or a portion of
the outstanding Exchange Notes at a price of 100%
of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption.
See "Description of the Notes -- Certain
Covenants -- Limitation on Sale of Assets."
Ranking.................... The Exchange Notes rank senior in right of payment
to all indebtedness of the Issuer subordinated to
the Exchange Notes and pari passu in right of
payment with all other existing and future
unsubordinated indebtedness of the Issuer
including, without limitation, the Old Notes. The
Issuer is a holding company with limited assets and
no business opera-
14
<PAGE> 17
tions of its own that conducts substantially all of
its business through subsidiaries. The Issuer has
pledged to the Trustee for the benefit of the
holders of the Notes the Pledged Debt issued by
PCBV, of a minimum aggregate principal amount,
together with cash and cash equivalents of the
Issuer, equal to at least 110% of the outstanding
principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest
and provide for principal repayments, as the case
may be, in amounts sufficient to pay interest on
the Notes. The assets of PCBV consist principally
of capital stock of its subsidiaries and
intercompany notes from such subsidiaries. The
Pledged Debt may not be amended or pledged to any
person other than the Trustee for the benefit of
the holders of the Notes. The Indenture, however,
does not contain any specific covenant prohibiting
the Issuer or PCBV from amending, waiving any
rights under, pledging or terminating any
intercompany notes other than the Pledged Debt. The
Notes are effectively subordinated to all existing
and future indebtedness for money borrowed of
subsidiaries of the Issuer (other than the Pledged
Debt). As of December 31, 1996, the Issuer's
subsidiaries had no indebtedness other than
intercompany indebtedness and approximately $3.2
million of trade payables. Subject to certain
limitations, the Issuer and its subsidiaries may
incur additional indebtedness in the future. See
"Risk Factors -- Holding Company Structure,"
"-- Substantial Leverage; Ability to Service Debt"
and "Description of the Notes -- Ranking" and
"-- Certain Covenants -- Limitation on Additional
Indebtedness."
Certain Covenants.......... The Indenture contains certain covenants,
including, without limitation, covenants with
respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances
and sales of capital stock of subsidiaries; (iv)
limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on guarantees
of indebtedness by subsidiaries; (vii) purchase of
Notes upon a change of control; (viii) limitation
on sale of assets; (ix) limitation on dividends and
other payment restrictions affecting subsidiaries;
(x) limitation on investments in unrestricted
subsidiaries; (xi) limitation on lines of business;
and (xii) provision of financial statements and
reports. See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Prospective participants in the Exchange Offer should consider all the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
herein under "Risk Factors."
15
<PAGE> 18
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below as of and for the
three years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus, which
have been audited by KPMG Peat Marwick LLP, independent auditors. Acquisitions
of cable television systems during the periods for which summary consolidated
financial data are presented below materially affect the comparability of such
data from one period to another. The summary consolidated financial data should
be read in conjunction with the Company's consolidated financial statements and
notes therein and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT
RATIOS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................................. $ 8,776 $ 18,557 $ 24,923
Depreciation and amortization............................ (3,459) (5,199) (9,788)
Operating income (loss).................................. 380 3,545 (1,347)
Interest expense......................................... (2,327) (4,373) (4,687)
Net loss................................................. (2,383) (1,289) (6,617)
Net loss applicable to common shareholders............... (2,383) (1,289) (5,938)
OTHER DATA:
EBITDA(a)................................................ $ 3,839 $ 8,744 $ 8,441
Expenditures for construction of cable television
systems(b)............................................ 11,695 16,014 25,372
Net cash provided by operating activities................ 1,599 3,839 6,112
Net cash used by investing activities.................... (12,341) (21,985) (74,861)
Net cash provided by financing activities................ 12,686 17,996 134,889
RATIOS:
EBITDA to interest expense............................... 1.71x 2.08x 1.80x
Earnings to fixed charges(c)............................. 0.37x 0.86x 0.46x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................. $ 47,376 $ 68,058 $217,537
Total debt............................................... 35,988 59,405 130,074
Total stockholders' equity............................... 1,479 190 31,048
</TABLE>
- ---------------
(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 income
(loss) as an indicator of the Company's operating performance or to cash
flows from operations as a measure of liquidity. EBITDA does not include
full year results for 1996 from TV Kabel Sp. z o.o ("TV KABEL") in the
Bydgoszcz regional cluster which was acquired in December 1996 and does not
include results from the Pending Acquisitions.
(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 net loss applicable to common shareholders 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.
16
<PAGE> 19
SUMMARY OPERATING DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Homes passed(a)........................................ 298,316 711,545 1,088,540
Basic subscribers...................................... 112,534 262,077 460,625
Basic penetration(b)................................... 37.7% 36.8% 42.32%
EBITDA margin(c)....................................... 43.7% 47.1% 33.87%
Annual churn rates..................................... 9.1% 9.2% 7.8%
</TABLE>
- ---------------
(a) The Company counts as homes passed only those homes for which it has an
active signal and, in the case of MDU homes, only those homes for which the
Company has an agreement with the cooperative authority.
(b) Basic subscribers as a percentage of homes passed.
(c) Represents EBITDA as a percentage of revenues.
17
<PAGE> 20
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.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of December 31, 1996, the Company had,
on a consolidated basis, approximately $130.1 million in principal amount of
indebtedness outstanding. The Company's ratio of earnings to fixed charges was
0.37x, 0.86x, and 0.46x in 1994, 1995 and 1996, respectively. 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. Currently, the Indenture does not
permit the Company to incur additional indebtedness (other than Permitted
Indebtedness as defined in the Indenture). See "Description of the
Notes -- Certain Covenants -- Limitation on Additional Indebtedness." The
Company anticipates that, in light of the amount of its existing indebtedness
and the possible incurrence of additional indebtedness to finance acquisitions
and expand its operations, it will continue to have substantial leverage for the
foreseeable future. Such leverage poses the risks that (i) a significant portion
of the Company's cash flow from operations must be dedicated to servicing the
Company's indebtedness, (ii) the Company may not be able to generate sufficient
cash flow or access sufficient additional financing to service the Notes and its
other outstanding indebtedness and to adequately fund its planned capital
expenditures and operations, (iii) the Company could be more vulnerable to
changes in general economic conditions, (iv) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired, (v) the Company's
operating and financial ability may be impaired by restrictions imposed by
various debt instruments on the payment of dividends and on operations and (vi)
because all or part of certain of the Company's future borrowings (if any) may
be at variable rates of interest, higher interest expenses could result in the
event of increases in interest rates.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company or its
ability to obtain additional financing, or both, either of which will be subject
in part to factors beyond the control of the Company, such as prevailing
economic conditions and financial, business and other factors. There can be no
assurance, however, that the Company's business will generate cash flow at the
necessary levels that, together with available additional financing, will allow
the Company to meet its anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments. If the Company
is unable to generate sufficient cash flow from operations in the future it may
be required to reduce the scope of its presently anticipated expansion of its
operations, reduce capital expenditures (including expenditures related to
acquisitions), refinance all or a portion of its existing indebtedness
(including the Notes), or obtain additional financing. The Company expects that
it may require additional financing to consummate future acquisitions and
expects that it will be necessary to refinance all or a portion of the Notes at
maturity. The Company also may undertake a refinancing of some or all of its
other indebtedness sometime prior to its maturity. While it is the Company's
intention to enter only into refinancings that it considers advantageous, there
can be no assurances that the Company will be able to refinance its indebtedness
on satisfactory terms, if at all. In the event the Company obtains any future
refinancing on less than favorable terms, the Company might be forced to operate
under terms that would restrict its operations and reduce its cash flow. In such
event, the holders of the Notes could experience increased credit risk and could
experience a decrease in the market value of their investment because the
Company might be forced to operate under terms that would restrict its
operations and might find its cash flow reduced. Furthermore, if the Company is
not able to refinance its indebtedness, including the Notes, the Company may not
be able to service its indebtedness and could fail to meet its obligations under
the Notes.
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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.
HISTORICAL OPERATING LOSSES
Cable television operators typically experience losses and negative cash
flow in their initial years of operation due to large capital investments
required for the construction or acquisition of their cable networks and the
administrative costs incurred in connection with commencing operations.
Consistent with this pattern, the Company incurred operating losses of $6.1
million, $4.6 million and $1.2 million in 1991, 1992 and 1993, respectively. The
Company generated operating income of $0.4 million and $3.5 million in 1994 and
1995, respectively, but had an operating loss of $1.3 million for 1996. There
can be no assurance that the Company will be able to generate operating income
in the future or that its operating losses will not increase. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Exchange Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. Neither the
Exchange Agent nor the Issuer is under any duty to give notification of defects
or irregularities with respect to tenders of Old Notes for exchange. Holders of
Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Notes as set forth in the legends thereon as a consequence of the
issuance of the Old Notes pursuant to exemption from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
securities laws of states and other jurisdictions. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution," "Description of the Notes -- Exchange Offer;
Registration Rights," and "The Exchange Offer -- Consequences of Failure to
Exchange."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were resold by the Initial Purchaser to qualified institutional buyers
as defined in Rule 144A of the Securities Act, to institutional accredited
investors within the meaning of Rule 501(a) (1), (2), (3) or (7) of the
Securities Act and to non-U.S. persons pursuant to Regulation S under the
Securities Act, and are trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen based, automated market for trading of securities
eligible for resale under Rule 144A. The Exchange Notes are new securities for
which there currently is no market. Although the Initial Purchaser is making a
market in the Old Notes and has advised the Issuer that it currently intends to
make a market in the
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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.
HOLDING COMPANY STRUCTURE
The Issuer is a holding company with limited assets of its own that
conducts substantially all of its business through subsidiaries. The ability of
the Issuer's creditors, including holders of the Notes, to participate in the
assets of any of the Issuer's subsidiaries upon any liquidation or
administration of any such subsidiary will be subject to the prior claims of the
subsidiary's creditors, including the holders of any indebtedness for money
borrowed, trade creditors of such subsidiaries and other persons granted
priority claim rights under the Polish Code of Civil Procedure. The Issuer will
pledge to the Trustee for the benefit of the holders of the Notes, the Pledged
Debt issued by PCBV of a minimum aggregate principal amount, together with cash
and cash equivalents of the Issuer, equal to at least 110% of the outstanding
principal amount of the Notes and that, in the aggregate, provide cash
collateral or bear interest and provide for principal repayments, as the case
may be, in amounts sufficient to pay interest on the Notes. The assets of PCBV
consist principally of capital stock of its subsidiaries and intercompany notes
from such subsidiaries. The Pledged Debt may not be amended or pledged to any
person other than the Trustee for the benefit of holders of the Notes. The
Indenture, however, does not contain any specific covenant prohibiting the
Issuer or PCBV from amending, waiving any rights under, pledging, or terminating
any intercompany notes other than the Pledged Debt. In addition, the ability of
the Issuer's creditors, including the holders of the Notes, to participate in
distributions of assets of the Issuer's subsidiaries will be limited to the
extent that the outstanding shares of any of its subsidiaries are either pledged
to secure other creditors of the Issuer or are not owned by the Issuer. The
Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by the Issuer's subsidiaries. The Company in the future may enter
into an agreement with one or more banks to provide a liquidity facility. Such
indebtedness may be secured by assets of the Issuer's subsidiaries.
The Notes are obligations solely of the Issuer. The ability of the Issuer
to pay interest (or premium, if any) on the Notes or to repay the Notes at
maturity or otherwise will be dependent upon either the cash flows of its
subsidiaries and the payment of funds by those subsidiaries to the Issuer in the
form of repayment of loans, dividends or otherwise or the Issuer's ability to
otherwise realize economic benefits from its equity interests in its
subsidiaries. The Issuer's subsidiaries have no obligation, contingent or
otherwise, to pay amounts due pursuant to the Notes or, other than obligations
under the Pledged Debt, to make funds available therefor, whether in the form of
loans, dividends or otherwise. The ability of these subsidiaries to make
payments to the Issuer will be subject to, among other things, the availability
of funds and the terms of such subsidiaries' indebtedness, as well as various
business considerations. Further, the Issuer currently does not own, directly or
indirectly, a majority interest in certain subsidiaries, and may not have
operating control of entities in which it may in the future acquire interests.
In such cases, the Issuer may be unable, without the consent of the relevant
partners, to cause such entities to pay dividends or implement business
strategies that the Issuer may favor. In addition, provisions of applicable
Polish law limit the amount of dividends which may be paid by the Issuer's
subsidiaries to the extent they do not have profits available for distribution
(of which the Issuer's subsidiaries had no material amounts as of December 31,
1996), and other statutory and general law obligations may affect the ability of
the Issuer's subsidiaries to declare or pay dividends or the ability of the
Issuer's subsidiaries to make payments to the Issuer on account of intercompany
loans. For example, companies known as spolka akcyjna ("S.A.") are required by
law to establish reserve funds (in an amount equal to one-third of their share
capital) out of which they cannot pay dividends. In addition, the statutes of
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any type of Polish company can contain provisions requiring that the company
establish other reserve funds out of which dividends may not be paid. None of
PCI's subsidiaries' statutes currently contain such a provision; however, most
of its subsidiaries' statutes contain a provision allowing the creation of such
reserve funds if the subsidiary's General Assembly votes to do so. Furthermore,
in the event that the foreign exchange laws or laws on foreign investment in
Poland change, Polish companies may also become subject to additional
limitations on their ability to distribute profits to non-Polish shareholders.
Under the Netherlands' corporate law and PCBV's articles of incorporation, PCBV
may only distribute profits to its shareholders insofar as PCBV's equity exceeds
the paid-up and called-up capital increased by the statutory reserves. Such
statutory reserves may include reserves arising upon the reevaluation of the
company's assets, the capitalization of costs (including research and
development, intellectual property and goodwill) in connection with the issuance
of capital stock and reserves which may arise in connection with loans to
stockholders with respect to their purchase of the company's stock. The PCBV
Shareholders' Agreement includes certain limitations on payments that can be
paid by PCBV to the PCBV Shareholders, including PCI. 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. 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.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key management personnel. The Company is particularly dependent upon the
skills and contributions of several key individuals, including Robert E. Fowler,
III, Chief Executive Officer of PCI, George Makowski, Chief Operating Officer of
PCI, John S. Frelas, Chief Financial Officer and Treasurer of PCI, Przemyslaw
Szmyt, General Counsel and Vice President of PCI, Gilbert Tash, Vice President
of PCI, Andrzej Muras, Executive Vice President of PTK-Warsaw, and Michael
Houlehan, Chief Executive Officer of PCIP. The departure of any of these persons
could have a material adverse effect on the Company's business. In addition,
given the Company's early stage of development, the Company's success will
depend in part on its ability to hire, train, and retain high-quality personnel.
The Company has entered into employment agreements with Messrs. Fowler,
Makowski, Frelas, Szmyt, Tash, Muras and Houlehan. Mr. Fowler's employment
agreement expires December 31, 1999, and is terminable without cause upon three
months written notice by Mr. Fowler or upon one month written notice by the
Company. Mr. Makowski's employment agreement with PCI expires January 21, 2002,
and is terminable without cause upon six months written notice by either party.
Mr. Frelas' employment agreement with PCI expires on September 1, 2001, and is
terminable without cause upon six months written notice by either party. Mr.
Szmyt's employment agreement with PCI expires on February 7, 2000, and is
terminable without notice by Mr. Szmyt. Mr. Tash's employment agreement is for
an indeterminate period of time and may be terminated without cause upon three
months written notice by either party. Mr. Muras's employment agreement with
PTK-Warsaw expires on January 1, 1998, and is terminable without cause upon
three months written notice by Mr. Muras. Mr. Houlehan's employment agreement
with PCBV was assigned to PCI in 1996 and may be terminated by either party at
any time with or without cause. See "Management."
REGULATION OF THE POLISH CABLE TELEVISION INDUSTRY
The operation of a cable television system in Poland is regulated by
various governmental bodies, including the Minister of Communications (the
"MOC") and the State Agency of Radiocommunications ("PAR") under the
Communications Act of 1990, as amended (the "Communications Act"), and the
National Radio and Television Council (the "Council") under the Radio and
Television Act of 1992, as amended (the "Television Act"). Cable television
operators in Poland also are subject to the intellectual property rights
protections contained in the Law on Copyright and Neighboring Rights of 1994
(the "Copyright Act"). Cable television services in Poland may be offered only
by cable television operators that have received permits ("Permits") from PAR to
operate and construct cable television networks in specified
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areas in Poland. The Communications Act and the Permits set forth the terms and
conditions for providing cable television services, including the term of the
Permits, the area covered by the Permits, technological requirements for the
network of the cable television operator and the restrictions on foreign
ownership of cable television operators. See "-- Limitations on Foreign
Ownership of Cable Television Operators and Broadcasters" and "Regulation -- The
Communications Act -- Foreign Ownership Restrictions." If a cable television
operator breaches the terms of its Permits or the Communications Act, or fails
to acquire Permits covering areas serviced by its networks, PAR can impose
penalties on such operator, including fines, the revocation of all Permits
covering the cable networks where such breach occurred or the forfeiture of the
operator's cable networks.
Although the Company has received approximately 60 permits from PAR, the
Company does not have valid Permits covering certain of the areas in which it
operates cable networks. Of the approximately 119,000 basic subscribers as of
May 5, 1997 located in the areas for which the Company does not currently have
valid Permits, approximately 16% are located in areas serviced by recently
acquired cable networks for which Permit applications cannot be made until all
Permit requirements are satisfied (including the obtaining of agreements with
the co-op authorities, the upgrade of the acquired networks to meet technical
standards where necessary and the satisfaction of foreign ownership
limitations), approximately 47% are located in areas serviced by recently
acquired or constructed networks in Warsaw, Krakow and the areas surrounding
these cities, which the Company plans to transfer to PTK, S.A. in order to more
efficiently comply with foreign ownership restrictions, and approximately 37%
are located in areas serviced by networks for which the Company has Permit
applications pending. The Company has 10 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 has ratified the Rome
Convention, which will result in the intellectual property rights of non-Polish
programming producers being protected in Poland to the same extent that such
rights of Polish producers are protected. See "Regulation -- Copyright
Protection." The Company is not able to predict the effect of TRIPS or of the
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adoption of the Rome Convention on the Polish cable television industry, and
there can be no assurance that either will not result in the Company paying
additional fees to broadcasters for programming or being unable to obtain
certain commercially desirable programming. See "Regulation -- Copyright Act."
In addition, the Communications Act, the Television Act and the Copyright
Act are relatively new statutes, and thus have not been fully interpreted by
applicable regulatory authorities. There can be no assurance that changes in
laws or regulations, in the interpretation of existing laws or regulations or in
the enforcement activities of the applicable regulating authorities affecting
the Company, its competitors or the cable television industry in Poland
generally will not occur that could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Regulation."
Competition in Poland is governed by the Anti-Monopoly Act of 1990, as
amended (the "Anti-Monopoly Act"), which established the Anti-Monopoly Office to
regulate monopolistic and other anti-competitive practices. The current Polish
anti-monopoly body of law with respect to the cable television industry is not
well-established, and the Anti-Monopoly Office has not articulated comprehensive
standards that may be applied in an antitrust review in the cable television
industry. However, as a general rule, companies that obtain control of 40% or
more of their market face greater scrutiny from the Anti-Monopoly Office. The
relevant markets for cable television services have not been defined by the
Anti-Monopoly Office. Furthermore, the Company believes that it is required to
obtain, and it has applied for, or is in the process of preparing applications
for, approval of the Anti-Monopoly Office for certain of the Pending
Acquisitions, and it may be required to obtain the Anti-Monopoly Office's
approval for certain of its future acquisitions as well. In addition, the
Anti-Monopoly Office can review a company's past and present activities for
potential anti-competitive behavior. There can be no assurance that the
Anti-Monopoly Office will approve the Pending Acquisitions or the Company's
future acquisitions and dispositions or that a review of the Company's past,
present or future operations, if undertaken by the Anti-Monopoly Office, will
not otherwise adversely impact the Company's business, strategy, financial
condition or results of operations. See "Regulation -- Anti-Monopoly Act."
LIMITATIONS ON FOREIGN OWNERSHIP OF CABLE TELEVISION OPERATORS AND BROADCASTERS
Under the Communications Act and applicable Polish regulatory restrictions,
Permits may only be issued to and held by Polish individuals or companies in
which foreign persons hold no more than 49% of the share capital. These
restrictions do not apply to any Permits issued prior to July 7, 1995, to
Permits issued at any time pursuant to certain licenses obtained under prior
regulations or to renewals of any such Permits ("Grandfathered Permits"). See
"Regulation -- The Communications Act". As of February 28, 1997, approximately
45% of the Company's basic subscribers were covered by Permits that are not
subject to foreign ownership restrictions. To comply with foreign ownership
requirements for areas not covered by Grandfathered Permits, the Company has
entered into contractual arrangements with the Polish entity Poltelkab. The
Company owns 49% of Poltelkab and five Polish executives of the Company or
Poltelkab own the remaining 51%. In the case of the acquisition or construction
of cable networks not covered by Grandfathered Permits, either the Company will
own all of the cable network assets and will lease the assets to Poltelkab, or
Poltelkab will own and operate the networks. In the Company's current leasing
arrangements with Poltelkab, Poltelkab holds the Permits to operate the cable
networks, receives all of the revenues from subscribers, pays all operating
expenses relating to the operation of the networks, and through the lease
arrangements pays the Company rent equal to substantially all of the cash flow
generated by the networks. The Company believes that this ownership and
operating structure are not in contradiction with the technical requirements of
Polish law. PAR has recently granted Poltelkab two Permits for networks using
the ownership and operating structure described above. There can be no assurance
that Polish regulatory authorities will not determine that all or part of this
ownership and operating structure, or any other ownership and operating
structure that may be utilized by the Company, violates Polish regulatory
restrictions on foreign ownership or that such restrictions will not be amended
or interpreted in a different manner in the future, including the restrictions
applicable to Grandfathered Permits. Any such adverse determination or any such
amendment or interpretation could adversely affect the Company's ability to
acquire Permits to operate cable television systems and could result in the loss
of Permits held by the Company, which could have a material adverse
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effect on the Company's business, results of operations and financial condition.
See "Regulation -- The Communications Act -- Foreign Ownership Restrictions".
The Television Act provides that programming may be broadcast in Poland
only by Polish entities in which foreign persons hold no more than 33% of the
share capital. The Company owns a 33% interest in a programming company,
ProCable, which was formed to develop Polish-language programming for the
Company. ProCable currently holds broadcast licenses to distribute PTK1 and PTK2
over all of the Company's networks that carry these channels, except for one
network for which ProCable has an application pending with the Council and one
network for which the Company is currently awaiting the grant of a Permit from
PAR before ProCable can file with the Council for a license. The Company has
established PCIP as a wholly-owned U.S. subsidiary engaged in the development
and production of Polish language thematic television programming outside of
Poland. The Company plans to distribute all of PCIP's programming throughout
Poland via satellite systems from abroad. The Company believes that the
ownership structure of ProCable and PCIP's distribution system satisfy Poland's
regulatory restrictions on foreign ownership of broadcasters. However, there can
be no assurance that Polish regulatory authorities will not determine that all
or part of this ownership or distribution structure violates Polish regulatory
restrictions on foreign ownership of broadcasters. If the ownership of ProCable
or the distribution by PCIP of programming in Poland via satellite is found not
to be in compliance with Poland's regulatory restrictions on foreign ownership
of broadcasters, the Company could be forced to incur significant costs to bring
its ownership structure or distribution system into compliance with the
regulations; it might be forced to dispose of its ownership interests in
ProCable or PCIP; or ProCable could lose its broadcasting licenses. These
regulatory restrictions may materially adversely affect the Company's ability to
enter into relationships with ProCable or PCIP, as well as any other company
that produces, broadcasts and distributes programming in Poland, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Regulation -- Television Act".
RISKS ASSOCIATED WITH CABLE NETWORKS; AGREEMENTS WITH TPSA
The Company's ability to build-out its existing networks and to integrate
acquired systems into its cable networks will depend on, among other things, the
Company's continued ability to design and obtain access to network routes, and
secure other construction resources, all at reasonable costs and on satisfactory
terms and conditions. Many of such factors are beyond the control of the
Company. In addition, as of December 31, 1996, approximately 66% of the
Company's plant had been constructed utilizing pre-existing conduits of the
Polish national telephone company ("TPSA"). A substantial portion of the
Company's contracts with TPSA for the use of such conduits permit termination by
TPSA without penalty at any time either immediately upon the occurrence of
certain conditions or upon provision of three to six months notice without
cause. Generally speaking, TPSA may terminate a conduit agreement immediately
if: (i) the Company does not have a valid Permit covering the subscribers to
which the conduit delivers the signal; (ii) the Company's cable network serviced
by the conduit does not meet the technical specifications required by the
Communications Act; (iii) the Company does not have a contract with the co-op
authority allowing for the installation of the cable network; or (iv) the
Company fails to pay the rent required under the conduit agreement.
Approximately 119,000 of the Company's subscribers are serviced by conduits
leased from TPSA for which one or more of these provisions are applicable, so
TPSA is legally entitled to terminate the conduit agreements covering these
subscribers immediately. Any termination by TPSA of such contracts could result
in the Company losing its Permits, the termination of agreements with co-op
authorities and programmers, and an inability to service customers with respect
to the areas where its networks utilize the conduits that were the subject of
such contracts. Any such terminations by TPSA would have a material adverse
effect on the Company unless the Company could on commercially reasonable terms
find an alternative to the TPSA conduits or build its own conduits. In addition,
the Company would be forced to incur significant costs if it were forced to
build its own conduits. There can be no assurance that the Company would be able
to replace, or locate a substitute for, such conduits.
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is expansion by
acquisition of cable television systems that are either located in reasonable
proximity to the Company's existing systems or are large enough
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to serve as the basis for new regional clusters. There can be no assurance that
the Company will be able to identify and acquire such systems on satisfactory
terms, if at all, or that it will be able to finance significant acquisitions in
the future. The Company encounters competition for the acquisition of cable
systems from existing cable television operators and also from financial
investors. See "Business -- Business Strategy" and "Business -- Competition."
The Company searches for appropriate candidates for acquisition on an
ongoing basis. The Company has entered into negotiations or agreements, as the
case may be, to consummate the Pending Acquisitions. The systems to be acquired
in the Pending Acquisitions serve approximately 99,000 total subscribers and
pass approximately 181,000 homes. There can be no assurance as to the timing of
closing of any of the Pending Acquisitions or as to whether or on what terms any
of such Pending Acquisitions will actually be consummated. See
"Business -- Pending Acquisitions".
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
The Company has experienced rapid growth and development in a relatively
short period of time and intends to continue to do so to meet its strategic
objectives. The management of such growth will require, among other things,
continued development of the Company's financial and management controls,
stringent control of construction and other costs, increased marketing
activities, ability to attract and retain qualified management personnel and the
training of new personnel. The Company intends to hire additional personnel in
order to manage its growth and meet its strategic objectives. Failure to manage
its rapid growth and development successfully could have a material adverse
effect on the Company's business, results of operations and financial condition.
Since its inception, the Company has acquired numerous cable television
networks. The Company's recent acquisitions have involved, and the Pending
Acquisitions, if consummated, and other possible future acquisitions by the
Company will involve, risks, including successful integration with the Company's
existing systems and operations and, possibly, lower relative operating margins
associated with such acquisitions (before the economic benefits of integration,
if successful, are fully realized). Furthermore, the Company may experience
increased capital expenditure costs as the acquired systems are rebuilt if
necessary to upgrade the networks to the Company's standards. In the event that
the Company underestimates the costs of integrating and upgrading acquired
networks, such activities could have a material adverse effect on the Company's
financial condition and operating results. The integration of acquired systems
may also lead to diversion of 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,
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including provisions of labor, foreign exchange, customs, tax and corporate
laws. The Company does not believe that any such violations will have a material
adverse effect upon the Company's business, results of operation or financial
condition, but there can be no assurance that such will be the case.
Poland is generally considered by international investors to be an emerging
market. There can be no assurance that political, economic, social and other
developments in other emerging markets will not have an adverse effect on the
market value and liquidity of the Notes. In general, investing in the securities
of issuers with substantial operations in markets such as Poland involves a
higher degree of risk than investing in the securities of issuers with
substantial operations in the United States and other similar jurisdictions.
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 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 that there is doubt as to the
enforceability in Poland, in original actions or in actions for enforcement of
judgments of U.S. courts, of civil liabilities predicated solely upon the laws
of the United States. In addition, awards of punitive damages in actions brought
in the United States or elsewhere may be unenforceable in Poland.
The Issuer also has been advised by its counsel that a final and conclusive
judgment duly obtained in actions brought in the United States will not be
recognized and enforced by a Netherlands court and it will be necessary to bring
the matter before the competent Netherlands court. The claimants may, in the
course of these proceedings, submit the judgment rendered by the court in the
United States. If and to the extent that the Netherlands court is of the opinion
that fairness and good faith so require, it will give binding effect to such
foreign judgment, unless such foreign judgment contravenes Netherlands
principles of public policy.
ASSET ENCUMBRANCES
The Company has entered into an agreement with the American Bank in Poland,
S.A. ("AmerBank") which provides for a credit facility of $6.5 million. As of
December 31, 1996, there was $550,000 outstanding under this facility and, as of
the date hereof, there is no amount outstanding under this facility. The Company
will be able to utilize this facility for future borrowings (subject to the
limitations in the Indenture with regard to incurrance of additional
indebtedness). In addition, the Company in the future may enter into an
agreement with one or more banks to provide a liquidity facility. The Company's
existing facilities are secured, and certain of the Company's future
indebtedness, including the possible liquidity facility described above, may be
secured, which could have material consequences to holders of the Notes. Such
security includes, and is expected in the future to include, the fixed assets of
PCI's subsidiaries as well as the capital stock and intercompany indebtedness of
PCI's subsidiaries (other than the Pledged Debt). The principal fixed assets of
PCI's subsidiaries consist of cable television headends, cable television plant
and subscriber equipment. The value of a substantial portion of the Company's
fixed assets is derived from the employment of such assets in a cable television
business. These assets are highly specialized and, taken individually, can be
expected to have limited marketability. Consequently, in the event of a
realization by the Company's secured creditors on the collateral securing the
Company's secured debt, creditors would likely seek to sell the business as a
going concern through a sale of pledged capital stock of subsidiaries, either in
its entirety, or by regional cluster or other business unit, in order to
maximize the proceeds realized. The price obtained upon any such sale could be
adversely affected by the need to comply with applicable governmental
regulations and laws, including foreign ownership limitations and foreign
exchange controls. The amounts (and the timing of the receipt of 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.
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INFLATION; CURRENCY RISK
Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuation in the exchange rate for the
zloty. The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 26.8% in 1995 and to
approximately 19.9% in 1996. In addition, the exchange rate for the zloty has
stabilized and the rate of devaluation of the zloty has decreased since 1991.
However, inflation and currency exchange fluctuations have had, and may continue
to have, an effect on the financial condition and results of operations of the
Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditures are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-denomination obligations.
While the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar-denomination obligations and, thus, on
the Company's financial condition and results of operations.
COMPETITION IN THE CABLE TELEVISION INDUSTRY
The multi-channel television industry in Poland has been, and is expected
to remain, competitive. The Company competes with other cable television
operators as well as with companies employing numerous other methods of
delivering television signals to the home. The Company believes that competition
in the cable television industry is primarily based upon price, program
offerings, customer service and quality and reliability of cable networks. Small
SMATV operators are active throughout Poland, and they pose a competitive threat
to the Company because they often incur lower capital expenditures and operating
costs and therefore have the ability to charge lower fees to subscribers than
does the Company. While such operators often do not attempt to meet the
technical standards for cable systems under Polish law, enforcement of
regulations governing such technical standards has historically been poor.
Although Polish regulatory authorities have recently attempted to improve the
enforcement of such laws and regulations, there can be no assurance that they
will be enforced. If such laws and regulations are not enforced, these SMATV
operators will be able to continue operating with a lower cost structure than
that of the Company and thus charge lower fees to subscribers, which may have an
adverse effect on the Company's business, results of operations and financial
condition. Certain of the Company's competitors or their affiliates have greater
experience in the cable television industry and have greater resources
(including financial resources and access to international programming sources)
than the Company.
The Company's cable television systems also compete with companies
employing other methods of delivering television signals to the home, such as
terrestrial broadcast television signals and DTH satellite-delivered television
services, and may in the future compete with MMDS systems. The extent to which
the Company's cable television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of programming at a reasonable price than the programming and
prices available through alternative delivery systems. In addition, advances in
communications technology as well as changes in the marketplace and the
regulatory environment are constantly occurring. It is not possible to predict
the effect that ongoing or future developments might have on the cable
television industry in Poland. See "The Industry -- The Polish Multi-Channel
Television Industry" and "Regulation".
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
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to produce or obtain Polish-language programming at commercially reasonable
costs and the Company is not able to do so, the viability or competitiveness of
the Company's networks or services could be adversely effected.
INFLUENCE OF PRINCIPAL SHAREHOLDERS
PCI and each of its existing shareholders (except for its option holders
and one shareholder that owns approximately 3% of the outstanding common stock
on a fully diluted basis) have entered into a Shareholders' Agreement pursuant
to which the parties thereto have agreed to the composition of the Board of
Directors, certain transfer restrictions (including rights of first refusal,
tag-along rights and a buy-sell provision) and the manner by which such
shareholders may realize their investments in the capital stock of PCI. See
"Certain Relationships and Related Transactions -- Shareholders' Agreement."
There may be conflicts of interest between the shareholders of PCI or their
representatives on the one hand, and the holders of the Notes, on the other
hand, and there can be no assurance that any such conflict, should it occur,
will be resolved in a manner favorable to the holders of the Notes. No
procedures are being adopted to resolve any conflicts of interest that may arise
between the shareholders or their representatives on the Board of Directors and
the holders of the Notes.
LIMITED INSURANCE COVERAGE
While PCI carries general liability insurance on its properties and that of
its subsidiaries, like many other operators of cable television systems it does
not insure the underground portion of its cable television networks.
Accordingly, any catastrophe affecting a significant portion of the Company's
cable television networks could result in substantial uninsured losses and could
have a material adverse effect on the Company.
PERSONAL HOLDING COMPANY TAX MATTER
If PCI were determined to be a "personal holding company" ("PHC") for U.S.
federal income tax purposes, PCI would be subject to a U.S. excise tax equal to
39.6% of its undistributed personal holding company net income. Based on the
ownership of the outstanding shares and the types of income derived by and
expected to be derived by PCI, PCI does not believe that it is a PHC.
Nevertheless, because there will be restrictions on PCI's ability to distribute
earnings while the Notes are outstanding, if PCI is deemed to be a PHC, it would
become subject to the 39.6% excise tax. There can be no assurance that PCI will
not be deemed a PHC.
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<PAGE> 31
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuer on October 31, 1996 to the Initial
Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently
placed the Old Notes with qualified institutional buyers in reliance on Rule
144A under the Securities Act, institutional accredited investors (as defined in
Rule 501(a) (1), (2), (3) or (7) under the Securities Act) and non-U.S. persons
pursuant to Regulation S under the Securities Act. As a condition to the sale of
the Old Notes, the Issuer and the Initial Purchaser entered into the
Registration Rights Agreement as of October 31, 1996. Pursuant to the
Registration Rights Agreement, the Issuer agreed that, unless the Exchange Offer
is not permitted by applicable law or Commission policy, it would (i) use its
best efforts to file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes by January 29, 1997; (ii) use
its best efforts to cause such Registration Statement to become effective under
the Securities Act by May 29, 1997; and (iii) upon effectiveness of the
Registration Statement, use its best efforts to commence the Exchange Offer and
maintain the effectiveness of the Registration Statement and keep the Exchange
Offer open for at least 30 business days. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Issuer's obligations under the
Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange any and all Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The Issuer will issue $1,000 principal amount of Exchange Notes
in exchange for each $1,000 principal
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<PAGE> 32
amount of outstanding Old Notes surrendered pursuant to the Exchange Offer. Old
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of Old Notes under the Registration Rights Agreement,
which rights with respect to Old Notes will terminate upon the consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture, which also authorized the issuance of the Old Notes,
such that both series will be treated as a single class of debt securities under
the Indenture.
As of the date of this Prospectus, an aggregate of $130.0 million in
principal amount of the Old Notes is outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about [ ], 1997,
to all holders of Old Notes known to the Issuer. The Issuer's obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Issuer intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Securities Act, the
Exchange Act and the rules and regulations of the Commission thereunder. See
"Description of the Notes -- Exchange Offer; Registration Rights."
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving written notice
of such extension to the holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Issuer. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Issuer
will give written notice of any extension, amendment, nonacceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
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THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trustee or other nominee and who wishes to
tender should contact such registered holder of Old Notes promptly and instruct
such registered holder of Old Notes to tender on behalf of the beneficial owner.
If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a properly
completed power of attorney from the registered holder of Old Notes. The
transfer of record ownership may take considerable time. If the Letter of
Transmittal is signed by a person or persons other than the registered holder or
holders of Old Notes, such Old Notes must be endorsed or accompanied by
appropriate powers of attorney, in either case signed exactly as the name or
names of the registered holder or holders that appear on the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein below). In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes whose acceptance might, in the judgment of the Issuer or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Issuer shall determine.
Neither the Issuer, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Old Notes in
connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, (iii) the holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus
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delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth in certain no-action
letters, (iv) the holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Old Notes acquired by such holder directly from the
Issuer should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Issuer. If the
holder is a broker-dealer that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, the holder is required to acknowledge in
the Letter of Transmittal that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Issuer shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Issuer has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
The Exchange Notes will bear interest at a rate equal to 9 7/8% per annum.
Interest on the Exchange Notes is payable semiannually on each May 1 and
November 1, commencing on May 1, 1997. Holders of Exchange Notes will receive
interest on May 1, 1997 from the date of initial issuance of the Exchange Notes,
plus an amount equal to the accrued interest on the Old Notes from October 31,
1996, to the date of exchange thereof for Exchange Notes. Holders of Old Notes
that are accepted for exchange for Exchange Notes will be deemed to have waived
the right to receive any interest accrued on the Old Notes.
In all cases, the issuance of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, or if Old Notes are submitted for a greater amount than
the holder desires to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry procedures described below, such non exchanged
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) designated by the tendering holder as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer whose determination shall be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
Exchange Notes for such Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other
33
<PAGE> 36
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.
34
<PAGE> 37
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
Delivery To: State Street Bank and Trust Company, Exchange Agent
By Mail or By Hand:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention: Henry Seemore
Telephone: 617-664-5601
By Facsimile: 617-664-5365
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer of approximately $1,500 (plus any out-of-pocket expenses, including
without limitation, legal fees and expenses incurred by the Exchange Agent) will
be paid by the Issuer.
