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REGISTRATION NO. 333 --29869
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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@ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 4841
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
DELAWARE 06--1487156
Incorporation or Organization) Identification No.)
<CAPTION>
(State or Other Jurisdiction of (I.R.S. Employer
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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)
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ROBERT E. FOWLER, III
@ENTERTAINMENT, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(Address, including Zip Code and Telephone Number,
including Area Code, of Agent for Service)
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COPIES TO:
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<S> <C>
MARC R. PAUL, ESQ. PAMELA M. GIBSON, ESQ.
BAKER & MCKENZIE SHEARMAN & STERLING
815 CONNECTICUT AVENUE, N.W. 199 BISHOPSGATE
WASHINGTON, DC 20006 LONDON EC2M 3TY
ENGLAND
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION FEE
REGISTERED REGISTERED (1) PRICE PER SHARE (2) PRICE (2) (3)
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Common Stock, par value $.01 per share........ 10,925,000 $22.00 $240,350,000 $72,834
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(1) Includes shares that (i) are to be offered and sold in the United States,
(ii) are to be offered outside the United States but that may be resold
from time to time in the United States during the distribution and (iii)
may be purchased by the Underwriters (as defined in the Prospectus
included herein) pursuant to over-allotment options and resold in the
United States. See "Underwriting".
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(a).
(3) A fee of $64,470 was previously paid. The remaining fee of $8,364 is paid
with this Amendment No. 1.
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JULY 11, 1997
9,500,000 SHARES
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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Of the 9,500,000 shares of Common Stock offered, 6,175,000 shares of Common
Stock are being offered hereby in the United States and 3,325,000 shares of
Common Stock are being offered in a concurrent International Offering outside
the United States. The initial public offering price and the aggregate
underwriting discount per share of Common Stock are identical for both
Offerings. See "Underwriting".
All the shares of Common Stock offered hereby are being sold by
@Entertainment, Inc. Prior to the Offerings, there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price of the Common Stock will be between $18.50 and $22.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting".
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ATEN".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
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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.
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PROCEEDS TO
INITIAL PUBLIC UNDERWRITING @ENTERTAINMENT,
OFFERING PRICE DISCOUNT(1) INC. (2)
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Per Share of Common Stock............... $ $ $
Total (3)............................... $ $ $
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(1) @Entertainment, Inc. has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of approximately $1.5 million payable by
@Entertainment, Inc.
(3) @Entertainment, Inc. has granted the U.S. Underwriters an option for 30 days
to purchase up to an additional 926,250 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, @Entertainment, Inc. has
granted the International Underwriters a similar option with respect to an
additional 498,750 shares as part of the concurrent International Offering.
If such options are exercised in full, the total initial public offering
price, underwriting discount and proceeds to @Entertainment, Inc. will be
$ , $ and $ , respectively. See "Underwriting".
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The shares of Common Stock offered hereby are offered severally by the U.S.
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York on or about , 1997, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
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The date of this Prospectus is July , 1997.
LOGO
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LOGO
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
------------------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY @ENTERTAINMENT,
INC. OR BY ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON
STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OF @ENTERTAINMENT, INC.,
OR POSSESSION OR DISTRIBUTION OF A PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE
POSSESSION THIS PROSPECTUS COMES ARE ADVISED BY @ENTERTAINMENT, INC. AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO,
THE OFFERINGS AND DISTRIBUTION OF THIS PROSPECTUS.
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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. Except as otherwise noted,
all information in this Prospectus (i) reflects the completion of the
Reorganization (as defined in "The Reorganization") as of June 22, 1997, whereby
@Entertainment, Inc. ("@Entertainment") became the new parent holding company of
Poland Communications, Inc. ("PCI"), which through its subsidiaries conducts the
Company's existing cable television and programming businesses, and of At
Entertainment Limited ("@EL"), a new company formed to develop the Company's
digital satellite direct-to-home business, (ii) gives effect to the capital
stock adjustment which occurred as part of the Reorganization, whereby each
outstanding share of common stock of PCI was exchanged for 1,000 shares of
Common Stock of @Entertainment (the "Capital Adjustment"), (iii) assumes no
exercise of the Underwriters' over-allotment options, and (iv) gives effect to
the automatic conversion, upon the closing of the Offerings, of 2,500 shares of
Series B Preferred Stock, par value $.01 per share, of @Entertainment (the
"Series B Preferred Stock") into 4,862,000 shares of Common Stock. See "The
Reorganization" and "Description of Capital Stock". As used in this Prospectus,
references to "@Entertainment" mean @Entertainment, Inc. and to the "Company"
mean @Entertainment and its consolidated subsidiaries, including PCI, @EL and
two 49% owned subsidiaries, Poltelkab Sp. z o.o. ("Poltelkab") and Polska
Telewizja Kablowa-Ryntronik S.A. ("PTK-Ryntronik"). @Entertainment prepares its
consolidated financial statements in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP") in U.S. Dollars. For
the convenience of the reader, amounts in this Prospectus are expressed
principally in U.S. Dollars. Data regarding the Company's cable television
subscribers are at May 31, 1997 and include approximately 98,000 cable
television subscribers and approximately 163,000 homes passed attributable to
cable systems acquired by the Company after May 31, 1997, unless otherwise
noted. Certain terms used in this Prospectus are defined in the Glossary
included herein as Annex A.
THE COMPANY
GENERAL
The Company operates the largest multichannel pay television business in
Poland. Through the Company's cable television networks, the most extensive in
Poland, the Company serves the largest base of subscribers of any cable operator
in Poland, totaling approximately 688,000 subscribers at May 31, 1997 (of whom
approximately 79% subscribe to the Company's package with the largest number of
channels (the "Basic Tier")). The Company believes that it has established a
favorable reputation in the Polish market for providing modern, reliable
technology, a broad selection of quality programming and professional customer
service. The Company intends to expand its distribution capacity in Poland
through the expansion of its cable television business and the development of a
complementary digital satellite direct-to-home ("D-DTH") broadcasting service.
The Company currently creates, produces, develops and acquires programming,
including programming for its two proprietary Polish-language channels, for
distribution across its cable networks. The Company intends to expand these
activities to develop a branded digital encrypted platform of proprietary
Polish-language programming (the "Programming Platform") under the brand name
@TV. This Programming Platform will be distributed on a subscription basis
across the Company's cable television and D-DTH systems and sold on a wholesale
basis to other cable networks in Poland.
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 cable operators) and through the build-out of its
own cable networks. Over the last three years, the Company has experienced
average annual growth of approximately 60% in revenue, 130% in EBITDA (as
defined in "Summary Consolidated Financial Data") and 96% in cable television
subscribers. 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
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1995, respectively, but had operating losses of $1.3 million and $1.0 million
for 1996 and the first three months of 1997, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company is developing its business in the following three areas.
CABLE TELEVISION. With over 1,292,000 homes passed and approximately
688,000 cable television subscribers at May 31, 1997, the Company estimates it
has approximately twice as many subscribers as the next two largest cable
operators in Poland combined. The Company believes that additional cable
television subscriber growth can be achieved through a combination of
acquisitions, increased penetration and new network build-out. All of the
Company's cable television subscribers are located in eight regional clusters
encompassing eight of the ten largest cities in Poland, including those cities
which the Company believes provide the most favorable demographics for cable
television in the country. The Company has invested more than $85 million to
construct fibre-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. The networks constructed by the Company provide 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.
DIGITAL SATELLITE DIRECT-TO-HOME BROADCASTING. The Company intends to
expand its distribution capacity by developing a complementary satellite D-DTH
broadcasting service for Poland under the brand name @TV. The Company expects to
launch its D-DTH service in the first half of 1998 with an initial package of
approximately 14 basic Polish-language channels and one optional premium Polish-
language movie channel. It believes @TV will be the first Polish-language D-DTH
service available to the Polish market. The Company has entered into contracts
to lease three transponders on the Astra 1E and 1F satellites which would
provide the capacity to transmit up to 21 channels. The Company will initially
transmit via satellite uplink to the Polish market from a location in the United
Kingdom. The Company has applied, or intends to apply, for licenses for each of
its proposed D-DTH broadcast channels from the Independent Television Commission
("ITC") in the United Kingdom and expects to receive the first of such licenses
shortly. The Company is currently studying the feasibility of locating its
uplink and production facilities in Poland and of applying for the Polish
broadcasting licenses necessary to engage in such activities. The Company is
currently negotiating agreements with Philips Business Electronics B.V.
("Philips"), which are expected to be concluded shortly, for the supply of an
end-to-end package of products and services which will be distributed, installed
and serviced through over 1,000 Philips authorized electronics retailers across
Poland. The Company intends to use a portion of the net proceeds from the
Offerings to acquire from Philips approximately 500,000 D-DTH reception systems
("D-DTH Reception Systems") consisting of a digital integrated receiver decoder
("IRD"), a smartcard-based proprietary conditional access system based on
Philips' CryptoWorks(R) technology and a satellite dish and related equipment
(which together form the outdoor unit or "ODU"). The Company intends to
distribute the D-DTH Reception Systems at a significantly subsidized cost to
initial subscribers in Poland (the "Initial Subscribers") to the Company's D-DTH
service.
PROGRAMMING. The Company currently creates, produces, develops and acquires
programming, including programming for its two proprietary Polish-language
channels, for distribution across its cable networks. ProCable Sp. z o.o.
("ProCable"), a 33%-owned subsidiary, was formed to develop proprietary
programming and currently broadcasts two self-branded Polish-language channels
across the Company's cable networks. The Company has also set up a wholly-owned
subsidiary, Mozaic Entertainment, Inc. ("Mozaic"), to develop proprietary
programming, either directly or through joint ventures. Through a joint venture,
Mozaic currently produces Atomic TV, a Polish-language music channel. In
addition to ProCable, Mozaic and its existing joint ventures, the Company
intends to form a variety of joint ventures or subsidiaries to own and develop
proprietary Polish-language programming for its Programming Platform. Towards
this end, the Company is currently negotiating with a number of Polish and
international programming providers to form joint ventures which will be
responsible for the creation of thematic programs and channels, such as action
and adventure, science fiction, sports and family entertainment channels. The
Company intends to either have equity ownership in, and/or exclusive agreements
with a number of such programming providers, thus allowing it to create an
attractive
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branded package of proprietary high-quality programming designed specifically
for the Polish market. To date, the Company has concluded letters of intent
regarding the World Shopping Network, Knowledge TV, BET on Jazz and Twoj Styl, a
Polish lifestyle magazine. The Company is also negotiating a partnership with
Telewizja Polska S.A. ("TVP"), the Polish state-owned broadcaster, which is
subject to certain Polish regulatory and other approvals, to transmit TVP's
popular channels on the Company's Programming Platform and provide the Company
with exclusive pay television access to TVP's extensive Polish-language
television library. There can be no assurances that the Company can enter into
agreements on satisfactory terms with TVP or any of these program providers. The
Company intends not only to distribute its Programming Platform on a
subscription basis across its own cable television and D-DTH systems, but also
to sell the Programming Platform on a wholesale basis to other cable networks in
Poland.
STRATEGY AND OPERATING STRENGTHS
The Company's principal objective is to enhance its position as the leading
provider of multichannel pay television in Poland by capitalizing on the
favorable market opportunities that it believes exist in Poland for high quality
Polish-language programming carried over sophisticated cable television and
D-DTH systems. The Company's business strategy is designed to increase its
market share and subscriber base, maximize revenue per subscriber and minimize
churn by emphasizing branding, advanced and expanded distribution technology,
superior Polish-language programming and customer service. The Company believes
that it is well-positioned to execute its business strategy in the Polish
multichannel pay television market based on the following operating strengths.
LEADING MARKET POSITION. The Company is currently the largest cable
television operator in Poland, and estimates that it has approximately twice as
many subscribers as the next two largest operators in Poland combined. Upon
completion of the Acquisitions described herein (see "-- Acquisitions"), the
Company estimates that it will have approximately 708,000 cable television
subscribers, representing approximately 28% of all cable television subscribers
in Poland and approximately 47% of all cable television subscribers in Poland to
systems offering approximately 20 or more channels. The Company believes that it
is well-positioned to grow its cable television business, as it estimates that
at May 31, 1997, approximately 8.8 million Polish homes remained unpassed by
cable television networks and, of the approximately 3.5 million homes passed by
cable in Poland, it estimates approximately 29% were not cable subscribers. Many
cable subscribers in Poland are served by small, often poorly capitalized, cable
operators, which generally feature poor quality and limited channel offerings,
but at low rates and with relatively high penetration. The Company believes that
there are opportunities for large, professional companies, such as the Company,
to acquire at attractive prices or displace these smaller cable operators in
Poland, due to the burden on such operators of attempting to comply with
recently enacted regulations that, among other things, set minimum technical
standards for television networks, and the frequent lack of exclusivity of cable
operators' agreements with co-operative housing authorities ("co-op
authorities"), which facilitates overbuilding of smaller, poor quality cable
operators. The Company's D-DTH strategy is to distribute at a significantly
subsidized cost D-DTH Reception Systems to the approximately 500,000 Initial
Subscribers, which is designed to achieve rapid and high penetration of the
Polish market. The Company believes that it will be the first Polish-language
D-DTH service available to the Polish market which, when combined with the
continued expansion of its cable television and programming businesses, will
enhance the Company's position as the leading provider of multichannel pay
television in Poland.
PROPRIETARY POLISH-LANGUAGE PROGRAMMING. The Company believes that there is
significant unsatisfied demand in its market for a variety of high-quality
Polish-language programming. The Company intends to develop its Programming
Platform for distribution across its cable television and D-DTH systems, as well
as for sale on a wholesale basis to other cable networks in Poland. The Company
intends to expand its current proprietary Polish-language programming for its
Programming Platform by establishing equity ownership in, and/or exclusive
programming arrangements with, a wide variety of channels designed to provide
the Polish market with an offering of first-run films, live local sports and
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multiple thematic channels in Polish, which the Company believes will be
attractive to its customer base and advertisers.
ADVANCED DISTRIBUTION TECHNOLOGY. The Company's cable television networks
(other than those it has acquired and is in the process of rebuilding to its
standards) have bandwidths of at least 550MHz and, in most cases, have the
capacity to be cost-effectively reconfigured to provide additional services such
as voice and data transmission. The Company's cable television networks
constructed by it also provide excess channel capacity. The Company expects that
its D-DTH service will be among the first digital television platforms launched
in Europe, and the Company believes it will be the first Polish-language D-DTH
service available to the Polish market. The Company is currently negotiating
with Philips for an end-to-end package of products and services, which the
Company expects will enable it to provide a wide range of sophisticated services
to its D-DTH customers.
ABILITY TO REALIZE OPERATING EFFICIENCIES AND ADDITIONAL REVENUE
SOURCES. The Company believes it can achieve substantial operating efficiencies
and higher margins through centralized billing systems and other subscriber
management functions, as well as through the sale of its Programming Platform to
other cable television networks in Poland. Continued expansion of the Company's
subscriber base should provide increasing economies of scale by, among other
things, permitting the Company to spread its fixed costs over an increasing
subscriber base. In addition, the Company believes that there are opportunities
to develop a variety of new value-added services, including (i) new television
services, such as premium channels, additional advertising and pay-per-view
("PPV"), (ii) new network services, such as internet access and voice telephony,
and (iii) ancillary services, such as database marketing, branded financial
services and a subscriber magazine.
HIGH PENETRATION AND LOW CHURN. The Company is currently achieving premise
penetration of approximately 53% of homes passed. In certain areas where the
Company has operated its networks for an extended period of time, such as
portions of the Gdansk regional cluster, the penetration rate is approximately
63%. The Company believes that it can improve its penetration by expanding its
current program offering, which includes only ten Polish-language channels not
available on terrestrial frequencies, through the addition of its Programming
Platform. In addition, the Company has experienced annual churn of less than 10%
historically. Churn rates for 1994, 1995 and 1996 were 9.1%, 9.2% and 7.8%,
respectively. The Company expects, however, that it may experience increases in
its churn rate above historical levels during the implementation across its
cable networks of its new pricing strategy, designed to maximize revenue per
subscriber and achieve real profit margin increases in U.S. Dollar terms, which
commenced in January 1997.
ATTRACTIVE OPERATING AND REGULATORY ENVIRONMENT. Poland is the
fifth-largest television market in Europe, with approximately 12.3 million
television homes at May 31, 1997 as estimated by the Company. Levels of
television viewing in Poland are among the highest in Europe, at an average of
279 minutes per day (over 4 1/2 hours) in 1995. The Company estimates that there
are approximately 1.6 million satellite homes (able to currently receive largely
unencrypted anolog foreign-language programming) and nearly 2.5 million cable
television subscribers in Poland. Current law does not permit the Polish
authorities to regulate cable television or DTH rates, and Poland is a party to
the 1989 Council of Europe's Convention on Transfrontier Television (the
"Convention"), which requires the Polish authorities to guarantee freedom of
reception and retransmission of program services which meet the requirements of
the Convention.
EXPERIENCED AND MOTIVATED MANAGEMENT. The Company has established a
management team of senior executives who have significant experience in the
cable television and DTH businesses, and are familiar with the Polish television
market, business practices, language and customs. The team is led by Robert E.
Fowler, III, Chief Executive Officer of @Entertainment, who has significant
cable, programming and broadcasting experience, having managed operations in
Poland and the United States, and George Z. Makowski, Chief Operating
Officer-Cable Television of PCI, who has significant cable and
telecommunications experience, having managed operations in Poland and Western
Europe. The management team also includes several key local executives and
managers who have significant
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experience in the Polish television market. The Company's D-DTH business will be
managed by David Warner, Chief Operating Officer-DTH of @EL, who has significant
experience in analog DTH ("A-DTH") services for Poland and other countries in
Europe. Mr. Warner will lead a team of local managers experienced in the Polish
A-DTH market. The Company believes that many of the policies and procedures
developed for its cable business will be applicable to its D-DTH business, and
that this management team will contribute local expertise which the Company
believes will be essential in expanding its cable television and programming
businesses and developing its D-DTH broadcasting business. The Company has
established management and employee stock option plans which it believes will
improve its ability to retain its qualified management and employees.
ACQUISITIONS
Since March 31, 1997, the Company has completed the acquisition of all or a
substantial portion of the capital stock or assets of three cable television
systems in Poland, and intends to acquire a fourth such system, as well as a 50%
equity interest in a Polish publishing company with which it intends to develop
programming and ancillary services (the "Acquisitions"). The aggregate
consideration paid or to be paid by the Company in connection with the
Acquisitions (including amounts for stockholder loans) is expected to be
approximately $35.0 million. The three cable systems already acquired in the
Acquisitions serve approximately 113,000 subscribers and pass approximately
189,000 homes, while the cable system expected to be acquired serves
approximately 20,500 subscribers, representing all of the homes passed by that
system. The consummation of the Acquisitions has or will result in the expansion
of the Company's cable operations within its existing regional clusters and the
establishment of one new regional cluster. PCI has or intends to use a portion
of the net proceeds of the offering of its 9 7/8% Senior Notes Due 2003 (the
"Old Notes") in October 1996 to consummate the Acquisitions. The Company has
obtained the approval of the Polish Office for Protection of Competition and
Consumers (the "Anti-Monopoly Office") for the Acquisitions which have been
consummated, and the Company intends to apply for approval of the remaining
Acquisitions. The Company believes that it will be required to obtain the
Anti-Monopoly Office's approval for certain future acquisitions as well. The
Company continually evaluates acquisition candidates and expects that it will
continue to acquire attractive cable television operators and programmers. There
can be no assurance as to the timing of the closing of the Acquisitions that are
currently pending or as to whether or on what terms the pending Acquisitions
will actually be consummated. See "Business -- Cable -- Acquisitions".
HISTORY; PRINCIPAL STOCKHOLDERS; REORGANIZATION
The Company was founded in 1990 by David T. Chase, a Polish-born investor
who has successfully operated a variety of businesses, including cable
television and broadcasting interests in the United States, since leaving Poland
in 1946. Since it began the construction of its first cable network in Gdansk in
1990, the Company has grown aggressively through acquisitions (approximately 40
acquisitions since 1992, generally of smaller, poorly capitalized cable
operators) and through the build-out of its own cable networks. The Company's
total number of cable television subscribers has grown from approximately 43,000
at December 31, 1992 to approximately 688,000 at May 31, 1997. Approximately 50%
of this increase has been achieved through the build-out of the Company's
existing cable networks. In March 1996, ECO Holdings III Limited Partnership
("ECO"), of which the general partner is an entity controlled by Advent
International Corporation ("Advent"), acquired an interest in the Company. At
March 31, 1997, Mr. Chase and certain members of his family and family trusts
(the "Chase Family", and together with ECO, the "Principal Stockholders") and
ECO had invested approximately $86 million in PCI. In October 1996, PCI issued
$130 million aggregate principal amounts of Old Notes to fund its continued
expansion program and had approximately $84 million in cash and investment
securities at March 31, 1997. The Chase Family provided the Company with
significant management resources and technical support in the early stages of
its operations, and the Principal Stockholders provide the Company with ongoing
access to their extensive television and media expertise. Mr. Chase is the
chairman of @Entertainment. See "Management".
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In June 1997, the Company effected the Reorganization to facilitate the
development of its D-DTH business and the expansion of its cable television and
programming businesses. @Entertainment is a Delaware corporation formed in June
1997 as the new parent company of PCI and @EL. PCI, a New York corporation
established in November 1989, conducts, through its subsidiaries, the Company's
existing cable television and programming businesses. @EL, a corporation
incorporated under the laws of England and Wales in June 1997, will develop the
Company's D-DTH business. As a result of the Reorganization, @Entertainment owns
100% of the outstanding shares of voting stock of PCI and @EL, which are the
principal assets of @Entertainment. See "The Reorganization". After giving
effect to the Reorganization but prior to completion of the Offerings, the Chase
Family and ECO own approximately 42% and 39%, respectively, of the outstanding
voting stock of @Entertainment. Upon completion of the Offerings, the Chase
Family and ECO will beneficially own approximately 28% and 26%, respectively, of
the outstanding shares of Common Stock of @Entertainment. As a result, the
Principal Stockholders, acting together, will be able to elect all of
@Entertainment's directors and otherwise control the Company's operations. See
"Risk Factors -- Risks Related to the Company -- Control by Existing
Stockholders; Potential Anti-Takeover Provisions" and "Principal Stockholders".
@Entertainment's principal executive office is located at One Commercial
Plaza, Hartford Connecticut 06103-3585 and its telephone number is (860)
549-1674.
6
<PAGE> 10
THE OFFERINGS
<TABLE>
<S> <C>
U.S. Offering................................ 6,175,000 shares
International Offering....................... 3,325,000 shares
Total...................................... 9,500,000 shares
Common Stock to be outstanding after the
Offerings (1).............................. 33,310,000 shares
</TABLE>
Use of Proceeds..................... Assuming an offering price of $20.25
per share (the midpoint of the
estimated range specified on the cover
page of the Prospectus), the net
proceeds of the Offerings are expected
to be approximately $177.4 million. The
Company plans to use $60.0 million to
purchase all of the PCI Series A
Preferred Stock and Series C Preferred
Stock held by certain of the Principal
Stockholders and approximately $1.23
million for the payment of bonuses to
certain executives of the Company. The
Company intends to use substantially
all of the remaining net proceeds to
finance the commencement and
development of its D-DTH business. Any
remaining net proceeds will be used for
general corporate purposes, including,
without limitation, development of its
cable television and programming
businesses and future acquisitions. See
"Risk Factors -- Risks Related to the
Offerings -- Benefits of the Offerings
to Insiders", "Use of Proceeds",
"Business -- Strategy and Operating
Strengths", "Business -- D-DTH -- D-DTH
Operating Strategy" and "Certain
Relationships and Related
Transactions".
Proposed Trading Symbol............. Application has been made for quotation
of the Common Stock on the Nasdaq
National Market under the symbol
"ATEN".
The 6,175,000 shares of Common Stock initially being offered in the United
States (the "U.S. Offering") and the 3,325,000 shares of Common Stock
concurrently being offered outside the United States (the "International
Offering") collectively are referred to in this Prospectus as the "Offerings".
- ----------------
(1) Does not include 2,436,000 shares of Common Stock reserved for issuance in
connection with options granted to certain employees of the Company. See
"Executive Compensation".
RISK FACTORS
Prospective investors should consider all the information contained in this
Prospectus in connection with the Offerings. In particular, prospective
investors should consider the factors set forth herein under "Risk Factors"
beginning on page 10.
7
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1994 1995 1996 1996 1997(1)
-------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................ $ 8,776 $ 18,557 $ 24,923 $ 5,621 $ 7,508
Depreciation and amortization........... (3,459) (5,199) (9,788) (1,729) (3,450)
Operating income (loss)................. 380 3,545 (1,347) 745 (1,016)
Interest expense........................ (2,327) (4,373) (4,687) (1,604) (3,205)
Net loss................................ (2,383) (1,289) (6,617) (1,464) (3,571)
Net loss applicable to common
stockholders......................... (2,383) (1,289) (5,938) (1,464) (4,551)
Net loss per share of Common Stock
(2).................................. (.21) (.11) (.33) (.11) (.23)
OTHER FINANCIAL DATA:
EBITDA (3).............................. $ 3,839 $ 8,744 $ 8,441 $ 2,474 $ 2,434
Expenditures for construction of cable
television systems (4)............... 11,695 16,014 25,372 7,408 4,471
Net cash provided (used) by operating
activities........................... 1,599 3,839 6,112 2,794 (1,656)
Net cash used by investing activities... (12,341) (21,985) (74,861) (7,800) (7,662)
Net cash provided (used) by financing
activities........................... 12,686 17,996 134,889 22,947 (657)
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ $ 47,376 $ 68,058 $217,537 $96,529 $212,937
Total debt.............................. 35,988 59,405 130,074 11,181 129,542
Total stockholders' equity.............. 1,479 190 31,048 39,747 26,497
</TABLE>
- ---------------
(1) If the Company were required to recognize a non-cash charge relating to the
difference between the exercise price of options to purchase shares of
Common Stock granted to certain executive officers of the Company in 1997
and a revised fair market value of such options as at the time of grant
equal to the estimated initial public offering price of $20.25 (the midpoint
of the estimated range specified on the cover page of this Prospectus), for
the three months ended March 31, 1997 operating loss and net loss would
increase to $10.2 million and $12.8 million, respectively, EBITDA would
decline to negative $6.8 million and stockholders' equity would decline to
$17.3 million. See "Risk Factors -- Risks Related to the Company --
Historical and Anticipated Future Operating Losses and Negative Cash Flow".
(2) Upon consummation of the Offerings, @Entertainment will use $60.0 million of
the net proceeds from the Offerings to purchase all of the PCI Series A and
Series C Preferred Stock held by certain of the Principal Stockholders. Had
the PCI Series A and Series C Preferred Stock been purchased at March 31,
1997, the net loss per share of Common Stock for the three months ended
March 31, 1997 would have been $2.01, due to the accretion of the PCI Series
A and Series C Preferred Stock to the $60.0 million aggregate redemption
value thereof.
(3) EBITDA consists of net income (loss) as measured by U.S. GAAP adjusted for
interest and investment income, 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. 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 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 Acquisitions.
(4) Expenditures for the construction of cable television systems represent
payments made by the Company during the period for construction of its cable
television systems in Poland, and excludes costs of acquiring cable systems.
8
<PAGE> 12
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997 (1)
------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Homes passed by cable (2)..... 298,316 711,545 1,088,540 742,578 1,101,662
Basic cable subscribers (3)... 112,534 262,077 460,625 290,874 484,426
Basic cable penetration
(3)(4)...................... 37.7% 36.8% 42.32% 39.17% 43.97%
EBITDA margin (5)............. 43.7% 47.1% 33.87% 44.01% 32.42%
Cable churn rates (6)......... 9.1% 9.2% 7.8% 7.4% 6.9%
</TABLE>
- ---------------
(1) At May 31, 1997, the Company had approximately 1,292,000 homes passed by
cable, approximately 578,000 basic cable subscribers and approximately 45%
basic cable penetration.