ACCOUNTING TREATMENT
For accounting purposes, the Issuer will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
REGULATORY MATTERS
The Issuer is not aware of any governmental or regulatory approvals that
are required in order to consummate the Exchange Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Income Tax Considerations."
35
<PAGE> 38
The Old Notes which are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Notes may be resold only (i) to a person whom the seller reasonably believes is
a qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act or (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Issuer so requests), (v) to the Issuer
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. Under certain circumstances, the Issuer is
required to file a Shelf Registration Statement. See "Description of
Notes -- Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
In the event of a Registration Default (as hereinafter defined), the
interest rate borne by the Notes shall be increased by an amount equal to
one-half of one percent (0.5%) per annum, with respect to the first 90-day
period following such Registration Default. The amount of such additional
interest will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until such Registration Default has been
cured, up to a maximum of one and one-half percent (1.5%) per annum. Upon the
cure of all applicable Registration Defaults, such additional interest will
cease to accrue. See "The Exchange Offer -- Exchange Offer; Registration
Rights."
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, the noon
exchange rate quoted by the NBP. Such rates are set forth as zloty per U.S.
Dollar. On December 31, 1996, such rate was PLN 2.875 = $1.00, and on March 28,
1997, such rate was PLN 3.076 = $1.00. The Federal Reserve Bank of New York does
not certify for customs purposes a noon buying rate for zloty.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR
ENDED DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Exchange rate at end of period............................. 2.44 2.47 2.87
Average exchange rate during period(a)..................... 2.27 2.43 2.71
Highest exchange rate during period........................ 2.45 2.54 2.89
Lowest exchange rate during period......................... 2.32 2.47 2.49
</TABLE>
- ---------------
(a) The average of the exchange rates on the last day of each month during
the applicable period.
36
<PAGE> 39
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.
The net proceeds from the sale of the Old Notes were approximately $125.3
million. Approximately $18.3 million of such net proceeds has been used to
acquire 9 cable systems; up to approximately $23.8 million may be used to
consummate the Pending Acquisitions; approximately $15.0 million was used to
repay existing third-party indebtedness; up to $17.0 million may be used to
acquire certain minority interests in the Issuer and subsidiaries of the Issuer
which are held by unaffiliated third-parties; and approximately $5.0 million has
been used to make an investment in PCIP and approximately $5.0 million will be
invested in PCIP in the future. There can be no assurance that the Pending
Acquisitions or the minority interest purchase transactions will actually be
consummated, or on what terms. The remaining net proceeds of approximately $41.2
million will be used for general corporate purposes which may include working
capital, capital expenditures for the build-out or rebuild of the Company's
cable networks and other selected acquisitions. Pending such utilization, the
Company intends to invest the net proceeds from the sale of the Old Notes in
short-term securities of the United States.
37
<PAGE> 40
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
Cash and cash equivalents(a)................................. $ 68,483
========
Investment securities(a)..................................... $ 25,115
========
Long-term debt:
Notes payable.............................................. $ 130,074
Notes offered hereby.......................................
--------
Minority interest............................................ 5,255
Redeemable preferred stock................................... 34,955
Stockholders' equity:
Common stock............................................... 1
Paid-in capital............................................ 54,322
Cumulative translation adjustment.......................... (162)
Accumulated deficit........................................ (23,113)
--------
Total stockholders' equity.............................. 31,048
Total capitalization............................... $ 196,077
========
</TABLE>
- ---------------
(a) A portion of the net proceeds from the offering of the Old Notes was
invested in cash and cash equivalents and in investment securities.
38
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
three years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus, which
have been audited by KPMG Peat Marwick LLP, independent auditors. Consolidated
financial data as of and for the year ended December 31, 1992, have been derived
from unaudited financial statements of the Company. In the opinion of management
of the Company, such unaudited financial statements contains all adjustments
necessary for a fair presentation of the financial position of the Company as of
such date and the results of operations for such period. Acquisitions of cable
television systems during the periods for which selected consolidated financial
data are presented below materially affect the comparability of such data from
one period to another. The selected consolidated financial data should be read
in conjunction with the Company's consolidated financial statements and notes
therein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................ $ 4,490 $ 6,562 $ 8,776 $ 18,557 $ 24,923
Operating expenses:
Direct operating expenses............. (1,099) (1,481) (2,119) (5,129) (7,193)
Selling, general and administrative... (6,418) (4,029) (2,818) (4,684) (9,289)
Depreciation and amortization......... (1,618) (2,257) (3,459) (5,199) (9,788)
------- ------- -------- -------- --------
Operating income (loss)............ (4,645) (1,205) 380 3,545 (1,347)
Interest expense...................... -- (116) (2,327) (4,373) (4,687)
Interest and investment income........ 7 65 78 174 1,274
Foreign currency translation (loss)
gain............................... 406 (315) (27) (17) (761)
------- ------- -------- -------- --------
Loss before income taxes, minority
interest, and extraordinary item... (4,232) (1,571) (1,896) (671) (5,521)
Income tax expense.................... (920) (976) (803) (600) (1,273)
Minority interest in subsidiary
(income) loss...................... 650 205 316 (18) 1,890
------- ------- -------- -------- --------
Loss before extraordinary item..... $ (4,502) $ (2,342) $ (2,383) $ (1,289) $ (4,904)
Extraordinary item.................... -- -- -- -- (1,713)
------- ------- -------- -------- --------
Net loss........................... (4,502) (2,342) (2,383) (1,289) (6,617)
Accretion of redeemable preferred
stock.............................. -- -- -- -- (2,870)
------- ------- -------- -------- --------
Excess of carrying amount of preferred
stock over fair value of
consideration transferred.......... -- -- -- -- 3,549
Net loss applicable to common
shareholders....................... (4,502) (2,342) (2,383) (1,289) (5,938)
------- ------- -------- -------- --------
Net loss per common share.......... $(489.99) $(254.90) $(219.03) $(116.79) $(343.81)
------- ------- -------- -------- --------
OTHER DATA:
EBITDA(a)............................. $ (3,027) $ 1,052 $ 3,839 $ 8,744 $ 8,441
Expenditures for construction of cable
television systems(b).............. 3,476 5,490 11,695 16,014 25,372
Net cash provided (used) by operating
activities......................... (4,129) 2,709 1,599 3,839 6,112
Net cash used by investing
activities......................... (3,860) (5,817) (12,341) (21,985) (74,861)
Net cash provided by financing
activities......................... 7,390 3,332 12,686 17,996 134,889
RATIOS:
EBITDA to interest expense............ NM NM 1.71x 2.08x 1.80x
Earnings to cover fixed charges(c).... NM NM 0.37x 0.86x 0.46x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................... $ 28,857 $ 34,165 $ 47,376 $ 68,058 $217,537
Total debt............................ 13,832 20,073 35,988 59,405 130,074
Redeemable preferred stock............ -- -- -- -- 34,955
Total stockholders' equity............ 5,592 3,250 1,479 190 31,048
</TABLE>
Footnotes appear on following page
39
<PAGE> 42
- ---------------
(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 income
(loss) as an indicator of the Company's operating performance or to cash
flows from operations as a measure of liquidity. EBITDA does not include
full year results for 1996 from TV KABEL in the Bydgoszcz regional cluster
which was acquired in December 1996 and does not include results from the
Pending Acquisitions.
(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 net loss applicable to common shareholders before income taxes
and fixed charges. Fixed charges consist of interest on all indebtedness,
amortization of deferred financing costs and that portion of operating lease
expense deemed to be interest expense. For the years ended December 31, 1992
and 1993 earnings were insufficient to cover fixed charges by $3,602,000 and
$1,140,000, respectively.
40
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company, including the notes
thereto, included elsewhere in this Prospectus. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual future results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
"The Industry" and "Business."
OVERVIEW
The Company is the largest provider of multi-channel cable television
services in Poland. Following the commencement of its operations in 1990, the
Company focused initially upon the build-out of its Gdansk network in order to
demonstrate the feasibility of constructing and operating Western-style cable
television networks in Poland, and shortly thereafter began construction of its
cable television networks in Warsaw, Krakow and Katowice. Since that time, the
Company has continued the build-out of its original networks, commenced
construction of cable television networks in several new cities and completed 30
acquisitions. The Company currently owns and operates fiber-optic cable
television networks in seven regional clusters encompassing seven of the ten
largest cities in Poland and had a subscriber base as of December 31, 1996 of
approximately 534,000 total subscribers. Approximately 55% of the Company's
increase in subscribers since December 31, 1992 has been achieved organically
through the build-out of the Company's existing cable networks.
A key element of the Company's business strategy is to continue to expand
the coverage areas of its regional clusters aggressively, both organically and
through acquisitions. The Company intends to pursue organic growth primarily in
areas where it can fill-in existing regional clusters or expand into cities and
towns adjacent to its regional clusters through the continued build-out of its
existing networks. The Company also plans to expand its regional clusters
through the continued acquisition of smaller cable television operators. In
addition, in markets where the Company has established operations, it intends to
selectively over-build certain weaker competitors in an effort to encourage
consolidation of the markets. By implementing this strategy for expanding its
regional clusters, the Company believes it can limit its per-subscriber build
costs and realize significant synergies from leveraging its existing
infrastructure and asset base, both in terms of personnel and in terms of
capital costs. Because the Company has most of its management structure and
operating systems in place in each of its regional clusters, it is able to
realize significant cash flow margins from each dollar of incremental MDU
subscriber revenue generated through the addition of subscribers to its existing
regional clusters.
Substantially all of the Company's revenues are derived from monthly
subscription fees for cable television services, and one-time installation fees
for connection to its cable television networks. The Company charges subscribers
fixed monthly fees for their choice of service tiers and for other services,
such as premium channels, tuner rentals and additional outlets, all of which are
included in monthly subscription fees. The Company currently offers broadcast,
intermediate (in limited areas) and basic tiers of service. As of December 31,
1996, approximately 86% of the Company's subscribers received basic service. In
1996, approximately 87% of the Company's revenues were derived from monthly
subscription fees. Revenue from installation fees is deferred to the extent it
exceeds direct selling costs and the deferred revenue is amortized to income
over the estimated average period that new subscribers are expected to remain
connected to the Company's system.
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.
41
<PAGE> 44
The Company has experienced low churn rates since its inception. The
Company's annual churn rates have historically averaged less than 10%. The
Company's annual churn rates for 1994, 1995 and 1996 were 9.1%, 9.2% and 7.8%,
respectively. The Company believes that its churn rates are low because of the
Company's customer care program, the high technical quality of its networks and
desirable program offerings. In addition, the Company benefits from a shortage
of housing in Poland that results in low move-related churn. There can be no
assurance that the Company will be able to maintain these low churn rates.
The Company divides operating expenses into (i) direct operating expenses,
(ii) selling, general and administration expenses and (iii) depreciation and
amortization expenses. Direct operating expenses consist of programming
expenses, maintenance and related expenses necessary to service, maintain and
operate the Company's cable systems, billing and collection expenses and
customer service expenses. Selling, general and administrative expenses consist
principally of administrative costs including office related expenses,
professional fees and salaries, wages and benefits of nontechnical employees;
advertising and marketing expenses; and accounting costs consisting of bank fees
and bad debt expense. Depreciation and amortization expenses consist of
depreciation of property, plant and equipment and amortization of intangible
assets.
Cable television operators typically experience losses and negative cash
flow in their initial years of operation due to the large capital investments
required for the construction or acquisition of their cable networks and the
administrative costs incurred in connection with commencing operations.
Consistent with this pattern, the Company incurred operating losses of $6.1
million, $4.6 million and $1.2 million in 1991, 1992 and 1993, respectively. The
Company generated operating income of $0.4 million and $3.5 million in 1994 and
1995, respectively, but had an operating loss of $1.3 million for 1996 primarily
due to the increased levels of acquisitions and related costs in 1996.
In addition to other operating statistics, the Company measures its
financial performance by EBITDA. The Company defines EBITDA to be net income
(loss) as measured by U.S. GAAP adjusted for depreciation and amortization,
interest expense, foreign currency translation gains and losses, income taxes,
extraordinary items, non recurring items, and gains and losses from the sale of
assets other than in the normal course of business and minority interest in
subsidiary income and loss. The Company believes that EBITDA and related
measures of cash flow from operating activities serve as important financial
indicators in measuring and comparing the operating performance of cable
television companies. EBITDA is not a U.S. GAAP measure of income (loss) or cash
flow from operations and should not be considered as an alternative to net
income as an indication of the Company's financial performance or as an
alternative to cash flow from operating activities.
Historically, the cable networks the Company has acquired have had lower
EBITDA margins than the Company's existing operations. Upon consummation of an
acquisition, the Company seeks to achieve operating efficiencies and reduce
operating costs by rationalizing the number of headends and reducing head count,
among other things. The Company generally has been able to manage its acquired
cable television networks with experienced personnel from one of its existing
regional clusters and reduce the technical personnel necessary to operate
acquired networks after connecting the networks to the Company's existing
headends, or if required, rebuilding the acquired networks to the required
technical standards. In part due to these efforts, the Company has generally
been able to increase the operating margins in its acquired systems, although
there can be no assurance that it will be able to continue to do so.
EBITDA for 1993, 1994, 1995 and 1996 was $1.1 million, $3.8 million, $8.7
million and $8.4 million, respectively. The Company expects EBITDA to increase
as it fully integrates acquired networks into its regional clusters and
consummates the Pending Acquisitions. In addition, the operating results of
several recent acquisitions consummated during 1996 are not yet fully reflected
in the Company's operating results, and the operating results of the Pending
Acquisitions will not be reflected in the Company's results of operations until
their respective dates of acquisition. There can be no assurance, however, that
the Company will continue to generate positive EBITDA in the future. EBITDA is
not intended to represent cash flow from operations under U.S. GAAP and should
not be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to cash flows from operations as a measure of
liquidity.
42
<PAGE> 45
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland. The aggregate
consideration to be paid by the Company in connection with the Pending
Acquisitions (including amounts for shareholder loans) is expected to be
approximately $23.8 million. The cable systems expected to be acquired in the
Pending Acquisitions serve approximately 99,000 total subscribers and pass
approximately 181,000 homes. The consummation of the Pending Acquisitions will
result in the expansion of the Company's operations within its existing regional
clusters and the establishment of one new regional cluster in southwest Poland.
The Company intends to use a portion of the net proceeds of the offering of the
Old Notes to consummate certain of the Pending Acquisitions although there can
be no assurance as to the timing of closing of any of the Pending Acquisitions
or as to whether or on what terms any of such Pending Acquisitions will actually
be consummated. If all of the Pending Acquisitions are consummated, the Company
estimates that it will spend approximately $3.6 million (which includes an
approximately $2.2 million portion of the shareholder loans referred to above)
within 12 months of the consummation of the Pending Acquisitions to upgrade the
acquired networks to meet the Company's technical standards. Such upgrading
would enable the Company to increase the number of programs offered, the quality
of the transmissions and the operating cost effectiveness of the acquired
networks. However, the Company believes that the networks to be acquired in the
Pending Acquisitions currently meet PAR standards and, accordingly, that the
timing and extent of such upgrades would be subject to the Company's discretion.
See "Business -- Pending Acquisitions."
1996 COMPARED TO 1995
Cable Television Revenues. Revenues increased $6.4 million, or 34.3%, from
$18.6 million in 1995 to $24.9 million in 1996. This increase was primarily
attributable to a 70% increase in the number of basic subscribers from
approximately 262,000 as of December 31, 1995 to approximately 446,000 as of
December 31, 1996. (Such subscriber numbers do not include approximately 15,000
subscribers served by a cable system the Company acquired on January 1, 1997.)
Approximately 44.6% of this increase in basic subscribers was due to build-out
of the Company's existing cable networks and the remainder was the result of
acquisitions. Revenue from monthly subscription fees represented approximately
87.2% of cable television revenues in 1996. Installation fee revenue increased
by 28.0% from $2.5 million in 1995 to approximately $3.2 million in 1996
primarily as a result of several remarketing campaigns implemented throughout
1996, which led to increased penetration. In addition, the Company experienced
an increase in subscriber installations as a result of the continued build-out
of the Company's networks.
Direct Operating Expenses. Direct operating expenses increased $2.1
million, or 40.2%, from $5.1 million in 1995 to $7.2 million in 1996 principally
as a result of higher levels of technical personnel and increased maintenance
expenses associated with recently acquired networks as well as the increased
size of the Company's cable television systems. Programming expense grew from
$2.2 million in 1995 to $2.8 million in 1996, primarily reflecting the increased
number of subscribers partially offset by more favorable per subscriber
programming rates. Direct operating expenses increased from 27.6% of revenues in
1995 to 28.9% of revenues in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased $4.6 million, or 99.3%, from $4.7 million in 1995 to $9.3
million in 1996 primarily as a result of an increase in sales and marketing
expenses incurred in newly acquired networks, the introduction of several
remarketing campaigns throughout the areas covered by the Company's networks,
and increased compensation and 1996 bonuses. Selling, general and administrative
expenses increased from 25.2% of revenue in 1995 to 37.5% of revenue in 1996.
Depreciation and Amortization. Depreciation and amortization expenses rose
$4.6 million, or 88.3%, from $5.2 million in 1995 to $9.8 million in 1996
principally as a result of depreciation of additional cable television assets
acquired in connection with the build-out of the Company's network. Also, during
1996, all of the prematurity periods expired and therefore the entire balance of
investment in cable television system assets
43
<PAGE> 46
was subject to depreciation. Depreciation and amortization expenses as a
percentage of revenues increased from 28.0% in 1995 to 45.6% in 1996.
Interest and Investment Income. Interest and investment income increased
by $1.1 million from $0.2 million in 1995 to $1.3 million in 1996. This increase
is primarily attributable to a positive cash position in 1996 resulting from the
issuance of shares and the Old Notes.
Interest Expense. Interest expense increased $0.3 million, or 7.2%, from
$4.4 million in 1995 to $4.7 million in 1996 primarily due to increased interest
expense resulting from the issuance of $130 million Old Notes partially offset
by a reduction in interest expense as a result of the repayment of $55 million
of indebtedness with a portion of the proceeds from PCI's sale of equity
securities in March 1996.
Foreign Currency Translation Loss. Foreign currency translation loss
increased from $17,000 in 1995 to $761,000 in 1996 primarily due to increased
assets subject to translation during the year resulting from the growth of the
Company.
Minority Interest in Subsidiary Loss. Minority interest in subsidiary loss
was $1.9 million in 1996 resulting from losses incurred in two minority-owned
subsidiaries compared to minority interest in subsidiary income of $18,000 in
1995. During 1996 the Company completed partial acquisitions which gave rise to
the increase in minority interest in subsidiary losses.
Extraordinary Loss. During 1996 the Company prepaid the OPIC loan,
resulting in an extraordinary loss of $1.7 million consisting of a prepayment
penalty of $147,000 and write-off of $1,566,000 of deferred financing costs.
Net Loss. Net loss increased from a loss of $(1.3) million in 1995 to a
loss of $(6.6) million in 1996 as a result of the factors discussed above.
Net Loss Applicable to Common Shareholders. Net loss applicable to common
shareholders increased from a loss of $(1.3) million in 1995 to a loss of $(5.9)
million in 1996 due to the accretion of redeemable preferred stock, which was
more than offset by the excess of the carrying amount of preferred stock over
the consideration transferred for such stock, as well as a result of the factors
discussed above.
EBITDA. EBITDA decreased $0.3 million, or 3.5%, from $8.7 million in 1995
to $8.4 million in 1996. EBITDA does not include full year results for 1996 from
TV Kabel in the Bydgoszcz regional cluster which was acquired in December 1996
and does not include results from the Pending Acquisitions. The Company's EBITDA
margin decreased from 47.1% in 1995 to 33.9% in 1996 over such period.
1995 COMPARED TO 1994
Cable Television Revenues. Revenues increased $9.8 million, or 111.5%,
from $8.8 million in 1994 to $18.6 million in 1995. This increase was primarily
attributable to a 132.9% increase in the number of basic subscribers from
approximately 113,000 as of December 31, 1994 to approximately 262,000 as of
December 31, 1995. Approximately 67.8% of this increase in basic subscribers was
due to acquisitions and the remainder resulted from build-out of the Company's
existing cable networks. Primarily as a result of this increase in subscribers,
monthly subscription revenues increased approximately $8.8 million, or 117.8%,
from $7.5 million in 1994 to $16.2 million in 1995. Revenue from monthly
subscription fees represented approximately 87.5% of cable television revenue in
1995. Installation fee revenue increased approximately $1.0 million, or 76.0%,
from $1.3 million in 1994 to $2.3 million in 1995 primarily as a result of
continued build-out of the Company's networks.
Direct Operating Expenses. Direct operating expenses increased $3.0
million, or 142.0%, from $2.1 million in 1994 to $5.1 million in 1995
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with certain of the acquired systems and the
growth of the Company's cable television system. Programming expenses accounted
for $1.0 million of direct operating expenses in 1994 and $2.2 million in 1995.
The increase in programming expenses in 1995 over 1994 was primarily due to the
increase in the number of subscribers. As a result of these expense increases,
direct operating expenses as a percentage of revenues increased from 24.1% to
27.6% over this period.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.9 million, or 66.2%, from $2.8 million in 1994 to $4.7
million in 1995 principally as a result of an increase in
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<PAGE> 47
administrative costs resulting from the addition of acquired systems, and an
increase in sales and marketing expenses. As a percentage of revenue, selling,
general and administrative expenses declined from 32.1% to 25.2%, primarily
reflecting economies of scale from the Company's increased subscriber levels and
the elimination by the Company of duplicative personnel, office locations and
administrative functions as part of the Company's acquisition integration
strategy.
Depreciation and Amortization. Depreciation and amortization expenses
increased $1.7 million, or 50.3%, from $3.5 million in 1994 to $5.2 million in
1995, primarily as a result of depreciation of additional cable television
assets obtained in connection with the build-out of the Company's networks and
acquisitions. Depreciation and amortization expenses as a percentage of revenues
decreased from 39.4% in 1994 to 28.0% in 1995.
Interest and Investment Income. Interest and investment income increased
$0.1 million from $0.1 million in 1994 to $0.2 million in 1995 due to increased
cash balances.
Interest Expense. Interest expense increased $2.0 million, or 87.9%, from
$2.3 million in 1994 to $4.4 million in 1995. This change primarily resulted
from an increase in the Company's indebtedness during 1995.
Minority Interest in Subsidiary Loss. Minority interest in subsidiary
income of $18,000 in 1995 compared to minority interest in subsidiary loss of
$0.3 million in 1994.
Net Loss. The Company's net loss decreased from $(2.4) million for 1994 to
$(1.3) million for 1995 as a result of the factors discussed above.
EBITDA. EBITDA increased $4.9 million, or 127.8%, from $3.8 million in
1994 to $8.7 million in 1995. The Company's EBITDA margin improved from 43.7% to
47.1% over such period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from equity investors, (ii) borrowings under
available credit facilities and (iii) cash flow from operations. In addition, in
1996, the Issuer sold the Old Notes. The Company had positive cash flow from
operating activities in 1994, 1995 and 1996 of $1.6 million, $3.8 million and
$6.1 million, respectively, primarily due to the increase of cash received from
subscribers and the deferral of the payment of interest expense.
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 below, as well as loans from shareholders and their
affiliates and borrowings under available credit facilities to provide the
funding for these activities. Cash used for the build-out of the Company's cable
television networks was $11.7 million, $16.0 million and $25.4 million in 1994,
1995 and 1996, respectively. Cash used for acquisition of cable networks, net of
cash received, was $4.1 million in 1995 and $13.8 million in 1996.
During 1996, the Company issued common and preferred stock to its
shareholders of approximately $82 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.
In January 1994, PTK, S.A. entered into a financing agreement with OPIC
providing for a loan facility which permitted PTK, S.A. to draw down funds
through December 31, 1995. PTK, S.A. requested and received three loan
disbursements under such loan facility, totaling $8.6 million in aggregate
principal amount. Loans under the facility bore interest at the floating 91-day
U.S. Treasury bill yield (compounded annually). The OPIC loan facility was
secured by the pledge of all PTK, S.A. shares owned by PCBV and Poltelkab, an
escrow of approximately $1 million and springing liens on certain agreements
with PTK, S.A., including PTK, S.A. agreements with certain program providers.
Certain affiliates of PTK, S.A. also entered into a share retention agreement
with OPIC. The Company used approximately $7.6 million of the proceeds of the
offering
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<PAGE> 48
of the Old Notes to repay the outstanding balance of the loans under such
financing agreement, including a prepayment penalty of approximately $147,000,
and terminated such financing agreement.
On October 31, 1996, $130 million aggregate principal amount of Old Notes
were sold by the Issuer to the Initial Purchaser pursuant to the Purchase
Agreement. The Initial Purchaser subsequently completed a private placement of
the Old Notes. In connection with their acquisition of the Old Notes, the
Initial Purchaser and its direct and indirect transferees became entitled to the
benefits of the Registration Rights Agreement. The Old Notes were issued, and
the Exchange Notes offered hereby will be issued, pursuant to the Indenture.
The Company has entered into an agreement with AmerBank which provides for
a credit facility of approximately $6.5 million. As of the date hereof, there is
no amount outstanding under this facility. The Company will be able to utilize
this facility for future borrowings. In addition, the Company in the future may
enter into an agreement with one or more banks to provide a liquidity facility.
Pursuant to the Indenture, the Company is subject to 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." Pursuant to the
AmerBank credit facility, the Company is subject to certain informational and
notice requirements but is not subject to restrictive covenants. The Company is
in compliance with all covenants in the Indenture and the AmerBank credit
facility.
As a result of the offering of the Old Notes, the Company incurred
substantial debt. As of December 31, 1996, the Company had, on a consolidated
basis, approximately $130.1 million in principal amount of indebtedness
outstanding. The Company's ratio of earnings to fixed charges was 0.37x, 0.86x,
and 0.46x in 1994, 1995 and 1996, respectively.
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 a least 110% of the outstanding
principal amount of the 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, waiver any
rights under, pledging, or terminating any intercompany notes other than the
Pledged Debt. In addition, the ability of the Issuer's creditors, including the
holders of the Notes, to participate in distributions of assets of the Issuer's
subsidiaries will be limited to the extent that the outstanding shares of any of
its Subsidiaries are either pledged to secure other creditors of the Issuer or
are not owned by the Issuer.
Currently PCI and the Subsidiaries are not subject to restrictions on PCI's
ability to receive funds from the Subsidiaries other than (i) those imposed by
Polish and Netherlands law on the ability to pay dividends and (ii) those
contained in the PCBV Shareholders' Agreement (as defined in "Certain
Relationships and Related Transactions -- PCBV Shareholders' Agreement"). The
Company does not believe that such restrictions have had, or will have in 1997
or 1998, a material impact on the Company's ability to meet its cash
obligations.
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<PAGE> 49
The amount of dividends that a Polish company may pay to its shareholders
is limited to the amount of the company's net after tax profits. In addition,
companies known as spolka akcyjna ("S.A.") are required by law to establish
reserve funds requiring the company to pay at least 8% of its net profit to that
fund until it reaches one-third of the share capital. In addition, the statutes
of any type of Polish company can contain provisions requiring that the company
establish other reserve funds out of which dividends may not be paid. None of
PCI's subsidiaries' statutes currently contain such a provision; however, most
of its subsidiaries' statutes contain a provision allowing the creation of such
reserve funds if the subsidiary's General Assembly votes to do so. Furthermore,
in the event that the foreign exchange laws or laws on foreign investment in
Poland change, Polish companies may become subject to additional limitations on
their ability to distribute profits to non-Polish shareholders. As of December
31, 1996, the Issuer's subsidiaries had no material amounts of profits available
for distribution. Under the Netherlands' corporate law and PCBV's articles of
incorporation, PCBV may only distribute profits to its shareholders insofar as
PCBV's equity exceeds the paid-up and called-up capital increased by the
statutory reserves. Such statutory reserves may include reserves arising upon
the revaluation of the company's assets, the capitalization of costs (including
research and development, intellectual property and goodwill in connection with
the issuance of capital stock) and reserves which may arise in connection with
loans to stockholders with respect to their purchase of the company's stock.
The PCBV Shareholders' Agreement includes certain limitations on payments
that can be paid by PCBV to the PCBV Shareholders, including PCI. 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.
See "Certain Relationships and Related transactions -- PCBV Shareholders'
Agreement."
In 1997, the Company intends to acquire all or a substantial portion of the
capital stock or assets of four cable television systems in Poland. See "Pending
Acquisitions." The aggregate consideration to be paid by the Company in
connection with the Pending Acquisitions (including amounts for shareholder
loans) is expected to be approximately $24.7 million. If all of the Pending
Acquisitions are consummated, the Company estimates that it will spend
approximately $3.6 million (which includes an approximately $2.2 million portion
of the shareholder loans referred to above) within 12 months of the consummation
of the Pending Acquisitions upgrading the networks of such cable televisions
systems to meet the Company's technical standards. Such upgrading would enable
the Company to increase the number of programs offered, the quality of the
transmissions and the operating cost effectiveness of the acquired networks.
However, the Company believes that the cable systems expected to be acquired in
the Pending Acquisitions currently meet PAR standards and, accordingly, that the
timing and extent of such upgrades would be subject to the Company's discretion.
In 1997, the Company will also spend an additional approximately $27.2 million
building out and upgrading existing cable television networks. Approximately
$7.5 million of such expenditure relates to the upgrading of the networks in the
Katowice regional cluster to meet PAR and Company standards. The rest of such
expenditures for new construction and upgrading is discretionary. The Company
expects that the rebuild program for the Katowice regional cluster will be
completed in 1997 at a total cost of approximately $10 million. Aside from the
Katowice upgrade, the Company is not obligated to make any upgrade payments in
1997 or in 1998. However, the Company intends to continue to acquire additional
cable systems, upgrade its cable networks and increase its programming capacity.
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 thirty months. 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.
Currently, the Indenture does not permit the Company to incur additional
indebtedness (other than Permitted Indebtedness as defined in the Indenture).
See "Capitalization" and "Risk Factors -- Substantial Leverage; Ability to
Service Debt" and "Description of the Notes -- Certain Covenants -- Limitation
on Additional Indebtedness." The Company may incur such indebtedness at PCI or
at one or more of PCI's subsidiaries. The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness by the Issuer's
subsidiaries. Such indebtedness may be secured by assets
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<PAGE> 50
of the Issuer's Subsidiaries. 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.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuation in the exchange rate for the
zloty. The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 20% in 1996. A
substantial portion of the Company's operating expenses and capital expenditures
are, and are expected to be, denominated in zloty and tend to increase with
inflation. In addition, the exchange rate for the zloty has stabilized and the
rate of devaluation of the zloty has decreased since 1991. However, inflation
and currency exchange fluctuations have had, and may continue to have, an effect
on the financial condition and results of operations of the Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditures are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-denomination obligations.
While the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar-denomination obligations and, thus, on
the Company's financial condition and results of operations.
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<PAGE> 51
THE INDUSTRY
GENERAL
The Company conducts its operations exclusively in Poland. With
approximately 39 million people and 12.3 million television households, the
Company believes that Poland represents a highly attractive, dynamic market for
cable television providers such as itself.
THE POLISH ECONOMY
Poland has experienced significant growth in its economy in recent years.
Poland's real gross domestic product grew at annual rates of 5.2%, 7.0% and 5.5%
in 1994, 1995 and 1996, respectively, which were the highest growth rates in
Europe for 1994 and 1995 and one of the highest in Europe for 1996. In recent
years, the government has encouraged foreign private investment which has risen
from $0.1 billion in 1990 to $2.8 billion in 1995 and was approximately $6.1
billion for 1996. Poland has also successfully reduced its annual inflation rate
from approximately 250% in 1990 to approximately 26.8% in 1995 and 19.9% in
1996, and following a period of rising unemployment, unemployment in Poland
recently declined to 13.6% as of December 31, 1996. In part due to these
factors, the sovereign credit rating of the country was upgraded in early 1996
to investment grade by Moody's Investor Service (Baa3) and Standard & Poor's
Corporation (BBB-). The Company believes that the growth and stability in the
economy have led to recent increases in disposable income levels in Poland which
grew at annual rates of 9% and 7% in 1995 and 1996, respectively. Furthermore,
in certain urban markets where the Company operates, including Warsaw, Krakow
and Katowice, disposable income levels are significantly higher and unemployment
is significantly lower than the national average. For example, unemployment in
Warsaw was approximately 4.6% as of September 1996.
THE POLISH MULTI-CHANNEL TELEVISION INDUSTRY
Development of the Polish Cable Industry
Prior to 1989, during the Communist political regime in Poland, the Polish
government controlled and regulated the television industry and all frequency
usage in Poland, and channel offerings were limited primarily to government
broadcast programs. During this period, MDUs were required by law to provide
master antenna systems to all of their residents to ensure reception of such
government programs. In the early years of the post-Communist era, there was no
effective regulatory authority, which the Company believes led to the
proliferation of small cable operators that often capitalized on the lack of
viewing alternatives and the unregulated market. These operators built low-cost,
poorly constructed cable systems in densely populated urban areas of Poland,
often by modifying the existing master antenna systems in MDUs to deliver
satellite programs. Primarily targeting MDUs in order to secure access to a
significant number of potential subscribers with minimal capital commitment,
these operators often charged relatively high installation fees which were used
to finance the build-out of their systems. Currently, there are over 400 small
cable operators in Poland, and they are generally characterized by small
subscriber bases, poor quality signals, failure to comply with technical
standards, lack of customer service and limited channel capacity and programming
offerings that are often obtained from satellites without paying full copyright
fees to the program producers.
As part of the Polish government's efforts to encourage rapid
infrastructure and economic development, it has begun to establish a regulatory
framework for the cable television industry that is similar, in many respects,
to that of the United States and other Western countries, but without any
regulation of prices charged to subscribers. In 1993, to improve the quality of
the country's cable television systems, Poland began to implement technical and
licensing standards for cable operators that established requirements for such
items as signal quality and radio frequency leakage. In the same year, the
Polish government began to monitor compliance with regulations requiring all
cable operators to obtain government permits and, more recently, has begun to
enforce such regulations. In 1994, Poland expanded its copyright laws to protect
the copyrights of Polish program producers and has taken steps toward adopting
the Rome Convention, which will extend copyright protection to programs of
foreign producers as well. Poland ratified the Rome Convention on December 31,
1996, and will become bound by its terms on the date that is three months from
the date of
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<PAGE> 52
filing the necessary documents with the Secretary General of the United Nations.
See "Regulation." The Company believes that the enforcement of technical
standards and the further evolution of copyright laws in Poland will require
cable television operators to rebuild or upgrade their systems as necessary to
comply with technical standards and to pay for programming that is currently
being obtained free of charge. The Company believes that this will improve its
competitive position by forcing poorly capitalized competitors to either sell
their systems to better capitalized operators which have the resources to comply
with such standards and laws or to cease operations altogether.
Since 1990, due in part to the growth in the economy and to the development
of cable industry regulations which have helped attract quality programming to
Poland, the cable industry has developed rapidly, and has included the entry of
well capitalized Western-style cable operators such as the Company that have
constructed high-quality cable systems with numerous channel offerings. The
following chart illustrates the growth of the Polish cable market in terms of
homes passed and basic subscribers since 1990:
[GROWTH IN THE POLISH CABLE INDUSTRY CHART]
[CHART SHOWS NUMBER OF SUBSCRIBERS PLOTTED AGAINST THE NUMBER OF HOMES
PASSED DEMONSTRATING GROWTH IN POLISH CABLE TELEVISION INDUSTRY FROM 1990 TO
1996 FROM APPROXIMATELY 100 SUBSCRIBERS AND 500 HOMES PASSED TO APPROXIMATELY
1,500 SUBSCRIBERS AND 2,700 HOMES PASSED.]
- ---------------
Source: Baskerville Communications Corp., TV International Sourcebook 1997.
Despite the strong recent growth in the cable television industry, only 20%
of the television households in Poland were passed by cable as of December 31,
1995, which the Company believes provides a substantial market opportunity for
cable operators. The Company believes that there are a considerable number of
homes remaining in Poland, particularly in urban areas, that would be suitable
for the construction of cable television and the provision of cable television
services.
Polish Cable Market Consolidation
The cable industry in Poland has experienced significant consolidation in
recent years, and the Company believes that this consolidation will continue as
small SMATV operators face the burden of compliance with the recently enacted
regulations that set minimum technical standards for cable television networks
and require payment for programming produced by others. As Poland's economy has
grown and become more stable, certain well-capitalized cable television
operators have acquired numerous cable television operators in
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Poland in order to build systems and acquire a critical mass of subscribers. The
Company also has actively pursued acquisitions, acquiring 30 cable television
operators since 1992. These acquisitions have added approximately 218,000 of the
Company's present total subscribers.
The Polish DTH Market
The only primary multi-channel distribution method in Poland other than
cable is DTH satellite services, which are widely available in Poland. The DTH
market in Poland developed rapidly following the repeal in 1989 of legislation
that required residents of Poland to acquire special permits in order to own
satellite dishes. Subsequent to this repeal, demand for DTH satellite services
was driven primarily by the widespread availability of high-quality, unencrypted
programming that could be obtained without charge from various European
satellites, including the Astra and Eutelsat satellites. The absence of
alternative high-quality distribution sources such as fiber-optic cable
television networks also contributed to the growth of DTH satellite services.
In the mid 1990s, programmers began compressing and encrypting the signals
transmitted over European satellites and moving their programming to a variety
of satellites. These actions had the effects of (i) limiting access to satellite
programming to those subscribers willing to pay for programming, and (ii)
reducing the quality of reception due to the location of the new satellites. In
order to receive a similar array of channel offerings and clear reception,
Polish consumers were forced to subscribe to a DTH service and purchase more
expensive, motorized satellite dishes and related equipment.
During this same time period, the Polish market also experienced the
introduction and growth, predominantly in urban areas, of Western-style cable
operators that offered the Polish consumer a high-quality multi-channel
alternative to DTH at an attractive price. As a result, the Company believes
that the attractiveness of DTH has been significantly reduced, which has
contributed to a slowdown in growth of DTH penetration.
In addition, as the cable market has grown, DTH has continued to lose
market share to cable. The Company believes that this trend will continue
particularly in urban markets because of DTH's poor signal quality relative to
cable television, limited channel offerings, expensive equipment and short dish
life as well as an increasing reluctance by cooperative housing authorities
("co-op authorities") to permit the use of satellite dishes. While the Company
believes that DTH satellite service is expected to be favored in certain rural
areas of Poland where cable television is not available, it also believes that
cable provides a more attractive option in those markets where it is available.
The Company, however, also believes that DTH satellite services may become more
competitive in the future if digital compression technology is implemented by
the industry such that DTH satellite services can provide more programming
alternatives and direct specific programming to particular subscribers at a
competitive cost.