(2) The Company counts as homes passed only those homes for which it has an
active signal and, in the case of multiple dwelling unit ("MDU") homes, only
those homes for which the Company has an agreement with the cooperative
authority.
(3) Includes subscribers to the Company's Basic Tier and Intermediate Tier. See
"Business -- Cable -- Services and Fees".
(4) Basic cable subscribers as a percentage of homes passed by cable at period
end.
(5) Represents EBITDA as a percentage of revenue.
(6) Calculated by dividing the number of disconnected basic cable subscribers
during a period by the number of basic cable subscribers (including basic
cable subscribers in cable networks acquired by the Company) at the end of
that period.
9
<PAGE> 13
RISK FACTORS
Prospective investors should consider carefully all the information
contained in this Prospectus (including the financial statements and notes
thereto) prior to purchasing Common Stock in the Offerings and in particular the
factors set forth below under "-- Risks Related to the Company", "-- Risks
Related to Regulation", "-- Risks Related to Investments in Poland and Emerging
Markets" and "-- Risks Related to the Offerings". Such investors should
consider, among other things, the lack of a public market for the Common Stock
and the high leverage of the Company. 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
Company 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.
RISKS RELATED TO THE COMPANY
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
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 operating losses of $1.3 million and $1.0 million
for 1996 and the first three months of 1997, respectively.
The Company expects to experience substantial operating losses and negative
cash flow over the next several years due to (i) the large capital investments
required for the acquisition of equipment and facilities for its D-DTH business,
including subsidizing a significant portion of the cost of the D-DTH Reception
Systems to the Initial Subscribers, pursuant to the Company's business strategy,
and the administrative costs incurred in connection with commencing operations
and (ii) the large capital investments required to develop and produce its
Programming Platform and the depreciation and amortization of such investments
over several years. There can be no assurance that the Company will be able to
generate operating income or positive cash flow in the future or that its
operating losses and negative cash flow will not increase. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In 1997, the Company granted options to purchase shares of Common Stock to
certain executive officers as follows: in January Mr. Fowler was granted an
option to purchase 1,286,000 shares of Common Stock at an exercise price of
$3.707 per share and Mr. Makowski was granted an option to purchase 385,000
shares of Common Stock at an exercise price of $3.70808 per share; in June 1997
each of Messrs. Szmyt and Warner were granted options to purchase 131,000 shares
of Common Stock at an exercise price of $15.24 per share. See "Executive
Compensation -- Employment Agreements". Although the Company and KPMG Peat
Marwick LLP, the Company's independent auditors, believe that the accounting
treatment of such options presented in this Prospectus is appropriate, the
Company could be required to recognize a non-cash charge equal to the difference
between the exercise prices of such options and revised fair market values of
such options as at the time of grant, which revised fair market values could
range up to the initial public offering price. If the fair market value of such
options were determined to be the initial public offering price, the Company
estimates that, assuming an initial public offering price of $20.25 per share
(the midpoint of the estimated range specified on the cover page of this
Prospectus), the aggregate charge in connection with such options would be
approximately $28.9 million and would be expensed over the first nine months of
1997. Accordingly, the charge for the three months ended March 31, 1997 would be
approximately $9.2 million, and as a result the operating loss and net loss
would increase to $10.2 million and
10
<PAGE> 14
$12.8 million, respectively, EBITDA would decline to negative $6.8 million and
stockholders' equity would decline to $17.3 million.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has incurred substantial indebtedness. On October 31, 1996,
PCI, a subsidiary of @Entertainment, issued $130 million aggregate principal
amount of its Old Notes pursuant to the Indenture between PCI and State Street
Bank and Trust Company, as trustee (the "Indenture"), and in June 1997 exchanged
substantially all of such outstanding Old Notes for an equal aggregate principal
amount of publicly-registered 9 7/8% Series B Senior Notes Due 2003
(collectively, with the Old Notes, the "Notes") which were also issued pursuant
to the Indenture. At March 31, 1997, the Company had approximately $129.5
million aggregate principal amount of indebtedness outstanding. The Company
expects to seek additional debt financing in the next 12 to 18 months to finance
the development of its new D-DTH business, potential acquisitions and the
expansion of its cable and programming businesses. The Indenture limits, but
does not prohibit, the incurrence of additional indebtedness by PCI and PCI's
subsidiaries. The Indenture does not limit the ability of @Entertainment or @EL
to incur additional indebtedness.
The Company's ratio of earnings to fixed charges were 0.37x, 0.86x, 0.21x
and 0.33x in 1994, 1995, 1996 and the first three months of 1997, respectively.
The Company anticipates that, in light of the amount of its existing
indebtedness and the expected incurrence of additional indebtedness to finance
the development of its new D-DTH business, potential acquisitions and the
expansion of its cable and programming businesses, 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 flexibility 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 as well
as its ability to obtain additional financing, each 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.
A failure to comply with the covenants and other provisions of financing
documents to which the Company is a party, or other debt instruments to which it
may become a 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.
NEED FOR ADDITIONAL FINANCING
The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from the Principal Stockholders, (ii)
borrowings under available credit facilities and (iii) cash flow from
operations. The Company expects that an aggregate of approximately $315 million
through the end of 1998 will be required to fund (a) the commencement and
development of its D-DTH business, which will include capital expenditures and
expenditures for operating expenses, working capital and other general corporate
purposes, (b) the expansion of its programming business, (c) the consumma-
11
<PAGE> 15
tion of the Acquisitions and future acquisitions and (d) the building out of its
existing, and the rebuilding of new, cable television networks. The Company
believes that, in addition to the net proceeds from the Offerings, remaining
funds from the offering of the Notes and cash from operations, it will need
additional funding of approximately $100 million to fulfill its current business
development plans through the end of 1998. The Company expects that it will also
require additional external funding for its business development plans in years
subsequent to 1998 if the Company continues to subsidize the cost to subscribers
of the D-DTH Reception Systems and to refinance all or a portion of the Notes at
maturity. The Company currently expects to finance the initial roll-out cost of
its D-DTH business primarily with the net proceeds from the Offerings. However,
ongoing development and expansion of the D-DTH business and the development and
expansion of its Programming Platform will require significant additional
financing, and such businesses are expected to incur operating losses and
negative cash flow for the first several years of operations. See "-- Limited
D-DTH Experience and Uncertainties Associated with the D-DTH Market". The
Company does not expect that its Principal Stockholders will continue to make
capital contributions or loans to the Company. Accordingly, the Company expects
to be required to seek additional sources of financing. PCI maintains a credit
facility of approximately $6.5 million, under which no amount is currently
outstanding. Other future sources of financing for the Company could include
public and/or private debt and/or equity financings and/or bank financings.
While it is the Company's intention to enter only into new financings or
refinancings that it considers advantageous, there can be no assurance that such
sources of financing would be available to the Company in the future, or, if
available, that they could be obtained on terms acceptable to the Company. In
the event the Company obtains any future financing or 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. While the pace and amount of
the Company's expenditures for the above purposes is largely discretionary, if
for any reason additional financing is not available to the Company when
required, or is only available on less than favorable terms, it may be required
to reduce the scope of its presently anticipated expansion of its operations,
reduce capital expenditures (including expenditures related to acquisitions),
slow the development of its D-DTH business and/or refinance all or a portion of
its existing indebtedness (including the Notes), and as a result the business,
results of operations and prospects of the Company could be adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
RESTRICTIVE COVENANTS LIMITING PCI'S ABILITY TO PROVIDE FINANCIAL SUPPORT
TO @ENTERTAINMENT AND COVENANTS RESTRICTING PCI'S OPERATIONS
The Indenture relating to the Notes contains certain restrictive covenants
which will affect, and in many respects will significantly limit or prohibit,
among other things, the ability of PCI to (i) incur indebtedness, (ii) make
prepayments of certain indebtedness, (iii) pay dividends, (iv) make investments,
(v) engage in transactions with stockholders and affiliates, (vi) issue capital
stock of subsidiaries, (vii) create liens, (viii) sell assets and (ix) engage in
mergers and consolidations. Currently, PCI holds almost all of the assets and
operations of the Company. Restrictions on PCI's payments of dividends or
repayments of loans to @Entertainment and restrictions on related party
transactions may limit the Company's ability to optimally apply its resources to
its various businesses, which may adversely affect the business, results of
operations and prospects of the Company.
HOLDING COMPANY STRUCTURE AND RESTRICTIONS ON PAYMENT OF DIVIDENDS
@Entertainment and PCI are each holding companies with limited assets of
their own that conduct substantially all of their business through subsidiaries.
Certain of PCI's operating subsidiaries are held through a further holding
company, Poland Cablevision (Netherlands) B.V., a Netherlands company which is
92.3% owned by PCI ("PCBV"). The ability of @Entertainment to pay dividends on
the Common Stock will be dependent upon either the cash flows and earnings of
its subsidiaries and the payment of funds by those subsidiaries to
@Entertainment in the form of repayment of loans, dividends or otherwise or
@Entertainment's ability to otherwise realize economic benefits from its equity
interests
12
<PAGE> 16
in its subsidiaries. @Entertainment's subsidiaries have no obligation,
contingent or otherwise, to pay dividends to @Entertainment. The ability of
these subsidiaries to make payments to @Entertainment will be subject to, among
other things, the availability of funds and the terms of such subsidiaries'
indebtedness, as well as various business considerations. The Indenture limits,
but does not prohibit, the payment of dividends by PCI to @Entertainment.
Further, @Entertainment 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 direct or indirect interests. In
such cases, @Entertainment may be unable, without the consent of the relevant
partners, to cause such entities to pay dividends or implement business
strategies that @Entertainment may favor.
PCI is a corporation formed under the laws of the State of New York. Under
the New York Business Corporation Law (the "BCL"), PCI may declare or pay
dividends only out of the Company's surplus account. Under the BCL, a
corporation is deemed to have a surplus for purposes of dividend declaration or
payment when its net assets (which is defined as a corporation's total assets
less its total liabilities) exceed the corporation's stated capital (which is
defined as the sum of the par value of all of the shares of the corporation's
stock which have been issued with a par value). The BCL further stipulates that
PCI may only declare or pay dividends to the extent that its net assets
remaining after such declaration or payment at least equal the amount of its
stated capital.
Provisions of applicable Polish law limit the amount of dividends which may
be paid by Polish companies to the extent they do not have profits available for
distribution (of which @Entertainment's Polish subsidiaries had no material
amounts at March 31, 1997), and other statutory and general law obligations may
affect the ability of @Entertainment's Polish subsidiaries to declare or pay
dividends or the ability of such subsidiaries to make payments to @Entertainment
on account of intercompany loans. For example, Polish companies known as
spoffika 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 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 the statutes of @Entertainment's Polish
subsidiaries currently contain such a provision; however, most of
@Entertainment's Polish 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
stockholders.
Under English company law, @EL may only make distributions to
@Entertainment from its accumulated, realized profits which have not previously
been distributed or capitalized, less any accumulated realized losses which have
not previously been written off either in a reduction or reorganization of
capital. For these purposes, realized profits and losses are determined in
accordance with applicable accounting principles and reflect both revenue and
capital profits and losses.
Under the Netherlands' corporate law and PCBV's articles of incorporation,
PCBV may only distribute profits to its stockholders 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. A
stockholders' agreement among PCBV's stockholders includes certain limitations
on payments that can be paid by PCBV to its stockholders, including PCI. If the
managing board of PCBV solicits and receives loans from any of the PCBV
stockholders, the loans cannot bear interest at a rate exceeding 10% per annum.
The transfer of equity interests in subsidiaries of @Entertainment may be
limited, due in part to regulatory and contractual restrictions. There can thus
be no assurance of @Entertainment's ability to realize economic benefits through
the sale of these equity interests. Accordingly, there can be no
13
<PAGE> 17
assurance that @Entertainment will receive timely payments from its
subsidiaries, if at all, or other economic benefits from its equity interests in
its subsidiaries.
LIMITED D-DTH EXPERIENCE AND UNCERTAINTIES ASSOCIATED WITH THE D-DTH MARKET
Although certain of the Company's executives have experience in the A-DTH
market in Poland, the Company will have no experience delivering D-DTH services
prior to the launch of its D-DTH pilot project expected in the beginning of 1998
and of its full service expected in the first half of 1998. The Polish A-DTH
market developed rapidly from its inception in the late 1980s through the mid
1990s, but the rate of growth has declined in recent years because programmers
have begun compressing and encrypting the signals transmitted over European
satellites and moving their programming to a variety of satellites. The Polish
A-DTH market today is characterized by (i) poor signal quality relative to cable
television, (ii) limited channel offerings, (iii) a large number of small,
poorly-capitalized satellite master antenna television ("SMATV") operators, (iv)
high set-up costs of reception equipment and short satellite dish life, and (v)
the increasing reluctance of co-op authorities to permit the use of satellite
dishes. While the Company expects that its D-DTH service will offer Polish
consumers significant advantages over the current A-DTH services, due to, among
other factors (i) wider range of programming available due to the compression
ability of digital technology, (ii) less expensive non-motorized reception
equipment, (iii) the improved signal quality of D-DTH, and (iv) the increasing
availability of premium services, there can be no assurance that the market for
D-DTH services will develop, or if it does develop, that the Company will be
successful in launching its D-DTH business. In view of these challenges, the
prospects for the Company's proposed D-DTH business should be considered in
light of the uncertainties associated with the launch on a large scale of a new
business in a market with no comparable competitor experience and under a
developing regulatory framework which may change as the Polish D-DTH market
develops. See "-- Risks Related to Regulation -- Polish Regulation of the DTH
Market".
The Company expects that its D-DTH business will incur substantial
operating losses for its first several years of operation while it is developed
and expanded. In addition to the costs associated with providing the
approximately 500,000 Initial Subscribers with D-DTH Reception Systems on a
significantly subsidized basis, the Company is liable for charges associated
with each of its three transponders on the Astra satellites, which can amount to
a maximum of $6.75 million per year and up to $200 million for all three
transponders for the term of their leases (each lease expires in 2007 or 2008).
The Company will also incur capital and operating expenses related to its new
production and uplink facilities. The magnitude and duration of the losses to be
incurred on its D-DTH business will depend on, among other factors, the ability
of the Company's D-DTH service to attract and retain subscribers, the total cost
of providing affordable reception equipment to subscribers, the Company's
ability to develop a successful Programming Platform for the Polish market and
its ability to control other costs which do not vary with the number of
subscribers. Prospective investors should be aware of the difficulties
encountered by enterprises in the early stages of development, particularly in
light of the high roll-out costs involved in the D-DTH business obtaining the
targeted 500,000 Initial Subscribers, and the intense competition characteristic
of the pay television industry in Poland. There can be no assurance that the
roll-out of the D-DTH business will proceed as planned, or that if achieved, the
increase in the number of subscribers will result in profitability or positive
cash flow for the Company in future years.
The success of the Company's D-DTH business is subject to factors that are
beyond its control and impossible to predict, including (i) the size of the
D-DTH market, (ii) the rates of penetration of such market, (iii) the acceptance
of D-DTH services by subscribers and commercial advertisers, (iv) the
sensitivity of potential subscribers to the price of installation and
subscription fees, (v) the technical challenges of providing long-term D-DTH
services, (vi) the extent and nature of the development of multichannel
alternatives, including the continued expansion of cable television, and (vii)
the immediate and long-term viability of D-DTH television services in Poland.
Although the Company believes that the Astra satellites, Philips'
CryptoWorks(R) proprietary conditional access system and the Philips IRDs
together constitute a reliable cost-effective solution, certain
14
<PAGE> 18
other large European providers of D-DTH services have selected different
satellites, encryption technology and decoders. If another satellite, encryption
technology or decoder becomes the preferred standard in Poland, or if Poland
enacts regulations regarding such technology or decoders, such a development
could adversely impact the Company's ability to attract and retain subscribers.
Such a development could force the Company to switch its suppliers and replace
IRDs and conditional access systems previously provided to subscribers on a
subsidized basis, thus causing confusion for existing and potential subscribers,
delays in providing subscribers with IRDs and conditional access systems and
significant unexpected costs.
The Initial Subscribers will be required to make a substantial up-front
investment to subscribe to the Company's D-DTH service. Although the Company
believes that as a result of its strategy to significantly subsidize the cost of
the D-DTH Reception System, the price at which the Initial Subscribers will
acquire the basic subscription package (including the D-DTH Reception Systems
and accompanying services) should be low enough to attract a significant number
of subscribers, there can be no assurance that the Company will be able to
establish a substantial subscriber base. In addition, the investment for
subsequent subscribers may increase unless the Company decides to continue to
subsidize the cost to subscribers of the D-DTH Reception Systems. Accordingly,
there can be no assurance that the Company will attract subscribers if it ceases
to subsidize the cost of the D-DTH Reception System. Such continued
subsidization would require significant additional funding. There can be no
assurances that the Company could obtain such funding on satisfactory terms or
at all. See "-- Need for Additional Financing".
DEPENDENCE ON PHILIPS AS PRINCIPAL SUPPLIER
Under the Company's current plans, certain critical components and parts
used in the Company's D-DTH satellite transmission system, including the IRDs,
the CryptoWorks(R) proprietary conditional access system and associated
smartcards and the ODU, will be provided exclusively by Philips. The Company is
currently negotiating, and expects shortly to conclude, agreements with Philips
providing for Philips to be the exclusive supplier to the Company of the first
500,000 D-DTH Reception Systems in connection with the launch of the Company's
D-DTH business in Poland, and that Philips will not distribute any other digital
integrated receiver decoders in Poland until March 1, 1999 or any earlier date
on which the Company has secured 500,000 Initial Subscribers to its D-DTH
service in Poland. The Company expects its agreements with Philips to provide
that after such period of exclusivity, a second supplier of IRDs in addition to
Philips may be licensed by Philips to supply the Polish market. Although the
agreements being negotiated by the Company with Philips may, if successfully
concluded, provide a means by which the Company could obtain a second supplier
for all or part of its future requirements for D-DTH Reception Systems, the
Company does not have any sources for obtaining conditional access systems
compatible with the IRDs other than Philips and future licensees of Philips.
The failure of Philips to deliver D-DTH Reception Systems on schedule, or
at all, would delay or interrupt the commencement of the Company's D-DTH
business and thereby could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- D-DTH
- -- Technology and Infrastructure".
The Company expects its agreements with Philips to provide for full
distribution and installation service through approximately 1,000 of Philips'
3,000 authorized electronics retailers across Poland. It is currently expected
that Philips will distribute a complete subscription package, comprising the
D-DTH Reception System (the IRD, CryptoWorks(R) proprietary conditional access
system and associated smartcard, and ODU), as well as the necessary installation
and support services, and will therefore be the primary point of contact for
subscribers to the Company's D-DTH service. Failure by Philips' retail network
to provide the desired levels of service, quality and expertise (which are
outside the control of the Company) could have a material adverse impact on the
Company's operations and financial condition.
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DEPENDENCE UPON SATELLITES
The Company's D-DTH business will depend on its ability to broadcast using
transponders on the Astra 1E and 1F satellites, both of which have been
successfully launched and are located at 19.2 degrees east. While two
transponders leased by the Company on the Astra 1F satellite are currently
available to the Company, the Company's access to its third leased transponder
on the Astra 1E satellite is dependent upon the successful launch of the Astra
1G satellite, which is expected to occur in October 1997, and it becoming
operational, which is expected in early 1998. Satellites are subject to
significant risks that may prevent or impair proper commercial operations,
including satellite defects, launch failure, incorrect orbital placement,
destruction and damage. To date, the Company is not aware of significant
disruption of transmissions on the Astra 1E or 1F satellites. The Company is not
a "protected customer" under its satellite transponder leases and, in the event
of a failure of one or more of its transponders, would not be able to pre-empt
any other transponder customer. Due to the high cost of insurance policies
relating to satellite operations, the Company does not insure against possible
interruption of access to its transponders. The operation of the Astra
satellites is outside the control of the Company and a disruption of
transmissions on those satellites could have a material adverse effect on the
Company, depending upon the duration of the disruption. While the Company has
sufficient channel capacity to initiate its planned D-DTH service on the two
transponders to which it currently has access, the ability of the Company to add
channels to its Programming Platform will depend on the ability of the Company
to obtain access to the third transponder leased by it or other transponder
capacity on the Astra satellites or other favorably positioned satellites or
improvements in image compression technology. The ability of the Company to
transmit its programming following the expiration of the expected useful lives
of the Astra 1E and 1F satellites in approximately 2015 (the Company's leases
terminate in 2007 and 2008) will depend upon the ability of the Company to
extend its existing leases and/or to obtain rights to utilize additional
transponders on future Astra or other satellites. See
"Business -- D-DTH -- Technology and Infrastructure".
RISK OF SIGNAL THEFT
The delivery of subscription programming requires the use of encryption
technology to prevent signal theft or "piracy". Historically, piracy in the
cable television and European A-DTH industries has been widely reported. The
Company's IRDs will incorporate Philips' CryptoWorks(R) proprietary encryption
technology as part of its conditional access system. These IRDs use smartcard
technology, making it possible to change the conditional access system in the
event of a security breach through over-the-air methods by issuing new
electronic decryption "keys" over-the-air as part of the Company's regular D-DTH
broadcasts or by issuing new smartcards. The Company intends to purchase piracy
insurance from Philips. As part of this insurance, Philips would replace the
smartcards of the Company's then-subscribers with new smartcards incorporating
Philips' latest anti-piracy technology at no cost to the Company except delivery
costs, in the event piracy reaches a proportion of the Company's D-DTH service
to be determined in the definitive agreement with Philips. Although the Company
expects its conditional access system, subscriber management system and
smartcard to adequately prevent unauthorized access to programming, there can be
no assurance that the encryption technology to be utilized in connection with
the Company's D-DTH system will be, or remain, effective. If the encryption
technology is compromised in a manner which is not promptly corrected, the
Company's revenue and its ability to contract for programming services from
unrelated third parties would be adversely affected. See
"Business -- D-DTH -- Technology and Infrastructure".
AGREEMENTS WITH TPSA
The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television 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, at May 31, 1997,
approximately 62.5% of the Company's cable plant had
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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 permits 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 ("Permit") from the Polish State Agency of Radio
Communications ("PAR") authorizing the construction and operation of a cable
television network in a specified geographic area 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 of 1990, as amended (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. At May 31, 1997, approximately 113,000, or
16%, of the Company's total subscribers were serviced by conduits leased from
TPSA for which one or more of these provisions were applicable, so TPSA was
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 TPSA
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. See "Business -- Cable --
Technology and Infrastructure" and "Business -- Properties".
AVAILABILITY OF PROGRAMMING AND DEPENDENCE ON THIRD PARTY PROGRAMMERS;
PROGRAM DEVELOPMENT RISK
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 reasonable
costs, programming that is appealing to subscribers. In particular, the Company
believes there is a strong demand for high quality Polish-language television
programming in Poland. To the extent that (i) the Company's competitors are able
to produce or obtain Polish-language programming at commercially reasonable cost
and the Company is not able to do so, (ii) the Company's programming is less
popular than that of its competitors, or (iii) the Company's programming is
non-exclusive to the Company, the viability or competitiveness of the Company's
networks or services could be adversely affected. At present, the majority of
the Company's cable television programming is in English or German and is
non-exclusive to the Company.
The Company currently creates, produces, develops and acquires programming,
including programming for its two proprietary Polish language channels, for
distribution across its cable networks. In addition to ProCable and its existing
joint ventures, the Company intends to form a variety of joint ventures or
subsidiaries to own and develop proprietary Polish-language programming for its
Programming Platform. In addition to producing programming itself or through
joint ventures, the Company intends to acquire certain programming for its
Programming Platform from third-parties, generally on an exclusive basis.
The Company currently obtains or is negotiating agreements under which it
expects to obtain significant programming on an exclusive basis from several
sources on whom it depends or will depend to provide it with additional
high-quality programming that appeals to mass audiences in Poland. Although the
Company has no reason to believe that it will be unable to successfully conclude
any of the programming agreements it is now negotiating or that any of its
existing programming agreements will be cancelled or will not be renewed upon
expiration, if such agreements are not successfully concluded or are cancelled
or not renewed, the Company will have to seek programming material from other
sources. There can be no assurance that high-quality program services will be
available to the Company either from the Company directly or from third parties
on acceptable terms, including any required
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expenditures or investments in respect of such program services, or at all or,
if so available, that such program services will be acceptable to the Company's
subscribers.
As part of its strategy to create more programming content, and in
particular to develop high-quality Polish-language programming, the Company
recently established Mozaic which will create programming for the Company's
Programming Platform and for distribution on the Company's cable television and
D-DTH systems. The development and production of television programs involve a
high degree of risk associated with the creative content of programs and their
acceptance by the viewing audience, as well as the general economic climate,
public tastes generally and other intangible factors, all of which could change
rapidly and cannot be predicted with certainty. Therefore, there is a risk that
some or all of the Company's programming projects will not be successful or that
the Company's programming library will lose its audience appeal more quickly
than anticipated, possibly resulting in a portion of costs not being recovered
or expected profits not being realized. In addition, part of the Company's
programming strategy depends on its ability to create premium channels based on
specific thematic content. There can be no assurance that the Company will be
successful in introducing such channels into the Polish market.
To date, the Company has entered into letters of intent regarding the World
Shopping Network, Knowledge TV, BET on Jazz and Twoj Styl, a Polish lifestyle
magazine, to provide programming for the Company's Programming Platform. In
addition, the Company is negotiating a partnership with TVP, which is subject to
various Polish regulatory and other approvals, to broadcast TVP's popular
channels on its Programming Platform and provide the Company with exclusive pay
television access to TVP's extensive Polish-language television library.
Although these letters of intent and the discussions with TVP contemplate the
negotiation of definitive agreements, there can be no assurance that definitive
agreements to acquire such programming, or that programming for the remaining
channels on the Company's Programming Platform, will be obtained on acceptable
terms or at all. Moreover, there can be no assurance that required Polish
regulatory and other approvals of the proposed partnership with TVP will be
obtained on acceptable terms or at all. Failure to obtain a wide selection of
exclusive popular Polish language programming for its Programming Platform,
whether produced by the Company, joint ventures or third parties, would have a
material adverse effect on the Company's business and results of operations.
Certain programming for the Polish market is subject to regulation by the
Polish authorities. See "-- Risks Related to Regulation -- Limitations on
Foreign Ownership of Multi-Channel Television Operators and Broadcasters".
COMPETITION IN THE MULTICHANNEL TELEVISION INDUSTRY
The multichannel television industry in Poland has been, and is expected to
remain, highly 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 success of the Company's
multichannel television services in competing with alternative delivery systems
will depend, in part, upon the Company's ability to provide a greater variety of
Polish-language programming at a reasonable price than the programming and
prices available through such 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
multichannel television industry in Poland. See "The Industry -- The Polish
Multichannel Television Industry" and "Regulation".
CABLE. 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 expenditure 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
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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 significantly 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 A-DTH television services, and may
in the future compete with multichannel multipoint distribution systems ("MMDS")
and D-DTH television services (including the Company's @TV D-DTH service).
D-DTH. The Company's proposed D-DTH business will compete with traditional
cable systems, including its own, and current A-DTH services as well as other
potential D-DTH services. Canal+ currently offers a single channel A-DTH service
and has announced plans to introduce a limited number of digital channels in
Poland, and the Company expects that Canal+ may launch a full D-DTH service in
Poland in the near future. The Company cannot predict whether other European or
Polish broadcasters, such as BSkyB, Bertelsmann, Kirch or Polsat, will choose to
enter the Polish D-DTH market. Certain of the Company's current and potential
competitors, either alone or in joint ventures with other competitors, have
either launched or announced plans to launch D-DTH systems for other European
countries. Many of the Company's current and potential competitors have
significantly greater financial, managerial and operational resources and more
experience in DTH than the Company. If competing D-DTH services are successfully
launched in Poland, they could have a material adverse impact on the Company.