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The following chart outlines the relative market shares of DTH and cable in
Poland as measured by the number of subscribers for the years 1991 through 1995:
MARKET SHARE OF CABLE OPERATORS
VERSUS DTH PROVIDERS
[CHART]
Source: Baskerville Communications Corp. TV International Sourcebook 1997. As of
March 31, 1997, the latest edition of this source did not include 1996 or 1997
figures.
[CHART SHOWS THE MARKET SHARE OF CABLE OPERATORS VERSUS DTH PROVIDERS IN
POLAND FROM 1991 TO 1995 DEMONSTRATING THAT THE MARKET SHARE OF CABLE OPERATORS
(AGAINST DTH PROVIDERS) HAS GROWN FROM A 20/80% RATIO IN 1991 TO A 50/50% RATIO
IN 1995 AS MEASURED BY THE NUMBER OF SUBSCRIBERS.]
Polish Cable Market Characteristics
Poland is Europe's fifth largest cable television market with approximately
12.3 million television households. Poland is also the largest single language
market in Central Europe. The Company believes that there are several primary
factors, which are highly favorable for the provision of multi-channel services,
and which distinguish the Polish cable market from other cable markets, as
outlined below:
Viewer Demand. Viewing television is a significant leisure activity in
Poland and in 1995, Poland had one of the highest television viewing rates in
the world, despite generally poor quality reception and limited programming
alternatives available over broadcast television channels. In 1995, Polish
families watched an average of approximately 279 minutes (over four and a half
hours) of television per day per household, as compared with averages of the 263
minutes and 177 minutes of television viewing per day per household for the
United States and western Germany, respectively. The Company believes that
several factors contribute to such high television viewership and indicate the
Polish consumers' willingness to allocate disposable income for cable
television. These factors include limited entertainment alternatives, a strong
demand for Western culture, a long generally cold winter season and a low
telephone penetration rate of approximately 13 telephones per 100 persons.
The Company also believes that, as the largest cable operator in Poland,
its subscriber penetration rates and relatively low churn rates are further
indicators of the potential demand for cable television services in Poland.
There is a relatively low percentage of television homes for which cable service
is available in Poland (approximately 20% as of December 31, 1995), which the
Company believes provides a substantial market opportunity for cable operators.
Once homes are passed by cable, the Company has generally experienced
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<PAGE> 55
strong take-up rates, with an average basic penetration rate as of December 31,
1996 of approximately 42% for the Company as a whole, and approximately 46% in
one of its regional clusters. In addition, the Company has experienced
historical annual churn rates of approximately 10% or less, which compares
favorably to the United States and the United Kingdom average churn rates of
approximately 20% and 30%, respectively.
The following table compares a number of cable market characteristics in
Poland with certain industrialized countries and certain developing countries in
Central Europe. All data in the following table are as of December 31, 1995
unless otherwise noted.
<TABLE>
<CAPTION>
HOMES
NUMBER OF AVERAGE TV PASSED
TELEVISION VIEWING AS A % OF
HOUSEHOLDS MINUTES COLOR TV VCR TELEVISION ANNUALIZED
(IN MILLIONS) PER DAY PENETRATION PENETRATION(A) HOUSEHOLDS CHURN
------------- ---------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Poland...................... 11.8 279 83% 48% 20% 10%(b)
United States............... 95.4 263 98 83 96 20
United Kingdom.............. 22.5 215 97 84 26 30
Germany..................... 32.5 177 98 60 73 NA
Czech Republic.............. 3.7 203 87 33 55 NA
Hungary..................... 3.8 172 76 35 45 NA
</TABLE>
- ---------------
(a) VCR households as a percentage of TV households.
(b) Represents the Company's historical annual average, as published churn data
is unavailable for Poland.
Sources: Baskerville Communications Corp., TV International Sourcebook 1997 and
Zenith Media, European Market and Media Fact (1996). As of March 31, 1997, the
1997 edition of these sources did not include 1996 or 1997 figures for all of
the countries indicated.
Housing Densities. Poland is one of the most densely populated countries
in Central Europe. The housing market in Poland's urban areas is characterized
by MDUs which are typically owned or controlled by co-op authorities. These
co-op authorities often control more than 2,000 apartments each, and in the
Company's experience, individual apartments often house multiple generations of
families and multiple wage earners. In many of the Company's markets, housing
densities exceed 400 homes per kilometer of cable plant, which results in
extremely low build costs per subscriber, and significantly exceeds the average
in the United States of 48 homes per kilometer of cable plant. Such densities
provide significant advantages for cable operators including extremely low
build-out costs per subscriber. From its existing infrastructure base, the
Company's incremental build costs to add an adjacent MDU or additional MDU
subscribers to existing networks average less than $200 per MDU subscriber (MDU
subscribers represent more than 95% of the Company's total subscribers). In
addition, the number and density of MDUs offer marketing and other cost benefits
in terms of targeting, attracting and servicing customers, including
subscription fee collection.
Co-Operative Housing Franchise Process. The franchise process in Poland is
unique in that the right to build a cable system is typically achieved by
reaching an agreement with individual co-op authorities and is not dependent
upon issuance of a franchise for a particular region by a governmental
authority. Reaching an agreement with the co-op authority provides the cable
operator with the right to connect its system to dwellings within the co-op
authority's jurisdiction. The Company's agreements with co-op authorities
generally have terms ranging from ten to 20 years and have optional renewal
periods of five years, though certain of the contracts may be terminated by
either party on relatively short notice.
Co-ops are legal entities created under Polish law which resemble
corporations. Co-ops are run by Management Boards which are appointed, pursuant
to their statutes, by either the co-op's Supervisory Board or its General
Assembly of Members. There is no requirement that a member of the Management
Board be a resident of the co-op. Members of the Management Boards of co-ops are
generally university graduates and have some managerial experience.
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<PAGE> 56
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.
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<PAGE> 57
BUSINESS
GENERAL
The Company is the largest provider of multi-channel television services in
Poland. With over 1,088,000 homes passed and approximately 534,000 total
subscribers (of which approximately 461,000 are basic subscribers), the Company
estimates that it has approximately twice the number of subscribers as the next
largest cable operator in Poland. Following the commencement of its operations
in 1990 as one of the first Western-style cable television operators in Poland,
the Company's objective has been to rapidly increase its coverage areas and
provide a caliber of service comparable to that of world-class cable operators,
including modern, reliable technical plant, a broad selection of quality
programming, and professional customer service. The Company currently owns and
operates fiber-optic cable networks in seven regional clusters encompassing
seven of the ten largest cities in Poland, including cities which the Company
believes are among those with the strongest economies and most favorable
demographics for cable television in the country. The Company believes that it
has established a reputation in Poland as a high-quality cable system operator,
and that the strong awareness of PTK as a quality operator attracts subscribers
seeking its competitive programming and customer service. PCI owns a 33%
interest in a programming company, ProCable, which was formed to develop
proprietary Polish-language programming. ProCable holds broadcast licenses for
two Polish-language channels which are currently distributed exclusively over
the Company's cable networks.
Since it began the construction of its first cable network in Gdansk in
1990, the Company has grown aggressively through acquisitions, generally of
smaller, poorly capitalized operators, and through the build-out of its own
cable networks. The Company's total subscribers have grown from approximately
45,000 as of December 31, 1992 to approximately 534,000 as of December 31, 1996.
Approximately 55% of this increase in subscribers has been achieved organically
through the build-out of the Company's existing cable networks. The Company's
results of operations have reflected the growth in its subscribers. For the
three-year period ended December 31, 1996, the Company generated growth in
revenues and EBITDA (as defined in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" at average annual
rates of approximately 60% and 130%, respectively.
OPERATING STRENGTHS
The Company has certain strengths that position it well to compete in the
Polish cable television market and allow it to benefit from increasing demand
for cable television and related services. These strengths include the
following:
Leading Market Position. The Company is the largest multi-channel
television operator in Poland and estimates that its total subscriber base
of approximately 534,000 subscribers is approximately twice the number of
subscribers as the next largest cable operator in Poland. The Company has
established seven regional clusters encompassing seven of the country's ten
largest cities, which provide the Company with a significant presence in
Poland. In addition, the Company has significant market shares in all of
its operating markets, including a market share estimated by the Company to
be over 70% of cable subscribers in the Gdansk regional cluster, the
Company's most mature market. The Company believes that its size and market
share give it a competitive advantage by creating economies of scale,
including reduced build-out and operating costs per subscriber and volume
price discounts for programming and construction expenditures. These
factors have helped the Company to achieve an EBITDA margin of
approximately 34% for the Company as a whole and approximately 64% in its
Gdansk regional cluster for 1996. In addition, the Company believes the
size of its subscriber base will enable it to cost effectively pursue
additional revenue sources such as national advertising, Polish-language
program development and premium programming.
Attractive Programming Arrangements; Proprietary Polish-Language
Programming. The Company has contracts securing a broad range of popular
programs to offer its subscribers, including Discovery, CNN, MTV, Home Box
Office ("HBO"), and the Polish-language edition of Eurosport. The Company
believes its programming arrangements will increasingly become a
competitive advantage
55
<PAGE> 58
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. The Company
has established PCIP as a wholly owned U.S. subsidiary engaged in the
development and production of Polish language thematic television
programming outside of Poland. The Company plans to distribute all of
PCIP's programming via satellite systems from abroad.
PTK1 and PTK2 also serve as a potential means to create additional
revenue sources for the Company from advertising and from the distribution
of the Company's proprietary programming over other cable operators'
networks.
Well-Positioned to Increase Growth Through Acquisition. The Company
expects the Polish cable television industry to continue to consolidate as
a result of recent regulatory enactments. As relevant Polish authorities
implement these regulations, cable operators will be required by law to
make network upgrades to satisfy technical quality requirements, and when
Polish cable operators become subject to the terms of the Rome Convention,
they will be required to pay for programming that is currently being
obtained free of charge. The Company believes that, as such regulations are
enforced, those operators who cannot or will not make upgrades to satisfy
these technical quality requirements or pay for programming that is
currently being obtained free of charge will have to choose between selling
their operations to better capitalized operators that have the resources to
comply with the new regulations or ceasing operations altogether. The
Company believes it is well positioned to benefit from these opportunities
for a number of reasons. Because of its leading market position, strong
reputation and geographic presence, the Company believes it is generally
sought out by competitors that desire to sell their systems outright or
that prefer to become part of the PTK system. In addition, the Company
utilizes local management in its seven regional clusters to identify
potential acquisitions and initiate discussions. Due to the clustering of
the Company's networks, once an acquisition is consummated the Company is
generally able to leverage its local management team, corporate
infrastructure and physical plant to quickly integrate the acquired network
into its own system and to realize economies of scale from such
integration. Moreover, the Company believes its significant equity
capitalization and strong shareholder base provide it with the ability to
quickly access any necessary financing to acquire, upgrade and build-out
new networks.
Advanced Networks. The Company believes the fiber-optic cable
networks that it has constructed, which serve approximately 60% of its
homes passed, are among the most technically advanced in Poland and are
comparable to modern cable networks in the United States. All of the
networks which have been constructed by the Company have bandwidths of at
least 550 MHZ, with one network as high as 1 GHz. The cable networks that
the Company has constructed meet or exceed the technical standards
established by Polish regulatory authorities and it is the Company's policy
to upgrade substandard acquired networks to meet technical requirements as
rapidly as practicable. The Company believes that the technical quality of
its networks provides it with a substantial competitive advantage
particularly in relation to the small SMATV operators whose signal quality
is generally poor and whose systems frequently experience outages. In
addition, the Company's networks have substantial excess channel capacity,
while SMATV systems generally are capacity constrained. The Company
believes that the reliability and signal quality of its networks often are
primary factors which lead co-op authorities to establish contracts with
the
56
<PAGE> 59
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
TPSA to use its existing underground telephone conduits for many of the
Company's cable networks, thereby saving the time and cost associated with
constructing new underground conduits. As of December 31, 1996,
approximately 66% of the Company's cable plant utilized preexisting
conduits. Moreover, the Company believes that the size of its construction
program allows it to negotiate attractive construction labor contracts and
discounts on materials.
Experienced Management; Strong Local Management. The Company's
shareholders and its senior management team have extensive experience in
the cable television industry. The Company capitalizes on this experience
by applying Western management policies and techniques throughout its cable
system in areas such as financial accounting, system construction, system
maintenance, marketing and customer service, while training Polish managers
to adapt such techniques and policies to the Polish market. The Company
believes this management strategy has contributed to its success in
attracting and retaining subscribers. The Company employs several key
Polish corporate executives with significant experience in the Polish
programming and broadcasting industries as well as strong relationships in
the business and regulatory community. The Company also employs Polish
managers in each of its regional clusters, which it believes provide local
knowledge and facilitate communication with subscribers, co-op authorities
and regulatory authorities.
BUSINESS STRATEGY
With the fall of communist rule in 1989, the Company believed that
significant market advantages could be gained by becoming one of the first cable
operators to establish a high-quality cable television system in Poland. The
Company believes that it has achieved its initial goals of rapidly increasing
its coverage areas, establishing its business reputation, and providing a
high-quality signal, wide channel offerings and quality of service comparable to
that provided by world-class cable operators.
Having established itself as the leading cable television services provider
in Poland, the Company's current strategic objective is to increase cash flow
and enhance the value of its systems. To accomplish this objective, the
Company's business and operating strategy is to (i) continue to expand its
regional clusters, (ii) increase subscriber penetration, (iii) realize
additional operating efficiencies, (iv) develop additional proprietary
Polish-language programming and (v) leverage its experience, business reputation
and infrastructure to pursue additional sources of revenue.
Expand Regional Clusters. The Company's strategy is to continue to expand
the coverage areas of its regional clusters aggressively, both organically and
through acquisition. The Company intends to pursue organic growth primarily in
areas where it can fill-in existing regional clusters or expand into cities and
towns adjacent to its regional clusters through the continued build-out of its
existing networks. The Company also
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<PAGE> 60
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 $67
in return for an average capital investment of approximately $15 per MDU
subscriber. The Company plans to increase subscriber penetration by (i)
executing an aggressive sales, marketing and promotional strategy using the
Company's highly trained and commissioned Polish sales force, with particular
emphasis on Company-wide quarterly remarketing campaigns, (ii) continuing to
enhance the Company's program offerings, particularly through the development of
additional Polish-language programming at a competitive price, and (iii)
applying prompt, courteous and professional customer service standards.
Realize Additional Operating Efficiencies. The Company aggressively seeks
to realize operating efficiencies. Upon consummation of an acquisition by the
Company, the operating costs of most acquired cable television systems are
significantly reduced by such actions as rationalizing headends, combining
customer service offices and reducing administrative personnel. For example,
following the recent acquisition of several cable systems in Katowice, the
Company eliminated approximately 365 jobs and reduced the number of headends
from 69 to 46. The Company generally has been able to eliminate personnel in its
acquired cable television systems by managing the systems with experienced
personnel from one of its existing regional clusters. The Company can also
generally reduce the technical personnel necessary to operate acquired systems
after connecting them to the Company's existing headends or, if required,
rebuilding them to the Company's standards. The Company also uses Western
management techniques and training to improve employee productivity and reduce
operating expenses. The Company believes that relatively simple techniques,
including monthly generation of detailed management financial information, a
budgeting process, employee productivity standards and employee bonus plans have
reduced the number of employees per subscriber necessary to operate its
networks. In 1997, the Company plans to install an integrated management
information system for both its billing and accounting systems, which should
further improve employee productivity and customer service. Finally, the Company
believes that its size and market share give it a competitive advantage by
creating economies of scale, including reduced build-out and operating costs per
subscriber and volume price discounts for programming and construction
expenditures. The Company's size also provides it with the operating leverage to
spread certain expenses (such as promotional materials, advertisements, local
programming and sales materials) over its large number of subscribers.
Develop Polish-Language Programming. The Company intends to develop and
distribute additional Polish-language programming in order to (i) increase
subscriber penetration, (ii) create ancillary revenue sources and a viable,
potentially lucrative profit center and (iii) control as much of the programming
content distributed over its networks as possible. The Company believes it is
uniquely positioned to accomplish these objectives because of its access to a
large base of demographically attractive subscribers in many of the most
attractive advertising markets in Poland and its ability to spread its
programming costs over a large subscriber base. Moreover, the market for
Polish-language programming, especially with respect to terrestrial broadcast
channels, is currently in an early state of development with limited programming
selections and no dominant privately owned channels. The Company plans to
capitalize on relationships with international program providers to
cost-effectively develop high-quality Polish-language programs. The Company
intends to use ProCable's proprietary cable channels, principally PTK2, to test
the popular appeal of the Polish-language programs it develops and to determine
their financial viability prior to launching them as separate channels over the
Company's networks. In addition, the Company intends to package and deliver for
resale over satellite
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its proprietary programming such as Atomic TV to other cable operators and
possibly directly to the homes of consumers who have appropriate reception
equipment. See "Business -- Programming."
Pursue Additional Sources of Revenue. The Company believes that
significant opportunities exist to capitalize on its experience, business
reputation and infrastructure in Poland, to pursue additional sources of revenue
in the future. In the near term, the Company plans to focus on opportunities
that have the potential to generate revenues and cash flow with a relatively
modest capital investment, such as advertising, bill inserts and rental of
excess capacity on its fiber-optic network. In the longer term, the Company may
consider ancillary sources of revenue, which the Company believes it can pursue
cost effectively, but which would require larger capital expenditures. For
example, because of its access to the homes of a significant number of
subscribers, its advanced networks and its strong relationship with TPSA, the
Company believes it is well positioned to be able to offer telephony, data
transmission and Internet access if and when it becomes economically, legally
and commercially feasible.
FEES AND SERVICES
The Company charges subscribers an initial installation fee and fixed
monthly fees for their choice of service tiers and for other services such as
premium channels and rental of remote control devices. The Company currently
offers three tiers of service: broadcast and intermediate tiers in limited areas
and a basic tier throughout the Company's system. The broadcast tier offers four
to six terrestrial broadcast channels with clear reception for monthly fees of
up to approximately $0.86. Receiving a high-quality signal over the air is a
problem in Poland since many subscribers depend on antenna broadcast reception,
which tends to have poor signal quality and considerable outages caused by
neglect and equipment age. The broadcast tier is often used by the Company to
establish a relationship with a new co-op authority. In some cases, the Company
will offer the broadcast tier at a nominal monthly charge to all residents
within a co-op authority's jurisdiction in return for a long-term exclusive
contract to provide cable services. In such cases, the broadcast tier is
utilized as a marketing vehicle to attract subscribers to the Company's system
and subsequently to convert them to higher tier subscribers. The intermediate
tier offers approximately 17 to 24 channels for monthly fees of approximately
$1.32 to $3.40. The intermediate tier is designed to compete with SMATV
operators on a cost competitive basis using a limited programming offering. The
basic tier includes approximately 27 to 42 channels of high-quality, popular
programming for monthly fees of approximately $2.59 to $5.89. As of December 31,
1996, approximately 82% of the Company's subscribers received the basic tier, 4%
received the intermediate tier and approximately 14% received the broadcast tier
of service. For an additional monthly charge, certain PTK systems also offer
premium television channels to customers on a per-channel basis. See
"-- Programming -- Premium Television Channels." Other optional services include
additional outlets and stereo service, which enables a subscriber to receive 12
or more radio channels in stereo. Subscribers who require the use of a tuner to
receive certain of the Company's services are charged an additional fee of
approximately $1.10 per month. Installation fees vary according to the type of
connection required by a subscriber. The standard initial installation fee is
approximately $28.00 to $46.00 in MDUs and approximately $91.00 to $132.00 for
single family dwellings.
The Company's current pricing strategy is to keep its profit margin
relatively constant in U.S. Dollar terms in more mature systems and to increase
rates in more recently acquired or rebuilt systems. The Company has historically
been able to pass on the effects of inflation through price increases. The
Company generally receives a premium for its services over the prices charged by
its competitors, particularly poor-quality SMATV operators. Despite its
generally higher price levels, the Company has achieved significant growth in
penetration and market share while maintaining relatively low annual churn rates
of less than 10%. The Company believes its ability to successfully command
higher prices reflects its higher levels of customer service, broader selection
of quality programming and the greater technical quality of its networks.
Although poor-quality SMATV operators often offer services at lower prices than
the Company, the Company believes that the enforcement of technical standards
and the further evolution of copyright laws in Poland will require such
operators to rebuild or upgrade their systems as necessary to comply with
technical standards and pay for programming that is currently being obtained
free of charge. The Company believes that these trends will
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improve its competitive position by forcing poorly capitalized competitors to
sell their networks to better capitalized competitors such as the Company or
cease operations altogether.
Subscribers are billed in advance and, as is customary in Poland, most of
the Company's customers pay their bills monthly through their local post office
or bank. The Company has strict enforcement policies to encourage timely
payment. Such policies include notices of late payment, visits from service
personnel, and ultimately, disconnection for nonpaying customers following 60
days of a past due bill. The Company's system architecture enables it to
promptly shut off service to nonpaying customers and is designed to reduce
fraudulent use of the system. The Company does not consider bad debt to be
material to its operations. While the Company's bad debt expense was 1.8% of
revenues in 1996, the Company's bad debt expense has historically averaged 1.25%
of revenues.
PROGRAMMING
General. The company believes that quality programming is a critical
component in building successful multi-channel television systems. The Company
currently delivers approximately 27 to 42 channels on its basic tier which
generally include all Polish terrestrial broadcast channels, most major European
satellite programming legally available in Poland, regional and local
programming and, on most of its networks, its two proprietary Polish-language
channels, PTK1 and PTK2. The channels currently offered by the Company vary by
location and in most of the Company's major markets include 9 Polish-language
channels (including PTK1 and PTK2), 9 English-language channels, nine
German-language channels, two French-language channels, two Spanish-language
channels, one Italian-language channel and one Russian-language channel, as
follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- -------------------- ------------------------------------------------ -----------------
<S> <C> <C>
Polonia 1 Satellite general entertainment Polish
PTK1(a) Cable information Polish
PTK2(a) Cable general entertainment Polish
TVP 1 State-owned terrestrial general entertainment Polish
TVP2 State-owned terrestrial general entertainment Polish
TV POLONIA State-owned satellite general entertainment Polish
Polsat Terrestrial and satellite general entertainment Polish
Atomic (b) Cable music Polish
RTL7 Satellite general entertainment Polish
Canal+ Satellite premium entertainment Polish
HBO Satellite premium entertainment Polish(c)
Eurosport Satellite sports English/Polish(d)
Discovery(e) Satellite documentaries English/Polish(f)
TNT/Cartoon Network Satellite general entertainment and cartoons English
MTV(e) Satellite music English
NBC/Super channel Satellite news and entertainment English
CNN Satellite news and information English
CMT-Europe(e) Satellite country music English
Euronews Satellite news English
BBC World Satellite news and information English
ARD 1 Satellite general entertainment German
SAT 1 Satellite general entertainment German
RTL 2 Satellite general entertainment German
3SAT Satellite general entertainment German
PRO 7 Satellite general entertainment German
n-TV Satellite news and information German
Deutsche Welle Satellite news and information German
DSF Satellite sports German
VIVA Satellite general entertainment German
M6 Satellite general entertainment French
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- -------------------- ------------------------------------------------ -----------------
<S> <C> <C>
TV 5 Satellite general entertainment French
Galavision Satellite general entertainment Spanish
TVE Satellite general entertainment Spanish
RAI UNO Satellite general entertainment Italian
Ostankino Satellite general entertainment Russian
</TABLE>
- ---------------
(a) Proprietary channels produced by ProCable.
(b) Atomic is currently carried on PTK2 for two hours per day. It is expected to
become a separate satellite delivered channel in the second quarter of 1997.
(c) On March 13, 1997, the Company entered into an agreement with Polska
Programming, B.V. to distribute the Polish language version of HBO
throughout its cable networks. The Company intends to start distribution of
the HBO service in Warsaw in April 1997 and to roll out such service to the
Company's remaining systems by the end of 1997.
(d) Limited amount (at least three hours per day) of Polish-language commentary,
with audio encryptions.
(e) Encrypted signal.
(f) Limited amounts of Polish sub-titles.
The Company sources its programming through government, local and foreign
program providers. The Company broadcasts all state-owned channels available in
its service areas, and these channels and other local terrestrial channels are
generally received over the air. For a number of popular foreign programs, the
Company has contracts up to five years in length and pricing is often based on
the number of the subscribers serviced by the Company's networks. As the
Company's subscriber base has grown it has generally been able to achieve volume
pricing discounts under these types of contracts. The Company generally makes
payments to programmers requiring such payments, unlike many of the SMATV
competitors operating in its markets. Recently a number of channels that are
transmitted via satellite have been encrypted, and thus are available only to
legal operators who have entered into contracts with the program providers. The
Company believes that as regulation surrounding copyright laws is enforced and
as program providers increasingly encrypt their channels, the breadth of the
Company's channel offerings will become an increasing competitive advantage.
Premium Television Channels. The Company is in the process of introducing
Polish-language versions of premium movie channels to its subscribers for an
additional monthly fee. Currently, two movie channels are available in Poland,
Canal+ and HBO. Both feature movies and also carry, or will carry, live sports
and other entertainment. The Company has distributed Canal+, on a non-exclusive
basis, on its networks since entering into a preliminary distribution agreement
with Canal+ in October 1995. On December 16, 1996, Canal+ completed the
acquisition of MultiChoice which until such date had operated the FilmNet
channel in Poland. Since such time, Canal+ has converted FilmNet subscribers to
the Canal+ services. The Company currently has approximately 4,800 subscribers
to the Canal+ services.
On March 13, 1997, the Company entered into an agreement with Polska
Programming, B.V., a subsidiary of HBO, to distribute the Polish language
version of HBO, on a non-exclusive basis, throughout its cable networks. HBO
launched its Polish language service in September 1996. The HBO service will be
priced at a promotional rate of $5.00 per month for a period of six months from
the inception of the service in a given market. Thereafter, the service will be
priced at $6.00 per month. The Company believes that the service will generate
significant subscriber interest at this price level. The Company intends to
start distribution of the HBO service in Warsaw in April 1997 and to roll out
such service to the Company's remaining systems by the end of 1997.
Proprietary Polish-Language Programming. The Company believes the
provision of Polish-language programming, with local cultural content and
themes, will increase subscriber penetration of its cable systems and generate
programming and advertising revenues. The Company owns a 33% interest in a
programming company, ProCable, which was formed to develop proprietary
Polish-language programming. ProCable currently holds broadcast licenses to
distribute PTK1 and PTK2 over all of the Company's networks that carry
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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 the second quarter
of 1997, ProCable plans to begin distributing PTK2 and Atomic TV over satellite
to other cable system operators.
The Company has established PCIP as a wholly-owned U.S. subsidiary engaged
in the development and production of Polish language thematic television
channels programming outside of Poland. PCIP plans to develop programming
designed to generate both advertising revenue and subscription fees from PTK and
other cable operators. In December, 1996 PCIP acquired 45% of Ground Zero Media
Sp. z o.o. ("GZM"), a joint venture with Polygram, the recording company; three
shareholders of Atomic Entertainment; and Planet 24 Production Limited, an
independent production company. GZM's only business is the development and
production of Atomic TV, a Polish-language music television channel aimed at the
15-29 year old audience. Atomic TV began satellite broadcasting on April 7,
1997. In April, 1997, the Company reached an agreement in principle with GZM
whereby the Company will assume responsibility for selling all advertising to be
shown on Atomic TV for a period of one year, and will gain the right to retain
all of the revenues from such advertising. In exchange for such rights the
Company will pay GZM $4.95 million over the one-year period. The Company expects
such agreement in principle to be formalized in a written contract in June 1997.
The Company plans to distribute all of PCIP's programming throughout Poland
via satellite systems from abroad. In March 1997 PCIP entered into ten-year
contracts for the lease of three transponders on the Astra satellite system.
Aggregate charges for each transponder are capped at $6,750,000 per annum, but
either party may terminate any or all of the transponder leases on 6 months
prior notice if PCIP has not targeted the Polish DTH market prior to January 1,
1999. If all of the leases were so terminated by such date, the aggregate
charges under the leases would be up to $8.6 million.
ProCable also owns 22% of Polskie Media which was granted a terrestrial
television license for central Poland in March 1997. Polskie Media is in process
of developing a new advertising supported television channel, Nasza Telewizja,
which Polskie Media expects to introduce to the market in late 1997.
Sales and Marketing Strategy
As an early entrant in the post-Communist market in Poland, the Company has
had over six years of experience in introducing, developing, and refining
marketing, sales and customer service practices in a diverse
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and rapidly developing Polish economy, which it believes is a competitive
advantage in attracting and retaining subscribers. The Company's sales and
marketing process is divided into four segments: operating area development, new
market sales, remarketing sales and customer service.
Operating Area Development. The operating area development process in
Poland is very different from that in Western cable television markets, because
a Polish cable operator's geographic build is dependent on reaching agreements
with individual co-op authorities rather than upon the issuance of an operating
area development region by the government. The co-op authorities make decisions
on behalf of the residents, including decisions as to the carriers of cable
television. The Company's operating area development process begins with
targeting an MDU followed by negotiations with the relevant co-op authority, and
ultimately involves reaching an agreement with the co-op authority to allow
construction and installation of the cable television network. The Company's
strategy is to identify those geographic areas and housing estates with the most
favorable demographic characteristics, highest population densities and lowest
levels of competition from other cable operators.
New Market Sales. After an agreement with a co-op authority has been
reached and construction of the cable network infrastructure has been completed,
the Company focuses its efforts on direct, door-to-door sales to individual
households. While the Company utilizes advertising in a variety of media
(including television, radio, newspapers, magazines, co-op and association
publications, billboards, bus shelter posters, and taxi placards) to build
general awareness and recognition of the advantages of its cable television
services, direct sales is the primary focus of the Company's marketing efforts.
The distribution of promotional materials (via direct mail, leaflets and door
hangers) begins several days in advance of the arrival of the Company's sales
force. The materials provide for telephone and mail response, but are designed
so that the potential customer expects a direct sales visit. The Company's sales
force consists of native Poles who are trained in professional sales skills,
personal interaction, product knowledge and appearance. All sales persons are
compensated by direct sales commissions and incentive bonuses, and they are
hired, trained and managed by Company managers whose incentive compensation is
tied directly to sales results. New market sales tend to be highly seasonal,
with the fourth calendar quarter being the most active sales period.
Remarketing Sales. After new areas have been marketed, Company remarketing
efforts focus on attracting new subscribers and selling additional products and
services, such as premium channels and stereo services, to existing subscribers.
Direct door-to-door remarketing sales are enhanced through advertising on PTK1
and PTK2, the Company's proprietary cable channels, bill inserts, door hangers,
coupons, prizes and contests, as well as advertising in other media accessible
to the general public. Company-wide remarketing campaigns are conducted
quarterly and seasonal promotions coincide with holidays and cultural events.
Sales persons are entitled to additional incentive commissions for remarketing
sales.
Customer Service. By implementing a Western-style customer care program
that includes such features as courteous customer service representatives,
prompt responses to service calls, and overall reliability, the Company has
introduced a quality of service generally not found in Polish consumer markets.
Customer service representatives are assigned to each cable system at a location
easily accessible to subscribers in order to manage installation and service
calls and to provide telephone sales service support. The Company guarantees
service within 24 hours of a subscriber request. The Company believes that its
customer care program gives it a distinct competitive advantage over other cable
providers in the Polish market, has contributed to the Company's low churn rate
and has been a primary motivation for consumers to select the Company as their
cable television provider when provided with a choice.
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REGIONAL CLUSTERS
The Company has established seven regional clusters encompassing seven of
the ten largest cities in Poland, including cities which the Company believes
are among those with the strongest economies and most favorable demographics for
cable television in the country. The following table illustrates certain
operating data of each of the Company's existing regional clusters:
OVERVIEW OF THE COMPANY'S EXISTING SYSTEMS(a)
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
SUBSCRIPTION
TOTAL HOMES TOTAL SUBSCRIBERS BASIC REVENUE PER
REGION HOMES PASSED SUBSCRIBERS(b) (b)(c) PENETRATION(c) SUBSCRIBER(d)
- ----------------------------- --------- --------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gdansk....................... 250,000 208,090 106,583 97,072 46.65% $ 7.06
Katowice..................... 1,200,000 394,658 157,572 153,240 38.83 5.26
Warsaw....................... 800,000 188,284 93,339 79,636 42.30 4.78
Krakow....................... 300,000 134,194 67,506 60,235 44.89 4.63(e)
Lublin....................... 120,000 57,994 52,508 24,702 42.59 5.55
Szczecin..................... 160,000 25,490 19,445 9,083 35.63 4.84
Bydgoszcz.................... 134,000 79,830 36,657 36,657 45.92 4.50(f)
--------- ------- ------- ------- ---- -----
Total............... 2,944,000 1,088,540 533,610 460,625 42.32% $ 5.62(g)
========= ======= ======= ======= ==== =====
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) All data as of December 31, 1996. Includes approximately 15,000 subscribers and
approximately 27,000 homes passed attributable to cable systems recently acquired by
the Company which the Company took control of after such date and prior to the date
hereof, except where indicated.
(b) Average of beginning of and end of period subscribers for the year ended December 31,
1996.
(c) Includes basic and intermediate tiers.
(d) Includes revenue from additional sources such as additional outlets, stereo, converters
and premium channels.
(e) Does not include results attributable to the recently acquired subscribers referenced
in note a.
(f) The Bydgoszcz regional cluster was acquired in December 1996. Average monthly
subscription revenue per subscriber calculated based on the annual revenues for the
cluster, including the period prior to acquisition by the Company.
(g) Represents a weighted average for the Company based on the total number of basic
subscribers during the year. Does not include results for the Bydgoszcz regional
cluster or results attributable to the recently acquired subscribers referenced in note
a.
</TABLE>
The following provides certain information regarding the regional clusters
in which the Company operates. Population figures presented herein are for the
primary counties in each of the Company's seven regional clusters. The Company's
regional clusters may extend into more than one county or may not cover all of
the population in the primary county. Population figures are provided for
illustrative purposes only and may not be representative of the actual
population the Company intends to service with its cable networks.
Gdansk
The Gdansk regional cluster is located primarily in the county of Gdansk on
the north coast of Poland. The population of the county of Gdansk is
approximately 1.45 million. The Gdansk regional cluster has historically been
the primary revenue generator for the Company, and accounted for approximately
38% and 33% of the Company's revenues in 1995 and 1996, respectively. The Gdansk
regional cluster is characterized by small, highly fragmented SMATV systems,
many of which the Company expects to either acquire or overbuild in time. The
Company believes that the Gdansk system, which was first constructed in 1990 and
is the oldest and most mature of the Company's systems, illustrates the
significant operating margins available in clustered operating systems in
Poland.
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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 in 1995 and 1996. The Katowice
regional cluster is characterized by numerous cities and towns with significant
populations and high density housing. There are many small and medium size
operators throughout the region, creating an opportunity to expand by
acquisition. The Company began operations in Katowice in 1991, and in January
1995 tripled its number of basic subscribers in the Katowice region by merging
its operations with those of a competitor, PPHEI-Ryntronik.
The Katowice regional cluster, with a housing density of over 500 homes per
kilometer of cable plant in some areas, is the most densely populated region of
Poland. The Company believes that, as one of the largest potential multi-channel
television markets in Poland, the Katowice regional cluster offers the Company
significant growth prospects. A desire to access this large potential market was
the motivation behind the merger that created PTK-Ryntronik.
In March, 1996, the Company commenced a comprehensive training and
rationalization program to integrate acquired networks into its operations and
to rebuild a considerable portion of the such networks to meet the Company's
standards. The Company expects that this rebuild program will be completed in
1997 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 in 1995 and 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
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preservation areas (which are subject to a more extensive permit process) and
(iii) towns surrounding the city of Krakow, and (iv) over-building the systems
of competitors.
Lublin
The Lublin regional cluster is primarily located in the county of Lublin in
the east of Poland. The population of the county of Lublin is approximately 1.0
million. The Lublin regional cluster is characterized by a few small,
cooperative-owned SMATV systems. The Company commenced operations in the Lublin
regional cluster in mid 1995 with the acquisition of several agreements with
co-op authorities related to approximately 50,000 homes passed. In the Lublin
regional cluster, the Company has constructed a cable system that has a
bandwidth of 1GHz to allow the Company to experiment with offering telephony
services.
In its agreements with co-op authorities in the Lublin regional cluster the
Company is obligated to provide broadcast tier service to every home in an MDU
in exchange for the MDU paying a fixed monthly fee of approximately $.40 to the
Company for each apartment. The customer relationships created by nearly all
homes in the market receiving broadcast tier service from the Company provide a
marketing opportunity to encourage customers to upgrade their service. In
addition, although the agreements with co-op authorities in Lublin generally do
not provide for exclusivity, the Company believes that the customer
relationships created by its broadcast tier arrangements will discourage
competitors from entering the Lublin regional cluster.
Szczecin
The Szczecin regional cluster is primarily located in the county of
Szczecin in the northwest corner of Poland. The population of the county of
Szczecin is approximately 1.0 million. There is currently no significant
competition in the Szczecin market other than several co-op authority owned
systems. The Company commenced operations in the Szczecin regional cluster in
1995 with the acquisition of a cable system with approximately 4,200 subscribers
and the exclusive right to build-out approximately 55,000 apartments in MDUs
owned by the Szczecin municipal authorities.
Bydgoszcz
The Bydgoszcz regional cluster is located primarily in the county of
Bydgoszcz in the northwest of the center of Poland. The population of the county
of Bydgoszcz is approximately 1.1 million. The Company commenced operations in
the Bydgoszcz regional cluster in December 1996 with the acquisition of a 51%
interest in a cable system with approximately 37,000 subscribers. There are
currently only a few competitors in the Bydgoszcz market, including several
co-op authority owned systems and a local operator.
By acquiring a controlling interest in the market's largest cable operator,
the Company has gained access to an additional market which has a number of
build-out and acquisition opportunities. The Company believes that through the
implementation of its operating procedures and programming agreements it may be
able to further strengthen its position in the Bydgoszcz market.
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland. The aggregate
consideration to be paid by the Company in connection with the Pending
Acquisitions (including amounts for shareholder loans) is expected to be
approximately $23.8 million. The cable systems expected to be acquired in the
Pending Acquisitions serve approximately 99,000 total subscribers and pass
approximately 181,000 homes. The consummation of the Pending Acquisitions will
result in the expansion of the Company's operations within its existing regional
clusters and the establishment of one new regional cluster in southwest Poland.
The Company intends to use a portion of the net proceeds of the offering of the
Old Notes to consummate certain of the Pending Acquisitions. The Company
believes that it is required to obtain, and it has applied for, or is in the
process of preparing applications for, the Anti-Monopoly Office's approval for
all of the Pending Acquisitions (other than the acquisition of the network of
VEGA Sp. z o.o. ("Vega")), and it may be required to obtain the Anti-Monopoly
Office's approval for certain of its future 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.
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In particular, the Company entered into separate share purchase agreements
with each of the two 50% shareholders of KOLOR-SAT Sp. z o.o. ("Kolor-Sat") on
December 20, 1996. Kolor-Sat's networks, which are located in Opole (in
southwest Poland), serve approximately 12,300 subscribers and pass approximately
22,000 homes. Pursuant to the share purchase agreement, the Company will acquire
100% of the shares of Kolor-Sat. The two individual shareholders agreed not to
compete with the Company in areas operated by Kolor-Sat for a three year period
following the closing date. In addition to the purchase price, the Company
agreed to assume responsibility for the two individuals' personal taxes up to a
specified amount. The Company also agreed to employ the two individuals for 48
months following the signing date. The share purchase agreements will become
effective once the Anti-Monopoly Office grants consent to the transactions. The
purchase price of approximately $1.4 million was put into escrow on December 31,
1996, and will be released when the Anti-Monopoly Office grants its consent. The
Company expects to receive such approval in the second quarter of 1997. Pursuant
to the purchase agreements, PTK-Ryntronik has been operating Kolor-Sat's cable
network since January 1, 1997.
The Company has also entered into a purchase agreement with Vega pursuant
to which it will acquire all of the cable television assets of Vega for
approximately $530,000. Vega's networks, which are located in Wroclaw (in
southwest Poland), serve approximately 2,500 subscribers and pass approximately
5,000 homes. The former owners of Vega agreed not to compete with the Company
for a period of 2 years in all areas where the Company operates cable systems,
except for the towns of Czestochowa and Blachownia. Title to the assets passed
to PTK-Ryntronik on March 31, 1997. The Vega purchase agreement provided for the
payment of the purchase price in three equal installments. Such payments were
scheduled to have been made on January 5, 1997, February 16, 1997 and March 6,
1997. All installments were made but the final purchase price for the network
being acquired was subject to adjustment based on the amount of subscribers on
the date on which the title to the assets passed to PTK-Ryntronik. Since then
Vega has returned the total amount of purchase price to the Company and
indicated that it intends to retain title to its Wroclaw networks. The Company
believes it has fulfilled the terms and conditions of the purchase agreement,
and that it has legal rights to the networks in question.
The Company has sent a letter to Vega setting forth the legal basis for its
position on this issue. If Vega does not agree with the Company's position, the
Company will consider initiating litigation in order to establish its rights
with respect to the network. The Company may also consider filing a lawsuit
against Vega for damages, including lost profits, in the event that any such
damages are incurred.
PCI and Poltelkab have signed a commitment agreement with Telewizja Kablowa
GOSAT-Service Sp. z o.o. ("GOSAT") and its shareholders which provides for the
purchase (by March 31, 1998) approximately 66% of the issued shares of a company
that operates cable television networks located in several cities and towns in
western Poland, serving approximately 65,000 subscribers and passing
approximately 135,400 homes. The consummation of this acquisition is currently
expected to occur in the second quarter of 1997. At closing, PCI will purchase
approximately 49% of shares in GOSAT and Poltelkab will subscribe to
approximately 11.7% of shares, which will be accompanied by a shareholder loan
made by Poltelkab to GOSAT. In connection with this transaction Poltelkab will
subscribe for additional newly issued shares of GOSAT and will make subsequent
shareholder loans to GOSAT. Poltelkab has already loaned $200,000 to GOSAT to
finance construction of new cable television networks in two cities, and the
Company has also made an advance payment of $1,000,000 to one of the GOSAT
shareholders. The total purchase price for the GOSAT acquisition will be
approximately $10.7 million, from which amount the prior loan of $1,000,000 to a
GOSAT shareholder will be subtracted. In addition, the Company is obligated to
loan $7.0 million to GOSAT from which amount the $200,000 loan to GOSAT will be
subtracted. Until December 31, 1999, current shareholders in GOSAT can exercise
their options to sell their remaining shares in GOSAT. Following the
acquisition, the Company will have the right to appoint a majority of the
management board members in GOSAT. The Company has agreed that GOSAT will enter
into employment agreements, and the shareholders of GOSAT have agreed to enter
into non-compete agreements, for the period of 5 years following the signing
date. After consummation of the acquisition, the Company expects to establish a
new regional cluster centered in southwest Poland. The Anti-Monopoly Office has
issued its consent for the consummation of the transaction. The transaction is
conditional only upon approval by the Company of the financial report of GOSAT.
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The Company is negotiating to purchase from two co-op authorities
approximately 94% of the shares in a company operating cable television networks
that serve approximately 19,500 subscribers and pass the same number of homes in
a city in which the Company currently operates cable networks. The preliminary
terms of this transaction have been approved by members of the supervisory board
of each of the co-op authorities, and the Company expects the transaction will
close in 1997. The consummation of this acquisition will increase the Company's
ownership interest in the target company from 1.4% to approximately 95%. The
Company intends to integrate the acquired networks into its existing regional
cluster.
THE NETWORKS
The Company believes the fiber-optic cable networks that it has
constructed, which serve approximately 60% of its homes passed, are among the
most technologically advanced in Poland and are comparable to modern cable
networks in the United States. All of the Company's networks that have been
constructed by the Company have bandwidths of at least 550 MHZ, with one network
as high as 1 GHz. New portions of the networks which are currently being
constructed are being designed to have minimum bandwidths of 750 MHZ. The
Company's goal is to upgrade any portions of its networks that have bandwidths
below 550 MHZ (generally acquired from other entities) to at least 750 MHZ in an
effort to reduce the number of headends and parts inventory required in the
networks. The Company uses fiber-optic and coaxial cables, electronic components
and connectors supplied by leading Western firms in its networks.
The Company's networks, in most cases, use a fiber-to-the-feeder, 2,000
home node design. The Company uses a switched-star configuration for its
networks by installing a discreet drop cable which runs from a secure lockbox to
each home (as opposed to a loop system which feeds multiple homes from a single
cable), allowing the Company to more efficiently disconnect non-paying clients,
add or remove service options to individual homes and audit its systems to
detect theft of signal. Where required, high-quality tuners are used in
subscriber homes.
The Company's networks were constructed with the flexibility and capacity
to be cost-effectively reconfigured to offer an array of interactive and
integrated entertainment, telecommunications and information services, including
combined telephone and cable services and digital data transmission, if the
Company decides to pursue such ancillary sources of revenue in the future. The
Company's systems provide substantial excess channel capacity and are designed
to maximize reliability. The Company operates its systems at approximately 49%
to 69% of channel/bandwidth capacity. Two-way capability can be added to most of
the Company's systems at limited cost to provide addressable and interactive
services in the future. The networks constructed by the Company meet or exceed
the technical standards established by Polish regulatory authorities, and the
Company's policy is to upgrade sub-standard networks obtained in acquisitions as
rapidly as practicable.
Because the Company has entered into a general cooperation agreement with
TPSA, the Polish national telephone company, and agreements with local TPSA
branches which permit the Company to use TPSA's conduit infrastructure for
periods up to twenty years, it has been able to avoid constructing its own
underground conduit in certain areas. The Company also has agreements to
undertake joint construction with TPSA and other utilities for new conduits in
certain areas. These agreements represent a major advantage to the Company since
they permit the Company to minimize the costly and time-consuming process of
building new conduit infrastructure where TPSA conduit infrastructure exists and
provide for joint construction with TPSA and other utilities of conduit
infrastructure where none currently exists. As of December 31, 1996,
approximately 66% of the Company's plant had been constructed utilizing
pre-existing conduits of TPSA. A substantial portion of the Company's contracts
with TPSA for the use of such conduits permit termination by TPSA without
penalty at any time either immediately upon the occurrence of certain conditions
or upon provision of three to six months notice without cause. Generally
speaking, TPSA may terminate a conduit agreement immediately if: (i) the Company
does not have a valid Permit covering the subscribers to which the conduit
delivers the signal; (ii) the Company's cable network serviced by the conduit
does not meet the technical specifications required by the Communications Act;
(iii) the Company does not have a contract with the co-op authority allowing for
the installation of the cable network; or (iv) the Company fails to pay the rent
required under the conduit agreement. Approximately 119,000 of the Company's
subscribers are serviced
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by conduits leased from TPSA, for which one or more of these provisions are
applicable, so TPSA is legally entitled to terminate the conduit agreements
covering these subscribers immediately. Any termination by TPSA of such
contracts could result in the Company losing its Permits, the termination of
agreements with co-op authorities and programmers, and an inability to service
customers with respect to the areas where its networks utilize the conduits that
were the subject of such contracts. See "Risk Factors -- Risks Associated with
Cable Networks; Agreements with TPSA" and "Business -- Properties."
The Company estimates that at the end of 1996 it had over 2,200 kilometers
of cable plant constructed and that the fiber-optic backbone of its networks
will be substantially complete. Other than a rebuild of one of the Company's
acquired cable systems in the Katowice region for a cost of approximately $10
million, the Company estimates that its future capital expenditures will consist
primarily of capital needed for the incremental addition of new MDUs and
subscribers to its existing networks and for the build-out or rebuilding
associated with the acquisition of new cable systems. From its existing
infrastructure base, the Company's incremental build cost to add an adjacent MDU
or additional MDU subscribers to existing networks averages less than $200 per
MDU subscriber. (MDU subscribers represent more than 95% of the Company's total
subscribers.) The Company believes that several primary factors contribute to
its favorable cost structure. The significant density of homes per kilometer of
cable plant in the Company's core markets and the Company's conduit agreements
substantially reduce its build costs. Moreover, the Company believes that the
size of its construction program allows it to negotiate attractive construction
labor contracts and discounts on materials.
COMPETITION
The multi-channel television industry in Poland has been, and is expected
to remain, competitive. The Company competes with other cable television
operators as well as with companies employing numerous other methods of
delivering television signals to the home. The Company believes that competition
in the cable television industry is primarily based upon price, program
offerings, customer service, quality and reliability of cable networks. Small
SMATV operators are active throughout Poland, and they pose a competitive threat
to the Company because they often incur lower capital expenditures and operating
costs and therefore have the ability to charge lower fees to subscribers than
does the Company. While such operators often do not meet the technical standards
for cable systems under Polish law, enforcement of regulations governing
technical standards has historically been poor. Although Polish regulatory
authorities have recently attempted to improve the enforcement of such laws and
regulations, there can be no assurance that they will be enforced. If such laws
and regulations are not enforced, these SMATV operators will be able to continue
operating with a lower cost structure than that of the Company and thus charge
lower fees to subscribers, which may have an adverse effect on the Company's
business, results of operations and financial condition. See "Regulation."
Regardless of the enforcement of these laws and regulations, the Company expects
that SMATV operators will continue to remain a competitive force in Poland.
Certain of the Company's competitors or their affiliates have greater experience
in the cable television industry and have greater resources (including financial
resources and access to international programming sources) than the Company. The
largest competitors of the Company in Poland include Aster City, a joint venture
between certain Polish persons (with an aggregate 51% ownership interest) and
Bresnan Communications and TCI Communications Inc. (with an aggregate 49%
ownership interest) with an estimated 140,000 subscribers, Vectra, a Polish
entity, with an estimated 130,000 subscribers, and Porion, a Polish entity, with
an estimated 80,000 subscribers. Aster City and Porion have recently announced
their plan to merge to form a single cable television system in Warsaw.
The Company's cable television systems also compete with companies
employing other methods of delivering television signals to the home, such as
terrestrial broadcast television signals and DTH satellite-delivered television
services, and may in the future compete with MMDS systems. The extent to which
the Company's cable television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of programming at a reasonable price than the programming and
prices available through alternative delivery systems. In addition, advances in
communications technology as well as changes in the marketplace and the
regulatory environment are constantly occurring. It is not possible to predict
the effect that ongoing or future developments might have on the cable
television industry in Poland. See "The Industry -- The Polish Multi-Channel
Television Industry."
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Cable television systems also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
video cassette recorders. The extent of such competition depends upon, among
other things, the price, variety and quality of programming offered by cable
television, and the popularity of television itself.
PROPERTIES
As of December 31, 1996, the Company owned equipment, including 94
headends, and approximately 2,200 kilometers of cable plant. The Company has
approximately 49 lease agreements for offices, storage spaces and land adjacent
to the buildings. The total area leased amounts to approximately 26,000 square
meters (most of which is land adjacent to buildings). The areas leased by the
Company range from approximately 10 square meters up to more than 12,500 square
meters. The agreements are for specified and unspecified periods of time and may
be terminated with relatively short notice periods by either party, usually
three months. The Company does not own any real property.
The Company has entered into conduit leases with TPSA (and, in certain
cases, with other entities). The majority of the TPSA leases require the Company
to bear the costs of the maintenance of the cable. The Company may not sublease
the conduit or cables or allow a third party to use the conduits or cables free
of charge without TPSA's consent. The rental charge for the conduit is usually
determined on each 100 meters of conduit occupied. The agreements also contain
indexation clauses for rent adjustment purposes (based on the change of U.S.
Dollar exchange rates or on the increase of real maintenance costs). A
substantial portion of the Company's contracts with TPSA for the use of such
conduits permit termination by TPSA without penalty at any time either
immediately upon the occurrence of certain conditions or upon provision of three
to six months notice without cause. Any termination by TPSA of such contracts
could result in the Company losing its Permits, the termination of agreements
with co-op authorities and programmers, and an inability to service customers
with respect to the areas where its networks utilize the conduits that were the
subject of such TPSA contracts. See "Risk Factors -- Risks Associated with Cable
Networks; Agreements with TPSA."
The Company believes that its lease agreements and conduit agreements are
adequate for purposes of the Company's operations, although additional space and
conduits will be needed in the future if the Company consummates the
acquisitions it currently has planned.
PTK TRADEMARK
The Company has not registered the PTK trademark. In 1992, the Polish
patent office rejected the Company's application for registration of the PTK
trademark because PTK was deemed to be generic rather than descriptive. The
Company reapplied for registration of the trademark in August 1996. There can be
no assurance as to when the PTK trademark will be accepted for registration, if
at all. If the PTK trademark is not accepted for registration, the Company will
consider applying for registration of a different trademark.
EMPLOYEES
As of December 31, 1996, the Company had approximately 645 permanent
full-time employees and approximately 83 part-time employees. In addition, as of
such date the Company employed approximately 65 salesmen who received both
commissions and a nominal salary, and from time to time the Company employs
additional salesmen on an as needed, commission only basis. These numbers do not
include approximately 23 permanent full-time employees of ProCable. None of the
Company's employees are unionized. The Company believes that its relations with
its employees are good.
LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the Company
is currently involved, individually and in the aggregate, is not material to the
Company's financial condition or results of operations.
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REGULATION
GENERAL
The operation of cable television systems in Poland is regulated under the
Communications Act by the MOC and PAR and under the Television Act by the
Council. Cable television operators in Poland are required to obtain Permits
from PAR to operate cable television networks and must register certain
programming that they transmit over their networks with the Council. In contrast
to cable television regulatory schemes in the United States and in certain other
Western nations, neither the MOC nor PAR currently has the authority to regulate
the rates charged by operators for cable television services. Cable television
operators in Poland also are subject to the Copyright Act, which provides
intellectual property rights protection to Polish authors and producers of
programming. Broadcasters in Poland are regulated by the Council under the
Television Act and must obtain a broadcasting license from the Council.
THE COMMUNICATIONS ACT
General. From the fall of the communist government in 1989 through 1992,
the Polish cable television industry was essentially unregulated. Although the
Communications Act was enacted in 1990, the MOC and PAR did not begin
promulgating and enforcing regulations implementing the Communications Act until
1992. In 1993, to improve the quality of Poland's cable television systems, the
MOC and PAR began to implement technical and licensing standards for cable
operators that established requirements for such items as signal quality and
radio frequency leakage. In the same year, the MOC and PAR began to monitor
compliance with regulations requiring all cable operators to obtain Permits and,
more recently, has begun to enforce such requirements. In 1995, the
Communications Act was amended to create restrictions on foreign ownership
within the cable television industry.
Permits. The Communications Act and the Permits set forth the terms and
conditions for providing cable television services. A Permit authorizes the
construction and operation of a single cable television network in a specified
geographic area. Permits do not give exclusive rights to construct and operate a
cable network within an area, and usually do not include build-out milestone
requirements.
To obtain a Permit, an operator has to file an application with PAR. A
Permit application must be accompanied by evidence demonstrating that the
applicant's network will be constructed of components approved by, and meeting
the technical specifications set forth by, PAR and the MOC, and that co-op
authorities or other property owners in the area that the Permit will cover have
agreed to allow the applicant access to their property to install the cable
network. PAR will refuse to grant a Permit if the applicant fails to submit the
evidence described above or if the applicant's cable network fails to comply
with technical requirements established by PAR and the MOC including minimum
standards for signal quality and radio frequency leakage.
Permits have an initial term of one year, and thereafter, if renewed, are
generally renewed for a term of up to five years. Renewal applications must be
submitted to PAR at least one month prior to the end of a Permit's term. If a
renewal decision from PAR is pending at the expiration of a Permit's term, as is
usually the case, the term is deemed to be extended until the renewal decision
is made. PAR generally renews Permits as a matter of course if the terms and
conditions of the Permit and the requirements of the Communications Act,
including the technical requirements for cable networks established by PAR and
the MOC, have been met by the holder of the Permit. The Communications Act also
requires that operators of cable television systems comply with copyright laws.
See "-- Copyright Protection."
If a cable television operator breaches the terms or conditions of its
Permits or the Communications Act, or fails to acquire Permits covering areas
serviced by its networks, PAR can impose penalties on such operator, including
fines, the revocation of all Permits covering the cable networks where the
breach occurred or the forfeiture of the operator's cable networks. In addition,
the Communications Act provides that PAR may not grant a new Permit to, or renew
an expiring Permit held by, any applicant that has had, or that is controlled by
an entity that has had, a Permit revoked within the previous five years. In
many, though not all, instances,
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where a violation of the terms or conditions of a Permit or the Communications
Act have occurred, PAR is required by law to give the cable television operator
an opportunity to rectify the violation.
Permits are not transferable. Accordingly, a cable television operator who
acquires a cable network from another operator must apply for a Permit covering
the area in which the acquired network is located, unless the acquiring operator
already has a valid Permit covering the area. However, subject to the
restrictions on foreign ownership of cable television operators described below
and to any restrictions contained in a specific Permit, shares of cable
television operators holding Permits are freely transferrable.
Foreign Ownership Restrictions. The Communications Act and applicable
Polish regulatory restrictions provide that Permits may only be issued to and
held by Polish individuals, corporations that have their registered offices in
Poland or other companies formed under the laws of Poland in which foreign
persons hold no more than 49% of the share capital, ownership interests and
voting rights. In addition, the Communications Act and applicable Polish
regulatory restrictions provide that the majority of the management and
supervisory board of any cable television operator holding Permits be comprised
of Polish citizens residing in Poland. These restrictions do not apply to any
Permits issued prior to July 7, 1995, to Permits issued at any time pursuant to
certain licenses obtained under the Commercial Activity Act described below or
to renewals of any such Permits ("Grandfathered Permits"). As of February 27,
1997, approximately 45% of the Company's basic subscribers were covered by
Permits that are not subject to foreign ownership restrictions.
Enforcement of Poland's regulatory restrictions on foreign ownership of
cable television operators is performed by PAR. Applications for Permits, and
for renewals thereof, require disclosure of the applicant's ownership structure,
shareholders and management and supervisory boards. A violation of these
regulatory restrictions constitutes a violation of the Communications Act, and
can lead to revocation of all Permits held by the entity committing the
violation. See "-- Permits."
Prior to the creation of PAR and the Permit system, PTK, S.A. received a
license to operate cable television systems in Warsaw, Krakow and the areas
surrounding these cities (as described in the license) under the Commercial
Activity with Participation of Foreign Parties Act of 1988, as amended (the
"Commercial Activity Act"). Although the Commercial Activity Act has been
repealed, the MOC has recently confirmed to the Company that this license
enables the Company to acquire Permits covering areas in Warsaw, Krakow and the
surrounding areas without regard to the regulatory restrictions on foreign
ownership described above. The Company plans to transfer cable networks that it
acquired or constructed after July 7, 1995 in the Warsaw and Krakow license
areas to PTK, S.A., which will apply for Permits covering such systems.
To comply with foreign ownership requirements for Permits for networks not
covered by Grandfathered Permits, the Company has entered into contractual
arrangements with the Polish entity Poltelkab. The Company owns 49% of Poltelkab
and five Polish executives of the Company or Poltelkab own the remaining 51%. In
the case of the acquisition or construction of cable networks not covered by
Grandfathered Permits, either the Company will own all of the cable network
assets and will lease the assets to Poltelkab, or Poltelkab will own and operate
the networks. In the Company's current leasing arrangements with Poltelkab,
Poltelkab holds the Permits to operate the new cable networks, receives all of
the revenues from subscribers, pays all operating expenses relating to the
operation of the networks, and through the lease arrangements pays the Company
rent equal to substantially all of the cash flow generated by the networks. The
Company believes that this ownership and operating structure are not in
contradiction with the technical requirements of Polish law. PAR has recently
granted Poltelkab two Permits for networks using the ownership and operating
structure described above. There can be no assurance that Polish regulatory
authorities will not determine that all or part of this ownership and operating
structure, or any other ownership and operating structure that may be utilized
by the Company, violates Polish regulatory restrictions on foreign ownership or
that such restrictions will not be amended or interpreted in a different manner
in the future, including the restrictions applicable to Grandfathered Permits.
Any such adverse determination or any such amendment or interpretation could
adversely affect the Company's ability to acquire Permits to operate cable
television systems and could result in the loss of Permits held by the Company,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
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The Company's Permits. The Company has received approximately 60 Permits
from PAR, covering approximately 342,000 of the Company's approximately 461,000
basic subscribers as of December 31, 1996 (excluding subscribers of networks
which the Company has contracted to purchase, but which the Company had not
taken control of as of such date), including approximately 91,000 subscribers
for whom the Company's Permits are deemed extended under Polish law pending
PAR's response to the Company's Permit renewal applications (collectively,
"Valid Permits"). However, the Company does not have Valid Permits covering
certain of the areas in which it operates cable networks. Of the approximately
119,000 basic subscribers as of May 5, 1997 located in areas for which the
Company does not currently have Valid Permits, approximately 16% 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 47% are located in
areas serviced by recently acquired or constructed networks in Warsaw, Krakow
and the areas surrounding these cities, which the Company plans to transfer to
PTK, S.A. in order to more efficiently comply with foreign ownership
restrictions, and approximately 37% are located in areas serviced by networks
for which the Company has Permit applications pending. The Company has 10 Permit
applications pending. There can be no assurance that PAR will issue any or all
of the Permits for which the Company has applied.
There can be no assurance that PAR will not take action against the Company
for operating cable television networks in areas not covered by valid Permits,
including assessing fines, revoking Permits held by the Company or seizing the
Company's cable networks. Furthermore, there can be no assurance that the
Company will be able to receive Permits in the future permitting it to operate
any other networks that it may acquire. Any such action would have a material
adverse effect on the Company's business, financial condition and results of
operations.
TELEVISION ACT
The Council. The Council, an independent agency of the Polish government,
was created under the Television Act to regulate broadcasting in Poland. The
Council has regulatory authority over both the programming that cable television
operators transmit over their networks and the broadcasting operations of
broadcasters. Cable television operators generally are not considered
broadcasters under the Television Act unless they make modifications, such as
inserting commercials, to programming transmitted over their networks or fail to
retransmit programming simultaneously with their receipt thereof.
Registration of Programming. Under the Television Act, cable television
operators must register each channel and the programming with the Chairman of
the Council prior to transmitting it over their cable networks. An exception to
this registration requirement exists for (i) programming that is broadcast by
public broadcasters, and (ii) programming that is broadcast by other domestic
broadcasters and is generally available over the air for receipt by the public
in the area where the network is located.
The application to register programming with the Chairman of the Council
must include (i) specification of the programming to be transmitted and the
broadcaster of the programming and (ii) evidence that the applicant has a Permit
covering the cable networks on which the programming will be transmitted.
Registration of programming occurs automatically if the Chairman of the Council
does not reject an application within two months of its submission.
In general, the Chairman of the Council will refuse registration of
programming if (i) the applicant is not legally entitled to use the cable
network over which the programming will be distributed (i.e., does not have a
Permit covering the network), (ii) the broadcasting of the programming in Poland
would violate Polish law, including provisions of the Television Act governing
sponsorship, advertising and minimum Polish content requirements for programming
broadcast by Polish broadcasters or (iii) the transmission of the programming
over the cable network would violate Polish law, including the Television Act.
Once programming is registered with the Chairman of the Council by a cable
television operator, it remains registered with respect to such operator until
the term, if any, requested in the application for registration expires or until
the Chairman of the Council revokes the registration. Applications to renew the
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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 has established PCIP as a
wholly-owned U.S. subsidiary engaged in the development and production of Polish
language thematic television programming outside of Poland. The Company plans to
distribute all of PCIP's programming throughout Poland via satellite systems
from abroad. The Company believes that the ownership structure of ProCable and
PCIP's distribution system satisfy Poland's regulatory restrictions on foreign
ownership of broadcasters. However, there can be no assurance that Polish
regulatory authorities will not determine that all or part of this ownership or
distribution structure violates Polish regulatory restrictions on foreign
ownership of broadcasters. Further, there can be no assurance that Polish
regulators will not revoke any of ProCable's licenses for broadcasting over a
cable network for which it does not have a valid license or otherwise. Any such
action could have a material adverse effect on the Company's business, financial
condition and results of operations.
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COPYRIGHT PROTECTION
Protection of Rights of Polish Authors and Producers of Programming. Cable
television operators in Poland are subject to the provisions of the Copyright
Act, which governs enforcement of intellectual property rights of Polish
citizens and companies in programming. Polish copyright law distinguishes
between authors, who are the creators of programming, and producers, who acquire
intellectual property rights in programs created by others. In general, the
holder of a Polish copyright for a program transmitted over the cable networks
of a cable television operator has a right to receive compensation from such
operator or to prevent transmission of the program.
The rights of Polish copyright holders are generally enforced by
organizations for collective copyright administration and protection such as
Zwiazek Autorow i Kompozytorow Scenicznych ("ZAIKS") and Zwiazek Artystow Scen
Polskich ("ZASP") (collectively, "Rights Organizations"), and can be enforced by
the holders themselves. In practice, the compensation paid to the holder of a
Polish copyright on programming that is transmitted over a cable television
system is usually set by contract between a Rights Organization and the
individual cable television operator. The Company is operating under a contract
with ZASP, and is currently in the process of negotiating an extension of its
expired contract with ZAIKS. There can be no assurance that the Company will be
able to obtain such extension. In the event that a cable television operator
transmits programming in violation of a Polish copyright, the Rights
Organization or the copyright holder may sue the operator for an injunction
preventing further violations or an accounting for profits or damages, which may
include, in certain circumstances, a sum equal to three times the amount of
compensation the copyright holder could have obtained if it had entered into a
contract with the operator. In addition, a violation of the Copyright Act by a
cable television operator would also constitute a violation of the
Communications Act and the operator's Permits. See "-- The Communications
Act -- Permits."
Protection of Rights of Foreign Authors and Producers of
Programming. Except as described below, the Copyright Act protects only Polish
citizens and Polish companies. Foreign authors of programming, however, may
receive protection under the Copyright Act for programing that is either (i)
originally published in Poland or is originally published simultaneously in
Poland and abroad or (ii) originally published in Polish-language form. In
addition, foreign authors of programming receive Polish copyright protection
under the terms of the Berne Convention of 1971 (the "Berne Convention"), which
was adopted by Poland in 1994. Foreign producers of programming who satisfy
certain criteria are entitled to receive some copyright protection under TRIPS,
which was recently adopted by Poland. While foreign producers of programming are
entitled to receive some copyright protection in Poland under TRIPS, the amount
of protection provided is uncertain because TRIPS was only recently adopted and
its terms do not clearly specify the protection granted. In addition, foreign
programming producers will receive Polish copyright protection under the Rome
Convention when Polish cable operators become subject to the terms of the Rome
Convention.
Under the Berne Convention, authors of programming located in other
signatory countries must be extended the same copyright protection over their
programming that Polish authors receive under the Copyright Act. Polish cable
television operators must thus make copyright payments to foreign authors
holding copyrights in programming that is transmitted over the cable networks of
such operators. See "-- Protection of Rights of Polish Authors and Producers of
Programming". The Berne Convention, however, does not grant any protection to
foreign producers of programming.
Poland has taken steps toward adopting the Rome Convention, which will
extend copyright protection to programs of foreign producers. Poland ratified
the Rome Convention on December 31, 1996, and will become bound by its terms on
the date that is three months from the date of filing the necessary documents
with the Secretary General of the United Nations. The Company currently makes
copyright payments to the foreign programmers requiring such payments, such as
CNN, Eurosport and Cartoon Network, even though such payments are not mandated
by Polish copyright law. The Company is not able to predict the effect of TRIPS
or of the adoption of the Rome Convention on the Polish cable television
industry, and there can be no assurance that either will not result in the
Company paying additional fees to broadcasters for programming or being unable
to obtain certain commercially desirable programming.
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ANTI-MONOPOLY ACT
Competition in Poland is governed by the Anti-Monopoly Act which
established the Anti-Monopoly Office to regulate monopolistic and other
anti-competitive practices. The current Polish anti-monopoly body of law with
respect to the cable television industry is not well-established, and the
Anti-Monopoly Office has not articulated comprehensive standards that may be
applied in an antitrust review in the cable television industry. However, as a
general rule, companies that obtain control of 40% or more of their market face
greater scrutiny from the Anti-Monopoly Office. The relevant markets for cable
television services have not been defined by the Anti-Monopoly Office.
Furthermore, the Company believes that it is required to obtain, and it intends
to apply for, the Anti-Monopoly Office's approval of certain of the Pending
Acquisitions, and it may be required to obtain the Anti-Monopoly Office's
approval for certain future acquisitions as well. In addition, the Anti-Monopoly
Office can review a company's past and present activities for potential anti-
competitive behavior.
There can be no assurance that the Anti-Monopoly Office will approve the
Pending Acquisitions or Company's future acquisitions and dispositions or that a
review of the Company's past, present or future operations, if undertaken by the
Anti-Monopoly Office, will not otherwise adversely impact the Company's
business, strategy, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
David T. Chase(a)............................ 67 Chairman of the Board of Directors
Robert E. Fowler, III(a)(b).................. 38 Director and Chief Executive Officer
Arnold L. Chase(a)........................... 45 Director
Scott A. Lanphere(c)......................... 31 Director
Jerzy Z. Swirski(c).......................... 40 Director
Richard B. Steele............................ 36 President
George Makowski.............................. 42 Chief Operating Officer
Cheryl Anne Chase............................ 43 Executive Vice President and Secretary
John S. Frelas............................... 46 Chief Financial Officer and Treasurer
Przemyslaw Szmyt............................. 34 General Counsel and Vice President
Marek Sowa................................... 34 Director of Corporate Development
Gilbert L. Tash.............................. 60 Vice President
John P. Redding.............................. 38 Vice President
Andrzej Muras................................ 58 Executive Vice President of Corporate
Development of PTK, S.A.
Michael J. Houlehan.......................... 37 Chief Executive Officer of PCI Programming
</TABLE>
- ---------------
(a) Appointed as a director by the Chase Group (as hereinafter defined) under
the Shareholders' Agreement (as hereinafter defined). See "Certain
Relationships and Related Transactions -- Shareholders' Agreement."
(b) Appointed as Chief Executive Officer by the Chase Group and accepted as such
by the ECO Group (as hereinafter defined) under the Shareholders' Agreement
pursuant to which the Chief Executive Officer is also appointed as a
director. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement."
(c) Appointed as a director by the ECO Group under the Shareholders' Agreement.
See "Certain Relationships and Related Transactions -- Shareholders'
Agreement."
CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the business experience and affiliations for
the past five years of the current directors and executive officers of the
Company is set forth below.
DAVID T. CHASE has served as Chairman of the Board of Directors of PCI
since March 1996. Since January 1990, Mr. Chase has been a Director and
President of David T. Chase Enterprises, Inc., a diversified conglomerate with
extensive holdings in real estate and previously in media. Mr. Chase has also
been on the Supervisory Boards of PTK, S.A., PTK-Warsaw and PTK-Krakow since
December 1992, October 1993, and October 1993, respectively. Mr. Chase also
serves as a Director and President of DNI Corp. ("DNI"), a general partner in
Chase Financial Limited Partnership. He is also a Director of ACCEL
International Corporation ("ACCEL"), an insurance holding company.
ROBERT E. FOWLER, III has served as Chief Executive Officer of PCI since
December 1996 and has served as a Director of PCI since March 1996. Mr. Fowler
served as Vice President of PCI from August 1993 to December 1996 and its
Treasurer from April 1991 to December 1996. Since December 1993, he has served
as Vice President of D.T. Chase Enterprises, Inc. Mr. Fowler has served as
Director of PCI Programming since July 1996. From July 1996 to December 1996,
Mr. Fowler also served as Vice President and Treasurer of PCI Programming. Since
December 1996, he has served as Chairman of the Board of Directors of PCI
Programming. He is also a Director of ACCEL. During the period of 1994 to 1996,
Mr. Fowler devoted
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approximately 35% of his working time to PCI and approximately 65% of his
working time to companies that are affiliated with PCI.
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. During the period of 1994 to 1996, Mr. Chase devoted approximately 10% of
his working time to PCI and approximately 90% of his working time to companies
that are affiliated with PCI.
SCOTT A. LANPHERE has served as a Director of PCI since March 1996 and as a
Managing Director of PCBV since May 1996. Mr. Lanphere has been a Director of
Advent since December 1994, and from May 1991 to December 1994 served as an
Investment Manager of Advent.
JERZY Z. SWIRSKI has served as a Director of PCI since October 1996. Mr.
Swirski has served as a Director of Advent since July 1995. From January 1995 to
July 1995, Mr. Swirski was a consultant to Enterprise Investors, a Polish equity
firm. From 1991 to 1994, he was an officer of E. Wedel S.A. ("Wedel"), a Polish
subsidiary of PepsiCo Foods, International, and General Manager of Frito-Lay,
Poland.
RICHARD B. STEELE has served as President of PCI since December 1996. Mr.
Steele served as a Director and the Chief Executive Officer of PCI from March
1996 until December 1996 and served as Vice President of PCI from May 1992 to
March 1996. Mr. Steele served as a Director and the Chief Executive Officer of
PCI Programming from July 1996 to December 1996, and was the Senior Vice
President and served as Chief Financial Officer of David T. Chase Enterprises,
Inc. from December 1990 to 1994. He has been a Managing Director of PCBV since
December 1992, on the Supervisory Board of PTK-Warsaw since October 1993 and on
the Management Boards of PTK, S.A., PTK-Krakow, PTK-Ryntronik and PTK-Lublin
since August 1996, May 1996, July 1996, and July 1996, respectively. He is also
the managing member of Steele LLC ("Steele LLC"), a Connecticut limited
liability company. Mr. Steele also performs real estate consulting services for
the affiliates of certain stockholders of PCI. During the period of 1994 to
1996, Mr. Steele devoted approximately 90% of his working time to PCI and
approximately 10% of his working time to companies that are affiliated with PCI.
GEORGE MAKOWSKI has been the Chief Operating Officer of PCI since January
1997. From August 1993 to January 1997, Mr. Makowski was Vice President of
Marketing for Ameritech International, Inc. ("Ameritech"). During this time Mr.
Makowski also served as Sales and Marketing Director of Centertel, S.A., a
division of Ameritech. From 1986 to 1993, Mr. Makowski held various senior
management roles within Groupe Bull, S.A.
CHERYL ANNE CHASE has served as Executive Vice President of PCI since April
1991, Secretary of PCI since April 1992, and was a Director of PCI from January
1990 to March 1996. Ms. Chase has been Director, Executive Vice President,
Secretary and General Counsel of David T. Chase Enterprises, Inc. since March
1990. Ms. Chase also serves as Director, Executive Vice President and Secretary
of Chase Polish Enterprises, Inc., D.T. Chase Enterprises, Inc. and DNI Corp.
She has also served as Executive Vice President and Secretary of PCI Programming
since July 1996 and has been on the Supervisory Board of PTK-Warsaw since
October 1993.
JOHN S. FRELAS has been the Chief Financial Officer of PCI since September
1996 and the Treasurer of PCI since December 1996. Mr. Frelas has been the
Treasurer of PCI Programming, Inc. since December 1996. From 1995 to 1996, Mr.
Frelas was the Chief Financial Officer of Eurofund Management Polska. During
1995, he served as a consultant to the Polish-American Enterprise Fund. From
1972 to 1994,
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Mr. Frelas worked for PepsiCo Foods International and certain of its
subsidiaries, most recently as a Corporate Planning Manager for Hostess
Frito-Lay Canada during 1994 and as a Corporate Controller for Wedel from 1992
to 1993.
PRZEMYSLAW A. SZMYT has served as General Counsel and Vice President of the
Company since February 1997. From September 1995 to February 1997, Mr. Szmyt was
Director for Poland of MeesPierson EurAmerica, an investment banking firm and
affiliate of MeesPierson N.V., a Dutch merchant bank. From early 1992 to August
1995, Mr. Szmyt was a senior associate at Soltysinski Kawecki & Szlezak in
Warsaw. Mr. Szmyt served on the Management Board of Telewizyjna Korporacja
Partycypacyjna S.A., a holding company of Canal+ Polska. From November 1995 to
July 1996, Mr. Szmyt served as Director of the Management Board of MeesPierson
EurAmerica Sp. z o.o.
MAREK SOWA has served as Director of Corporate Development of PCI since
January 1997 and has also served as Vice President of Poltelkeb since March
1996. From August 1994 until May 1996, Mr. Sowa served as Corporate Development
Manager of PTK, S.A. Mr. Sowa also served on the Supervisory Board of ETV since
June 1996 and on the Management Boards of PTK, S.A. from April 1995 to August
1996, PTK-Warsaw from April 1995 to September 1996 and PTK-Lublin from April
1995 to May 1996. Mr. Sowa served as Vice President of PTK-Szczecin from May
1995 to June 1996, Chairman of PTK-Szczecin's Supervisory Board from June 1996
through August 1996 and as Vice President of the Management Board of ETV from
July 1995 to June 1996. Mr. Sowa received his M.B.A. from the University of
Illinois at Urbana-Champaign and the University of Warsaw in 1994. From 1991 to
1992 Mr. Sowa served as International Acquisitions Manager at Arfilm-Plus, an
independent film distribution company. From 1987 to 1990, Mr. Sowa served as an
associate producer for the CBS News Warsaw Bureau.
GILBERT L. TASH has served as a Vice President of PCI since October 1996.