CHANGES IN TECHNOLOGY
The multichannel pay television services industry as a whole has
traditionally been, and is likely to continue to be, subject to rapid and
significant changes in technology. In particular, the impact of digital
compression technology on the Polish multichannel television industry is
uncertain. The Company will use digital compression technology in its D-DTH
business. This technology is under development for other transmission media,
including cable and MMDS. Because digital compression technology allows
transmission of multiple channels on the same frequency, it could result in the
emergence of lower cost delivery systems and increased competition in the Polish
multichannel television industry. Although the Company believes that, for the
foreseeable future, existing and developing alternative technologies will not
materially adversely affect the viability or competitiveness of its D-DTH
business, there can be no assurance as to the effect of such technological
changes on the Company or that the Company will not be required to expend
substantial financial resources in the development or implementation of new
competitive technologies. In addition, the Company from time to time may explore
alternative technologies for delivering its programming and alternative methods
for allowing subscribers to receive signals from multiple satellites.
ACQUISITION STRATEGY
A significant element of the Company's growth strategy is expansion by
acquisition of cable television systems that either are located in reasonable
proximity to the Company's existing systems or are large enough to serve as the
basis for new regional clusters. There can be no assurance that the Company will
be able to identify and acquire such systems on satisfactory terms, if at all,
or that it will be able to finance significant acquisitions in the future. The
Company encounters competition for the acquisition of cable systems from
existing cable television operators and also from financial investors. See
"Business -- Cable -- Competition".
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The Company searches for appropriate cable television networks for
acquisition on an ongoing basis. Since March 31, 1997, the Company has
consummated three of the Acquisitions and has continued to negotiate the terms
of the remaining two Acquisitions. The aggregate consideration paid or to be
paid by the Company in connection with the Acquisitions (including amounts for
stockholder loans) is expected to be approximately $35.0 million. See
"Business -- Cable -- Acquisitions". The Company has obtained the approval of
the Anti-Monopoly Office for the three Acquisitions which have been consummated
and the Company intends to apply for approval of the remaining Acquisitions. The
Company believes that it will be required to obtain the Anti-Monopoly Office's
approval for certain future acquisitions as well. There can be no assurance as
to the timing of closing of the Acquisitions that are currently pending or as to
whether or on what terms the pending Acquisitions will actually be consummated.
Failure to obtain the Anti-Monopoly Office's approval for the pending
Acquisitions or for future acquisitions could have an adverse effect on the
Company's business and results of operations. See "-- Risks Related to
Regulation".
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES AND D-DTH
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 and
management information systems, stringent control of construction and other
costs, increased marketing activities, ability to attract and retain qualified
management personnel and the training of new personnel. In particular, the
Company's expansion into the D-DTH business will require substantial attention
of senior management. The Company intends to hire additional personnel in order
to manage its growth and expansion, particularly in the new D-DTH business.
Failure to successfully manage its rapid growth and development and difficulties
in managing the expansion into the D-DTH business and in integrating such
business with the Company's cable and programming operations 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 Acquisitions,
to the extent 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.
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 @Entertainment; John S. Frelas, Chief Financial
Officer, Vice President and Treasurer of @Entertainment; George Z. Makowski,
Vice President of @Entertainment and Chief Operating Officer--Cable Television
of PCI; Przemysffiaw Szmyt, Vice President, General Counsel and Secretary of
@Entertainment; David Warner, Vice President of
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@Entertainment and Chief Operating Officer -- DTH of @EL; Andrzej Muras,
Executive Vice President of Polska Telewizja Kablowa-Warszawa S.A.
("PTK-Warsaw"); and Marek Sowa, Director of Corporate Development of PCI. The
departure of any of these persons could have a material adverse effect on the
Company's business. In addition, given the Company's 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, Frelas, Makowski, Szmyt, Warner, Muras and Sowa. Mr. Fowler's
employment agreement with @Entertainment expires December 31, 1999, and is
terminable without cause upon three months' written notice by Mr. Fowler or upon
one month's written notice by the Company. Mr. Frelas' employment agreement with
@Entertainment expires on September 1, 2001, and is terminable without cause
upon six months' written notice by either party. Mr. Makowski's employment
agreement with @Entertainment expires January 21, 2002, and is terminable
without cause upon six months' written notice by either party. Mr. Szmyt's
employment agreement with @Entertainment expires on February 7, 2000, and is
terminable without cause upon two months' written notice by Mr. Szmyt, or upon
four months' written notice by @Entertainment. Mr. Warner's employment agreement
with @Entertainment expires April 7, 2002 and may be terminated without cause
upon six 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. Sowa's employment
agreement with PCI expires on January 1, 2000, and is terminable without cause
upon two months' written notice by Mr. Sowa, or upon four months' written notice
by PCI.
CONTROL BY EXISTING STOCKHOLDERS; POTENTIAL ANTI-TAKEOVER PROVISIONS
After completion of the Offerings, the Principal Stockholders will own
beneficially in the aggregate approximately 54% of the outstanding Common Stock.
As a result, the Principal Stockholders, acting together, will be able to elect
all of @Entertainment's directors and otherwise control the Company's
operations. In addition, such concentration of ownership may have the effect of
delaying or preventing transactions involving an actual or potential change in
control of @Entertainment, including transactions in which holders of Common
Stock might receive a premium for their Common Stock over prevailing market
prices. See "Principal Stockholders" and "Description of Capital Stock".
Certain provisions of Delaware law applicable to @Entertainment and
@Entertainment's Certificate of Incorporation (the "Certificate") and Bylaws
(the "Bylaws") could delay or make more difficult a merger, tender offer or
proxy contest involving @Entertainment, including Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder unless certain
conditions are met. The Certificate authorizes the issuance of 20.0 million
shares of preferred stock, par value $.01 per share, on terms which may be fixed
by @Entertainment's Board of Directors without further stockholder action
("Blank Check Preferred Stock"). The terms of any series of Blank Check
Preferred Stock, which may include, among other things, priority claims to
assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Blank Check Preferred Stock that may be issued in the future.
@Entertainment has no present plans to issue shares of Blank Check Preferred
Stock. In addition, @Entertainment's Certificate and Bylaws provide for a
classified board of directors, eliminate the right of stockholders to act by
written consent without a meeting, (unless they have obtained the approval of a
two-thirds vote of the directors), require advanced stockholder notice to
nominate directors and raise matters at the annual stockholders' meeting, do not
provide for cumulative voting in the election of directors and allow for the
removal of directors only for cause and with a two-thirds vote of
@Entertainment's outstanding Common Stock. In addition, acquisition of more than
10% of the outstanding voting stock of @Entertainment could require the approval
of the Anti-Monopoly Office. See "-- Risks Related to Regulation -- The Polish
Multi-Channel Television Industry" and "Regulation -- Poland -- Anti-Monopoly
Act". All of the foregoing could have the effect of delaying, deferring or
preventing a change in control of @Entertainment and could limit the price that
certain
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investors might be willing to pay in the future for shares of @Entertainment's
Common Stock. See "Description of Capital Stock".
LIMITED INSURANCE COVERAGE
While the Company carries general liability insurance on its properties,
like many other operators of cable television systems it does not insure the
underground portion of its cable television networks. Due to the high cost of
insurance policies relating to satellite operations, the Company does not insure
against possible interruption of access to the transponders leased by it for
satellite transmission of its broadcasting. See "-- Dependence Upon Satellites".
Accordingly, any catastrophe affecting a significant portion of the Company's
cable television networks or disrupting its access to its leased satellite
transponders could result in substantial uninsured losses and could have a
material adverse effect on the Company.
RISKS RELATED TO REGULATION
THE POLISH MULTICHANNEL TELEVISION INDUSTRY
The operation of a cable and DTH television system in Poland is regulated
by various governmental bodies, including the Minister of Communications ("MOC")
and PAR under 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 and DTH 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 from PAR to operate and construct cable television networks in
specified areas in Poland. The Communications Act and the Permits set forth the
terms and conditions for providing cable television services, including the term
of the Permits, the area covered by the Permits, technological requirements for
cable television networks and the restrictions on foreign ownership of cable
television operators. See "-- Limitations on Foreign Ownership of Multichannel
Television Operators and Broadcasters" and "Regulation -- Poland -- 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 subsidiaries of PCI have received approximately 93 Permits from
PAR, certain subsidiaries of PCI do not have valid Permits covering certain of
the areas in which they operate cable networks. Of the approximately 95,000
basic subscribers at May 31, 1997 located in the areas for which subsidiaries of
PCI do not currently have valid Permits, approximately 21% 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 the co-op authorities, upgrading of the acquired networks to
meet technical standards where necessary and satisfying foreign ownership
limitations), approximately 60% are located in areas serviced by recently
acquired or constructed networks in Warsaw, Krakow and the areas surrounding
these cities, which PCI plans to transfer to Polska Telewizja Kablowa S.A. ("PTK
S.A.") in order to comply with foreign ownership restrictions, and approximately
19% are located in areas serviced by networks for which certain subsidiaries of
PCI have Permit applications pending. These subsidiaries of PCI have 18 Permit
applications pending. There can be no assurance that PAR will issue any or all
of the Permits to such subsidiaries or that PAR will not take action against
such subsidiaries for operating cable television networks in areas not covered
by valid Permits, including assessing fines on such subsidiaries, revoking
Permits held by the such subsidiaries and seizing the cable networks operated by
such subsidiaries. Furthermore, there can be no assurance that such subsidiaries
will be able to receive Permits in the future permitting them to operate any
other networks that they may acquire. Any action by PAR to restrict or revoke
the Permits of such subsidiaries, or similar action by PAR, would have a
material adverse effect on the Company's
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business, financial condition and results of operations. See
"Regulation -- Poland -- 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 -- Poland -- Television Act". The relevant subsidiaries of PCI have
registered most of the programming that they transmit on their cable networks,
except programming transmitted on networks for which they do 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 Polish laws, including
copyright laws. The rights of copyright holders are generally enforced by rights
organizations for collective copyright administration and protection. In
addition, Poland has adopted the Agreement on Trade Related Aspects of
Intellectual Property Rights ("TRIPS"), which possibly may provide some
copyright protection to foreign producers of programming, and Poland has
recently adopted 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. The Company
is not able to predict the effect of TRIPS or of the adoption of the Rome
Convention on the Polish cable television industry, and there can be no
assurance that either will not result in the Company paying additional fees to
broadcasters for programming or being unable to obtain certain commercially
desirable programming. See "Regulation -- Poland -- Copyright Protection".
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 regulatory 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 -- Poland".
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. In particular,
the relevant markets for cable television services have not been defined by the
Anti-Monopoly Office.
As a general rule, companies that obtain control of 40% or more of their
market face greater scrutiny from the Anti-Monopoly Office. Additionally,
several types of concentrations between undertakings, including acquisitions of
stock, under circumstances specified in the Anti-Monopoly Act require a prior
notification to the Anti-Monopoly Office. Sanctions for failure to notify
include fines imposed on parties to the transaction and members of their
governing bodies. 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 the pending Acquisitions, and it will be required to
obtain the Anti-Monopoly
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Office's approval for certain other future acquisitions as well. In addition,
the Anti-Monopoly Office can review a company's past and present activities for
potential anti-competitive behavior. Pursuant to the current interpretation of
the Anti-Monopoly Office, transactions between non-Polish parties affecting
market conditions in Poland may also require a notification to the Anti-Monopoly
Office. According to the Anti-Monopoly Act, transactions made on a stock
exchange do not require notification, but the Act does not stipulate whether
this is applicable to stock exchanges outside Poland or only to those inside
Poland. Furthermore, the proposed draft Law on Public Trading in Securities,
currently being debated by the Polish Parliament, provides for the amendment to
the Anti-Monopoly Act to repeal the exemption of notification of transactions
made on a stock exchange. 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. The Company has not obtained clearances from the
Anti-Monopoly Office in connection with certain past acquisitions. The Company
does not believe that sanctions by the Anti-Monopoly Office for any such missing
clearances would be material, although there can be no assurance as to the
severity of such future sanctions, if any. See
"Regulation -- Poland -- Anti-Monopoly Act".
The Television Act authorizes the Council to adopt regulations specifying
requirements for Polish or European content of programs of non-Polish
broadcasters to be distributed through cable networks in Poland. The adoption of
such regulations could influence the ability of Polish cable television
operators to register programs with the Council. Such a registration is required
for a lawful cable distribution of programs. The Council has not issued any
regulations concerning this matter, but there can be no assurance that it will
not do so in the future or that the Company would be able to comply with any
such future regulations. The burden of complying with any such future
regulations or any failure to so comply could have a material adverse effect on
the Company. See "Regulation -- Poland -- Television Act".
POLISH REGULATION OF THE DTH MARKET
The Television Act does not include regulations directly applicable to the
broadcasting of programs being broadcast from abroad and received in Poland.
Specifically, there are no regulations in force concerning satellite
broadcasting of a program dedicated to a Polish audience if the uplink for the
broadcasting of such a program is made by a foreign broadcaster from outside of
Poland. The Company believes that the Television Act does not apply to such
broadcasting from outside of Poland and that such activity is not subject to
Polish broadcasting requirements. The Council has not officially adopted an
interpretation of this issue. As different interpretations of this issue have
been made, including by some members of the Council, there can be no assurance
that this interpretation will not be challenged or that the Company will not be
required to comply, and, if so, that it will be able to comply, with such
requirements. In addition, in certain situations, including, but not limited to,
where a program is produced or assembled entirely in Poland and only provided to
a third party for transmission from abroad, there may be a risk of the producer
of such a program being deemed to be a broadcaster under the Television Act, and
being obligated to obtain a license to be issued by the Chairman of the Council,
which would be subject to certain conditions, including foreign ownership
restrictions. While the Company believes that its activities in producing
programs in and outside of Poland, transmitting the programs to the Company's
uplink facility in the United Kingdom and distributing the programs in Poland
via satellite are not subject to regulation in Poland, there can be no assurance
that the Council will not seek to require the Company to apply for a license in
Poland for its broadcasting business. The Company is currently studying the
feasibility of locating its uplink and production facilities in Poland and
applying for the Polish broadcasting licenses necessary to engage in such
activities. There can be no assurance that such licenses would be granted if
applied for. See "-- Limitation on Foreign Ownership of Multichannel Television
Operations and Broadcasters".
Currently Poland has not sought to regulate foreign DTH broadcasters who
uplink outside of Poland. However, there can be no assurances that Poland will
not seek to regulate the DTH industry by,
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for example, imposing standards for encryption technology or IRDs. If the
Company's encryption technology, IRDs or other activities were not to meet such
standards, the Company's business, results of operations and financial condition
could be materially adversely affected as the Company seeks to comply with such
standards.
As Poland is a party to the Convention, the Polish authorities are
obligated to guarantee freedom of reception and may not restrict the
retransmission on Polish territory of program services which comply with the
terms of the Convention. The Company believes that the content of its
Programming Platform will comply with the terms of the Convention. However, the
Council has recently submitted a proposal to amend the Convention to waive the
protection for freedom of reception in the case of foreign broadcasters
broadcasting from outside Poland in order to evade Polish broadcasting
regulations. Any amendment to the Convention would require the approval of all
state signatories to the Convention. Parties can withdraw from the Convention on
six months notice. There can be no assurance that the Convention will not be so
amended or that Poland will not withdraw from the Convention.
LIMITATIONS ON FOREIGN OWNERSHIP OF MULTICHANNEL 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 or, in the
Company's view, based on the MOC's written explanations, to Permits issued at
any time pursuant to certain licenses obtained under prior regulations or to
renewals of any such Permits (collectively "Grandfathered Permits"). See
"Regulation -- Poland -- The Communications Act". At March 31, 1997,
approximately 38.6% of the Company's basic subscribers were covered by Permits
that are not subject to foreign ownership restrictions. Prior to the creation of
PAR and the Permit system, the stockholders of PTK, S.A. received a license to
establish PTK, S.A. 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 "Foreign Commercial Activity Act"). 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. Although the Foreign Commercial Activity Act has been repealed,
the MOC has confirmed to PTK, S.A. that the PTK, S.A. license enables PTK, S.A.
to acquire Permits covering areas in Warsaw, Krakow and the surrounding areas
without regard to the regulatory restrictions on foreign ownership described
above. In Poland, the interpretation of the law is vested in the Constitutional
Court, which has not considered the issue. The MOC's interpretation of the law
is therefore not binding. There can be no assurance that the MOC has correctly
interpreted the law or that it will not change its interpretation in a manner
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
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 and former executives of the Company own the remaining 51%. In
the case of the acquisition or construction of cable networks not covered by
Grandfathered Permits, either (i) the Company will own all of the cable network
assets and will lease the assets to Poltelkab which will operate the networks,
or (ii) 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 revenue 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 contrary to the requirements of Polish law. PAR has
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, including the
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restrictions applicable to Grandfathered Permits, will not be amended or
interpreted in a different manner in the future. 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 Poltelkab, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Regulation -- Poland -- The Communications Act" and
"Regulation -- Poland -- 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. In addition, the Television Act and applicable Polish regulatory
restrictions provide that the majority of the management and supervisory boards
of any company holding a Polish broadcasting license must be comprised of Polish
citizens residing in Poland. 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, ProCable's current proprietary Polish-language programs, over all of the
Company's networks that carry these programs, except for eleven small cable
networks for which ProCable currently does not have broadcast licenses but for
which it will seek to obtain broadcast licenses in the near future.
The Company has established Mozaic 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 its Programming
Platform and other programming produced by Mozaic throughout Poland via
satellite systems from outside of Poland. @Entertainment has established @EL and
intends to establish other subsidiaries and joint ventures to develop and
produce Polish-language programming as part of its Programming Platform. The
Company believes that the ownership structure of ProCable, @EL and Mozaic
satisfies Poland's regulatory restrictions on foreign ownership. However, there
can be no assurance that Polish regulatory authorities will not determine that
all or part of this ownership or distribution structure, or the distribution
structure to be established for such future subsidiaries or joint ventures,
violates Polish regulatory restrictions on foreign ownership. If the ownership
of ProCable, @EL or Mozaic or such future subsidiaries or joint ventures is
found not to be in compliance with Poland's regulatory restrictions on foreign
ownership, 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, @EL,
Mozaic or such future subsidiaries or joint ventures; or ProCable could lose its
broadcasting licenses. These regulatory restrictions may materially adversely
affect the Company's ability to enter into relationships with ProCable, Mozaic
or such future subsidiaries or joint ventures, as well as any other entity that
produces, broadcasts and distributes programming in Poland, which would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Regulation -- Poland -- Communications Act".
UNITED KINGDOM REGULATION OF D-DTH BUSINESS
The Company currently anticipates establishing production facilities in the
United Kingdom through @EL for the production, post-production and packaging of
programming from which it will transmit via uplink to the Astra satellites for
onward transmission to D-DTH subscribers and cable operators in Poland. The
Company's D-DTH broadcasting service will be regulated by the U.K. authorities
(primarily the ITC) as a satellite television service ("STS"). Under the U.K.
Broadcasting Act 1990, as amended (the "Broadcasting Act"), satellite
broadcasters established in the U.K. are required to obtain a STS license. STS
licenses are granted by the ITC assuming that certain criteria are satisfied.
The Company has applied, or intends to apply, for STS licenses for each of its
proposed D-DTH broadcast channels which are not otherwise licensed. The ITC has
wide discretion to vary the conditions of licenses issued under the Broadcasting
Act. There is no assurance that the Company will be able to secure the necessary
STS licenses it requires, or if obtained, that the Company will be able to meet
the ongoing requirements of such STS licenses. Failure to obtain in a timely
manner and maintain such licenses
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would have a material adverse effect on the Company's ability to rollout its
D-DTH service or to add channels in the future, and as a result, would have a
material adverse affect on the Company's business, results of operations and
financial condition. See "Regulation -- United Kingdom -- Broadcasting
Regulation".
EUROPEAN UNION REGULATION OF D-DTH BUSINESS
The Television Without Frontiers Directive (the "Directive") provides that
each European Union ("EU") broadcaster should be regulated by the authorities in
the member state where it is established, without regard to the country within
the EU in which its broadcast signal is received. Currently, the Convention
provides that the country in which a broadcaster uplinks its programming to the
satellite has jurisdiction over that broadcaster, but the Convention is likely
to be amended to bring it into conformity with the Directive's establishment
test. The Company can give no assurance that either the Directive or the
Convention or both will not be amended in the future, either legislatively or
judicially, to give authorities in a receiving state the power to regulate a
broadcaster whose services are intended to be received in such state. This may
have an impact on the Company's ability to broadcast into Poland programming
uplinked from the United Kingdom.
The Company can give no assurance that regulations will not be imposed in
the future which would impose stricter European or independent production quotas
on European broadcasters, impose foreign (non-EU) ownership restrictions on
broadcasters or regulate digital television services in a way which may be
detrimental to the Company (such as requiring all conditional access providers
to allow simulcrypt of their programming) or that any such regulations, if
imposed, would not have a materially adverse effect on the Company's business,
results of operations and financial condition.
RISKS RELATED TO INVESTMENTS IN POLAND AND EMERGING MARKETS
POLITICAL AND ECONOMIC RISKS; ENFORCEMENT OF FOREIGN JUDGMENTS
Poland has undergone significant political and economic change since 1989.
Political, economic, social and other developments in Poland may in the future
have a 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 changes 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 @Entertainment to receive dividends or other payments from its Polish
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 and regulations
have undergone in the 1990s or otherwise, and numerous uncertainties regarding
the interpretation of such laws and regulations, the Company may from time to
time have violated, may be violating and may in the future violate, the
requirements of certain Polish laws, including provisions of labor, foreign
exchange, customs, tax and corporate laws and regulatory approvals. The Company
does not believe that any such violations will have a material adverse effect
upon the Company's business, results of operations 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 Common Stock. 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.
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@Entertainment is organized under the laws of the State of Delaware.
Although investors in the Common Stock will be able to effect service of process
in the United States upon @Entertainment and may be able to effect service of
process upon its directors, due to the fact that @Entertainment is primarily a
holding company which holds direct or indirect equity interests in various
entities in Poland, the United Kingdom 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 United States courts predicated upon the civil liability
provisions of United States laws.
@Entertainment has been advised by its Polish 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.
@Entertainment has been advised by its English solicitors that there is
doubt as to the enforceability in the United Kingdom, in original actions or in
actions for the enforcement of judgments of United States courts, of certain
civil liabilities predicated upon the United States federal and state securities
laws.
@Entertainment also has been advised by its Netherlands 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 that it
would 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.
INFLATION; CURRENCY RISK
Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuations in the exchange rate for the
zffioty. The Polish government has adopted policies that slowed the annual rate
of inflation from approximately 250% in 1990 to approximately 27% in 1995 and to
approximately 20% in 1996. In addition, the exchange rate for the zffioty has
stabilized and the rate of devaluation of the zffioty has decreased since 1991.
However, inflation and currency exchange fluctuations have had, and may continue
to have, an adverse 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 revenue is denominated in zffioty. Any
devaluation of the zffioty 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 revenue to service its U.S. Dollar-denominated 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 denominated obligations and, thus, on the
Company's financial condition and results of operations.
RISKS RELATED TO THE OFFERINGS
BENEFITS OF THE OFFERINGS TO INSIDERS
The Company intends to use $60.0 million of the net proceeds of the
Offerings to purchase all of the outstanding shares of PCI Series A Preferred
Stock and the Series C Preferred Stock. Such shares are held by certain of the
Principal Stockholders.
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Certain of the Company's management are entitled under their respective
employment agreements to receive bonus payments upon the successful completion
of the Offerings. Such bonus payments to, among others, Messrs. Makowski,
Frelas, Szmyt and Warner, and additional discretionary Offering-related bonus
payments to Messrs. Muras and Sowa and certain other employees will aggregate
approximately $1.23 million. See "Use of Proceeds", "Management" and "Certain
Relationships and Related Transactions".
NO INTENTION TO PAY DIVIDENDS
Neither @Entertainment nor PCI has ever declared or paid a cash dividend on
its common stock. @Entertainment intends to retain its earnings, if any, for use
in its business and does not anticipate paying cash dividends in the foreseeable
future. See "-- Risks Related to the Company -- Holding Company Structure and
Restrictions on Payment of Dividends", "Dividend Policy" and "Description of
Capital Stock".
USE OF PROCEEDS
Because of the number and variability of factors that determine the
Company's use of proceeds from the Offerings, management will retain a
significant amount of discretion over the application of the net proceeds.
NO PUBLIC MARKET FOR SECURITIES
Prior to the Offerings, there has not been any market for @Entertainment's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after the Offerings.
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK
PRICE
The initial public offering price of the Common Stock will be determined by
negotiation between @Entertainment and representatives of the Underwriters and
is not necessarily related to the Company's asset value, net worth, results of
operations or any other criteria of value and may not be indicative of the
prices of the Common Stock that may prevail in the public market after the
Offerings. Subsequent to the Offerings, prices for the Common Stock will be
determined by the market and may be influenced by a number of factors, including
the depth and liquidity of the market for the Common Stock, investor perception
of the Company and other comparable companies and general economic and other
conditions.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to Rule 144
("Rule 144") under the Securities Act of 1933 could have an adverse effect on
the price of the Common Stock. Upon completion of the Offerings, up to
approximately 3,983,000 shares of Common Stock, which are beneficially held by
certain existing stockholders of @Entertainment, may be eligible for sale under
Rule 144. @Entertainment and stockholders who own in the aggregate 23,810,000
shares of Common Stock have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 180 days after
the date of the Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any securities of @Entertainment which are substantially
similar to shares of Common Stock or which are convertible into or exchangeable
for securities which are substantially similar to shares of Common Stock without
the prior written consent of Goldman, Sachs & Co., except for the shares of
Common Stock offered by @Entertainment in connection with the concurrent U.S.
and International Offerings. Messrs. Robert E. Fowler, III, John S. Frelas,
George Makowski, Przemyslaw Szmyt and David Warner, each of whom holds options
to purchase shares of Common Stock, has agreed that, during the period beginning
on the date of this Prospectus and continuing to any including the date 728 days
(two years) after the date of this Prospectus they will not offer, sell,
contract to sell or
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otherwise dispose of any securities of @Entertainment which are substantially
similar to shares of Common Stock or which are convertible into or exchangeable
for securities which are substantially similar to shares of Common Stock without
the prior written consent of Goldman, Sachs & Co. See "Shares Eligible for
Future Sale".
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THE REORGANIZATION
Before the Offerings, all the holders of shares of PCI's common stock and
@Entertainment entered into a Contribution Agreement dated as of June 22, 1997
(the "Contribution Agreement"). Pursuant to the Contribution Agreement, each
holder of shares of PCI's common stock transferred all shares of PCI common
stock owned by it to @Entertainment. In addition, ECO transferred all of the
outstanding shares of PCI's voting Series B Preferred Stock (the "PCI Series B
Preferred Stock") to @Entertainment. All of these transfers (the "Share
Exchange") were designed to qualify as a tax-free exchange under section 351 of
the Internal Revenue Code of 1986, as amended (the "Code"). Each holder of PCI's
common stock received 1,000 shares of Common Stock of @Entertainment in exchange
for each share of PCI's common stock transferred by it (the "Capital
Adjustment"). ECO also received an equivalent number of shares of
@Entertainment's Series B Preferred Stock in exchange for its shares of PCI
Series B Preferred Stock. The Series B Preferred Stock has identical rights and
preferences to those of the PCI Series B Preferred Stock, except that the ratio
for conversion of such shares into common stock increased from 1:1.9448 to
1:1,944.80 in order to reflect the Capital Adjustment. The 2,500 outstanding
shares of Series B Preferred Stock will automatically convert into 4,862,000
shares of Common Stock of @Entertainment upon the closing of the Offerings (the
"Automatic Conversion").
On June 20, 1997, Polish Investments Holding L.P. ("PIHLP") transferred all
of the outstanding shares of PCI's Series C Preferred Stock to an entity owned
by certain of the beneficial owners of PIHLP and members of their families (the
"Chase Entity"). The Chase Entity, ECO and @Entertainment entered into a
Purchase Agreement dated as of June 22, 1997 (the "Purchase Agreement"). Among
other matters, the Purchase Agreement obligates @Entertainment to purchase all
of the outstanding shares of PCI's Series A Preferred Stock and Series C
Preferred Stock for cash from ECO and the Chase Entity, respectively, at the
closing of the Offerings (the "Cash Purchases"). The aggregate purchase price of
$60.0 million for PCI's Series A Preferred Stock and Series C Preferred Stock
equals the aggregate redemption price of such shares as set forth in PCI's
certificate of incorporation. The Cash Purchases will be funded with a portion
of the net proceeds of the Offerings. See "Risk Factors -- Risks Related to the
Offerings -- Benefits of the Offerings to Insiders" and "Use of Proceeds".