From June 1993 to May 1996 Mr. Tash was Managing Director of PCBV. Mr. Tash has
been employed by PTK, S.A. in various capacities since September 1990, and has
served as Vice President of the Management Board of PTK, S.A. since May 1992.
Mr. Tash also has served as the Vice President of the Management Board of
PTK-Warsaw since October 1993, the President of the Supervisory Board of
PTK-Ryntronik since August 1996, and the Vice President of the Management Board
of PTK-Krakow since October 1993. Mr. Tash served as an Executive Vice President
of Times Mirror Cable Television from 1971 to 1989, where he had supervisory
responsibilities for the financial and technical management of cable television
system construction projects.
JOHN P. REDDING has served as a Vice President of PCI since April 1996 and
Vice President of PCI Programming since December 1996. Mr. Redding also has
served as Vice President of D.T. Chase Enterprises, Inc. since April 1996 and
since January 1990, Mr. Redding served as Senior Vice President of David T.
Chase Enterprises, Inc.
ANDRZEJ MURAS has been Executive Vice President of Corporate Development
for PTK, S.A. since September 1989 and an Executive Vice President of PTK-Warsaw
since January 1996. Prior to January 1990, Mr. Muras was Chief Executive Officer
of POLTEL, a programming source for state-owned Polish television channels TVP 1
and TVP 2. From 1961 to 1989, Mr. Muras served as Managing Director and also
held other positions at the Polish State Television and Radio Department.
MICHAEL J. HOULEHAN has been Chief Executive Officer of PCI Programming
since December 1996. Mr. Houlehan served as Executive Vice President of PCI
Programming from October 1996 to December 1996. Mr. Houlehan has been Director
of Corporate Development for PCI since October 1994. Mr. Houlehan was a Managing
Director of Potomac Pacific, Ltd., a strategic financial services firm, from
1989 to 1994. From 1981 to 1989, he served as a Vice President at First
Interstate Bancorp, where he specialized in corporate finance and international
merchant banking.
BOARD OF DIRECTORS
PCI's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") provides that five individuals shall comprise the Board of
Directors. All of the current members of the Board of Directors were elected
pursuant to the Shareholders' Agreement. Under the Shareholders' Agreement, the
ECO Group has the right to designate two directors, and PIH, Mr. Freedman, the
Cheryl Anne Chase Marital
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Trust ("CACMT") and Steele LLC (collectively, the "Chase Group") have the right
to designate the remaining three directors, one of whom shall be selected, if
approved by the ECO Group, to serve as the Chief Executive Officer of PCI.
Pursuant to a voting agreement between PIH, Mr. Freedman and Steele LLC and the
Cheryl Anne Chase Marital Trust (the "Voting Agreement"), all designations to be
made by the Chase Group are made by David T. Chase. David T. Chase, Arnold L.
Chase and Robert E. Fowler, III have been designated as Directors by the Chase
Group, Mr. Fowler was designated as Chief Executive Officer by the Chase Group
and was accepted as such by the 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 65% of the total
voting power of the capital stock issued and outstanding and entitled to vote
thereon, provided however that if board approval of such action is required
under the NYBCL, the action will also require the approval of the Board of
Directors at a special meeting of the Board of Directors (and for no purposes
other than the approval of actions taken pursuant to this subsection (ii)) for
which two-fifths of the total number of directors constitutes a quorum.
A. A fundamental change in the business of the Company or any
subsidiary;
B. The adoption of, and approval of any modification to, the annual
budget of the Company for each fiscal year;
C. An expenditure, not accounted for in the budget during any fiscal
year, in excess of $5 million;
D. A merger or other business combination or the sale, lease, transfer
or other disposition of all or any material portion of the assets;
E. Certain encumbrances;
F. Related-party transactions;
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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.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers at
the Company for services rendered in all capacities to the Company for the last
three fiscal years, to the extent that those officers were in the employ of the
Company. No disclosure has been provided for any executive officer whose total
annual salary and bonus did not exceed $100,000 per annum. Columns relating to
long-term compensation have been omitted from the table as the Company did not
have capital stock-related award plans and there has been no compensation
arising from long-term incentive plans during the years reflected in the table.
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ALL OTHER
SALARY BONUS OTHER ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($)
- ----------------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert E. Fowler................... 1996 66,000(a) 66,000(a) -- --
Chief Executive Officer and
Director 1995 66,000(a) 66,000(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. See
"Management -- Certain Information Concerning Directors and Executive
Officers."
(b) Represents amounts paid by David T. Chase Enterprises, Inc., an affiliate of
PCI.
(c) Represents portion of 401k plan paid pursuant to a matching contribution.
(d) Prior to being named to the Board of Directors of PCI in December 1996,
Arnold Chase was Co-Chairman of the Board of Directors of PCI from April
1991 to March 1996 and President of PCI from October 1992 to March 1996.
(e) Represents interest on accumulated deferred compensation.
(f) Represents housing allowance.
(g) Represents compensation for partial year of service beginning in October
1994.
(h) Represents compensation for partial year of service beginning in September
1996.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Fowler, Steele,
Makowski, Frelas, Szmyt, Sowa, Tash, Muras and Houlehan.
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Mr. Fowler has entered into a three year employment agreement with PCI
effective as of January 1, 1997. Pursuant to such agreement, Mr. Fowler serves
as the Chief Executive Officer of PCI. Mr. Fowler receives a base salary of
$325,000, allowances for relocation, living expenses for a one time cost of
approximately $100,000, plus a travel allowance of approximately $30,000 per
annum and a guaranteed annual bonus of $175,000 in the first year of his
employment and unspecified incentive bonuses thereafter. He is eligible for an
additional bonus of $250,000 upon the signing of the employment agreement. Mr.
Fowler may terminate the agreement at any time upon three month's written
notice, and the Company may terminate the agreement at any time upon one month
written notice (with an obligation to pay Mr. Fowler an additional two months
salary). In addition, PCI may terminate the agreement immediately without
further obligation to Mr. Fowler for cause (as defined in the employment
agreement). The employment agreement also provides that Mr. Fowler is granted a
non-transferable option to purchase 1,286 shares of PCI's Common Stock at a
price of $3,707 per share, subject to the terms and conditions of a stock option
agreement. Options to purchase 515 shares of Common Stock will vest upon the
execution of the stock option agreement and options to purchase 257 shares of
Common Stock vest on December 31 of each of the following three years, beginning
on December 31, 1997. The options vest immediately upon an initial public
offering (as defined in the stock option agreement) or upon a change of control
(as defined in the Indenture). PCI has a right of first refusal with respect to
the shares underlying the options.
Mr. Steele entered into an employment agreement with PCBV effective as of
January 1, 1993 through December 31, 1997, which agreement was assigned to PCI
pursuant to an agreement between PCI and PCBV dated as of March 20, 1996.
Pursuant to such agreement, Mr. Steele agreed to serve as a Managing Director of
PCBV, and receives an annual salary of $200,000 and certain additional deferred
compensation of approximately $150,000 per year. The agreement may be terminated
by Mr. Steele or PCI upon 90 days written notice. In addition, PCI may terminate
the agreement immediately without further obligation to Mr. Steele for cause (as
defined in the employment agreement). PCI has agreed to grant Mr. Steele a
$250,000 bonus upon the successful completion of the offering of the Notes and a
$200,000 bonus upon the successful completion of an initial public offering of
common stock of PCI.
Mr. Makowski entered into a five-year employment agreement with PCI
commencing on January 21, 1997. Pursuant to such agreement, Mr. Makowski serves
as the Chief Operating Officer of PCI. Mr. Makowski receives a base salary of
$156,000, allowances for living, family travel and education for his children of
approximately $105,000 per annum and annual incentive bonuses of up to $60,000
if certain mutually agreed objectives are met. Mr. Makowski's initial year bonus
of $60,000 is guaranteed. He is also eligible for an additional bonus of
$175,000 for the successful completion of an initial public offering of common
stock of PCI. Mr. Makowski or PCI may terminate the agreement at any time upon
six month's written notice. In addition, PCI may terminate the agreement
immediately without further obligation to Mr. Makowski for cause (as defined in
the employment agreement). The employment agreement also provides that Mr.
Makowski will be granted a non-transferable option to purchase 385 shares of
PCI's Common Stock at a price of $3,708.08 per share, subject to the terms and
conditions of a stock option agreement, which options vest ratably over a
three-year period. Subject to certain conditions, PCI has a right to repurchase
the options and, if exercised, the Common Stock, upon termination of the
agreement at the greater of (i) 85% of the fair market value thereof (as defined
in the agreement) or (ii) prices mutually established in the agreement.
Mr. Frelas entered into a five-year employment agreement with PCI
commencing on September 1, 1996. Pursuant to such agreement, Mr. Frelas serves
as the Chief Financial Officer of PCI. Mr. Frelas was named Treasurer of PCI in
December 1996. Mr. Frelas receives a base salary of $150,000, allowances for
living and travel of approximately $40,000 per annum and annual incentive
bonuses of up to $50,000 if certain mutually agreed objectives are met. He is
also eligible for additional bonuses of $350,000 for the successful completion
of an initial public offering and $50,000 for the successful completion of a
bank line of credit of $75 million or more. Mr. Frelas or PCI may terminate the
agreement at any time upon six month's written notice. In addition, PCI may
terminate the agreement immediately without further obligation to Mr. Frelas for
cause (as defined in the employment agreement). The employment agreement also
provides that Mr. Frelas will be granted a non-transferable option to purchase
241 shares of PCI's Common Stock at a price of $1,991.70 per
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share, subject to the terms and conditions of a stock option agreement, which
options vest ratably over a five-year period. Subject to certain conditions, PCI
has a right to repurchase the options and, if exercised, the Common Stock, upon
termination of the agreement at the greater of (i) 85% of the fair market value
thereof (as defined in the agreement) or (ii) prices mutually established in the
agreement.
Mr. Szmyt entered into a three year employment agreement with PCI effective
as of February 7, 1997. Mr. Szmyt was named General Counsel and Vice President
of PCI. Mr. Szmyt receives an annual salary of $160,000. He is eligible to
receive an annual performance-based bonus of $40,000 per year, which bonus is
guaranteed in 1997. Mr. Szmyt is eligible for an additional bonus of $70,000
upon the successful completion of an initial public offering of Common Stock of
PCI. Mr. Szmyt may terminate his employment with the Company at any time without
notice and PCI may terminate the contract at any time upon four month's written
notice. Notwithstanding such right, PCI may terminate the contract without
further obligation for cause (as defined in the agreement).
Mr. Sowa entered into a three year employment agreement with PCI effective
as of January 1, 1997. Mr. Sowa was named Director of Corporate Development of
PCI. Mr. Sowa receives an annual salary of $64,000, and is eligible to receive
an annual performance-based bonus of up to $32,000 per year. Mr. Sowa may
terminate his employment with the Company at any time without notice and PCI may
terminate the contract at any time upon four month's written notice.
Notwithstanding such right, PCI may terminate the contract without further
obligation for cause (as defined in the agreement).
Mr. Tash entered into an employment agreement with an unlimited term with
PCI on September 25, 1991. Pursuant to such agreement, Mr. Tash serves as a Vice
President of PCI. Under the terms of the employment agreement PCI agreed to pay
Mr. Tash an annual salary of $130,000 plus certain enumerated relocation and
living expenses and Mr. Tash was eligible to receive a performance-based bonus
of up to $30,000 per year based on terms to be mutually agreed upon by Mr. Tash
and PCI. PCI may terminate the contract at any time upon three month's written
notice. In January 1992, Mr. Tash agreed that his 1991 incentive bonus would
equal $57,500, $7,500 of which would be payable in one lump sum payment on or
before December 31, 1992 and the balance of which would be payable during 1992
in equal biweekly installments. PCI and Mr. Tash entered into a deferred
compensation agreement on April 18, 1995. Pursuant to the deferred compensation
agreement, Mr. Tash irrevocably elected to defer his 1994 bonus of $43,400 until
the earlier of: (1) Mr. Tash's severance of employment from PCI or its
affiliates; (2) April 18, 1997, or (3) the execution of a written agreement,
signed by the parties, terminating the deferred compensation agreement.
Certain executives of affiliated companies also have entered into
employment contracts.
Mr. Muras entered into a two-year employment agreement with PTK-Warsaw
commencing on January 1, 1996. Pursuant to that agreement, he became an
Executive Vice President of Corporate Development of PTK-Warsaw. Mr. Muras
receives an annual salary of $88,800 and is eligible to receive a
performance-based bonus of up to $60,000 per year based on his achievements as
established by the Chairman of the General Assembly of Shareholders of
PTK-Warsaw. PTK-Warsaw may terminate the contract at any time upon six month's
written notice. Mr. Muras may terminate the contract at any time upon three
months written notice. Notwithstanding such right, PTK-Warsaw may terminate the
contract effective immediately without further obligation for cause (as defined
in the agreement). PTK-Warsaw also may terminate the contract immediately upon
written notice in the case of an acquisition and/or merger resulting in a change
of the ultimate ownership exercising control (direct or indirect) to other than
those controlling PTK-Warsaw as of January 1, 1996, in which event Mr. Muras
will be entitled to a severance of six month's salary payable over a six month
period. In addition, in the event that the contract is not renewed, PTK-Warsaw
has agreed to pay Mr. Muras a severance of six month's salary payable over a six
month period as compensation for his role in organizing PTK-Warsaw.
Mr. Houlehan entered into an employment agreement with PCBV on October 7,
1994. The employment agreement provided for an initial three to six month period
during which Mr. Houlehan would function as a consultant. Pursuant to that
agreement, Mr. Houlehan was named Director of Corporate Development of
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<PAGE> 87
PTK, S.A. and in December 1996 was named Chief Executive Officer of PCI
Programming. PCBV agreed to pay Mr. Houlehan an annual salary of $150,000 plus a
housing allowance and the use of a company automobile. Mr. Houlehan was eligible
for incentive compensation of up to $60,000 in the first year of his employment
and up to $120,000 during the second year thereof. The employment agreement was
assigned to PCI in 1994. The employment agreement states that Mr. Houlehan is
employed at will and that the provisions of his employment agreement are
governed by the employee manual for Chase Enterprises, Inc.; therefore, Mr.
Houlehan's employment may be terminated by either party with or without cause at
any time. Mr. Houlehan's employment agreement was amended on July 10, 1996 to
provide for a $25,000 bonus, payable immediately, as well as an agreement for up
to $50,000 of additional incentive compensation.
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<PAGE> 88
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock as of April 1, 1997 by (i) each person
known by PCI to own beneficially 5% or more of any class of PCI's voting stock,
(ii) each director and executive officer of the Company, and (iii) all directors
and executive officers of the Company as a group. All percentages in this
section were calculated on the basis of outstanding securities plus securities
deemed outstanding under Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF PERCENTAGE
OF SERIES B SERIES B OF
SHARES OF PERCENTAGE OF PREFERRED PREFERRED VOTING
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK STOCK STOCK POWER
- ------------------------------------- ------------ ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Polish Investments Holding L.P.
One Commercial Plaza
Hartford, CT 06103................. 10,303 52.94% -- -- 42.35%
ECO Holdings III Limited
Partnership(a)
c/o Advent International Corp.
101 Federal Street
Boston, MA 02110................... 4,662 23.95 2,500 100.00 39.15(b)
Steele LLC(c)
19 Warren Terrace
Longmeadow, MA 01106............... 1,429 7.34 -- -- 5.87
Roger M. Freedman
One Commercial Plaza
Hartford, CT 06103................. 1,221 6.27 -- -- 5.02
Cheryl Anne Chase Marital Trust
One Commercial Plaza
Hartford, CT 06103................. 733 3.76 -- -- 3.01
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase(d).................... 13,686 70.32 -- -- 56.26
Robert E. Fowler, III(e)............. 515 2.64 -- -- 2.11
Arnold L. Chase...................... -- -- -- -- --
Scott A. Lanphere.................... -- -- -- -- --
Jerzy Z. Swirski..................... -- -- -- -- --
Richard B. Steele(f)................. 1,429 7.34 -- -- 5.87
George Makowski(f)................... -- -- -- -- --
Cheryl Anne Chase(g)................. 11,036 56.70 -- -- 45.36
John S. Frelas(h).................... -- -- -- -- --
Przemyslaw Szmyt..................... -- -- -- -- --
Marek Sowa........................... -- -- -- -- --
Gilbert L. Tash...................... -- -- -- -- --
John P. Redding...................... -- -- -- -- --
Andrzej Muras........................ -- -- -- -- --
Michael J. Houlehan.................. -- -- -- -- --
------ ----- ----- --- -----
ALL DIRECTORS AND OFFICERS AS A GROUP
(15 PERSONS):(f)................... 14,201 72.96% -- -- 58.38%
</TABLE>
- ---------------
(a) The general partner of ECO is Advent.
(b) Such shares of Series B Preferred Stock are currently convertible into 4,862
shares of Common Stock and vote with the Common Stock on an as if converted
basis.
(c) Includes 1,429 shares of Common Stock owned by Steele LLC which may be
deemed to be beneficially owned by Mr. Steele.
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<PAGE> 89
(d) Includes (i) 10,303 shares of Common Stock owned by PIH which may be deemed
to be beneficially owned by the Chase Family, which includes Mr. Chase, and
Mr. Chase has an irrevocable proxy to vote such shares in his sole
discretion pursuant to the Voting Agreement; (ii) 1,221 shares of Common
Stock owned by Mr. Freedman with respect to which Mr. Chase has an
irrevocable proxy to vote in his sole discretion with respect to all the
shares of Common Stock held of record by Mr. Freedman pursuant to the Voting
Agreement; (iii) 733 shares of Common Stock owned by the Cheryl Anne Chase
Marital Trust with respect to which Mr. Chase has an irrevocable proxy to
vote in his sole discretion with respect to all the shares of Common Stock
held of record by the Cheryl Anne Chase Marital Trust pursuant to the Voting
Agreement; and (iv) 1,429 shares of Common Stock owned by Steele LLC with
respect to which Mr. Chase has an irrevocable proxy to vote in his sole
discretion pursuant to the Voting Agreement (the shares of Common Stock
owned by PIH, Mr. Freedman and Steele LLC voted by Mr. Chase pursuant to the
Voting Agreement are collectively referred to as the "Voting Agreement
Shares").
(e) During 1997, Mr. Fowler was granted options to purchase 1,286 shares of
Common Stock, of which 515 are exercisable within 60 days of the date of
this Prospectus.
(f) During 1997 Mr. Makowski was granted options to purchase 385 shares of
Common Stock, none of which are exercisable within 60 days of the date of
this Prospectus.
(g) Includes 10,303 shares of Common Stock owned by PIH which may be deemed to
be beneficially owned by the Chase Family and 733 shares of Common Stock
owned by the Cheryl Anne Chase Marital Trust. Ms. Chase disclaims beneficial
ownership in the shares owned by PIH, by the Cheryl Anne Chase Marital Trust
and by other members of the Chase Family.
(h) Mr. Frelas has been granted options to purchase 241 shares of Common Stock,
none of which are exercisable within 60 days of the date of this Prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS
David T. Chase is the father of Arnold L. Chase and Cheryl Anne Chase. No
other family relationship exists between any of the directors and executive
officers of PCI.
CAPITAL CONTRIBUTIONS AND SHAREHOLDER LOANS
On March 29, 1996, PCI consummated a Stock Purchase Agreement with ECO (the
"ECO Stock Purchase Agreement"), pursuant to which ECO contributed an aggregate
of $65 million to PCI in exchange for 4,662 shares of Common Stock, 4,000 shares
of Series A Preferred Stock and 2,500 shares of Series B Preferred Stock.
Simultaneously, PIH purchased 2,000 shares of Series C Preferred Stock and 812
shares of Common Stock from PCI for aggregate consideration of approximately $17
million. A portion of the proceeds from these transactions were loaned by PCI to
a subsidiary of PCI which used such funds to repay approximately $55 million of
debt that such subsidiary owed to Chase American Corporation, which is owned by
the Chase Family.
As part of the ECO Stock Purchase Agreement, D.T. Chase Enterprises, Inc.
("D.T. Chase"), ECO, PIH and PCI entered into an Option Agreement giving PCI the
right to purchase all of D.T. Chase's interest in ProCable. On March 29, 1996,
PCI exercised the option and entered into a Share Purchase Agreement with D.T.
Chase pursuant to which PCI purchased D.T. Chase's 33% interest in ProCable for
approximately $5,900.
REDEMPTION OF SERIES D PREFERRED STOCK
In connection with the recapitalization of the Issuer that occurred
simultaneously with Advent's investment of $65 million in PCI, on March 29, 1996
PCI redeemed 1,151 shares of Series D Preferred Stock, which represented all of
the issued and outstanding shares of Series D Preferred Stock, for approximately
$8.5 million. All of the shares of Series D Preferred Stock were held by PIH,
which is beneficially owned by the Chase Family.
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RYNTRONIK
In December 1994, PCBV entered into an agreement with the sole proprietor
of PPHEI-Ryntronik, whereby the sole proprietor agreed to contribute in-kind all
of his cable television assets into PTK-Ryntronik, and PCI agreed to contribute
additional capital into PTK-Ryntronik. In exchange for their contributions, the
sole proprietor received 51% of the share capital of PTK-Ryntronik and PCBV
received 49% of the share capital. The sole proprietor's in-kind contribution of
cable television assets to PTK-Ryntronik was consummated in February 1996. The
Company also owns convertible debt that, if converted, would bring its ownership
of PTK-Ryntronik to approximately 72% as of December 31, 1996. In October 1996,
PCI and the sole proprietor entered into a share sale agreement by virtue of
which PCI agreed to purchase all remaining shares (which at that time
represented 51%) of PTK-Ryntronik for $9 million. Pursuant to the agreement, the
Company advanced $6 million of the purchase price as of December 31, 1996. The
closing of the sale was postponed due to certain legal constraints limiting the
transferability of shares which were acquired in exchange for in-kind
contributions. On March 4, 1997, the Company and the sole proprietor entered
into an addendum and an annex to the addendum to the share sale agreement. The
addendum and annex provide for an acceleration of the Company's acquisition of
the sole proprietor's interest in PTK-Ryntronik. In the addendum and annex, the
Company and the sole proprietor agreed to transform PTK-Ryntronik into a limited
liability company, at which time the sole proprietor has agreed to transfer all
shares of PTK-Ryntronik to PCI or its nominee. The Company agreed to pay the
sole proprietor $700,000 within three days of the signing of the addendum,
$1,000,000 on March 28, 1997 and $1,750,000 upon the transfer of his shares to
the Company or its nominee. A portion of the proceeds of the offering of the
Notes may be used to pay for the acquisition of such shares. In addition,
Poltelkeb subscribed and became the owner of 4.5% of the capital stock of PTK-
Ryntronik.
SHAREHOLDERS' AGREEMENT
The following is a summary of the shareholders' agreement entered into by
and among ECO, Roger M. Freedman, PIH, Steele LLC and PCI on March 29, 1996, as
amended (the "Shareholders' Agreement"). CACMT, which received its shares from
Mr. Freedman, signed an accession agreement on November 22, 1996. The following
summary does not purport to be complete, and it is qualified in its entirety by
reference to the Shareholders' Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, copies of which are
available upon request from PCI. Parties to the Shareholders' Agreement, other
than PCI, are hereinafter referred to as the "Shareholders."
In connection with the ECO Stock Purchase Agreement, ECO, Mr. Freedman,
CACMT, PIH, Steele LLC and PCI entered into the Shareholders' Agreement to
govern the conduct of the business of PCI and relations among the Shareholders.
The Shareholders' Agreement provides that another shareholder, The AESOP Fund,
L.P. ("AESOP"), has certain rights and obligations that will take effect if and
when AESOP signs the Shareholders' Agreement. As of the date hereof, AESOP had
not signed the Shareholders' Agreement.
PCI has a five-member Board of Directors. Under the Shareholders'
Agreement, the ECO Group has the right to designate two directors, and the Chase
Group has the right to designate a Chief Executive Officer acceptable to the ECO
Group, who is a member of the board of directors, as well as the remaining two
directors. Pursuant to the Shareholders' Agreement, the "ECO Group" consists of
ECO, any limited partner of ECO to whom ECO permissibly transfers shares of
stock of PCI ("Shares"), and any Affiliate (as hereinafter defined) of the
foregoing. The ECO Group chooses the ECO Group Representative, who currently is
Scott Lanphere, a director of PCI. Pursuant to the Shareholders' Agreement, the
Chase Group choose the Chase Group Representative. Pursuant to the Voting
Agreement, PIH, Mr. Freedman, CACMT, 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
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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 21% of its Shares of any class, or if Mr.
Freedman, CACMT, 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 21% 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 65% 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.
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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.
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 65% of the total voting
power agree to terminate the Shareholders' Agreement, (ii) an initial public
offering of at least 20% of PCI's common stock, or (iii) the date on which no
party to the Shareholders' Agreement holds any Shares.
PCI REGISTRATION RIGHTS AGREEMENT
Also in connection with the Advent Stock Purchase Agreement, PCI entered
into a registration rights agreement (the "Shareholder Registration Rights
Agreement") with PIH, ECO, Mr. Freedman, Steele LLC and AESOP (in the event that
it executes the Shareholder Registration Rights Agreement) (collectively, the
"Rightsholders"). Pursuant to the Shareholder Registration Rights Agreement, PIH
and ECO will, after March 29, 1999, have the right under certain circumstances
to demand that PCI register their shares of Common Stock under the Securities
Act. After March 29, 2001, PIH and ECO will have the right to demand that PCI
register their shares of Common Stock in a shelf registration under Rule 415 of
the Securities Act. In addition, if PCI proposes to register any of its
securities under the Securities Act (other than registrations in connection with
employee stock ownership plans, offerings of debt securities and certain shelf
registrations), all of the Rightsholders will have the right, until March 29,
2004, to have their shares of Common Stock be included in such registration. The
registration rights described above expire on March 29, 2004 and are subject to
certain limitations, including limitations on the number of shares of Common
Stock to be included by the Rightsholders in particular registrations and on the
number of demand registrations that can be required by PIH and ECO.
PCBV SHAREHOLDERS' AGREEMENT
PCI holds 92.3% of the issued and outstanding capital stock of PCBV which
owns 100% of the issued and outstanding capital stock of each of PTK-Krakow,
PTK-Warsaw, and 49% of the issued and outstanding capital stock of
PTK-Ryntronik, as well as approximately 98% of the issued and outstanding
capital stock of PTK, S.A.
The following is a summary of the shareholders' agreement (the "PCBV
Shareholders' Agreement") entered into by and among Frank N. Cooper, Reece
Communications, Inc., Rutter-Dunn Communications, Inc., and Poland Cablevision
U.S.A., Inc. (collectively, the "Minority Shareholders"), PCI, and PCBV on March
8, 1990, as amended. The following summary does not purport to be complete, and
it is qualified in its entirety by reference to the PCBV Shareholders'
Agreement. The parties to the PCBV Shareholders' Agreement other than PCBV are
hereinafter referred to as the "PCBV Shareholders." Shares of the capital stock
of PCBV are hereinafter referred to as "PCBV Shares."
The PCBV Shareholders' Agreement protects shareholdings of each Minority
Shareholder from dilution, by requiring that the PCBV Shares of each Minority
Shareholder must continue to represent a constant percentage of the total equity
in PCBV and of the total votes to be cast by the PCBV Shareholders on any
subject, regardless of changes to the capital structure of PCBV and regardless
of any additional equity funds that may be contributed to PCBV by PCI.
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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.
The PCBV Shareholders' Agreement also includes covenants against
competition that limit the ability of each PCBV Shareholder to engage directly
or indirectly in any aspect of the cable television business in Poland for a
period ending ten years after such PCBV Shareholder ceases to be a PCBV
Shareholder. PCI has direct or indirect ownership interests in a number of
entities that engage in certain aspects of the cable television business in
Poland. See "Prospectus Summary -- Current Organizational Structure." Under the
PCBV Shareholders' Agreement, the Minority Shareholders have a claim against
7.7% of the profits and equity of such entities and, under a supplemental
agreement, PCI has agreed to share the profits of these entities with the
Minority Shareholders on a pro rata basis. In addition, PCI is negotiating to
buy, and has made an offer to buy, the outstanding PCBV Shares held by the
Minority Shareholders. See "Use of Proceeds."
VOTING AGREEMENT
Pursuant to the Voting Agreement among PIH, Mr. Freedman and Steele LLC
dated as of March 29, 1996, David Chase received an irrevocable proxy to vote
all of the 13,686 Voting Agreement Shares on all corporate actions. The Cheryl
Anne Chase Marital Trust, which received its shares from Mr. Freedman, signed an
accession agreement on November 22, 1996. Pursuant to the Voting Agreement, Mr.
Chase was appointed as the Chase Group Representative (as defined in the
Shareholders' Agreement). The Voting Agreement also contains restrictions on the
transferability of Voting Agreement Shares subject to the irrevocable proxy
during the term of the Voting Agreement.
SERVICE AGREEMENTS
PCI has entered into service agreements with PCBV and other of its direct
and indirect subsidiaries (the "Service Agreements"), including Poltelkab,
PTK-Telkat, PTK-Szczecin, PTK-Lublin, ETV, PTK, S.A., PTK-Ryntronik, PTK-Warsaw,
and PTK-Krakow pursuant to which PCI provides various services, including
administrative, technical, managerial, financial, operational and marketing
services to each of the subsidiaries and PCBV serves as PCI's agent. PCI also
entered into a service agreement, dated August 31, 1995, with PCBV and ETV,
whereby PCBV is the principal service provider and PCI acts as agent to PCBV
(the "ETV Service Agreement"). The services provided under these agreements are
intended to enable the subsidiaries to construct, develop, operate and manage
cable television systems throughout Poland. Except for the ETV Service
Agreement, which requires ETV to pay $18,740 per calendar quarter to PCBV, the
Service Agreements provide that the subsidiaries will each pay to PCI or PCBV,
as the case may be, a fee of $10,000 per calendar quarter for performing general
administrative services, and a commercially reasonable rate for legal, financial
and other specific professional services. With the exception of the ETV Service
Agreement, if a subsidiary is obligated to pay fees to PCI pursuant to a
management agreement (described below), any fee
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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. Telkat pays to PCI an annual consulting fee
of only $160,000. The management agreements also provide for an initial term
ending as of the end of the calendar year during which they became effective,
and provide for successive renewals for one-year periods unless the agreement is
terminated in writing with at least thirty days notice by either party.
CORPORATE OVERHEAD ALLOCATION AGREEMENT
PCI has entered into a Corporate Overhead Allocation Agreement, dated
January 1, 1996 (the "Allocation Agreement"), with PTK, S.A., PTK-Warsaw,
PTK-Ryntronik, PTK-Krakow, PTK-Szczecin, PTK-Lublin, ETV, PTK-Telkat and
Poltelkab (collectively the "PTK Companies"), and PCBV. The Allocation Agreement
provides that costs incurred by PCI or PCBV, acting as PCI's agent, with regard
to the Service Agreements and as otherwise requested by the PTK Companies shall
be allocated and charged to particular PTK Companies in the event they are
directly attributable to such subsidiaries, and shall otherwise be allocated
equally among each of the PTK Companies. With regard to services rendered and
costs incurred by subsidiaries for the benefit of some or all of the PTK
Companies, which include costs associated with maintaining a central office in
Warsaw, legal expenses, expenses relating to governmental relationships and
approvals, programming services, accounting, management information systems
services, and salaries associated with personnel whose duties clearly benefit
other PTK Companies, the Allocation Agreement provides that such expenses shall
be allocated between by the PTK Companies. The Allocation Agreement terminates
on December 31, 1998, but is automatically renewed for successive one-year
periods unless at least thirty days written notice of termination is provided by
PCI or PCBV or any subsidiary, with respect to itself.
DESCRIPTION OF INDEBTEDNESS
CREDIT AGREEMENT WITH THE AMERICAN BANK IN POLAND, S.A.
In August 1996, PCI entered into a credit agreement establishing a
revolving loan facility (the "1996 Facility") which allows PCI to borrow up to a
maximum principal amount of $6.5 million in multiple disbursements on or before
December 31, 1998. As of December 31, 1996 approximately $550,000 was
outstanding under the 1996 Facility. As of the date hereof, there is no amount
outstanding under the facility. The Company will be able to utilize this
facility for future borrowings (subject to the limitations in the Indenture with
regard to incurrence of additional indebtedness).
In addition to an arrangement fee of approximately $50,000 and an annual
charge of 0.25% of the undrawn funds, PCI is required to pay interest on any
outstanding principal amount under the 1996 Facility at a rate equal to the
three-month LIBOR on the date of disbursement plus 3%. The outstanding principal
amount under the 1996 Facility and accrued interest thereon amount is due in
full on August 20, 1999. As of December 31, 1996, the interest rate on this loan
equaled 8.60%. Acceleration of repayment of amounts outstanding under the 1996
Facility may be triggered by certain conditions of default, which include
customary terms associated with revolving loan facilities. In the event of a
default, PCI shall pay an additional penalty of 15% per annum on the outstanding
principal amount under the 1996 Facility. Pursuant to the 1996
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Facility, the Company is subject to certain informational and notice
requirements but is not subject to restrictive covenants.
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 April
30, 1997, it had loaned approximately $112.5 million to PCBV, $3.0 million to
PTK-Szczecin, $0.2 million to PTK-Lublin and $4.7 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 April 30, 1997, PCBV had loaned approximately $83.8 million to PTK S.A.,
PTK-Warsaw, PTK-Ryntronik and PTK-Krakow (the "PCBV Grid Notes"). The PCBV Grid
Notes are revolving credit facilities which call for the borrower to pay
interest of 10% per annum, payable monthly, on the outstanding principal amount
and contain standard events of default for related-party indebtedness. One of
these PCBV Grid Notes becomes due on June 10, 1998 and the other is due on
demand. The PCBV Grid Notes between PCBV and PTK-Ryntronik, PTK-Warsaw and
PTK-Krakow all become due on June 30, 1999.
The Issuer pledged to the Trustee for the benefit of the holders of the
Notes, the Pledged Debt which consisted of Grid Notes issued by PCBV of a
minimum aggregate principal amount, together with cash at the Issuer, equal to
110% of the outstanding principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest and provide for principal
repayments, as the case may be, in amounts sufficient to pay interest on the
Notes.
DESCRIPTION OF THE NOTES
The Exchange Notes offered hereby are issued under an indenture dated as of
October 31, 1996 (the "Indenture") between PCI, as issuer, and State Street bank
and Trust Company, as trustee (the "Trustee"). The Exchange Notes will evidence
the same debt as the Old Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture. Upon the issuance of the Exchange
Notes, if any, or the effectiveness of the Shelf Registration Statement, the
Indenture will be subject to and governed by the Trust Indenture Act. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. For definitions of certain capitalized terms used in this
summary, see "-- Certain Definitions."
GENERAL
The Notes are senior obligations of PCI limited to $130 million aggregate
principal amount. The Notes will mature on November 1, 2003. Each Note bears
interest at the rate set forth on the cover page hereof from October 31, 1996 or
from the most recent interest payment date to which interest has been paid or
duly provided for, payable in cash on May 1, 1997 and semiannually thereafter on
May 1 and November 1 in each year (each, an "Interest Payment Date") until the
principal thereof is paid or duly provided for to the Person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
April 15 or October 15 preceding such interest payment date. The Exchange Notes
issued in exchange for Old Notes will
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accrue interest from the later of October 31, 1996, the Issue Date, or the last
day interest was paid on the Old Notes. Holders whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any accrued but
unpaid interest on the Old Notes. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months. The circumstances under which the
interest rate may increase from the rate set forth on the front cover hereof are
described below under "Exchange Offer; Registration Rights."
Principal of (premium, if any, on) and interest on the Notes is payable,
and the Notes are exchangeable and transferable, at the office or agency of PCI
in The City of New York maintained for such purposes (which initially will be
the office of the Trustee); provided, however, that payment of interest may be
made at the option of PCI by check mailed to the address of the Person entitled
thereto as shown on the security register. (Sections 301, 305 and 1002) The
Notes are issued only in fully registered form without coupons and only in
denominations of $1,000 and any integral multiple thereof. (Section 302) No
service charge will be made for any registration of transfer or exchange or
redemption of Notes, but PCI may require payment in certain circumstances of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. (Section 305)
RANKING
The indebtedness of PCI evidenced by the Notes ranks senior in right of
payment to all indebtedness of PCI subordinated to the Notes and pari passu in
right of payment with all other existing and future unsubordinated indebtedness
of PCI.
PCI is a holding company with limited assets and no business operations of
its own. PCI operates its business through its subsidiaries. Any right of PCI
and its creditors, including holders of the Notes, to participate in the assets
of any of PCI's subsidiaries upon any liquidation or administration of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including trade creditors. PCI has pledged to the Trustee for the benefit of the
holders of Notes the Pledged Debt issued by PCBV, of a minimum aggregate
principal amount, together with cash and cash equivalents of PCI, equal to at
least 110% of the outstanding principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest and provide for principal
repayments, as the case may be, in amounts sufficient to pay interest on the
Notes. The assets of PCBV consist principally of capital stock of its
subsidiaries and intercompany notes from such subsidiaries. The Pledged Debt may
not be amended or pledged to any person other than the Trustee for the benefit
of the holders of the Notes. The Indenture, however, does not contain any
specific covenant prohibiting PCI or PCBV from amending, waiving any rights
under, pledging or terminating any intercompany notes other than the Pledged
Debt. For a discussion of certain adverse consequences of PCI being a holding
company and of the terms of certain existing and potential future indebtedness
of PCI and its subsidiaries, see "Risk Factors -- Holding Company Structure."
SINKING FUND
The Notes are not entitled to the benefit of any sinking fund.
REDEMPTION
At any time or from time to time prior to November 1, 1999 PCI may redeem
up to a maximum of 33% of the initially outstanding aggregate principal amount
of the Notes with some or all of the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 109.875% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that immediately
after giving effect to such redemption, at least $87 million aggregate principal
amount of the Notes remains outstanding.
In addition, (a) upon the occurrence of a Change of Control, each holder of
Notes has the right to require that PCI purchase such holder's Notes, in whole
or in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record
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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 conversion of, or
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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
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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 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.
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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)
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
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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.
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(e) PCI will comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, in connection with an Excess Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. PCI will not, and will not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Subsidiary to (a)
pay dividends, in 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 Subsidiar-
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ies 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.
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
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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).
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all of substantially all of the
properties and assets of PCI in accordance with the immediately preceding
paragraph in which PCI is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, PCI under the Indenture, with the same effect as if
such successor had been named as PCI therein. When a successor assumes all the
obligations of its predecessor under the Indenture and the Notes, the
predecessor shall be released from those obligations; provided that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal and interest on the Notes.