In June 1997, @Entertainment acquired all of the outstanding stock of @EL,
a new corporation organized under the laws of England and Wales (the "@EL
Incorporation"). @EL will be responsible for the Company's D-DTH business.
In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment by PCI (the "Assignment"). As part of
the Assignment and the Capital Adjustment, the employment agreements were
amended to provide that each option to purchase a share of PCI's common stock
was exchanged for an option to purchase 1,000 shares of Common Stock, with a
proportionate reduction in the per share exercise price.
The Share Exchange, Capital Adjustment, @EL Incorporation and the
Assignment are collectively referred to as the "Reorganization". As a result of
the Reorganization, @Entertainment owns all of the outstanding shares of voting
stock of PCI and all of the outstanding shares of common stock of @EL. The
Automatic Conversion and Cash Purchases will occur upon the closing of the
Offerings.
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USE OF PROCEEDS
Assuming an offering price of $20.25 per share (the midpoint of the
estimated range specified on the cover page of the Prospectus), the net proceeds
from the sale of the Common Stock is expected to be approximately $177.4 million
(after deducting the underwriting discount and estimated expenses of the
Offerings). The Company plans to use $60.0 million to purchase all of the PCI
Series A Preferred Stock and Series C Preferred Stock held by certain of the
Principal Stockholders, approximately $1.23 million for the payment of bonuses
to certain executives of the Company and substantially all of the remaining net
proceeds to finance the commencement and development of its D-DTH business.
There can be no assurance that the Company will be able to successfully enter
the D-DTH market. See "Risk Factors -- Risks Related to the Company -- Limited
D-DTH Experience and Uncertainties Associated with the D-DTH Market" and "Risk
Factors -- Risks Related to the Company -- Benefits of the Offerings to
Insiders". The Company intends to use any remaining net proceeds for general
corporate purposes, including, without limitation, development of its cable
television and programming businesses and future acquisitions. The Company
believes that it has sufficient net proceeds from the sale of the Notes to
consummate the Acquisitions and does not intend to use any of the net proceeds
from the Offerings for such purpose. Because of the number and variability of
factors that will determine the Company's use of proceeds from the Offerings,
management will retain a significant amount of discretion over the application
of the net proceeds. Pending utilization of the net proceeds of the Offerings,
the Company intends to invest such proceeds in short-term investment grade
securities.
The Company expects that an aggregate of approximately $315 million in 1997
and 1998 will be required to fund (i) the commencement and development of its
D-DTH business, which will include capital expenditures and expenditures for
operating expenses, working capital and other general corporate purposes, (ii)
the expansion of its programming business, (iii) the consummation of the
Acquisitions and future acquisitions and (iv) the building out and rebuilding of
its cable television networks. The Company believes that, in addition to the net
proceeds from the Offerings, remaining funds from the offering of the Notes and
cash from operations, it will need additional funding of approximately $100
million to fulfill its current business development plans through the end of
1998. There can be no assurance 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 or, if available, that the terms thereof will be
attractive to the Company. However, the pace and amount of the Company's
expenditures for its business development plans are largely discretionary. See
"Risk Factors -- Risks Related to the Company -- Need for Additional Financing"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DIVIDEND POLICY
Neither @Entertainment nor PCI has ever paid cash dividends on its common
stock. @Entertainment does not anticipate or intend to pay cash dividends in the
foreseeable future on the Common Stock. The payment of dividends in the future
will be subject to the discretion of the Board of Directors of @Entertainment
and will depend on @Entertainment's results of operations, financial position,
capital requirements, general business conditions, restrictions imposed by
financing arrangements, if any, legal and regulatory restrictions on the payment
of dividends and other factors the Board of Directors deems relevant.
@Entertainment is a holding company with no business operations of its own.
@Entertainment is therefore dependent upon payments, dividends and distributions
from PCI, @EL and its other subsidiaries for funds to pay dividends to the
stockholders of @Entertainment. PCI and @EL currently intend to retain any
earnings for support of their working capital, repayments of indebtedness,
capital expenditure and other general corporate purposes. PCI and @EL have no
current intention of paying dividends or making other distributions to
@Entertainment in excess of amounts necessary to pay @Entertainment's operating
expenses and taxes. The Indenture relating to the Notes contains restrictions on
PCI's ability to pay dividends and make payments or other distributions to
@Entertainment. See "Risk Factors -- Risks Related to the Company -- Holding
Company Structure and Restrictions on Payment on Dividends" and "-- No Intention
to Pay Dividends".
32
<PAGE> 36
DILUTION
After giving effect to the Reorganization (including the Capital
Adjustment), the Automatic Conversion and the Cash Purchases (see "The
Reorganization"), the tangible book value deficit of the Company at March 31,
1997 would have been $(15,967,000), or $(.67) per share. Tangible book value
deficit per share represents the amount of total tangible assets less total
liabilities divided by 23,810,000 shares of Common Stock outstanding. As the
following table demonstrates, after giving effect to the Reorganization
(including the Capital Adjustment), the Automatic Conversion, the Cash Purchase
and the sale of shares of Common Stock by the Company in the Offerings at an
initial public offering price of $20.25 per share (the midpoint of the estimated
range specified on the cover page of this Prospectus), and after deducting
anticipated expenses of the Offerings, the pro forma net tangible book value of
the Company at March 31, 1997, would have been $160,221,000, or $4.81 per share,
representing an immediate $15.44 per share dilution to new investors purchasing
shares of Common Stock in the Offerings.
<TABLE>
<S> <C> <C>
Initial public offering price per share............................... $ 20.25
Net tangible book value deficit per share before the Offerings
(1).............................................................. $ (.67)
Increase per share attributable to new investors.................... $ 5.48
Pro forma net tangible book value per share after the Offerings....... $ 4.81
Net tangible book value dilution per share to new investors (2)....... $ 15.44
</TABLE>
- ---------------
(1) After giving effect to the Reorganization (including the Capital
Adjustment), the Automatic Conversion and the Cash Purchases (see "The
Reorganization").
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offerings from the initial public offering price per share
of Common Stock.
The following table sets forth on a proforma basis at March 31, 1997 the
number of shares of Common Stock purchased from @Entertainment, the total
consideration paid to @Entertainment and the average price paid per share of
Common Stock based on an initial public offering price of $20.25 per share (the
midpoint of the estimated range as specified on the cover page of this
Prospectus).
<TABLE>
<CAPTION>
CONSIDERATION AVERAGE
COMMON SHARES PAID TO @ENTERTAINMENT PRICE PER
PURCHASED -------------------------- SHARE OF
---------------------- AMOUNT COMMON
NUMBER PERCENT (IN THOUSANDS) PERCENT STOCK
---------- ------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 23,810,000 71.5 % $ 42,029 17.9 % $ 1.77
New Investors...................... 9,500,000 28.5 % 192,375 82.1 % 20.25
------ ---- ------ ---- -----
Total.............................. 33,310,000 100.0 % $234,404 100.0 % $ 7.04
====== ==== ====== ==== =====
</TABLE>
33
<PAGE> 37
EXCHANGE RATE DATA
In this Prospectus, references to "U.S. Dollars" or "$" are to the lawful
currency of the United States, and references to "zffioty" or "PLN" are to the
lawful currency of the Republic of Poland. @Entertainment prepares its
consolidated financial statements in accordance with U.S. GAAP in U.S. Dollars.
Amounts originally measured in zffioty 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
zffioty amounts into U.S. Dollars which should not be construed as a
representation that such zffioty 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 zffioty to U.S. Dollars at the rate
of PLN 3.076 = $1.00, the exchange rate quoted by the National Bank of Poland
("NBP") at noon on March 31, 1997. 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 zffioty.
The following table sets forth, for the periods indicated, the noon
exchange rate quoted by the NBP. Such rates are set forth as zffioty per U.S.
Dollar. At December 31, 1996, such rate was PLN 2.875 = $1.00, at March 31,
1997, such rate was PLN 3.076 = $1.00, and at July 10, 1997, such rate was PLN
3.305 = $1.00.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period.......... 1.58 2.13 2.44 2.47 2.88 2.59 3.08
Average exchange rate during
period(1)............................. 1.39 1.84 2.27 2.43 2.71 2.57 3.04
Highest exchange rate during period..... 1.58 2.13 2.45 2.54 2.89 2.59 3.09
Lowest exchange rate during period...... 1.15 1.58 2.14 2.32 2.47 2.47 2.86
</TABLE>
- ---------------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
34
<PAGE> 38
CAPITALIZATION
The following table sets forth the cash and cash equivalents, investment
securities and capitalization of the Company at March 31, 1997, as adjusted to
give effect to the Reorganization (including the Capital Adjustment) and as
further adjusted to give effect to (i) the Automatic Conversion of
@Entertainment's Series B Preferred Stock into 4,862,000 shares of Common Stock
upon the closing of the Offerings and (ii) the sale of the Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment options) at an
initial public offering price of $20.25 per share (the mid-point of the
estimated range as specified on the cover page of this Prospectus) and the
application of the net proceeds thereof as described under "Use of Proceeds".
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------
ADJUSTED ADJUSTED FOR
HISTORICAL (1) THE OFFERINGS
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents (2).......................... $ 58,508 $174,687
Investment securities (2).............................. $ 25,115 $ 25,115
======== ========
Long-term debt:
Notes payable........................................ $129,542 $129,542
Redeemable preferred stock (3)......................... 35,935 --
Stockholders' equity:
Preferred stock, par value $.01 per share; 20,000,000
shares authorized; no shares issued and
outstanding....................................... -- --
Common stock, par value $.01 per share; 50,000,000
shares authorized; 18,948,000 shares outstanding
(33,310,000 shares outstanding as adjusted for the
Offerings) (4).................................... 189 333
Paid-in capital...................................... 53,154 206,354
Cumulative translation adjustment.................... (467) (467)
Accumulated deficit (5).............................. (26,379) (27,609)
-------- --------
Total stockholders' equity........................ 26,497 178,611
Total capitalization......................... $191,974 $308,153
======== ========
</TABLE>
- ---------------
(1) Adjusted to give effect to the Reorganization (including the Capital
Adjustment). See "The Reorganization" and "Description of Capital Stock".
(2) A portion of the net proceeds from the offering of the Notes was, and a
portion of the net proceeds from the Offerings will be, in cash and cash
equivalents and in investment securities pending application of the
respective net proceeds therefrom.
(3) Upon closing of the Offerings, all of the outstanding shares of Series B
Preferred Stock will automatically convert into 4,862,000 shares of Common
Stock, and @Entertainment will use $60.0 million of the net proceeds from
the Offerings to purchase all of the PCI Series A Preferred Stock and Series
C Preferred Stock held by certain of the Principal Stockholders, which
amount represents the full accreted redemption value of such stock. See
"Risk Factors -- Risks Related to the Offerings -- Benefits of the Offerings
to Insiders" and "Use of Proceeds".
(4) Does not include 2,436,000 shares of Common Stock reserved for issuance in
connection with options granted to certain employees of the Company. See
"Executive Compensation".
(5) The increase in accumulated deficit reflects the payment of approximately
$1.23 million of bonuses to certain executives of the Company payable upon
successful completion of the Offerings.