EVENTS OF DEFAULT
The following constitute "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(c) default in the performance, or breach, of the provisions described
in "Consolidation, Merger and Sale of Assets," the failure to make or
consummate a Change of Control offer in accordance with the provisions of
the "Purchase of Notes upon a Change of Control" covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the "Limitation on Sale of Assets" covenant;
(d) default in the performance, or breach, of any covenant or
agreement of PCI contained in the Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in the Indenture) and continuance of such default or
breach for a period of 30 days after written notice shall have been given
to PCI by the Trustee or to PCI and the Trustee by the holders of at least
25% in aggregate principal amount of the Notes then outstanding;
(e) (i) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of PCI or any Significant Subsidiary
aggregating $5 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (ii) Indebtedness of PCI or any Significant Subsidiary
aggregating $5 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
(f) any holder or holders (or any Person acting on any such holder's
behalf) of any Indebtedness in excess of $5 million in the aggregate of PCI
or any Significant Subsidiary shall, subsequent to the occurrence of a
default with respect to such Indebtedness, notify the Trustee of the
intended sale or disposition of any assets of PCI or any Subsidiary that
have been pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take action to retain in
satisfaction of any such Indebtedness, or to collect on, seize, dispose of
or apply, any such assets of PCI or any Subsidiary pursuant to the terms of
any agreement or instrument evidencing any such Indebtedness of PCI or any
Subsidiary or in accordance with applicable law;
(g) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against PCI or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $5 million and either
(i) an enforcement proceeding shall have been commenced by any creditor
upon such judgment or order or (ii) there shall have been a period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, was not in effect; or
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(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
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execute proper instruments acknowledging satisfaction and discharge of the
Indenture when (a) either (i) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid) have been delivered to the Trustee for cancellation or (ii) all Notes
not theretofore delivered to the Trustee for cancellation (x) have become due
and payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of PCI, and PCI has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose an amount sufficient to pay and discharge the entire Indebtedness
on such Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of such
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be; (b) PCI has paid or
caused to be paid all sums payable under the Indenture by PCI; and (c) PCI has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
(Section 401)
AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture may
be made by PCI and the Trustee with the consent of the holders of a majority in
aggregate outstanding principal amount of the Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); (b) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any waiver of compliance with certain provisions of, or
certain defaults and their consequences provided for under, the Indenture; (c)
modify any provisions described under "-- Amendments and Waivers" or "-- Events
of Default," except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Note; or (d) amend, change or modify the obligation of PCI to make and
consummate a Change of Control Offer in the event of a Change of Control or an
Excess Proceeds Offer in connection with any Asset Sale or modify any of the
provisions or definitions with respect thereto. (Section 902)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of PCI, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes are governed by, and shall be construed in
accordance with, the laws of the State of New York.
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EXCHANGE OFFER; REGISTRATION RIGHTS
PCI has entered into a registration rights agreement with the Initial
Purchaser (the "Registration Rights Agreement") pursuant to which PCI agreed,
for the benefit of the holders of the Old Notes, at PCI's cost, (a) to use its
best efforts to file the Exchange Offer Registration Statement of which this
Prospectus is a part within 90 days after the Issue Date (January 29, 1997) with
the Commission with respect to the Exchange Offer for the Exchange Notes, which
will have terms identical in all material respects to the Old Notes (except that
the Exchange Notes will not contain terms with respect to transfer restrictions
or interest rate increases as described below) and (b) to use its best efforts
to cause this Registration Statement to be declared effective under the
Securities Act by May 29, 1997. As soon as practicable, but in no event more
than one week, after this Registration Statement is declared effective, PCI will
offer to the holders of Old Notes who are not prohibited by any law or policy of
the Commission from participating in the Exchange Offer the opportunity to
exchange their Old Notes for the Exchange Notes. PCI will keep the Exchange
Offer open for not less than 30 calendar days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Old Notes. For each Old Note surrendered to PCI pursuant to the
Exchange Offer, the holder of such Old Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Old Note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "The Exchange Offer -- Resale of the Exchange Notes" and
"Plan of Distribution."
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (a) it is not an affiliate of PCI, (b) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business and (c) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. If the holder is not a
broker-dealer, it will be required to represent that it is not engaged in, and
does not intend to engage in, the distribution of the Exchange Notes. If the
holder is a broker-dealer (a "Participating Broker-Dealer") who acquired the
Notes for its own account as a result of market-making or other trading
activities, it will be required to acknowledge that it must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other
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than a resale of an unsold allotment from the original sale of the Old Notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, PCI is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
In the event that (a) any changes in law or the applicable interpretations
of the staff of the Commission do not permit PCI to effect the Exchange Offer;
(b) if for any reason the Exchange Offer is not consummated by June 28, 1997;
(c) any holder of Notes notifies PCI within a specified time period that (i) due
to a change in law or Commission policy it is not entitled to participate in the
Exchange Offer, (ii) due to a change in law or Commission policy it may not
resell the Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in this Registration
Statement is not appropriate or available for such resales by such holder or
(iii) it is a broker-dealer and owns Notes acquired directly from PCI or an
affiliate of PCI; or (d) the holders of a majority of the Notes may not resell
the Notes acquired by them in the Exchange Offer to the public without
restriction under the Securities Act and without restriction under applicable
blue sky or state securities laws, PCI will, at its cost, as promptly as
practicable, file a Shelf Registration Statement covering resales of the Notes
by such holders who satisfy certain conditions relating to, among other things,
the provision of information in connection with the Shelf Registration
Statement. For purpose of the foregoing, the "Notes" means each Old Note until
(a) such Old Note has been exchanged for a freely transferable Exchange Note
upon consummation of the Exchange Offer, (b) such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (c) such Old Note is sold to the public pursuant to
Rule 144(k) (or any similar provision, but not Rule 144A) under the Securities
Act. PCI will use its best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act by July 28, 1997 and use its best
efforts to keep effective (except in certain limited periods) the Shelf
Registration Statement until three years after its effective date (or until one
year after such effective date if such Shelf Registration Statement is filed at
the request of the Initial Purchaser pursuant to clause (c)(iii) above). The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Notes copies of the prospectus which is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to generally permit unrestricted resales of the Notes. A
holder of Notes that sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations). In addition, each holder of the Notes will
be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Notes included in the Shelf Registration Statement and to
benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to January 30, 1997, (b) the Exchange
Offer Registration Statement is not declared effective on or prior to May 29,
1997, (c) the Exchange Offer is not consummated on or prior to June 28, 1997,
or, as the case may be, a Shelf Registration Statement with respect to the Notes
is not declared effective on or prior to July 28, 1997 or (d) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared effective
but thereafter ceases to be effective or usable (except in certain limited
periods) (each such event referred to in clauses (a) through (d) above, a
"Registration Default"), then the interest rate borne by the Notes shall be
increased by an amount equal to one-half of one percent (0.5%) per annum, with
respect to the first 90-day period following such Registration Default. The
amount of such additional interest will increase by an additional one-half of
one percent (0.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured, up to a maximum of one and one-half percent
(1.5%) per annum. Upon the cure of all applicable Registration Defaults, such
additional interest will cease to accrue.
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The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospects is a part.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition; provided that, for purposes of the "Limitation
on Additional Indebtedness" covenant, such Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Voting Stock
or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of PCI are available multiplied by four. For purposes of
calculating "Consolidated Operating Cash Flow" for any fiscal quarter for
purposes of this definition, (a) all Subsidiaries of PCI on the date of the
transaction giving rise to the need to calculate "Annualized Pro Forma
Consolidated Operating Cash Flow" (the "Transaction Date") shall be deemed to
have been Subsidiaries at all times during such fiscal quarter and (b) any
Unrestricted Subsidiary of PCI on the Transaction Date shall be deemed to have
been an Unrestricted Subsidiary at all times during such fiscal quarter. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated Operating Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable fiscal quarter to, without
duplication, any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of PCI or a Subsidiary (including any Person who becomes
a Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the period
commencing on the first day of such fiscal quarter to and including the
Transaction Date (the "Reference Period"), as if such Asset Sale or Asset
Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" means (a) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by PCI or any
Subsidiary in any other Person, or any acquisition or purchase of Capital Stock
of any other Person by PCI or any Subsidiary, in either case pursuant to which
such Person shall become a Subsidiary or shall be merged with or into PCI or any
Subsidiary or (b) any acquisition by PCI or any Subsidiary of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
PCI or a Subsidiary in one transaction or a series of related transactions, of
(a) any Capital Stock of any Subsidiary, (b) any material license or other
authorization of PCI or any Subsidiary pertaining to a Cable/Telecommunications
Business, (c) any assets of PCI or any Subsidiary which constitute substantially
all of an operating unit or line of business of PCI and its Subsidiaries or (d)
any other property or asset of PCI or any Subsidiary outside of the ordinary
course of business. For the purposes of this definition, the term
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"Asset Sale" shall not include (a) any disposition of properties and assets of
PCI that is governed under "Consolidation, Merger and Sale of Assets" above, (b)
sales of property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of PCI or any
Subsidiary, as the case may be, (c) for purposes of the covenant "Limitation on
Sale of Assets," any sale, conveyance, transfer, lease or other disposition of
any property or asset, whether in one transaction or a series of related
transactions, either (i) involving assets with a Fair Market Value not in excess
of $500,000 (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent
thereof) or (ii) as part of a Capitalized Lease Obligation and (d) any transfer
by PCI or a Subsidiary of property or equipment to a Person who is not an
Affiliate of PCI in exchange for property or equipment that has a fair market
value at least equal to the fair market value of the property or equipment so
transferred; provided that, in the event of a transfer described in this clause
(d), PCI shall deliver to the Trustee an officer's certificate certifying that
such exchange complies with this clause (d).
"Authorized Prior Owner" means any Person from whom PCI or any Subsidiary
made a Cable/Telecommunications Acquisition; provided that any such Person shall
be an Authorized Prior Owner only with respect to the business, assets or
properties acquired in such Cable/Telecommunications Acquisition.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Cable/Telecommunications Acquisition" means an Asset Acquisition,
including, without limitation, the portion of the consideration paid for an
Asset Acquisition that is allocated to non-compete arrangements, of properties
or assets to be used in a Cable/Telecommunications Business or of the Capital
Stock of any Person that becomes a Subsidiary, provided such Person's assets and
properties consist principally of properties or assets that will be used in a
Cable/Telecommunications Business.
"Cable/Telecommunications Business" means any business operating a cable or
telephone or telecommunications system in the European Continent or any business
reasonably related thereto, including, without limitation, any business
conducted by PCI or any Subsidiary on the Issue Date and any video or music
programming, distribution, production or licensing business and any programming
guide or telephone directory business.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof);
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(b) certificates of deposit or acceptances with a maturity of 180 days or less
of any financial institution that is a member of the Federal Reserve System, in
each case having combined capital and surplus and undivided profits of not less
than $500,000,000; and (c) commercial paper with a maturity of 180 days or less
issued by a corporation that is not an Affiliate of PCI and is organized under
the laws of any state of the United States or the District of Columbia and rated
at least A-1 by S&P or at least P-l by Moody's.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of PCI; (b)
PCI consolidates with, or merges with or into another Person or conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with or merges with or into
PCI, in any such event pursuant to a transaction in which the outstanding Voting
Stock of PCI is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of PCI is not converted or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of PCI) or is converted
into or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (B) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation and cash,
securities and other property (other than Capital Stock of the Surviving Entity)
in an amount that could be paid by PCI as a Restricted Payment as described
under the "Limitation on Restricted Payments" covenant and (ii) immediately
after such transaction, no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
surviving or transferee corporation; (c) during any consecutive two year period,
individuals who at the beginning of such period constituted the Board of
Directors of PCI (together with any new directors whose election to such Board
of Directors, or whose nomination for election by the stockholders of PCI, was
approved by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of PCI then in office; or (d) PCI is
liquidated or dissolved or a special resolution is passed by the shareholders of
PCI approving the plan of liquidation or dissolution other than in a transaction
which complies with the provisions described under "Consolidation, Merger and
Sales of Assets."
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock or ordinary shares.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of PCI and the Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of PCI and its Subsidiaries for such period,
including, without limitation, (i) amortization of original issue discount, (ii)
the net cost of Interest Rate Agreements (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) accrued
interest, (v) the consolidated amount of any interest capitalized by PCI,
provided that such amount will be limited for purposes of this definition to the
amount that would have been obtained if such interest had been capitalized at
the interest rate for the Notes, and (vi) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, plus (b) the interest component of Capitalized Lease Obligations of
PCI and its Subsidiaries paid, accrued or scheduled to be paid or accrued during
such period, in each case as determined on a consolidated basis in accordance
with GAAP.
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"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of PCI and all Subsidiaries for such period as determined in
accordance with GAAP, adjusted by excluding, without duplication, (a) any net
after-tax extraordinary gains or losses (in each case less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (in each case less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or loss)
of any Person (other than PCI or a Subsidiary), including Unrestricted
Subsidiaries, in which PCI or any Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
PCI or any Subsidiary in cash dividends or distributions during such period, (d)
net income (or loss) of any Person combined with PCI or any Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (e) except with respect to any encumbrance or restriction described
in clause (ii) of the "Limitation on Dividends and Other Payment Restrictions"
covenant, the net income of any Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary or its
stockholders and (f) any non-cash items of PCI and any Subsidiary (including
monetary corrections) increasing or decreasing Consolidated Net Income for such
period (other than items that will result or have resulted in the receipt or
payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of PCI and its Subsidiaries for such period increased by
(in each case to the extent included in computing Consolidated Net Income) the
sum of (a) the Consolidated Income Tax Expense of PCI and its Subsidiaries
accrued according to GAAP for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (b) Consolidated
Interest Expense for such period; (c) depreciation of PCI and its Subsidiaries
for such period and (d) amortization of PCI and its Subsidiaries for such
period, including, without limitation, amortization of capitalized debt issuance
costs for such period, all determined on a consolidated basis in accordance with
GAAP provided that, if any Subsidiary is not a Wholly Owned Subsidiary,
Consolidated Operating Cash Flow shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (i) the amount of
Consolidated Net Income attributable to such Subsidiary multiplied by (ii) the
quotient of (1) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by PCI or any of its
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Subsidiary on the last day of such period.
"Cumulative Available Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Issue Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of PCI is available or, if such cumulative
Consolidated Operating Cash Flow for such period is negative, the negative
amount by which cumulative Consolidated Operating Cash Flow is less than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
"Default" means any event that after notice or passage of time or both
would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
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"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the Issue Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements) incurred in the ordinary course of business (whether or not
evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of the covenants "Limitation on
Additional Indebtedness" and "Limitation on Restricted Payments" and the
definition of "Events of Default," in determining the principal amount of any
Indebtedness to be incurred by the Issuer or a Subsidiary or which is
outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Subsidiary at
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the time that such Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by PCI in such Unrestricted Subsidiary at such
time. "Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Majority Owned Subsidiary" means a Subsidiary (a) at least 66.66% of the
outstanding Capital Stock of which is owned directly or indirectly by PCI or
PCBV and (b) no outstanding Capital Stock of which is owned, directly or
indirectly (except through PCI), by any shareholder or Affiliate of a
shareholder of PCI.
"Management Agreement" means (a) any agreement between a Subsidiary and a
Management Company pursuant to which the Management Company shall lease or
otherwise employ assets of the Subsidiary to operate a Cable/Telecommunications
Business and (b) any agreement or instrument governing Indebtedness of a
Management Company to PCI or a Subsidiary.
"Management Company" means any Person, a portion of whose Capital Stock is
held by PCI or a Subsidiary, that (i) holds or has applied for a license or
permit to operate a Cable/ Telecommunications Business in the Republic of Poland
and (ii) manages the operations of a Subsidiary pursuant to a Management
Agreement.
"Management Contract" means any agreement to which PCI or any Subsidiary
is a party pursuant to which, among other things, fees are paid to PCI or a
Subsidiary in exchange for organizational, consulting or similar services,
including, without limitation, the agreements listed on a schedule to the
Indenture under the subheading "Management Contracts."
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations or escrowed funds, but only when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to PCI or any Subsidiary), net of (i) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than PCI or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v) appropriate amounts to
be provided by PCI or any Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by PCI or any Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee and (b) with
respect to any capital contribution or issuance or sale of Capital Stock as
referred to under the "Limitation on Restricted Payments" covenant, the proceeds
of such capital contribution, issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to PCI or any Subsidiary of
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PCI), net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such capital contribution, issuance or sale and net of taxes paid or payable as
a result thereof.
"Overhead Agreement" means any agreement to which PCI or any Subsidiary is
a party pursuant to which, among other things, costs are allocated among the
parties thereto, including, without limitation, the agreements listed on a
schedule to the Indenture under the subheading "Overhead Agreements."
"Pari passu Indebtedness" means Indebtedness of PCI that is pari passu in
right of payment to the Notes.
"Permitted Holders" means, as of the date of determination, (a) David T.
Chase, (b) the family members, estates and heirs of David T. Chase and any trust
or other investment vehicle for the benefit of any such persons or their
respective family members or heirs, (c) ECO and (d) Advent.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Notes (or any guarantee thereof) and the
Indenture;
(b) Indebtedness of PCI or any Subsidiary outstanding on the date of
the Indenture and listed on a schedule thereto;
(c) Indebtedness of PCI or any Subsidiary that is incurred after
October 31, 1997 to the extent the proceeds thereof or credit support are
used to finance or support a Cable/Telecommunications Acquisition or
working capital for, or to finance the construction of, the business or
network acquired, but only to the extent the aggregate principal amount of
Indebtedness incurred under this clause (c) does not exceed $30 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
outstanding at any time;
(d) (i) Indebtedness of any Subsidiary owed to and held by PCI or a
Subsidiary and (ii) Indebtedness of PCI owed to and held by any Subsidiary
that is Subordinated Indebtedness; provided that an incurrence of
Indebtedness shall be deemed to have occurred upon (x) any sale or other
disposition (excluding assignments as security to financial institutions)
of any Indebtedness of PCI or Subsidiary referred to in this clause (d) to
a Person (other than PCI or a Subsidiary) or (y) any sale or other
disposition of Capital Stock of a Subsidiary which holds Indebtedness of
PCI or another Subsidiary such that such Subsidiary, in any such case,
ceases to be a Subsidiary;
(e) Obligations under any Interest Rate Agreement of PCI or any
Subsidiary to the extent relating to (i) Indebtedness of PCI or such
Subsidiary, as the case may be (which Indebtedness (x) bears interest at
fluctuating interest rates and (y) is otherwise permitted to be incurred
under the "Limitation on Additional Indebtedness" covenant), or (ii)
Indebtedness for which a lender has provided a commitment in an amount
reasonably anticipated to be incurred by PCI or a Subsidiary in the
following 12 months after such Interest Rate Agreement has been entered
into, but only to the extent that the notional principal amount of such
Interest Rate Agreement does not exceed the principal amount of the
Indebtedness (or Indebtedness subject to commitments) to which such
Interest Rate Agreement relates;
(f) Indebtedness of PCI or any Subsidiary under Currency Agreements to
the extent relating to (i) Indebtedness of PCI or a Subsidiary (which
Indebtedness is otherwise permitted to be incurred under the "Limitation on
Additional Indebtedness" covenant) or (ii) obligations to purchase assets,
properties or services incurred in the ordinary course of business of PCI
or any Subsidiary; provided that such Currency Agreements do not increase
the Indebtedness or other obligations of PCI and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness of PCI or any Subsidiary in respect of performance
bonds of PCI or any Subsidiary or surety bonds provided by PCI or any
Subsidiary incurred in the ordinary course of business in connection with
the construction or operation of a Cable/Telecommunications Business;
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(h) Indebtedness of PCI or any Subsidiary to the extent it represents
a replacement, renewal, refinancing or extension of outstanding
Indebtedness of PCI or of any Subsidiary incurred or outstanding pursuant
to clause (b) of this definition or the proviso of the covenant "Limitation
on Additional Indebtedness"; provided that (i) Indebtedness of PCI may not
be replaced, renewed, refinanced or extended to such extent under this
clause (i) with Indebtedness of any Subsidiary and (ii) any such
replacement, renewal, refinancing or extension (x) shall not result in a
lower Average Life of such Indebtedness as compared with the Indebtedness
being replaced, renewed, refinanced or extended, (y) shall not exceed the
sum of the principal amount (or, if such Indebtedness provides for a lesser
amount to be due and payable upon a declaration of acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing or
extension and such reasonable fees and expenses incurred in connection
therewith, and (z) in the case of any replacement, renewal, refinancing or
extension by PCI of Pari Passu Indebtedness or Subordinated Indebtedness,
such new Indebtedness is made pari passu with or subordinate to the Notes,
at least to the same extent as the Indebtedness being replaced, renewed,
refinanced or extended; and
(i) in addition to the items referred to in clauses (a) through (h)
above, Indebtedness of PCI having an aggregate principal amount not to
exceed $15 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business; (d) Interest Rate
Agreements and Currency Agreements; (e) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under the covenant
"Limitation on Sale of Assets," provided that PCI or the Subsidiaries, as the
case may be, have received at least 85% of the aggregate consideration therefrom
in cash or Cash Equivalents; and (f) Investments made in the ordinary course of
business as partial payment for constructing a network relating principally to a
Cable/ Telecommunications Business.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Subsidiary granted in favor
of PCI or any Subsidiary;
(b) Liens securing the Notes;
(c) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by PCI or any Subsidiary; provided that such Lien does not extend to any
property or assets of PCI or any Subsidiary other than the assets acquired
in connection with the incurrence of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business of PCI or any Subsidiary and with respect
to amounts not yet delinquent or being contested in good faith by
appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of PCI or any Subsidiary incurred in the ordinary course of business;
(g) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
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(h) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (h); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or seller under any Purchase Money Obligation;
(k) Liens securing Senior Bank Indebtedness;
(l) Liens in favor of Polish governmental fiscal authorities created
without the knowledge of and without fault on the part of PCI; and
(m) Liens existing on the date of Indenture and listed on a Schedule
thereto.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, S.A., Sp. z o.o.,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of PCI pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of PCI).
"Purchase Money Obligations" means Indebtedness of PCI or any Subsidiary
(a) issued to finance or refinance the purchase or construction of any assets of
PCI or any Subsidiary or (b) secured by a Lien on any assets of PCI or any
Subsidiary where the lender's sole recourse is to the assets so encumbered, in
either case to the extent the purchase or construction prices for such assets
are or should be included in "addition to property, plant or equipment" in
accordance with GAAP.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; provided, however, that Redeemable Capital Stock shall
not include any Common Stock the holder of which has a right to put to PCI upon
certain terminations of employment.
"Restricted Payment" means any of the following: (a) the declaration or
payment of any dividend or any other distribution on Capital Stock of PCI or any
payment made to the direct or indirect holders (in their capacities as such) of
Capital Stock of PCI (other than dividends or distributions payable solely in
Capital Stock (other than Redeemable Capital Stock) of PCI or in options,
warrants or other rights to purchase Capital Stock (other than Redeemable
Capital Stock) of PCI; (b) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of PCI (other than any such Capital
Stock owned by PCI or a Subsidiary) or any affiliate of PCI (other than any
Subsidiary of PCI); (c) the making of any principal payment on, or the
repurchase, redemption, defeasance or other acquisition or retirement for value
of, prior to any scheduled principal payment, sinking fund payment or maturity,
any Subordinated Indebtedness of PCI (other than any Subordinated Indebtedness
held by a Subsidiary); (d) the making of any
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Investment (other than a Permitted Investment) in any Person (other than an
Investment by a Subsidiary in PCI or an Investment by PCI or a Subsidiary in
either (i) a Subsidiary or (ii) a Person that becomes a Subsidiary as a result
of such Investment); (e) the creation or assumption of any guarantee of
Indebtedness of any Affiliate of PCI (other than (i) guarantees of any
Indebtedness of any Subsidiary by PCI or (ii) guarantees of the Notes by any
Subsidiary); or (f) the declaration or payment of any dividend or any other
distribution on any Capital Stock of any Subsidiary to any Person (other than
(a) dividends or distributions paid to PCI or a Subsidiary or (b) pro rata
dividends or distributions on Common Stock of Subsidiaries held by minority
stockholders, provided that such dividends or distributions do not in the
aggregate exceed the minority stockholders' pro rata share of such Subsidiaries'
net income from the first day of the fiscal quarter beginning immediately
following the Issue Date) or the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of any Subsidiary held by any Person
(other than PCI or a Subsidiary).
"Ryntronik Agreement" means a series of agreements dated October 1996
between PCI, Poltelkab, and Richard Rynkiewicz, in the form existing on the
Issue Date, by which PCI and Poltelkab will acquire the remaining shares in
PTK-Ryntronik.
"Senior Bank Indebtedness" means Indebtedness of PCI or any Subsidiary
under any term loan or revolving credit facility (which may include any
guarantee, bonding or letter of credit facility) with a bank or other financial
institution which is not subordinated to any other Indebtedness of PCI or any
Subsidiary.
"Service Agreement" means any agreement to which PCI or any Subsidiary is
a party pursuant to which, among other things, PCI or a Subsidiary provides
various services, which may include administrative, technical, managerial,
financial, operational and marketing services, to the other party or parties
thereto, including, without limitation, the agreements listed on a schedule to
the Indenture under the subheading "Service Agreements."
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Shareholder Registration Rights Agreement" means the Registration Rights
Agreement dated March 29, 1996 among PIH, ECO, Mr. Freedman, Steele LLC and
AESOP (as such terms are defined herein) in the form existing on the Issue Date.
"Significant Subsidiary" means, at any particular time, any Subsidiary
that, together with the Subsidiaries of such Subsidiary (a) accounted for more
than 5% of the consolidated revenues of PCI and its Subsidiaries for their most
recently completed fiscal year or (b) is or are the owner(s) of more than 5% of
the consolidated assets of PCI and its Subsidiaries as at the end of such fiscal
year, all as calculated in accordance with GAAP and as shown on the consolidated
financial statements of PCI and its Subsidiaries for such fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of PCI that is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means (a) any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by PCI or by
one or more other Subsidiaries or by PCI and one or more other Subsidiaries and
(b) Poltelkab or any other Management Company. Unrestricted Subsidiaries shall
not be included in the definition of Subsidiaries for any purposes of the
Indenture (except, as the context may otherwise require, for purposes of the
definition of "Unrestricted Subsidiary").
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of PCI and its
Subsidiaries outstanding as of the date of determination.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of PCI, as provided below), (b) any Subsidiary of an Unrestricted
Subsidiary, (c) Poland Programming, Inc., and (d) ProCable, in the event that a
majority of the equity ownership or Voting Stock of ProCable is owned, directly
or indirectly, by PCI or by one or more other Subsidiaries or by PCI and one or
more other Subsidiaries. The Board of Directors of PCI, subject to the
foregoing, may designate any newly acquired or newly formed Subsidiary to be an
Unrestricted Subsidiary so long as (i) neither PCI nor any other Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of PCI
or any other Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"Limitation on Investments in Unrestricted Subsidiaries" covenant, (iv) neither
PCI nor any other Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from persons who
are not Affiliates of PCI and (v) neither PCI nor any other Subsidiary has any
obligation (1) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
PCI shall be evidenced to the Trustee by filing a board resolution with the
Trustee giving effect to such designation. The Board of Directors of PCI may
designate any Unrestricted Subsidiary as a Subsidiary if immediately after
giving effect to such designation, there would be no Default or Event of Default
under the Indenture and PCI could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on Additional
Indebtedness" covenant.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such foreign currency involved in
such computation into U.S. Dollars at the spot rate for the purchase of U.S.
Dollars with the applicable foreign currency as quoted by the National Bank of
Poland at approximately noon (New York City time) on the date two business days
prior to such determination.
"Use of Proceeds Payments" means (a) payments of up to approximately $17.0
million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
to acquire certain minority interests in PCI and Subsidiaries that are held by
unaffiliated third parties, (b) payments of up to approximately $28.9 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar equivalent thereof) to
consummate the Pending Acquisitions, (c) payments of up to approximately $15.0
million (or, if non-U.S., Dollar Denominated, the U.S. Dollar Equivalent
thereof) to repay existing third party indebtedness and (d) investments of up to
approximately $5.0 million (or if non-U.S. Dollar denominated, the U. S. Dollar
Equivalent thereof) in PCI Programming, Inc., in each case as described under
"Use of Proceeds."
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary if
all the outstanding Capital Stock of such Subsidiary (other than any directors'
qualifying shares) is owned directly by PCI or PCBV and one or more Wholly Owned
Subsidiaries.
BOOK ENTRY; DELIVERY AND FORM
The Old Notes offered and sold in reliance on Regulation S under the
Securities Act were initially represented by a single, permanent Global Note in
definitive, fully registered book-entry form (the "Regulation S Global Note")
and registered in the name of a nominee of DTC and deposited on behalf of the
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purchasers of the Old Notes represented thereby with a custodian for DTC for
credit to the respective accounts of the purchasers (or to such other accounts
as they may direct) at the Euroclear System ("Euroclear") or Cedel Bank, societe
anonyme ("Cedel"). Exchange Notes which will be issued in exchange for the Old
Notes represented by the Regulation S Global Note will be issued in the form of
one Global Note (the "Regulation S Global Exchange Note") and deposited with a
custodian for DTC for credit to the respective accounts of the purchasers (or
such other accounts as they may direct) at Euroclear or Cedel.
Old Notes offered and sold to "qualified institutional buyers" ("QIBs") in
reliance on Rule 144A under the Securities Act were represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the "Rule
144A Global Note," and together with the Regulation S Global Note, the "Global
Notes") which were registered in the name of a nominee of DTC and deposited on
behalf of purchasers of the Old Notes represented thereby with a custodian for
DTC for credit to the respective accounts of the purchasers (or to such other
accounts as they may direct) at DTC. Exchange Notes which will be issued in
exchange for the Old Notes represented by the Rule 144A Global Note will be
issued in the form of one Global Note (the "Rule 144A Global Exchange Note," and
together with the Regulation S Global Exchange Note, the "Global Exchange
Notes") and deposited with a custodian for DTC for credit to the respective
accounts of the purchasers (or such other accounts as they may direct) at
Euroclear or Cedel.
Old Notes (a) originally purchased by or transferred to institutional
"accredited investors" who are not QIBs or (b) held by QIBs who elected to take
physical delivery of their certificates instead of holding their interest
through the Rule 144A Global Note (and which are thus ineligible to trade
through DTC) (collectively referred to herein as the "Non-Global Purchasers")
were issued in registered form ("Certificated Notes"). Upon the transfer of such
Certificated Notes to a QIB or in an offshore transaction under Rule 903 or 904
under Regulation S, such Certificated Notes will, unless the Global Note has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in a Global Note upon delivery of appropriate certifications to the
Trustee. For a description of the restrictions on the transfer of Certificated
Notes and any interest in a Global Note, see "Notices to Investors."
The Global Exchange Notes. PCI expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Exchange Notes, DTC or its
custodian will credit on its internal system portions of the Global Exchange
Notes which shall be comprised of the corresponding respective principal amount
of the Global Exchange Notes to the respective accounts of persons who have
accounts with such depositary and (b) ownership of the Exchange Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants (as defined below)) and the records of Participants (with respect
to interest of persons other than Participants). Such accounts initially will be
designated by or on behalf of the Exchange Agent and ownership of beneficial
interests in the Global Exchange Notes will be limited to persons who have
accounts with DTC ("Participants") or persons who hold interests through
Participants. QIBs may hold their interests in the Global Exchange Notes
directly through DTC if they are Participants in such system, or indirectly
through organizations which are Participants in such system.
Investors may hold their interests in the Regulation S Global Exchange Note
directly through Cedel or Euroclear, if they are participants in such systems,
or indirectly through organizations which are participants in such systems.
Investors may also hold such interests through organizations other than Cedel or
Euroclear that are Participants in the DTC system. Cedel and Euroclear will hold
such interests in the Regulation S Global Exchange Note on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositaries, which in turn will hold such
interests in the Regulation S Global Exchange Note in customers' securities
accounts in the depositaries' names on the books of DTC.
So long as DTC or its nominee is the registered owner or holder of any Old
Notes or Exchange Notes, DTC or such nominee will be considered the sole owner
or holder of the Notes represented by the Global Notes or the Global Exchange
Notes for all purposes under the Indenture and the Notes. No beneficial owner of
an interest in the Global Notes or the Global Exchange Notes will be able to
transfer such interest except in
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accordance with the applicable procedures of DTC, Euroclear and Cedel, in
addition to those provided for under the Indenture.
Payments of the principal of (or premium, if any, on) and interest on the
Global Notes or the Global Exchange Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of PCI, the Trustee or
any Paying Agent under the Indenture has any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Exchange Notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
PCI expects that DTC or its nominee, upon receipt of any payment of the
principal of (or premium, if any, on) and interest on the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Notes as shown on the records of DTC or its nominee. PCI also expects that
payments by Participants to owners of beneficial interests in the Global
Exchange Notes held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Exchange Notes in accordance with the normal procedures of DTC and
in accordance with the procedures set forth in the Indenture.
Transfers by an owner of a beneficial interest in the Rule 144A Global
Exchange Note to a transferee who takes delivery of such interest through the
Regulation S Global Exchange Note, whether before, on or after December 10,
1996, will be made only upon receipt by the Trustee of a certification to the
effect that such transfer is being made in accordance with Regulation S.
Transfers of Certificated Notes held by institutional "accredited investors" to
persons who will hold through the Rule 144A Global Exchange Note or the
Regulation S Global Exchange Note will be subject to certifications provided by
the Trustee.
Any beneficial interest in one Global Exchange Note that is transferred to
a person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Exchange Note and
become an interest in another Global Note and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised PCI that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more Participants to whose account the
DTC interests in the Global Exchange Notes are credited and only in respect of
the aggregate principal amount of Exchange Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Indenture, DTC will exchange the Global Exchange Notes for
Certificated Notes, which it will distribute to its Participants.
DTC has advised PCI as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provision of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
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Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Exchange
Notes among Participants of DTC, Euroclear and Cedel, they are under no
obligation to follow such procedures, and such procedures may be discontinued at
any time. None of PCI, the Trustee or any Paying Agent has any responsibility
for the performance by DTC, Euroclear or Cedel or the Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. Interests in the Global Exchange Notes will be
exchangeable or transferable, as the case may be, for Certificated Notes if (i)
DTC notifies PCI that it is unwilling or unable to continue as depositary for
such Global Notes, or DTC ceases to be a "Clearing Agency" registered under the
Exchange Act, and a successor depositary is not appointed by PCI within 90 days,
or (ii) an Event of Default has occurred and is continuing with respect to such
Notes. Upon the occurrence of any of the events described in the preceding
sentence, PCI will cause the appropriate Certificated Notes to be delivered.
INCOME TAX CONSIDERATIONS
It is the opinion of Baker & McKenzie, counsel to the Issuer, that the
material United States federal income tax consequences to holders whose Old
Notes are exchanged for Exchange Notes in the Exchange Offer are as described
herein, subject to the limitations and qualifications set forth below. Because
the Exchange Notes will not be considered to differ materially either in kind or
in extent from the Old Notes, the exchange of the Old Notes for the Exchange
Notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes pursuant to Section 1001 of the United States
Internal Revenue Code of 1986, as amended (the "Code"). As a result, no material
United States federal income tax consequences will result to holders exchanging
Old Notes for Exchange Notes.
The foregoing opinion is based upon the current provisions of the Code,
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practice. Subsequent legislative, judicial or
administrative changes or interpretations could alter or modify the statements
or conclusions set forth herein, possibly with retroactive effect. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and individuals who are not
citizens or residents of the United States) may be subject to special rules not
discussed herein. AS A RESULT, EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING HIS OR HER OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuer has agreed that
for a period of 180 days after the Expiration Date, it will make available a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any such resale.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
any broker-dealer. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own
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account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the Issuer's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Issuer by
Baker & McKenzie, Washington, District of Columbia and New York, New York with
respect to matters of United States law. Certain United States federal income
tax matters will be passed upon for the Issuer by Baker & McKenzie, Washington,
District of Columbia.
EXPERTS
The consolidated financial statements and schedules of Poland
Communications, Inc. and Poland Cablevision (Netherlands) B.V. as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, have been included herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
POLAND COMMUNICATIONS, INC.
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Changes in Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows................................................. F-7
Notes to Consolidated Financial Statements............................................ F-8
POLAND CABLEVISION (NETHERLANDS) B.V.
Independent Auditors' Report.......................................................... F-19
Consolidated Balance Sheets........................................................... F-20
Consolidated Statements of Operations................................................. F-22
Consolidated Statements of Changes in Stockholders' Deficiency........................ F-23
Consolidated Statements of Cash Flows................................................. F-24
Notes to Consolidated Financial Statements............................................ F-25
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Poland Communications Inc.:
We have audited the accompanying consolidated balance sheets of Poland
Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Poland
Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with U.S. generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
March 26, 1997
F-2
<PAGE> 127
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 7)................................... $ 68,483 $ 2,343
Investment securities (note 2)....................................... 25,115 --
Accounts receivable, net of allowances of $545 in 1996 and $510 in
1995.............................................................. 1,215 842
Due from affiliate (note 12)......................................... -- 1,699
Other current assets (note 5)........................................ 2,247 1,367
-------- --------
Total current assets......................................... 97,060 6,251
-------- --------
Investment in cable television systems, at cost (note 4):
Property, plant and equipment:
Cable television system assets.................................... 98,291 54,441
Construction in progress.......................................... 410 6,758
Vehicles.......................................................... 1,199 896
Other............................................................. 2,667 1,806
-------- --------
Total property, plant and equipment............................. 102,567 63,901
Less accumulated depreciation................................... (19,143) (11,581)
-------- --------
Net property, plant and equipment............................... 83,424 52,320
Inventories for construction......................................... 7,913 4,609
Intangibles, net............................................. 12,133 1,976
-------- --------
Net investment in cable television systems................... 103,470 58,905
-------- --------
Notes receivable from affiliates (note 12)............................. 8,491 --
Other investments (notes 3 and 14)..................................... 2,157 1,034
Other intangibles, net (note 4)........................................ 6,359 1,868
-------- --------
Total assets................................................. $217,537 $ 68,058
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 128
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 6,281 $ 1,675
Accrued interest (note 7)............................................ 2,175 --
Notes payable (note 7)............................................... -- 13,006
Deferred revenue..................................................... 1,102 1,233
Income taxes payable (note 6)........................................ 4,472 4,138
Other current liabilities (notes 5 and 8)............................ 2,175 3,382
-------- --------
Total current liabilities.................................... 16,205 23,434
Notes payable to affiliates (note 12).................................. -- 37,512
Notes payable (note 7)................................................. 130,074 8,887
-------- --------
Total liabilities............................................ 146,279 69,833
-------- --------
Minority interest...................................................... 5,255 (1,965)
Redeemable preferred stock (liquidation value $85,000) (8,500 shares
authorized, issued and outstanding) (note 10)........................ 34,955 --
Stockholders' equity (note 9):
Preferred stock (2,000 shares authorized, 985 shares outstanding).... -- 10,311
Common stock:
Common stock ($.01 par, 24,051 shares authorized, 18,948 shares
issued and outstanding).......................................... 1 --
Class A (no par value, 20,000 shares authorized, 10,037 shares
issued and outstanding).......................................... -- 4,992
Class B (no par value, 10,000 shares authorized, 1,000 shares
issued and outstanding).......................................... -- 1
Paid-in capital...................................................... 54,322 1,544
Cumulative translation adjustment.................................... (162) 599
Accumulated deficit.................................................. (23,113) (17,257)
-------- --------
Total stockholders' equity................................... 31,048 190
-------- --------
Commitments and contingencies (notes 12 and 13)........................ -- --
-------- --------
Total liabilities, minority interest, redeemable preferred
stock and stockholders' equity............................. $217,537 $ 68,058
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 129
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cable television revenue................................... $ 24,923 18,557 8,776
-------- ------- -------
Operating expenses:
Direct operating expenses................................ 7,193 5,129 2,119
Selling, general and administrative...................... 9,289 4,684 2,818
Depreciation and amortization............................ 9,788 5,199 3,459
-------- ------- -------
Total operating expenses......................... 26,270 15,012 8,396
-------- ------- -------
Operating income (loss).......................... (1,347) 3,545 380
Interest and investment income............................. 1,274 174 78
Interest expense........................................... (4,687) (4,373) (2,327)
Foreign currency translation loss.......................... (761) (17) (27)
-------- ------- -------
Loss before income taxes, minority interest and
extraordinary item.................................. (5,521) (671) (1,896)
Income tax expense (note 6)................................ (1,273) (600) (803)
Minority interest in subsidiary (income) loss.............. 1,890 (18) 316
-------- ------- -------
Loss before extraordinary loss on early extinguishment
of debt............................................. (4,904) (1,289) (2,383)
Extraordinary loss on early extinguishment of debt (Note
7)....................................................... (1,713) -- --
Net loss.............................................. (6,617) (1,289) (2,383)
Accretion of redeemable preferred stock.................... (2,870) -- --
Excess of carrying amount of preferred stock over fair
value of consideration transferred....................... 3,549 -- --
Net loss applicable to common shareholders................. (5,938) (1,289) (2,383)
Loss per common share before extraordinary item............ $(244.63) $(116.79) $(219.03)
Extraordinary loss per share............................... (99.18) -- --
Net loss per common share............................. $(343.81) (116.79) (219.03)
======== ======= =======
Weighted average number of common shares outstanding....... 17,271 11,037 10,880
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 130
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1994 TO DECEMBER 31, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED COMMON PAID-IN TRANSLATION ACCUMULATED
STOCK STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- ------ ------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994...... $ 8,500 4,381 3,355 643 (13,629) 3,250
Translation adjustment..... -- -- -- (27) 27 --
Net loss................... -- -- -- -- (2,383) (2,383)
Stock dividend............. 1,811 -- (1,811) -- -- --
Issuance of stock.......... -- 612 -- -- -- 612
------ ------ ------ ---- ------ ------
Balance December 31, 1994.... 10,311 4,993 1,544 616 (15,985) 1,479
Translation adjustment..... -- -- -- (17) 17 --
Net loss................... -- -- -- (1,289) (1,289)
------ ------ ------ ---- ------ ------
Balance December 31, 1995.... 10,311 4,993 1,544 599 (17,257) 190
Translation adjustment..... -- -- -- (761) 761 --
Net loss................... -- -- -- -- (6,617) (6,617)
Stock dividend............. 1,738 -- (1,738) -- -- --
Issuance of stock.......... -- (4,992) 53,837 -- -- 48,845
Preferred stock
redemption.............. (12,049) -- 3,549 -- -- (8,500)
Accretion of redeemable
preferred stock......... -- -- (2,870) -- -- (2,870)
------ ------ ------ ---- ------ ------
Balance December 31, 1996.... $ -- 1 54,322 (162) (23,113) 31,048
====== ====== ====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 131
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (6,617) (1,289) (2,383)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in subsidiary income (loss)........... (1,890) 18 (316)
Depreciation and amortization........................... 9,788 5,199 3,459
Write-off of deferred financing costs................... 1,566 -- --
Other................................................... 341 349 107
Interest expense added to notes payable to affiliates... -- 2,379 2,085
Changes in operating assets and liabilities:
Accounts receivable................................... (796) (785) 49
Other current assets.................................. (2,037) (343) (634)
Accounts payable...................................... 3,186 1,003 470
Income taxes payable.................................. 334 600 780
Accrued interest...................................... 2,175 -- --
Deferred revenue...................................... (131) 152 458
Other current liabilities............................. 193 (3,444) (2,476)
-------- ------- -------
Net cash provided by operating activities.......... 6,112 3,839 1,599
-------- ------- -------
Cash flows from investing activities:
Construction of cable television systems................... (25,372) (16,014) (11,695)
Purchase of other capital assets........................... (1,209) (701) (244)
Notes receivable from affiliate............................ (8,491) -- --
Other investments.......................................... (25,940) (1,207) (402)
Purchase of subsidiaries, net of cash received............. (13,849) (4,063) --
-------- ------- -------
Net cash used by investing activities................... (74,861) (21,985) (12,341)
-------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock........................ 81,001 -- --
Redemption of preferred stock.............................. (8,500) -- --
Costs to obtain loans...................................... (6,513) (1,036) (1,144)
Proceeds from notes payable................................ 136,074 14,533 7,000
Repayment of notes payable................................. (27,893) -- --
Borrowings from (repayments to) affiliates................. (39,280) 4,499 6,830
-------- ------- -------
Net cash provided by financing activities.......... 134,889 17,996 12,686
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 66,140 (150) 1,944
Cash and cash equivalents at beginning of year............... 2,343 2,493 549
-------- ------- -------
Cash and cash equivalents at end of year..................... $ 68,483 2,343 2,493
======== ======= =======
Supplemental cash flow information:
Cash paid for interest.................................. $ 2,338 1,992 209
Cash paid for income taxes.............................. 1,184 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 132
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Reporting Entity
Poland Communications, Inc. ("PCI" or the "Company") wholly owns PCI
Programming, Inc. ("PCIP") and both are U.S. corporations. PCI owns 92.3% of the
capital stock of Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands
corporation and first-tier subsidiary of PCI. PCI and PCBV are holding companies
that hold controlling interest in a number of Polish cable television companies,
collectively referred to as the "PTK Companies". PCIP was established during
1996 to develop and invest in programming for the PTK Companies. All significant
assets and operating activities of the Company are located in Poland.
Principles of Consolidation
The consolidated financial statements include the financial statements of
PCI and its wholly owned and majority owned subsidiaries. Also consolidated are
two 49% owned subsidiaries for which the Company maintains control of operating
activities and has the ability to influence the appointment of members to the
Managing Boards. As discussed in Note 14, the Company has entered into an
agreement in 1997 with one of these subsidiaries (PTK-Ryntronik) to purchase the
remaining 51% ownership. The Company also owns a 33% ownership interest in
ProCable Sp. z o.o. which is accounted for using the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principals. Actual results could
differ from those estimates.
Revenue
Revenue is primarily derived from the sale of cable television services to
retail customers in Poland. Revenue from subscription fees is recognized on a
monthly basis as the service is provided. 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 to
income over the estimated average period that new subscribers are expected to
remain connected to the systems.
Taxation
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Foreign:
The PTK Companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the PTK Companies are
exempt from import duties on certain in-kind capital contributions.
F-8
<PAGE> 133
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The PTK Companies' income tax is calculated in accordance with Polish tax
regulations. Due to differences between accounting practices under Polish tax
regulations and those required by U.S. GAAP, certain income and expense items
are recognized in different periods for financial reporting purposes and income
tax reporting purposes which may result in deferred income tax assets and
liabilities.
U.S.:
The Company is subject to U.S. Federal taxation of its worldwide income.
The PTK Companies and PCBV are foreign corporations which are not expected to be
engaged in a trade or business within the U.S. or to derive income from U.S.
sources and accordingly, are not subject to U.S. income tax.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and other short term investments
with original maturities of less than three months.
Investment Securities
Investment securities consist of short term investments with original
maturities ranging from four to six months. In accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," ("SFAS No. 115"), the Company has classified all
securities as held to maturity. Securities held to maturity are limited to
securities for which the Company has the positive intent and the ability to hold
to maturity. Held to maturity securities are carried at amortized cost on the
balance sheet.
Investment in Cable Television Systems
The investment in the Company's cable television systems includes property,
plant and equipment used in the development and operation of the various cable
television systems. During the period of construction, plant costs and a portion
of design, development and related overhead costs are capitalized as a component
of the Company's investment in cable television systems. The Company capitalizes
interest costs incurred during the period of construction in accordance with
Statement of Financial Accounting Standards No. 34, "Capitalization of Interest
Cost." Interest is not capitalized for short-term construction projects.
Subscriber related costs and general and administrative expenses are charged to
operations when incurred. Depreciation is computed for financial reporting
purposes using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Cable television system assets.......................... 10 years
Vehicles................................................ 5 years
Other property, plant and equipment..................... 5 - 40 years
</TABLE>
Inventories for Construction
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to work-in-progress in the various cable television systems.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eight to ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of
F-9
<PAGE> 134
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the acquired operation. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
Intangibles
The Company has entered into agreements with the Polish telephone company
("TPSA"), for the use of underground telephone conduits for cable wiring. Costs
related to obtaining conduit and franchise agreements with housing cooperatives
and governmental authorities are capitalized and amortized generally over a
period of ten years. In the event the Company does not proceed to develop cable
systems within designated cities, costs previously capitalized will be charged
to expense.
Organization costs are capitalized and amortized over a one-year period.
Costs incurred to obtain financing have been deferred and amortized over the
life of the loan using the straight-line method.
Foreign Currency Translation
Translation of the Polish foreign currency accounts into U.S. dollars has
been performed in accordance with SFAS No. 52 (Foreign Currency Translation).
This standard requires that entities operating in countries with economies
deemed to be highly inflationary translate all monetary assets and liabilities
into U.S. dollars at the exchange rate in effect at year end and non-monetary
assets and liabilities at historical or transaction date rates. Revenues and
expenses are translated at the average exchange rate over the reporting period.
For 1996, 1995 and 1994 inflation was 19.9%, 26.8% and 33.3%, respectively
yielding a three year cumulative inflation rate of 102.7%.
Effective January 1, 1995, the Polish monetary denomination (old zloty) was
redenominated at a rate of 10,000 old zloty to one new zloty and one hundred old
zloty to one groszy. The new and old Polish zloty had an exchange rate of 2.875
PLN, 2.468 PLN and 24,372zl to one U.S. dollar at December 31, 1996, 1995 and
1994, respectively.
Computation of Net Loss per Common Share
The net loss per common share computation is based on the weighted average
number of shares of common stock outstanding. The common stock equivalents of
the preferred shares have not been used in the calculation as they are
antidilutive. The net loss per common share includes the preferred stock
accretion. The 1996 net loss applicable per common share has been derived by
adding back from net loss applicable to common shareholders $3,549,000 which
represents the excess of the carrying amount of the Series D Preferred Stock
over the fair value of the consideration transferred to the Series D Preferred
Stockholders.
Fair Value of Financial Instruments
SFAS No. 107 (Disclosures about Fair Value of Financial Instruments)
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets for which it is practicable to estimate fair value.
The Company's financial instruments include cash, cash equivalents,
investment securities, accounts receivable, notes receivable from affiliates,
other current assets, other investments, accounts payable, other liabilities,
notes payable and redeemable preferred stock.
The carrying value of cash, cash equivalents, investment securities,
accounts receivable, other current assets, other investments, accounts payable,
and other liabilities on the accompanying consolidated balance sheets
approximates fair value due to the short maturity of these instruments.
The carrying value of the redeemable preferred stock has been determined
based upon the amount of future cash flows required discounted using the
Company's estimated borrowing rate for similar instruments.
F-10
<PAGE> 135
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The recorded balance of the Company's notes payable approximates their fair
values which have been estimated based on the current rates offered for debt of
the same type and maturity. It was not practicable to estimate the fair value of
notes receivable from affiliates due to the nature of these instruments, the
circumstances surrounding their issuance, and the absence of quoted market
prices for similar financial instruments.
Impairment of Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" on January 1, 1996. This statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Adoption of this statement did not have an impact on the Company's
financial position, results of operations, or liquidity.
Advertising Costs
All advertising costs of the Company are expensed as incurred.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
2. INVESTMENT SECURITIES
Investment securities consist of short-term corporate bonds with original
maturities ranging from four to six months. The Company has the ability and the
intent to hold these securities to maturity. As of December 31, 1996, the
aggregate securities balance consists of securities with an amortized cost of
$25,115,000, unrealized holding gains of $227,000, and a fair value of
$25,342,000. There were no investments securities as of December 31, 1995.
3. ACQUISITIONS
During 1995, the Company acquired four cable television companies for
aggregate consideration of $4,075,000. The acquisitions have been accounted for
as purchases with the purchase price allocated among the assets acquired based
upon their fair values at date of acquisition. The results of the acquired
companies have been included in the Company results since January 1, 1995. Had
the 1995 acquisitions occurred on January 1, 1994, the Company's pro forma
consolidated results for the year ended December 31, 1994 would have been as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenue................................................... $15,653
Loss before income taxes and minority interest............ (2,111)
Net loss.................................................. (2,598)
Net loss per share........................................ $(238.79)
</TABLE>
During 1996, the Company acquired substantially all of the cable television
system assets of twenty-six cable television companies for aggregate
consideration of approximately $15,600,000. The acquisitions have been accounted
for as purchases with the purchase price allocated among the assets acquired and
liabilities assumed based upon their fair values at date of acquisition and any
excess as goodwill. The results of the acquired companies have been included
with the Company's results since their dates of acquisition. Had the
F-11
<PAGE> 136
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 acquisitions occurred on January 1, 1996 and January 1, 1995, the Company's
pro forma consolidated results for the years ended December 31, 1996 and 1995
would have been as follows:
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenue.............................................. $ 31,667 $ 26,247
Loss before income taxes and minority interest....... (6,720) (12)
Net loss............................................. (5,951) (522)
Net loss per share................................... $ (344.57) $ (47.30)
</TABLE>
During December 1996, the Company entered into a preliminary purchase
agreement for a cable television system operating in the Opole area and prepaid
the $1,400,000 purchase price, which is included in other investments in the
accompanying consolidated balance sheet at December 31, 1996. The agreement
provides that it becomes legally effective on the date of regulatory approval by
the Polish Office for Protection of Competition and Consumers ("Anti-Monopoly
Office").
Included in minority interest at December 31, 1996 is approximately $9.1
million relating to the acquisition of two subsidiaries.
4. INTANGIBLES
Intangible assets at December 31, 1996 and 1995 are carried at cost and
consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Conduit and franchise agreements......................... $ 5,391 $ 1,230
Goodwill................................................. 6,730 929
Deferred financing costs................................. 8,658 2,131
Organization costs....................................... 988 864
Other.................................................... 120 318
------- ------
21,887 5,472
Less accumulated amortization............................ (3,395) (1,628)
------- ------
Net intangible assets.................................... $18,492 $ 3,844
======= ======
</TABLE>
5. OTHER CURRENT ASSETS AND LIABILITIES
Included in other current assets is $1,203,000 and $593,000 of VAT
receivables as of December 31, 1996 and 1995, respectively.
Included in other current liabilities at December 31, 1996 and 1995 is a
liability of $352,000 and $89,000 for income taxes payable, respectively and
approximately $726,000 and $767,000 related to accrued programming fees.
F-12
<PAGE> 137
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1996, 1995 and 1994 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
U.S. Federal income taxes........................... $ 714 $587 $629
State income taxes.................................. 531 13 151
Foreign jurisdictions............................... 28 -- 23
------ ---- ----
Total current income taxes..................... 1,273 600 803
U.S. deferred income taxes.......................... -- -- --
------ ---- ----
Total income tax expense....................... $1,273 $600 $803
====== ==== ====
</TABLE>
Sources of loss before income taxes and minority interest from domestic and
foreign sources for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Domestic (loss)............................... (2,602) (1,115) (1,117)
Foreign income (loss)......................... (4,632) 444 (779)
------ ------ ------
Total.................................... (7,234) (671) (1,896)
====== ====== ======
</TABLE>
The reconciliation of income tax expense from continuing operations for the
years ended December 31, 1996, 1995 and 1994 differed from the amounts computed
by applying the U.S. Federal statutory tax rates to pretax income from
continuing operations as a result of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ----- ------
<S> <C> <C> <C>
Computed "expected" Federal income tax
(benefit)...................................... $(2,460) $(228) $ (645)
State income taxes, net of Federal benefit....... 184 65 32
Permanent differences............................ 17 69 76
Change in valuation allowance.................... 3,504 667 1,317
Other............................................ 28 27 23
------- ----- ------
$ 1,273 $ 600 $ 803
======= ===== ======
</TABLE>
F-13
<PAGE> 138
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996, 1995 and 1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation......................... $ 377 $ 213 $ 744
Polish net operating loss carryforward........ 2,015 977 492
Interest income............................... 1,867 1,164 792
Service revenue............................... 2,368 2,155 2,024
Accrued liabilities........................... 1,935 524 163
Other items................................... 104 72 223
------- ------- -------
Total gross deferred tax assets............... 8,666 5,105 4,438
Less valuation allowance...................... (8,609) (5,105) (4,438)
------- ------- -------
Net deferred tax assets....................... $ 57 $ -- $ --
======= ======= =======
Deferred tax liabilities:
Prepaid expenses.............................. $ (57) $ -- $
======= ======= =======
Total gross deferred tax liabilities.......... $ (57) $ -- $
======= ======= =======
</TABLE>
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for 1996, 1995 and 1994 principally due to future deductible
items and losses from which U.S. or foreign tax benefits are currently not
expected to be realized. Due to uncertainties regarding their recoverability the
effect of these losses has been eliminated through the recording of a valuation
allowance. The valuation allowance for deferred tax assets as of January 1, 1994
was $3,121,000. The net changes in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994 were increases of $3,504,000, $667,000, and
$1,116,000, respectively.
The Company had net operating loss carryforwards from foreign jurisdictions
of approximately $3,717,000, which will expire as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
FOREIGN
YEARS ENDING DECEMBER 31, JURISDICTIONS
----------------------------------------- -------------
<S> <C>
1997..................................... $ 1,824
1998..................................... 1,341
1999 and thereafter...................... 552
-------
$ 3,717
=======
</TABLE>
7. NOTES PAYABLE
The Company signed a $13,500,000 financing agreement with Overseas Private
Investment Corporation ("OPIC") of which $8,600,000 was outstanding at December
31, 1995. The loan was repaid in full during 1996. Accordingly, the Company
recorded an extraordinary loss of $1,713,000 related to the early retirement of
debt. The extraordinary loss was comprised of a $147,000 prepayment penalty and
$1,566,000 relating to the write-off of deferred financing costs. There was no
tax effect of this transaction due to foreign jurisdiction net operating loss
carryforwards. Under terms of the financing agreement, the Company maintained a
restricted compensating cash balance of $983,000 at December 31, 1995.
In October 1995, the Company entered into an agreement with American Bank
in Poland S.A. for a Polish currency denominated revolving credit loan and a
U.S. dollar denominated promissory note, of which approximately $2,482,000 was
outstanding at December 31, 1995. These loans were repaid in full during 1996.
During 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.
F-14
<PAGE> 139
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Company entered into a $6,500,000 revolving credit loan
agreement with American Bank in Poland, S.A. of which $550,000 was outstanding
at December 31, 1996. Funds are available under the credit agreement through
December 31, 1998 and interest is based on LIBOR plus 3% (8.60% in aggregate at
December 31, 1996) and is due quarterly. All advances under the loan must be
repaid by August 20, 1999.
During October 1996, the Company issued $130,000,000, 9.875% unsecured
Senior Notes that become due November 1, 2003. The Senior Notes are net of
$476,000 of unamortized discount at December 31, 1996. Interest is due
semi-annually commencing May 1, 1997 and the Company has accrued $2,175,000 of
interest expense for the year ended December 31, 1996. The Senior Notes include
certain covenants which include the limitation on additional indebtedness, the
limitation on restricted payments, the limitation on issuances of capital stock
of subsidiaries, the limitation on transactions with affiliates, the limitation
on liens, the limitation on issuances of guarantees of indebtedness by
subsidiaries, the purchase of Senior Notes upon a change of control, the
limitation on sale of assets, the limitation on dividends and other payment
restrictions affecting subsidiaries, the limitation on investments in
unrestricted subsidiaries and a limitation on lines of business. The Company is
in compliance with these covenants.
Interest expense relating to the above notes payable was $3,380,000,
$850,000 and $159,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
8. OTHER CURRENT LIABILITIES
The Company has compensation agreements with certain employees to defer a
portion of their annual bonus and salary. The deferred compensation liability
associated with these agreements was approximately $922,000 and $518,000 as of
December 31, 1996 and 1995, respectively. The deferred compensation expense
associated with these agreements was $357,000, $250,000 and $234,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company entered into a repayment agreement with a supplier of cable
television system materials allowing the Company to repay amounts owed to the
supplier in consecutive monthly installments. The Company repaid the supplier in
full in April 1996 and had a balance of $1,004,000 outstanding at December 31,
1995.
9. STOCKHOLDERS' EQUITY
The Company had outstanding at December 31, 1995, 985 shares of Preferred
Stock, which was convertible into 812 shares of Class A common stock. The
Company had the option of redeeming the preferred stock in whole or in part from
January 1, 1996 through December 31, 2002. However, as discussed below, the
Preferred Stock was exchanged for new Series D Preferred Stock during March
1996.
During February 1996, the Company issued to certain shareholders an
additional 2,437 shares of Class A Common Stock in accordance with the
provisions of the Shareholder Agreement dated June 27, 1991. The shares were
issued at a nominal value of $.01 each. Also during February 1996, the Company
issued a stock dividend of 166 shares of Series A Preferred Stock to the
preferred stock shareholder.
During March 1996, the Company completed several transactions including
restating its certificate of incorporation, issuing new shares of stock,
redeeming preferred stock, and the repayment of affiliate debt.
The Restated Certificate of Incorporation of the Company authorized a new
class of $.01 par Common Stock, $1 par Series A Preferred Stock, $.01 par Series
B Preferred Stock, $.01 par Series C Preferred Stock, and $.01 par Series D
Preferred Stock. All Class A and Class B Common shares previously issued and
outstanding were exchanged for new Common Stock. All issued and outstanding
shares of Preferred Stock were exchanged for new Series D Preferred Stock, which
was subsequently redeemed for $8,500,000. Only Common Stock and Series B
Preferred Stock retain voting rights and only holders of Common Stock are
entitled to receive dividends. Each Series of Preferred Stock has redemption
provisions; the Series B Preferred Stock is also convertible into Common Stock.
F-15
<PAGE> 140
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
to ECO Holdings III Limited Partnership in exchange for $65,000,000; and 2,000
shares of Series C Preferred Stock and 812 shares of Common Stock were issued to
Polish Investments Holding L.P. in exchange for $17,029,000.
10. REDEEMABLE PREFERRED STOCK
The Series A, Series B and Series C Preferred Stock have a mandatory
redemption date of October 31, 2004. At the option of the Company, the Series A,
Series B and Series C Preferred Stock may be redeemed at any time in whole or in
part. The redemption price per share of the Series A, Series B and Series C
Preferred Stock is $10,000.
Prior to the mandatory redemption of the Series B Preferred Stock, the
holders of any shares of Series B Preferred Stock have the option to convert
their shares to 4,862 shares of Common Stock.
The Preferred Stock has been recorded at its mandatory redemption value on
October 31, 2004, discounted at 12% to December 31, 1996. The Company
periodically acretes from paid-in capital an amount that will provide for the
redemption value at October 31, 2004.
11. PENSION PLANS
The Company maintains a savings plan that is intended to meet the
requirements of a profit sharing plan under Sections 401(a) and 401(k) of the
Internal Revenue Code. The profit sharing plan covers substantially all U.S.
employees and provides for employee/participant contributions up to 10% of their
annual compensation and employer matching contributions of 100% of employee
contributions up to 5% of the employee's annual compensation subject to certain
vesting requirements and statutory limitations. The Company has funded its
matching obligation of $9,000, $11,000 and $0 under the profit sharing plan for
the years ended December 31, 1996, 1995 and 1994, respectively.
12. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into
transactions with entities under common control of the stockholders and
affiliated parties. When appropriate, outstanding balances bear interest until
settlement. The principal related party transactions are described below.
Due from Affiliate
Amounts due from affiliate primarily represented advances and payments made
on behalf of a shareholder of a PTK Company.
Notes Receivable from Affiliates
During 1996, the Company made $6,000,000 of non-interest bearing advances
to the 51% shareholder of one of the PTK Companies pursuant to an agreement for
the purchase of his interest in the PTK Company. These loans will offset the
purchase price upon the transfer of 95.5% of his 51% interest in the PTK
Company, The remaining interest will be held by another subsidiary in which the
Company owns a 49% interest.
The Company loaned $2,491,000 to Pro Cable Sp. z o.o., which is 33% owned
by PCI, in December 1996. Under terms of the demand note, interest shall accrue
at 10% per annum beginning January 1, 1997.
Notes Payable to Affiliates
Notes payable to affiliates consisted of unsecured demand notes due to
Chase American Corporation, an affiliate of one of the shareholders of PCI.
Interest expense associated with these notes was $1,040,000, $3,284,000 and
$2,164,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-16
<PAGE> 141
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Programming
Pro Cable Sp. z o.o. provides programming to the PTK Companies. The Company
incurred programming fees from Pro Cable Sp. z o.o. of $412,000, $186,000 and
$91,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Corporate Administration
During 1994 the Company reimbursed an affiliate of the shareholders of PCI
$75,000 per quarter for certain general overhead costs. In addition, legal and
financial services provided by the affiliate at the request of the Company are
reimbursed and are not material.
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA that
expire at various times. A substantial portion of the Company's contracts with
TPSA 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. Generally speaking, TPSA may terminate a conduit
agreement if the Company does not have a valid Permit covering the subscribers
to which the conduit delivers the signal; the Company's network serviced by the
conduit does not meet the required technical specifications; the Company does
not have a contract with the Co-op authority or the Company fails to pay the
required rent. Minimum future lease commitments for the aforementioned leases is
$894,000 for the year ended December 31, 1997. Rent expense for the years ended
December 31, 1996, 1995 and 1994 was $892,000, $711,000 and $299,000,
respectively, related to these leases.
The Company has entered into various lease agreements with TPSA. All of the
agreements provide that TPSA is the manager of the telephone duct system and
will lease space within the ducts to the Company for installation of cable and
equipment for the cable television systems. The lease agreements provide for
monthly lease payments that are adjusted quarterly or annually, except for the
Gdansk lease agreement which provides for an annual adjustment after the sixth
year which then remains fixed through the tenth year of the lease. Based upon
the lease rates currently in effect, the Company is charged approximately $1 to
$12 per month for each 100 meters of duct space utilized.
Programming Commitments
The Company has entered into programming agreements with its significant
programming suppliers. The programming agreements have terms which range from
one to five years and require that the payments for the programs be paid either
at a fixed amount or based upon the number of subscribers connected to the
system each month. For the years ended December 31, 1996, 1995 and 1994, the
Company incurred programming fees of approximately $1,758,000, $1,318,000, and
$681,000, respectively, pursuant to these agreements.
Some of the programming suppliers the Company entered into agreements with
are located outside of Poland. The categorization by the Polish tax authorities
of the payments to be paid under such agreements as a royalty rather than a
payment for services has yet to be determined. Should the payments made be
determined by Polish tax authorities to be royalties (license payments) rather
than payments for services, the PTK Companies making such payments would be
required to withhold and pay over to the Polish tax authorities certain portions
of such payments. The portions would vary depending upon the country of
residence of each programming supplier and the provisions of the international
tax treaty (if any) between such country and Poland. The maximum amount that
could be due is approximately $350,000. PCI has not recorded any amounts related
to this in the accompanying financial statements due to the uncertainties
involved.
F-17
<PAGE> 142
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Regulatory Approvals
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2 million (approximately
$695,000 at the December 31, 1996 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed capital increases, the non-recognition of the capital
increases by the Polish courts means that the contribution could be treated as
income in the hands of the PTK Company. As a result, part or all of the
contribution could be subject to corporate income tax of 40%. The PTK Company
had enough tax net operating loss in 1995 to offset any additional taxable
income resulting from an unfavorable treatment. The Company has not recorded any
amounts related to this in the accompanying financial statements due to the tax
net operating loss and uncertainties involved.
General Litigation
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon its current knowledge,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
14. SUBSEQUENT EVENTS
The Company entered into agreements during 1996 to purchase during 1997
three cable television systems for approximately $1,900,000, of which $1,400,000
has been prepaid at December 31, 1996, and 66.57% of a cable television company
for approximately $18,500,000.
During 1996, the Company and the other shareholder of PTK-Ryntronik (a 49%
owned subsidiary) entered an agreement for the Company to purchase the remaining
51% ownership of PTK-Ryntronik for $9,000,000. Pursuant to the agreement, the
Company advanced $6,000,000 of the purchase price as of December 31, 1996. This
transaction will be accounted for using the purchase method. On March 4, 1997,
the Company entered into an addendum to the agreement regarding the acceleration
of the Company's purchase of the remaining 51% ownership of PTK-Ryntronik. In
the addendum and annex, the parties agreed to transform PTK-Ryntronik into a
limited liability company, at which time the other shareholder will transfer all
of its shares of PTK-Ryntronik to PCI or its nominee. PCI agreed to pay the
shareholder $700,000 within three days of the signing of the addendum,
$1,000,000 on March 28, 1997 and $1,750,000 upon the transfer of shares to PCI.
In addition, another subsidiary of PCI subscribed and became the owner of 4.5%
of the capital stock of PTK-Ryntronik.
In 1997, PCIP entered into ten-year contracts for the lease of three
transponders on the Astra satellite system. Aggregate charges for each
transponder are capped at $6,750,000 per annum, but either party may terminate
any or all of the transponder leases on 6 months prior notice if PCIP has not
targeted the Polish DTH market prior to January 1, 1999. If all of the leases
were so terminated the maximum aggregate charges under the leases would
approximate $8.6 million.
F-18
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Poland Cablevision (Netherlands) B.V.:
We have audited the accompanying consolidated balance sheets of Poland
Cablevision (Netherlands) B.V. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Poland
Cablevision (Netherlands) B.V. and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with U.S.
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
March 26, 1997
F-19
<PAGE> 144
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash (note 6)........................................................ $ 7,015 $ 2,278
Accounts receivable, net of allowances of $437 in 1996 and $510 in
1995.............................................................. 706 654
Due from affiliate (note 7).......................................... -- 1,660
Other current assets (note 4)........................................ 1,282 1,678
-------- --------
Total current assets......................................... 9,003 6,270
-------- --------
Investment in cable television systems, at cost (note 3):
Property, plant and equipment:
Cable television system assets.................................... 84,511 57,242
Construction in progress.......................................... 9 6,052
Vehicles.......................................................... 1,095 880
Other............................................................. 2,519 1,738
-------- --------
Total property, plant and equipment.......................... 88,134 65,912
Less accumulated depreciation................................ (18,779) (11,841)
-------- --------
Net property, plant and equipment............................ 69,355 54,071
Inventories for construction......................................... 4,974 4,503
Intangibles, net............................................. 10,534 4,307
-------- --------
Net investment in cable television systems................... 84,863 62,881
-------- --------
Other investments (note 2)............................................. 1,409 331
-------- --------
Total assets................................................. $ 95,275 $ 69,482
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 145
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable..................................................... $ 2,685 $ 2,931
Notes payable (note 6)............................................... -- 2,893
Deferred revenue..................................................... 823 1,133
Other current liabilities............................................ 9 210
-------- --------
Total current liabilities.................................... 3,517 7,167
Due to affiliate (note 7).............................................. 11,159 5,371
Notes payable to affiliates (note 7)................................... 107,891 67,587
Notes payable (note 6)................................................. -- 8,777
-------- --------
Total liabilities............................................ 122,567 88,902
Minority interest...................................................... 2,920 (1,200)
-------- --------
Stockholders' deficiency:
Capital stock par value ($2 par, 200,000 shares authorized,
issued and outstanding)........................................... 100 100
Cumulative translation adjustment.................................... (344) 594
Accumulated deficit.................................................. (29,968) (18,914)
-------- --------
Total stockholders' deficiency............................... (30,212) (18,220)
-------- --------
Commitments and contingencies (notes 7 and 8)..................... -- --
-------- --------
Total liabilities, minority interest and stockholders'
deficiency................................................. $ 95,275 $ 69,482
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 146
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cable television revenue................................... $ 22,882 $ 18,156 $ 8,776
--------- --------- ---------
Operating expenses:
Direct operating expenses................................ 6,427 4,986 2,119
Selling, general and administrative (note 7)............. 7,885 5,542 3,619
Depreciation and amortization............................ 9,003 5,229 3,308
--------- --------- ---------
Total operating expenses......................... 23,315 15,757 9,046
--------- --------- ---------
Operating income (loss).......................... (433) 2,399 (270)
Interest income............................................ 183 99 78
Interest expense........................................... (10,058) (6,534) (4,458)
Foreign currency translation loss.......................... (938) (22) (27)
--------- --------- ---------
Loss before income taxes, minority interest and (11,246) (4,058) (4,677)
extraordinary item..................................
Income tax expense (note 5)................................ (21) -- (23)
Minority interest in subsidiary loss....................... 988 41 180
--------- --------- ---------
Loss before extraordinary loss on early extinguishment of (10,279) (4,017) (4,520)
debt.....................................................
Extraordinary loss on early extinguishment of debt (note (1,713) -- --
6).......................................................
Net loss.............................................. $(11,992) $ (4,017) $ (4,520)
========= ========= =========
Loss per common share before extraordinary item............ $ (51.39) $ (20.09) $ (22.60)
Extraordinary loss per share............................... (8.57) -- --
Net loss per common share............................. $ (59.96) $ (20.09) $ (22.60)
========= ========= =========
Weighted average number of capital shares outstanding...... 200,000 200,000 200,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 147
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL STOCK TRANSLATION ACCUMULATED
PAR VALUE ADJUSTMENT DEFICIT TOTAL
------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance January 1, 1994......................... $ 100 $ 643 $ (10,426) $ (9,683)
Translation adjustment........................ -- (27) 27 --
Net loss...................................... -- -- (4,520) (4,520)
---- ----- -------- --------
Balance December 31, 1994....................... 100 616 (14,919) (14,203)
Translation adjustment........................ -- (22) 22 --
Net loss...................................... -- -- (4,017) (4,017)
---- ----- -------- --------
Balance December 31, 1995....................... 100 594 (18,914) (18,220)
Translation adjustment........................ -- (938) 938 --
Net loss...................................... -- -- (11,992) (11,992)
---- ----- -------- --------
Balance December 31, 1996....................... $ 100 $ (344) $ (29,968) $(30,212)
==== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 148
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(11,992) $ (4,017) $ (4,520)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in subsidiary loss.................. (988) (41) (180)
Depreciation and amortization......................... 9,003 5,229 3,308
Write off of deferred financing costs................. 1,566 -- --
Other................................................. (162) 356 107
Interest expense added to notes payable to
affiliates.......................................... 7,844 5,139 4,231
Changes in operating assets and liabilities:
Accounts receivable................................. (439) (723) 49
Other current assets................................ (166) (263) (573)
Accounts payable.................................... (246) 1,349 525
Deferred revenue.................................... (310) 52 458
Amounts due to affiliates........................... 8,589 (4,918) (1,664)
Other current liabilities........................... (201) (203) 24
------- ------- -------
Net cash provided by operating activities........ 12,498 1,960 1,765
------- ------- -------
Cash flows from investing activities:
Construction of cable television systems................. (19,925) (15,094) (11,695)
Purchase of other capital assets......................... (1,140) (694) (244)
Other investments........................................ 171 (1,686) (402)
Purchase of subsidiaries, net of cash received........... (7,657) (3,104) --
------- ------- -------
Net cash used by investing activities................. (28,551) (20,578) (12,341)
------- ------- -------
Cash flows from financing activities:
Costs to obtain loans.................................... -- (956) (1,142)
Proceeds from (repayment of) notes payable............... (11,670) 4,590 7,000
Borrowings from affiliates............................... 32,460 14,770 6,661
------- ------- -------
Net cash provided by financing activities........ 20,790 18,404 12,519
------- ------- -------
Net increase (decrease) in cash.................. 4,737 (214) 1,943
Cash at beginning of year.................................. 2,278 2,492 549
------- ------- -------
Cash at end of year........................................ $ 7,015 $ 2,278 $ 2,492
======= ======= =======
Supplemental cash flow information:
Cash paid for interest................................ $ 2,067 $ 1,120 $ 138
Cash paid for income taxes............................ 282 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 149
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Reporting Entity
Poland Cablevision (Netherlands) B.V. ("PCBV" or the "Company"), a
Netherlands corporation, is a holding company that holds controlling interest in
a number of Polish cable television companies, collectively referred to as the
"PTK Companies". The Company is 92.3% owned by Poland Communications, Inc.
("PCI"). All significant assets and operating activities of the Company are
located in Poland.
Principles of Consolidation
The consolidated financial statements include the financial statements of
PCBV and its wholly owned and majority owned foreign subsidiaries. Also
consolidated is a 49% owned subsidiary for which the Company maintains control
of operating activities and has the right to control the appointment of members
to the Managing Board. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Revenue
Revenue is primarily derived from the sale of cable television services to
retail customers in Poland. Revenue from subscription fees is recognized on a
monthly basis, as the service is provided. 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 the estimated average period that new subscribers are expected to
remain connected to the system.
Taxation
The Kingdom of the Netherlands generally imposed a corporate income tax at
a rate of 40% on the first 250,000 Dfl ($150,000) of income and 35% on income
thereafter. Effective July 1, 1994 only the first 100,000 Dfl ($60,000) is
subject to the 40% rate. The income tax treaty currently in force between the
Netherlands and the United States provides that the Netherlands may impose a
withholding tax at a maximum rate of 5% on dividends paid by PCBV to its
stockholders.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases using enacted tax rates expected to apply in the years in which temporary
differences are expected to be recovered or settled.
The PTK Companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the PTK Companies are
exempt from import duties on certain in-kind capital contributions.
The PTK Companies' income tax is calculated in accordance with Polish tax
regulations. Due to differences between accounting practices under Polish tax
regulations and those required by U.S. GAAP, certain income and expense items
are recognized in different periods for financial reporting purposes and income
tax reporting purposes which may result in deferred income tax assets and
liabilities.