35
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company for
each of the years in the five-year period ended December 31, 1996 and the three
months ended March 31, 1996 and 1997. The selected consolidated financial data
set forth below for each of the years in the three-year period ended December
31, 1996 and at December 31, 1995 and 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. The selected consolidated financial data set forth below as of and for
the years ended December 31, 1993 and at December 31, 1994 have been derived
from the consolidated financial statements of the Company, which were audited by
KPMG Peat Marwick LLP. The consolidated financial data as of and for the year
ended December 31, 1992, and the three months ended March 31, 1996 and 1997 have
been derived from unaudited consolidated financial statements of the Company. In
the opinion of management, such unaudited financial statements have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments, which in the case of the interim periods consist only
of normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company as of such dates and the results of operations
for such periods. The results for the interim periods presented are not
necessarily indicative of the results for a full year. The selected consolidated
financial data should be read in conjunction with the Company's consolidated
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................................... $ 4,490 $ 6,562 $ 8,776 $ 18,557
Operating expenses:
Direct operating expenses................................. (1,099) (1,481) (2,119) (5,129)
Selling, general and administrative....................... (6,418) (4,029) (2,818) (4,684)
Depreciation and amortization............................. (1,618) (2,257) (3,459) (5,199)
------- ------- -------- --------
Operating income (loss)................................. (4,645) (1,205) 380 3,545
Interest and investment income............................ 7 65 78 174
Interest expense.......................................... -- (116) (2,327) (4,373)
Foreign currency translation (loss) gain.................. 406 (315) (27) (17)
------- ------- -------- --------
Loss before income taxes, minority interest and
extraordinary item...................................... (4,232) (1,571) (1,896) (671)
Income tax expense........................................ (920) (976) (803) (600)
Minority interest in subsidiary (income) loss............. 650 205 316 (18)
------- ------- -------- --------
Loss before extraordinary item.......................... $ (4,502) $ (2,342) $ (2,383) $ (1,289)
Extraordinary loss on early extinguishment of debt........ -- -- -- --
------- ------- -------- --------
Net loss................................................ (4,502) (2,342) (2,383) (1,289)
Accretion of redeemable preferred stock................... -- -- -- --
Excess of carrying amount of preferred stock over fair
value of consideration transferred...................... -- -- -- --
------- ------- -------- --------
Net loss applicable to common stockholders................ (4,502) (2,342) (2,383) (1,289)
======= ======= ======== ========
Loss per share of Common Stock before extraordinary
item.................................................... (.43) (.22) (.21) (.11)
Extraordinary loss per share of Common Stock.............. -- -- -- --
------- ------- -------- --------
Net loss per share of Common Stock(2)..................... $ (.43) $ (.22) $ (.21) $ (.11)
======= ======= ======== ========
Weighted average number of shares of Common Stock
outstanding............................................. 10,526,800 10,526,800 11,346,800 11,563,800
======= ======= ======== ========
OTHER FINANCIAL DATA:
EBITDA(3)................................................. $ (3,027) $ 1,052 $ 3,839 $ 8,744
Expenditures for construction of cable television
systems(4).............................................. 3,476 5,490 11,695 16,014
Net cash provided (used) by operating activities.......... (4,129) 2,709 1,599 3,839
Net cash used by investing activities..................... (3,860) (5,817) (12,341) (21,985)
Net cash provided (used) by financing activities.......... 7,390 3,332 12,686 17,996
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................................. $ 28,857 $ 34,165 $ 47,376 $ 68,058
Total debt................................................ 13,832 20,073 35,988 59,405
Redeemable preferred stock................................ -- -- -- --
Total stockholders' equity................................ 5,592 3,250 1,479 190
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1996 1996 1997(1)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................................... $ 24,923 $ 5,621 $ 7,508
Operating expenses:
Direct operating expenses................................. (7,193) (1,514) (2,100)
Selling, general and administrative....................... (9,289) (1,633) (2,974)
Depreciation and amortization............................. (9,788) (1,729) (3,450)
-------- ------- -------
Operating income (loss)................................. (1,347) 745 (1,016)
Interest and investment income............................ 1,274 43 750
Interest expense.......................................... (4,687) (1,604) (3,205)
Foreign currency translation (loss) gain.................. (761) (94) (305)
-------- ------- -------
Loss before income taxes, minority interest and
extraordinary item...................................... (5,521) (910) (3,776)
Income tax expense........................................ (1,273) (505) (271)
Minority interest in subsidiary (income) loss............. 1,890 (49) 476
-------- ------- -------
Loss before extraordinary item.......................... $ (4,904) (1,464) (3,571)
Extraordinary loss on early extinguishment of debt........ (1,713) -- --
-------- ------- -------
Net loss................................................ (6,617) (1,464) (3,571)
Accretion of redeemable preferred stock................... (2,870) -- (980)
Excess of carrying amount of preferred stock over fair
value of consideration transferred...................... 3,549 -- --
-------- ------- -------
Net loss applicable to common stockholders................ (5,938) (1,464) (4,551)
======== ======= =======
Loss per share of Common Stock before extraordinary
item.................................................... (.23) (.11) (.23)
Extraordinary loss per share of Common Stock.............. (.10) -- --
-------- ------- -------
Net loss per share of Common Stock(2)..................... $ (.33) $ (.11) $ (.23)
======== ======= =======
Weighted average number of shares of Common Stock
outstanding............................................. 17,797,800 12,741,800 19,474,800
======== ======= =======
OTHER FINANCIAL DATA:
EBITDA(3)................................................. $ 8,441 $ 2,474 $ 2,434
Expenditures for construction of cable television
systems(4).............................................. 25,372 7,408 4,471
Net cash provided (used) by operating activities.......... 6,112 2,794 (1,656)
Net cash used by investing activities..................... (74,861) (7,800) (7,662)
Net cash provided (used) by financing activities.......... 134,889 22,947 (657)
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................................. $ 217,537 96,529 $ 212,937
Total debt................................................ 130,074 11,181 129,542
Redeemable preferred stock................................ 34,955 32,085 35,935
Total stockholders' equity................................ 31,048 39,747 26,497
</TABLE>
Footnotes appear on following page
36
<PAGE> 40
(1) If the Company were required to recognize a non-cash charge relating to the
difference between the exercise price of options to purchase shares of
Common Stock granted to certain executive officers of the Company in 1997
and a revised fair market value of such options as at the time of grant
equal to the estimated initial public offering price of $20.25 (the midpoint
of the estimated range specified on the cover page of this Prospectus), for
the three months ended March 31, 1997 operating loss and net loss would
increase to $10.2 million and $12.8 million, respectively, EBITDA would
decline to negative $6.8 million and stockholders' equity would decline to
$17.3 million. See "Risk Factors -- Risks Related to the Company --
Historical and Anticipated Future Operating Losses and Negative Cash Flow".
(2) Upon consummation of the Offerings, @Entertainment, Inc. will use $60.0
million of the net proceeds from the Offerings to purchase all of the PCI
Series A and Series C Preferred Stock held by certain of the Principal
Stockholders. Had the Series A and Series C Preferred Stock been purchased
at March 31, 1997, the net loss per share of Common Stock for the three
months ended March 31, 1997 would have been $2.01, due to the accretion of
the PCI Series A and Series C Preferred Stock to the $60.0 million aggregate
redemption value thereof.
(3) EBITDA consists of net income (loss) as measured by U.S. GAAP adjusted for
interest and investment income, 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. 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 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 Acquisitions.
(4) Expenditures for the construction of cable television systems represent
payments made by the Company during the period for construction of its cable
television systems in Poland, and excludes costs of acquiring cable systems.
37
<PAGE> 41
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. This Prospectus contains
statements which constitute forward looking statements regarding the intent,
belief or current expectations of the Company or its officers with respect to,
among other things, (i) the Company's financing plans, (ii) trends affecting the
Company's financial condition or results of operations, (iii) the impact of
competition, (iv) the start up of certain operations, and (v) acquisition
opportunities. The Company's actual future results could differ materially from
those discussed herein. 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.
OVERVIEW
Substantially all of the Company's revenue is currently derived from
monthly subscription fees for cable television services and one-time
installation fees for connection to its cable television networks. The Company
charges cable 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
cable service. At May 31, 1997, approximately 79% of the Company's subscribers
received Basic Tier service. In 1996, approximately 87% of the Company's revenue
was 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 cable system.
When the Company began operations in 1990, revenue from installation fees
exceeded revenue 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 cable
subscriber base has grown, aggregate monthly subscription revenue has increased
and installation fees, while currently increasing on an aggregate basis, have
declined as a percentage of total revenue. The Company expects that installation
fees will continue to constitute a declining portion of the Company's revenue.
The Company has experienced low churn rates 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. These churn rates
also reflect a pricing strategy that was designed to keep the Company's profit
margin relatively constant in U.S. Dollar terms in more mature cable systems and
to increase rates in more recently acquired or rebuilt cable systems. Since the
beginning of 1997, the Company has adopted a new cable television pricing
strategy designed to maximize revenue per subscriber and achieve real profit
margin increases in U.S. Dollar terms. As a result, the Company expects that it
may experience increases in its churn rate above historical levels during the
implementation of its new pricing strategy across its cable networks. See
"Business -- Cable -- Services and Fees -- Pricing Strategy".
The Company divides operating expenses into (i) direct operating expenses,
(ii) selling, general and administrative expenses and (iii) depreciation and
amortization expenses. Direct operating expenses consist of programming
expenses, maintenance and related expenses necessary to service, maintain
38
<PAGE> 42
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 non-technical employees;
advertising and marketing expenses; 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 operating losses of $1.3 million and $1.0 million
for 1996 and the first three months of 1997, respectively, primarily due to the
increased levels of acquisitions and related costs.
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 interest and investment income,
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 flows from operations as a measure of
liquidity.
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 and for the first three months of 1997
was $1.1 million, $3.8 million, $8.7 million, $8.4 million and $2.4 million,
respectively. The Company expects EBITDA to increase as it fully integrates
acquired networks into its regional clusters and consummates the 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 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.
ACQUISITIONS
Since March 31, 1997, the Company has completed the acquisition of all or a
substantial portion of the capital stock or assets of three cable television
systems in Poland, and intends to acquire a fourth such system, as well as a 50%
equity position in a Polish publishing company with which it intends to develop
programming and ancillary services. The aggregate consideration paid or to be
paid by the Company in connection with the Acquisitions (including amounts for
stockholder loans) is expected to
39
<PAGE> 43
be approximately $35.0 million. The three cable systems already acquired in the
Acquisitions serve approximately 113,000 subscribers and pass approximately
189,000 homes, while the cable system expected to be acquired serves
approximately 20,500 subscribers, representing all of the homes passed by the
system. The consummation of the Acquisitions has or will result in the expansion
of the Company's cable operations within its existing regional clusters and the
establishment of one new regional cluster. PCI has or intends to use a portion
of the net proceeds of the offering of the Old Notes in October 1996 to
consummate certain of the Acquisitions, although there can be no assurance as to
the timing of closing of the Acquisitions that are currently pending or as to
whether or on what terms such Acquisitions will actually be consummated. If all
of the Acquisitions are consummated, the Company estimates that it will spend
approximately $3.6 million (which includes an approximately $2.2 million portion
of the stockholder loans referred to above) within 12 months of the consummation
of the 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 acquired or expected to be acquired in the 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 -- Cable -- Acquisitions".
FIRST THREE MONTHS 1997 COMPARED TO FIRST THREE MONTHS 1996
Cable Television Revenue. Revenue increased $1.9 million, or 33.6%, from
$5.6 million in the first three months of 1996 to $7.5 million in the first
three months of 1997. This increase was primarily attributable to a 66.5%
increase in the number of basic subscribers from approximately 291,000 at March
31, 1996 to approximately 484,000 at March 31, 1997. Approximately 39% of this
increase in basic subscribers was due to build-out of the Company's existing
cable networks and the remainder was the result of acquisitions. Revenue from
monthly subscription fees represented approximately 85.4% of cable television
revenue for the first three months of 1997 and 84.5% in the first three months
of 1996. Installation fee revenue decreased by 5.4% from $818,600 in the first
three months of 1996 to approximately $776,400 in the first three months of
1997.
Direct Operating Expenses. Direct operating expenses increased $0.6
million, or 38.7%, from $1.5 million in the first three months of 1996 to $2.1
million in the first three months of 1997, principally as a result of higher
levels of technical personnel and increased maintenance expenses associated with
recently acquired networks as well as the increased size of the Company's cable
television system. Direct operating expenses increased from 26.9% of revenue for
the first three months of 1996 to 28.0% of revenue for the first three months of
1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.3 million, or 82.1%, from $1.6 million in the first three
months of 1996 to $3.0 million in the first three months of 1997 as a result of
an increase in sales and marketing expenses incurred in newly acquired networks
and the introduction of several remarketing campaigns throughout the areas
covered by the Company's networks. As a percentage of revenue, selling, general
and administrative expenses increased from 29.1% for the first three months of
1996 to approximately 39.6% for the first three months of 1997.
Depreciation and Amortization. Depreciation and amortization expenses rose
$1.7 million, or 99.5%, from $1.7 million in the first three months of 1996 to
$3.5 million in the first three months of 1997, principally as a result of
depreciation of additional cable television assets acquired in connection with
the build-out of the Company networks and acquisitions. Depreciation and
amortization expenses as a percentage of revenue increased from 30.8% in the
first three months of 1996 to 46.0% in the first three months of 1997.
Interest Expense. Interest expense increased $1.6 million, or 99.8%, from
$1.6 million in the first three months of 1996 to $3.2 million in the first
three months in 1997, primarily due to the issuance of $130 million aggregate
principal amount of Old Notes in October 1996.
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<PAGE> 44
Interest and Investment Income. Interest and investment income increased
$0.7 million, or 1,644%, from $43,000 in the first three months of 1996 to
$750,000 in the first three months in 1997, primarily due to the interest and
investment income derived from the investment of a portion of the proceeds from
the issuance of Old Notes in October 1996.
Foreign Currency Translation Loss. Foreign currency translation loss
increased $211,000, or 224%, from $94,000 in the first three months of 1996 to
$305,000 in the first three months of 1997, primarily due to increased assets
subject to translation during the period resulting from the growth of the
Company and less favorable exchange rate fluctuations.
Minority Interest in Subsidiary (Income) Loss. Minority interest in
subsidiary loss was $476,000 for the first three months of 1997, resulting from
losses incurred in two minority-owned subsidiaries compared to minority interest
in subsidiary income of $49,000 for the first three months of 1996.
Net Loss. Net loss increased from a loss of $(1.5) million in the first
three months of 1996 to a loss of $(3.6) million in the first three months of
1997, as a result of the factors discussed above.
EBITDA. EBITDA decreased $40,000, or 1.6%, from $2.5 million for the first
three months of 1996 to $2.4 million for the first three months of 1997. The
Company's EBITDA margin decreased from 44.0% to 32.4% over such period.
Potential Charge Related to Stock Options. If the Company were required to
recognize a non-cash charge relating to the difference between the exercise
price of options to purchase shares of Common Stock granted to certain executive
officers of the Company in 1997 and a revised fair market value of such options
as at the time of grant equal to the estimated initial public offering price of
$20.25 (the midpoint of the estimated range specified on the cover page of this
Prospectus), for the three months ended March 31, 1997 operating loss and net
loss would increase to $10.2 million and $12.8 million, respectively, EBITDA
would decline to negative $6.8 million and stockholders' equity would decline to
$17.3 million. See "Risk Factors -- Risks Related to the Company -- Historical
and Anticipated Future Operating Losses and Negative Cash Flow".
1996 COMPARED TO 1995
Cable Television Revenue. Revenue 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 at December 31, 1995 to approximately 446,000 at 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 revenue in 1996. Installation fee revenue increased by
37.0% from $2.3 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
revenue in 1995 to 28.9% of revenue in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased $4.6 million, or 98.3%, 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
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<PAGE> 45
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 37.3% 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 was subject to depreciation.
Depreciation and amortization expenses as a percentage of revenue increased from
28.0% in 1995 to 39.3% in 1996.
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 of 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.
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 PCI shares and the Notes.
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 a loan from the
Overseas Private Investment Corporation ("OPIC"), 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 Stockholders. Net loss applicable to common
stockholders 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 Acquisitions. The Company's EBITDA margin
decreased from 47.1% to 33.9% over such period.
1995 COMPARED TO 1994
Cable Television Revenue. Revenue 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 revenue 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.
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<PAGE> 46
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 revenue increased from 24.1% to
27.6% over this period.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.9 million, or 66.2%, from $2.8 million in 1994 to $4.7
million in 1995, principally as a result of an increase in administrative costs
resulting from the addition of acquired systems, and an increase in sales and
marketing expenses. As a percentage of revenue, selling, general and
administrative expenses declined from 32.1% to 25.2%, primarily reflecting
economies of scale from the Company's increased subscriber levels and the
elimination by the