F-25
<PAGE> 150
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment in Cable Television Systems
The investment in the Company's cable television systems includes property,
plant and equipment used in the development and operation of the various cable
television systems. During the period of construction, plant costs and a portion
of design, development and related overhead costs are capitalized as a component
of the Company's investment in cable television systems. The Company capitalizes
interest costs incurred during the period of construction in accordance with
Statement of Financial Accounting Standards No. 34 "Capitalization of Interest
Cost." Interest is not capitalized for short-term construction projects.
Subscriber related costs and general and administrative expenses are charged to
operations when incurred. Depreciation is calculated for financial reporting
purposes using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Cable television system assets................................... 10 years
Vehicles......................................................... 5 years
Other property, plant and equipment.............................. 5-40 years
</TABLE>
Inventories for Construction
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to work-in-progress in the various cable television systems.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eight to ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Intangibles
The Company has entered into agreements with the Polish telephone company
("TPSA"), for the use of underground telephone conduits for cable wiring. Costs
related to obtaining conduit and franchise agreements with housing cooperatives
and governmental authorities are capitalized and amortized generally over a
period of ten years. In the event the Company does not proceed to develop cable
systems within designated cities, costs previously capitalized will be charged
to expense.
Organization costs are capitalized and amortized over a one-year period.
Costs incurred to obtain financing have been deferred and amortized over the
life of the loan using the straight-line method.
Foreign Currency Translation
Translation of the Polish foreign currency accounts into U.S. dollars has
been performed in accordance with SFAS No. 52 (Foreign Currency Translation).
This standard requires that entities operating in countries with economies
deemed to be highly inflationary translate all monetary assets and liabilities
into U.S. dollars at the exchange rate in effect at year end and non-monetary
assets and liabilities at historical or transaction date rates. Revenues and
expenses are translated at the average exchange rate over the reporting period.
For 1996, 1995 and 1994 inflation was 19.9%, 26.8% and 33.3%, respectively
yielding a three-year cumulative inflation rate of 102.7%.
Effective January 1, 1995, the Polish monetary denomination (old zloty) was
redenominated at a rate of 10,000 old zloty to one new zloty and one hundred old
zloty to one groszy. The new and old Polish zloty had an exchange rate of 2.875
PLN, 2.468 PLN and 24,372zl to one U.S. dollar at December 31, 1996, 1995 and
1994, respectively.
F-26
<PAGE> 151
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Company's financial instruments include cash, accounts receivable,
other current assets, other investments, accounts payable, notes payable, and
due to affiliate. The carrying value of the cash, accounts receivable and
payable, the other current assets and other investments on the consolidated
balance sheets approximates fair value due to the short maturity of these
instruments.
It was not practicable to estimate the fair value of amounts due from
affiliates and notes payable to affiliates due to the nature of these
instruments, the circumstances surrounding their issuance, and the absence of
quoted market prices for similar financial instruments.
Impairment of Longed-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Adoption of this statement did not have an impact on the Company's
financial position, results of operations or liquidity.
Advertising Costs
All advertising costs of the Company are expensed as incurred.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
2. ACQUISITIONS
During 1995, the Company acquired two cable television companies for
aggregate consideration of $3.2 million. The 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. Had the 1995 acquisitions occurred on January 1, 1994,
the Company's pro forma consolidated results for the year ended December 31,
1994 would have been as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
<S> <C>
Revenue.................................................................. $14,783
Loss before income taxes and minority interest........................... (4,503)
Net loss................................................................. (4,346)
Net loss per share....................................................... $(21.73)
</TABLE>
F-27
<PAGE> 152
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company acquired substantially all of the cable television
system assets of eighteen cable television companies for aggregate consideration
of approximately $9.4 million. The acquisitions have been accounted for as
purchases with the purchase price allocated among the assets acquired and
liabilities assumed based upon their fair values at date of acquisition and any
excess as goodwill. The results of the acquired companies have been included
with the Company since their dates of acquisition. Had the 1996 acquisitions
occurred on January 1, 1996 and January 1, 1995, the Company's pro forma
consolidated results for the years ended December 31, 1996 and 1995 would have
been as follows:
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenue........................................................ $ 27,168 $22,845
Loss before income taxes and minority interest................. (12,810) (3,830)
Net loss....................................................... (11,943) (4,070)
Net loss per share............................................. $ (59.71) $(20.35)
</TABLE>
During December 1996, the Company entered into a preliminary purchase
agreement for a cable television system operating in the Opole area and prepaid
the approximately $1.4 million purchase price, which is included in other
investments in the accompanying consolidated balance sheet at December 31, 1996.
The agreement provides that it becomes legally effective on the date of
regulatory approval by the Anti-Monopoly Office.
Included in minority interest on December 31, 1996 is approximately $5.1
million relating to the acquisition of one subsidiary.
3. INTANGIBLES
Intangible assets at December 31, 1996 and 1995 are carried at cost and
consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Conduit and franchise agreements.................................. $ 4,418 $1,700
Goodwill.......................................................... 5,999 --
Deferred financing costs.......................................... 2,145 2,131
Organization costs................................................ 986 986
Other............................................................. 112 92
------- ------
13,660 4,909
Less accumulated amortization..................................... (3,126) (602)
------- ------
Net intangible assets............................................. $10,534 $4,307
======= ======
</TABLE>
4. OTHER CURRENT ASSETS
Included in other current assets is $822,000 and $584,000 of VAT
receivables as of December 31, 1996 and 1995, respectively.
F-28
<PAGE> 153
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
PCBV is required to file a separate Netherlands tax return which does not
reflect the operating results of the PTK Companies. Income tax expense for the
years ended December 31, 1996, 1995 and 1994 is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--- --- ---
<S> <C> <C> <C>
Netherlands income tax expense................................... $ 9 $-- $23
Foreign jurisdictions............................................ 12 -- --
--- --- ---
Income tax expense............................................. $21 $-- $23
=== === ===
</TABLE>
Because there are no significant temporary differences between the
financial statement carrying values of the Company's assets and liabilities
compared to their respective tax bases, no provision for deferred taxes has been
included in the accompanying consolidated financial statements.
The significant item of the PTK Companies which gives rise to Polish
deferred tax assets at December 31, 1996 and 1995 is the taxable loss
carryforwards from prior years. Loss carryforwards can be offset against the PTK
Companies' taxable income and utilized at a rate of one-third per year in each
of the three years subsequent to the year of the loss. If there is no taxable
income in a given year during the carryforward period, the portion of the loss
carryforward to be utilized is permanently forfeited. The PTK Companies had net
operating loss carryforwards of approximately $2.5 million, which will expire as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $1,389
1998................................................................ 954
1999 and thereafter................................................. 192
------
$2,535
======
</TABLE>
Due to uncertainties regarding the recoverability of the Polish deferred
tax benefits, a 100% valuation allowance was recognized by the PTK Companies for
the deferred tax benefit at December 31, 1996 and 1995.
6. NOTES PAYABLE
The Company signed a $13,500,000 financing agreement with Overseas Private
Investment Corporation ("OPIC") of which $8,600,000 was outstanding at December
31, 1995. The loan was repaid in full during 1996. Accordingly, the Company
recorded an extraordinary loss of $1,713,000 related to the early retirement of
debt. The extraordinary loss was comprised of a $147,000 prepayment penalty and
a $1,566,000 write off of deferred financing costs. There was no tax effect of
this transaction due to foreign jurisdiction net operating loss carryforwards.
Under terms of the financing agreement, the Company maintained a restricted
compensating cash balance of $983,000 at December 31, 1995.
In October 1995, the Company entered into an agreement with American Bank
in Poland S.A. for a Polish currency denominated revolving credit loan and a
U.S. dollar denominated promissory note, of which approximately $2,482,000 was
outstanding at December 31, 1995. These loans were repaid in full during 1996.
During 1995, the Company entered into a revolving credit loan with Bank
Polska Opieki S.A. of which approximately $588,000 was outstanding at December
31, 1995. This loan was repaid in full during 1996.
Interest expense relating to the above loans was $992,000, $654,000 and
$159,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-29
<PAGE> 154
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into
transactions with entities under common control of the stockholders and
affiliated parties. When appropriate, outstanding balances bear interest until
settlement. The principal related party transactions are described below.
Due from Affiliate
Amounts due from affiliate primarily represent advances and payments made
on behalf of a shareholder of a PTK Company.
Notes Payable to Affiliates
Note payable to affiliates of $107,891,000 at December 31, 1996 consists of
an unsecured demand note and unpaid interest due to PCI. Notes payable to
affiliates of $67,587,000 at December 31, 1995 consist of unsecured demand notes
and unpaid interest due to PCI and Chase American Corporation ("CAC"), an
affiliate of one of the shareholders of PCI. The CAC loans were repaid during
1996. The notes bear interest at 10% per annum, and represent advances and
purchases on behalf of PCBV and the PTK Companies.
Interest expense of $7,844,000, $5,777,000 and $4,296,000 was incurred by
the Company in connection with these affiliate borrowings during the years ended
December 31, 1996, 1995 and 1994, respectively. Of this expense, $7,844,000,
$5,139,000 and $4,231,000 has been added to the loan balance for the years ended
December 31, 1996, 1995, and 1994, respectively.
PCI has agreed not to seek current repayment of the above referenced
affiliate loan and advances until the Company generates sufficient cash flow or
liquidity to support such repayments.
Due to Affiliate
Amounts due to affiliate of $11,159,000 and $5,371,000 at December 31, 1996
and 1995, respectively, are noninterest bearing and primarily represent amounts
owed to PCI for management fees, purchases and services received on or prior to
December 31, 1996 and 1995, respectively. Payment of management consulting fees
are contingent until such time as net income of the PTK Companies' is sufficient
to service the fee.
Service Agreement
The PTK Companies entered into five-year Service Agreements dated January
1, 1994 with PCBV and PCI in order to mitigate logistical and economic
constraints it was experiencing in obtaining and maintaining the necessary
supply of qualified personnel, materials and other services and products
required to achieve the PTK Companies' business objectives in Poland. The
Service Agreements replaced a similar agreement dated March 31, 1990 among PTK,
PCBV and PCI.
Pursuant to the Service Agreements, PCBV and PCI, as PCBV's agents, agreed
to provide services on behalf of the PTK Companies relating to technical,
managerial, supervisory, purchasing, operational, financial and administrative
functions required to develop and operate the cable television systems within
Poland. The PTK Companies reimburse PCBV and PCI for all costs incurred in
connection with providing these services. During 1994, the PTK Companies also
reimbursed David T. Chase Enterprises, Inc., an affiliate of the shareholders of
PCI, $75,000 per quarter for certain general overhead costs associated with
providing the services described above, including the costs of supplying phone
systems, office space, supplies and equipment, and computers. In addition, legal
and financial services requested are reimbursed and are not material.
Pursuant to SFAS No. 51, certain reimbursed overhead costs of $950,000 and
$942,000 at December 31, 1996 and 1995, respectively, have been capitalized and
are included in investment in cable television system assets. The remaining
overhead costs allocated to the Company of $1,162,000, $395,000 and $86,000
during
F-30
<PAGE> 155
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the years ended December 31, 1996, 1995 and 1994, respectively, are included in
corporate administration and operating expenses.
Management Consulting Agreement
The PTK Companies entered into management consulting agreements with PCI to
recommend, advise, and consult the PTK Companies as to design, construction,
development, and operation of the cable television systems. Management
consulting fees charged to corporate administration expense were $1,520,000,
$1,280,000 and $1,280,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Payment of management consulting fees are contingent until such
time as net income of the PTK Companies' is sufficient to service the fee.
Contingent management consulting fees payable to PCI are reflected in amounts
due to affiliate in the accompanying consolidated balance sheets.
Programming
An affiliate of PCI provides programming to the PTK Companies. The Company
incurred programming fees from this affiliate of $412,000, $186,000 and $91,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA. The
TPSA leases expire at various times. A substantial portion of the Company's
contracts with TPSA 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. Generally speaking, TPSA may
terminate a conduit agreement if the Company does not have a valid Permit
covering the subscribers to which the conduit delivers the signal; the Company's
network serviced by the conduit does not meet the required technical
specifications; the Company does not have a contract with the Co-op authority or
the Company fails to pay the required rent. Minimum future lease commitments for
the aforementioned leases is $752,000 for the year ended December 31, 1997. Rent
expense for the years ended December 31, 1996, 1995 and 1994 was $738,000,
$701,000 and $299,000 respectively, related to these leases.
The Company has entered into various lease agreements with TPSA. All of the
agreements provide that TPSA is the manager of the telephone duct system and
will lease space within the ducts to the Company for installation of cable and
equipment for the cable television systems. The lease agreements provide for
monthly lease payments that are adjusted quarterly or annually, except for the
Gdansk lease agreement which provides for an annual adjustment after the sixth
year which then remains fixed through the tenth year of the lease. Based upon
the lease rates currently in effect, the Company is charged approximately $1 to
$12 per month for each 100 meters of duct space utilized.
Programming Commitments
The Company has entered into programming agreements with its significant
programming suppliers. The programming agreements have terms which range from
one to five years and require that the payments for the programs paid either at
a fixed amount or based upon the number of subscribers connected to the system
each month. For the years ended December 31, 1996, 1995 and 1994, the Company
incurred programming fees of approximately $1,685,000, $1,298,000 and $681,000,
respectively, pursuant to these agreements.
Some of the programming suppliers the Company entered into agreement with
are located outside of Poland. The categorization by the Polish tax authorities
of the payments to be paid under such agreements as a royalty rather than a
payment for services has yet to be determined. Should the payments made be
determined by Polish tax authorities to be royalties (license payments) rather
than payments for services, the
F-31
<PAGE> 156
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PTK Companies making such payments would be required to withhold and pay over to
the Polish tax authorities certain portions of such payments. The portions would
vary depending upon the country of residence of each programming supplier and
the provisions of the international tax treaty (if any) between such country and
Poland. The maximum amount that could be due under these laws is approximately
$350,000. PCBV has not recorded any amounts related to this in the accompanying
financial statements due to the uncertainties involved.
Regulatory Approvals
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2 million (approximately
$695,000 at the December 31, 1996 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed capital increases, the non-recognition of the capital
increases by the Polish courts means that the contribution could be treated as
income in the hands of the PTK Company. As a result, part or all of the
contribution could be subject to corporate income tax of 40%. The PTK Company
had enough tax net operating loss in 1995 to offset any additional taxable
income resulting from an unfavorable treatment. PCBV has not recorded any
amounts related to this in the accompanying financial statements due to the tax
net operating loss and uncertainties involved.
General Litigation
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon its current knowledge,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
9. SUBSEQUENT EVENTS
The Company entered into agreements during 1996 to purchase two cable
television systems in 1997 for approximately $1.9 million, of which $1.4 million
had been prepaid at December 31, 1996.
F-32
<PAGE> 157
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
number of basic subscribers (including basic subscribers in networks acquired by
the Company) at the end of that period.
COAXIAL CABLE: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
cable, but less channel capacity than is allowed by fiber-optic cable.
DISH: An antenna shaped like a dish used to receive line-of-sight
terrestrial signals or television signals from a satellite.
DTH (DIRECT-TO-HOME): A satellite multi-channel television service to
single dwellings, each served by a single satellite dish, as distinct from a
cable or SMATV system.
FIBER-TO-THE-FEEDER: Cable TV system design that incorporates fiber-optic
cable transmission of cable TV signals to a fiber-optic receiver which then
converts the fiber-optic signal to an analog signal carried over coaxial cable
to the subscriber's home.
FIBER-OPTIC CABLE: Cable made of glass fibers through which signals are
transmitted as pulses of light. Fiber-optic cable has the capacity to carry
enormous amounts of data and a large number of channels.
FOOTPRINT: The area on the earth's surface where the signals from a
specific satellite can be received.
HEADEND: The originating point of a signal in cable television systems
comprised of a collection of hardware, typically including satellite receivers,
modulators, amplifiers and video cassette playback machines. Signals, when
processed, are then combined for distribution within the cable network.
HOMES: The Company's estimate of the number of homes within its service
areas.
A-1
<PAGE> 158
HOMES PASSED: Homes which have active signals, are covered by contracts
with a co-op authority and can be connected to a cable distribution system
without further extension of the distribution network.
INTERACTIVE SERVICES: Cable-based services which both send signals to the
subscribers and utilize or require responses or other signals from the
subscriber. Typical interactive services include telephony, pay-on-demand,
shop-at-home, video games and ATM services. Interactive services can be more
easily provided with high-capacity hybrid fiber-optic/coaxial distribution
networks.
MMDS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION SYSTEM): A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
MULTIPLE DWELLING UNIT (MDU): A housing estate, cooperative apartment
building or other residence consisting of multiple apartment units.
OVER-BUILD: The construction and operation of cable systems in the same
geographic location or area by more than one cable operator which compete for
the same subscribers.
PREMIUM SERVICE: Cable programming service available only for additional
subscription fees over and above fees for the basic service.
REVENUE PER SUBSCRIBER: Total revenue derived from a cable television
system during a given period divided by the system's average number of
subscribers for that period.
SMATV (SATELLITE MASTER ANTENNA TELEVISION): A television delivery system
to multiple dwelling units that utilizes one or more satellite dishes and a
distribution network linking MDUs.
STAR ARCHITECTURE: A design of cable plant in a cable television system
providing an independent path from an individual subscriber to the system
headends or another central control point, facilitating the provision of and
charging for separate tiers of programming, disconnection of non-paying
customers and the provision of addressable service.
TELEPHONY: The provision of telephone service.
TOTAL SUBSCRIBERS: The total number of households which receive the
Company's cable television services.
TUNERS: Electronic devices that connect to a subscriber's television set
to allow the set to receive channels in frequencies provided by cable
television.
A-2
<PAGE> 159
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH
IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cross Reference Sheet.................
Available Information................. 4
Prospectus Summary.................... 5
Summary Consolidated Financial Data... 16
Risk Factors.......................... 18
The Exchange Offer.................... 29
Exchange Rate Data.................... 36
Use of Proceeds....................... 37
Capitalization........................ 38
Selected Consolidated Financial
Data................................ 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 41
The Industry.......................... 49
Business.............................. 55
Regulation............................ 71
Management............................ 77
Executive Compensation................ 82
Principal Shareholders................ 86
Certain Relationships and Related
Transactions........................ 87
Description of Indebtedness........... 92
Description of the Notes.............. 93
Income Tax Considerations............. 121
Plan of Distribution.................. 121
Legal Matters......................... 122
Experts............................... 122
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. A-1
</TABLE>
======================================================
======================================================
$130,000,000
POLAND
COMMUNICATIONS, INC.
9 7/8% SERIES B SENIOR NOTES
DUE 2003
---------------------------------
PROSPECTUS
---------------------------------
, 1997
======================================================
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Issuer's Certificate of Incorporation provides as
follows:
The personal liability of a director of the Company or its shareholders for
monetary damages for breach of duty as a director is limited to an amount not to
exceed the compensation received by the director for serving the Company during
the year of the violation if such breach did not (A) involve a knowing and
culpable violation of law by the director; (B) enable the director or an
Associate (as defined herein) to receive an improper personal economic gain; (C)
show a lack of good faith and a conscious disregard for the duty of the director
to the Company under circumstances in which the director was aware that his
conduct or omission created an unjustifiable risk of serious injury to the
Company; (D) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the Company; or (E) create
liability under an applicable provision of the laws of the State of New York
which cannot be limited or made inapplicable. The term "Associate" of a director
means (i) any corporation or organization of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of ten percent or
more of any class of voting stock; (ii) any trust or other estate in which such
person has at least a ten percent beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such spouse, who has the same home as
such person.
Article X of the Issuer's Certificate of Incorporation provides as follows:
Except as otherwise provided in the Company's Certificate of Incorporation
or in the laws of the State of New York, the Company is required to indemnify
any person made a party to any proceeding, other than an action by or in the
right of the Company, by reason of the fact that he, or the person whose legal
representative he is, is or was a shareholder, director, officer, employee or
agent of the Company, or any person who, although not a shareholder, director,
officer, employee or agent of the Company, is or was serving solely at the
request of the Company as a director, officer, partner, trustee, employee or
agent of another eligible enterprise (hereinafter an "Indemnifiable
Individual"), against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses actually incurred by him, and the person whose legal
representative he is, in connection with such proceeding. The Company is not
required to indemnify any Indemnifiable Individual unless (1) such Indemnifiable
Individual was successful on the merits in the defense of any proceeding, or (2)
it is concluded that such Indemnifiable Individual acted in good faith and in a
manner he reasonably believed to be in the best interests of the Company, and
with respect to any criminal action or proceeding, that such Indemnifiable
Individual had no reasonable cause to believe his conduct was unlawful, or (3)
the court, on application by such Indemnifiable Individual, has determined that
in view of all circumstances such Indemnifiable Individual is fairly and
reasonably entitled to be indemnified, and then for such amount as the court
determines; except that, in connection with an alleged claim based upon his
purchase or sale of securities of the Company or another entity, which he serves
or served at the request of the Company, the Company will only indemnify such
Indemnifiable Individual after the court has determined, on application by such
Indemnifiable Individual, that in view of all the circumstances such
Indemnifiable Individual is fairly and reasonably entitled to be indemnified,
and then for such amount as the court determines. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent will not, of itself, create a presumption that the
Indemnifiable Individual did not act in good faith or in a manner which he did
not reasonably believe to be in the best interests of the Company or, with
respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
Except as otherwise provided in the Company's Certificate of Incorporation
or in the laws of the State of New York, the Company is required to indemnify
any person made a party to any proceeding, by or in the right of the Company, to
procure a judgment in its favor by reason of the fact that he, or the person
whose legal representative he is, is or was an Indemnifiable Individual, against
reasonable expenses actually incurred by him in connection with such proceeding
in relation to matters as to which such Indemnifiable Individual is finally
adjudged not to have breached his duty to the Company, or where the court, on
application by such
II-1
<PAGE> 161
Indemnifiable Individual, has determined that in view of all the circumstances
such person is fairly and reasonably entitled to be indemnified, and then for
such amount as the court determines. The Company will not so indemnify any such
Indemnifiable Individual for amounts paid to the Company, to a plaintiff or to
counsel for a plaintiff in settling or otherwise disposing of a proceeding which
is settled or otherwise disposed of without court approval.
To the extent that the indemnification provisions contained in the
Certificate of Incorporation are invalidated on any grounds by any court of
competent jurisdiction, then the Company will nevertheless indemnify each
Indemnifiable Individual as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding to the fullest extent permitted by any applicable portion of the
indemnification provisions contained in the Certificate of Incorporation that
have not been invalidated, by the Business Company Law of New York or by any
other applicable law.
Section 721 of the New York Business Corporation Law (the "N.Y.B.C.L.")
provides that no indemnification may be made to or on behalf of any director or
officer of the Issuer if "a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled." Article X of
the Certificate of Incorporation includes the foregoing statutory language.
The rights granted under Article X of the Certificate of Incorporation are
in addition to, and are not exclusive of, any other rights to indemnification
and expenses to which any director or officer may otherwise be entitled. Under
the N.Y.B.C.L., a New York corporation may indemnify any director or officer who
is made or threatened to be made a party to an action by or in the right of such
corporation against "amounts paid in settlement and reasonable expenses,
including attorneys' fees," actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in connection with
an appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in the best interests of the
corporation, except that no indemnification shall be made in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such director or officer shall
have been adjudged liable to the corporation, unless and only to the extent that
a court determines that the director or officer is fairly and reasonably
entitled to indemnity. A corporation may also indemnify directors and officers
who are parties to other actions or proceedings (including actions or
proceedings by or in the right of any other corporation or other enterprise
which the director or officer served at the request of the corporation) against
"judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees," actually or necessarily incurred as a result of such actions
or proceedings, or any appeal therein, provided the director or officer acted,
in good faith, for a purpose which he reasonably believed to be in the best
interests of the corporation (or in the case of service to another corporation
or other enterprise at the request of such corporation, not opposed to the best
interests of such corporation) and, in criminal cases, that he also had no
reasonable cause to believe that his conduct was unlawful. Any indemnification
under the N.Y.B.C.L. may be made only if authorized in the specific case by
disinterested directors, or by the board of directors upon the opinion in
writing of independent legal counsel that indemnification is proper, or by the
shareholders, but even without such authorization, a court may order
indemnification in certain circumstances. Further, any director or officer who
is "successful, on the merits or otherwise," in the defense of an action or
proceeding is entitled to indemnification as a matter of right.
A New York corporation may generally purchase insurance, consistent with
the limitations of New York insurance law and regulatory supervision, to
indemnify the corporation for any obligation which it incurs as a result of the
indemnification of directors and officers under the provisions of the
N.Y.B.C.L., so long as no final adjudication has established that the directors'
or officers' acts of active and deliberate dishonesty were material to the cause
of action so adjudicated or that the directors or officers personally gained in
fact a financial profit or other advantage (N.Y.B.C.L. Section 726).
PCI has purchased directors and officers liability insurance which provides
coverage for losses from wrongful acts committed or alleged to have been
committed by any insured person, including coverage for claims arising out of
certain securities or SEC actions.
II-2
<PAGE> 162
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement dated October 24, 1996, between the Issuer and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
3.1* Restated Certificate of Incorporation of the Issuer filed on March 27, 1996.
3.2* Certificate of Amendment of the Certificate of Incorporation of the Issuer filed
on October 23, 1996.
3.4* By-laws of the Issuer as amended through March 29, 1996.
4.1* Form of Note. (contained in Indenture filed as Exhibit 4.11)
4.2 Form of Exchange Note. (contained in Indenture filed as Exhibit 4.11)
4.3* Form of Regulation S Global Note. (contained in Indenture filed as Exhibit 4.11)
4.8* Form of Rule 144A Global Note. (contained in Indenture filed as Exhibit 4.11)
4.9* Form of Regulation S Global Exchange Note. (contained in Indenture filed as
Exhibit 4.11)
4.10* Form of Rule 144A Global Exchange Note. (contained in Indenture filed as Exhibit
4.11)
4.11* Indenture dated as of October 31, 1996 between the Issuer and State Street Bank
and Trust Company relating to the Company's 9 7/8% Senior Notes due 2003 and its
9 7/8% Series B Senior Notes due 2003.
5* Opinion of Baker & McKenzie with respect to the legality of the securities being
registered.
8* Opinion of Baker & McKenzie with respect to the certain tax matters.
9* Voting Agreement by and among Polish Investments Holding Limited Partnership,
Roger M. Freedman, Steele LLC, and David Chase dated as of March 29, 1996.
10.1* Registration Rights Agreement dated as of October 31, 1996 among the Issuer and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.2* Form of Management Agreement between Issuer and subsidiaries.
10.3* Form of Service Agreement among Issuer and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among Issuer and subsidiaries.
10.5* Amendment to Service Agreement.
10.6* Side Letter regarding Service Agreement.
10.7* Employment Agreement, dated as of January 1, 1997, between Poland Communications,
Inc. ("PCI") and Robert E. Fowler, III, including Stock Option Agreement.
10.8* Deferred Compensation Agreement, dated as of January 1, 1991, between Chase
International Corporation (merged into World Cable Communications, Inc. ("WCCI"),
now PCI) and Arnold L. Chase.
10.9* Employment Agreement, dated as of January 1, 1993, between Poland Cablevision
(Netherlands) B.V. ("PCBV") and Richard B. Steele, including Assignment and
Assumption Agreement, dated as of March 20, 1996, between PCBV and WCCI relating
to Richard B. Steele's Employment Agreement.
10.10* Employment Agreement, dated as of January --, 1997, between PCI and George
Makowski, including Stock Option Agreement.
10.11* Employment Agreement, dated as of September 1, 1996, between WCCI and John
Frelas, including Stock Option Agreement.
</TABLE>
II-3
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------------------
<C> <S>
10.12* Form of Employment Agreement, dated as of February 7, 1997, between PCI and
Przemyslaw A. Szmyt.
10.13* Employment Agreement, dated as of January 1, 1997, between PCI and Marek Sowa.
10.14* Deferred Compensation Agreement, dated as of April 18, 1995, between WCCI and
Gilbert Tash, and Letters related to employment and compensation of Gilbert Tash.
10.15* Employment Agreement, dated as of January 1, 1996, between PTK-Warszawa S.A. and
Andrzej Muras.
10.16* Employment Agreement dated July 10, 1996, between WCCI and Michael Houlehan,
related to Bonuses for 1995 and 1996, Letter of Employment, dated October 7,
1994, between PCBV and Michael J. Houlehan, and Assignment and Assumption
Agreement, dated as of October 7, 1994, between PCBV and WCCI relating to Michael
Houlehan's Letter of Employment.
10.17* Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.
11.1 Statement Regarding Calculation of Per Share Earnings.
21* List of subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP with respect to PCI
23.2 Consent of KPMG Peat Marwick LLP with respect to PCBV
23.5* Consent of Baker & McKenzie with respect to the legality of the securities being
registered (contained in Exhibit 5).
23.6* Consent of Baker & McKenzie with respect to the certain tax matters (contained in
Exhibit 8).
24* Power of Attorney (included on the signature page in Part II of this Registration
Statement).
25* Statement of Eligibility of State Street Bank and Trust Company; Form T-1.
27 Financial Data Schedule.
99.1* Letter of Transmittal relating to the Exchange Offer.
99.2* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
relating to the Exchange Offer.
99.3* Letter to Clients relating to the Exchange Offer.
99.4* Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ---------------
* Previously filed
(b) Financial Statement Schedules.
The following are included in Part II of this Registration Statement:
Schedule II -- Valuation and Qualifying Accounts
- Poland Communications, Inc.
- Poland Cablevision (Netherlands) B.V.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Issuer hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) under the Securities Act of 1933, as amended
(the "Securities Act"), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
II-4
<PAGE> 164
(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
II-5
<PAGE> 165
(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.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Issuer pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed part of the registration
statement as of the time it was declared effective.
II-6
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in London,
England, on the 12th day of May, 1997.
POLAND COMMUNICATIONS, INC.
By: /s/ ROBERT E. FOWLER, III
------------------------------------
Robert E. Fowler, III
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- -------------
<C> <S> <C>
/s/ ROBERT E. FOWLER, III Chief Executive Officer and Director May 12, 1997
- ------------------------------------- (Principal Executive Officer)
Robert E. Fowler, III
* Chief Financial Officer (Principal May 12, 1997
- ------------------------------------- Financial and Principal Accounting
John S. Frelas Officer)
Chairman of the Board of Directors
- -------------------------------------
David T. Chase
* Director May 12, 1997
- -------------------------------------
Arnold L. Chase
* Director May 12, 1997
- -------------------------------------
Scott A. Lanphere
Director
- -------------------------------------
Jerry Z. Swirski
</TABLE>
- ---------------
* By power of attorney
<TABLE>
<C> <S> <C>
/s/ ROBERT E. FOWLER, III
- -------------------------------------
Robert E. Fowler, III
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 167
SCHEDULE II
POLAND COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
The following schedule presents the activity within the allowances for
losses for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
TOTAL NET TOTAL
BEGINNING CHARGED TO WRITE- ENDING
BALANCE EXPENSE OFFS BALANCE
--------- ---------- ----- -------
<S> <C> <C> <C> <C>
Allowance for Credit Loss:
Years ended December 31:
1996............................................. $510 $549 $514 $545
==== ==== ==== ====
1995............................................. $132 $402 $ 24 $510
==== ==== ==== ====
1994............................................. $ 60 $ 93 $ 21 $132
==== ==== ==== ====
</TABLE>
<PAGE> 168
SCHEDULE II
POLAND CABLEVISION (NETHERLANDS) B.V.
VALUATION AND QUALIFYING ACCOUNTS
The following schedule presents the activity within the allowances for
losses for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
TOTAL NET TOTAL
BEGINNING CHARGED TO WRITE- ENDING
BALANCE EXPENSE OFFS BALANCE
--------- ---------- ---- -------
<S> <C> <C> <C> <C>
Allowance for Credit Loss:
Years ended December 31:
1996................................................ $ 510 $387 $460 $ 437
==== ==== ==== ====
1995................................................ $ 132 $402 $ 24 $ 510
==== ==== ==== ====
1994................................................ $ 60 $ 93 $ 21 $ 132
==== ==== ==== ====
</TABLE>
<PAGE> 169
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Purchase Agreement dated October 24, 1996, between the Issuer and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
3.1* Restated Certificate of Incorporation of the Issuer filed on March 27,
1996.
3.2* Certificate of Amendment of the Certificate of Incorporation of the
Issuer filed on October 23, 1996.
3.4* By-laws of the Issuer as amended through March 29, 1996.
4.1* Form of Note. (contained in Indenture filed as Exhibit 4.11)
4.2 Form of Exchange Note.
4.3* Form of Regulation S Global Note. (contained in Indenture filed as
Exhibit 4.11)
4.8* Form of Rule 144A Global Note. (contained in Indenture filed as Exhibit
4.11)
4.9* Form of Regulation S Global Exchange Note. (contained in Indenture filed
as Exhibit 4.11)
4.10* Form of Rule 144A Global Exchange Note. (contained in Indenture filed as
Exhibit 4.11)
4.11* Indenture dated as of October 31, 1996 between the Issuer and State
Street Bank and Trust Company relating to the Company's 9 7/8% Senior
Notes due 2003 and its 9 7/8% Series B Senior Notes due 2003.
5* Opinion of Baker & McKenzie with respect to the legality of the
securities being registered.
8* Opinion of Baker & McKenzie with respect to the certain tax matters.
9* Voting Agreement by and among Polish Investments Holding Limited
Partnership, Roger M. Freedman, Steele LLC, and David Chase dated as of
March 29, 1996.
10.1* Registration Rights Agreement dated as of October 31, 1996 among the
Issuer and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.2* Form of Management Agreement between Issuer and subsidiaries.
10.3* Form of Service Agreement among Issuer and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among Issuer and subsidiaries.
10.5* Amendment to Service Agreement.
10.6* Side Letter regarding Service Agreement.
10.7* Employment Agreement, dated as of January 1, 1997, between Poland
Communications, Inc. ("PCI") and Robert E. Fowler, III, including Stock
Option Agreement.
10.8* Deferred Compensation Agreement, dated as of January 1, 1991, between
Chase International Corporation (merged into World Cable Communications,
Inc. ("WCCI"), now PCI) and Arnold L. Chase.
10.9* Employment Agreement, dated as of January 1, 1993, between Poland
Cablevision (Netherlands) B.V. ("PCBV") and Richard B. Steele, including
Assignment and Assumption Agreement, dated as of March 20, 1996, between
PCBV and WCCI relating to Richard B. Steele's Employment Agreement.
10.10* Employment Agreement, dated as of January --, 1997, between PCI and
George Makowski, including Stock Option Agreement.
10.11* Employment Agreement, dated as of September 1, 1996, between WCCI and
John Frelas, including Stock Option Agreement.
10.12* Form of Employment Agreement, dated as of February 7, 1997, between PCI
and Przemyslaw A. Szmyt.
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.13* Employment Agreement, dated as of January 1, 1997, between PCI and Marek
Sowa.
10.14* Deferred Compensation Agreement, dated as of April 18, 1995, between
WCCI and Gilbert Tash, and Letters related to employment and
compensation of Gilbert Tash.
10.15* Employment Agreement, dated as of January 1, 1996, between PTK-Warszawa
S.A. and Andrzej Muras.
10.16* Employment Agreement dated July 10, 1996, between WCCI and Michael
Houlehan, related to Bonuses for 1995 and 1996, Letter of Employment,
dated October 7, 1994, between PCBV and Michael J. Houlehan, and
Assignment and Assumption Agreement, dated as of October 7, 1994,
between PCBV and WCCI relating to Michael Houlehan's Letter of
Employment.
10.17* Form of Agreement for Lease of Cable Conduits with Telekomunikacja
Polska S.A.
11.1 Statement Regarding Calculation of Per Share Earnings.
21* List of subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP with respect to PCI
23.2 Consent of KPMG Peat Marwick LLP with respect to PCBV
23.5* Consent of Baker & McKenzie with respect to the legality of the
securities being registered (contained in Exhibit 5).
23.6* Consent of Baker & McKenzie with respect to the certain tax matters
(contained in Exhibit 8).
24* Power of Attorney (included on the signature page in Part II of this
Registration Statement).
25* Statement of Eligibility of State Street Bank and Trust Company; Form
T-1.
27 Financial Data Schedule.
99.1* Letter of Transmittal relating to the Exchange Offer.
99.2* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees. relating to the Exchange Offer.
99.3* Letter to Clients relating to the Exchange Offer.
99.4* Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 4.2
[FACE OF SECURITY]
POLAND COMMUNICATIONS, INC.
9 7/8% SERIES B SENIOR NOTE DUE 2003
CUSIP 730873-ACO
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>
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.
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:
------------------------------------
Name: Robert E. Fowler, III
Title: Chief Executive Officer
On the day of , 1997 before me personally came Robert E.
Fowler, III, 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> 2
(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.
2
<PAGE> 3
[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, 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.
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 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
3
<PAGE> 4
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
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.
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
4
<PAGE> 5
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.
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.
5
<PAGE> 6
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.
6
<PAGE> 7
[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.
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
7
<PAGE> 8
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:
8
<PAGE> 1
EXHIBIT 11.1
POLAND COMMUNICATIONS, INC.
For the years ended December 31, 1996, 1995, and 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Loss applicable to
common shareholders (5,938) (1,289) (2,383)
------ ------ ------
Weighted average number of
shares outstanding 17,271 11,037 10,880
Net Loss per share $(343.81) $(116.79) $(219.03)
-------- -------- --------
</TABLE>
Page 1
<PAGE> 1
EXHIBIT 23.1
THE BOARD OF DIRECTORS
POLAND COMMUNICATIONS, INC.:
The audits referred to in our report dated March 26, 1997, included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" and "Selected Consolidated Financial Data" in
the prospectus.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
May 12, 1997
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Poland Cablevision (Netherlands) B.V.
The audits referred to in our report dated March 26, 1997, included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,483
<SECURITIES> 25,115
<RECEIVABLES> 1,760
<ALLOWANCES> 545
<INVENTORY> 7,913
<CURRENT-ASSETS> 97,060
<PP&E> 102,567
<DEPRECIATION> (19,143)
<TOTAL-ASSETS> 217,537
<CURRENT-LIABILITIES> 16,205
<BONDS> 130,074
34,955
0
<COMMON> 1
<OTHER-SE> 31,047
<TOTAL-LIABILITY-AND-EQUITY> 217,537
<SALES> 0
<TOTAL-REVENUES> 26,197
<CGS> 0
<TOTAL-COSTS> (26,247)
<OTHER-EXPENSES> 1,129
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 4,687
<INCOME-PRETAX> (3,631)
<INCOME-TAX> 1,273
<INCOME-CONTINUING> (4,904)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,713)
<CHANGES> 679
<NET-INCOME> (5,938)
<EPS-PRIMARY> (343.81)
<EPS-DILUTED> 0
</TABLE>
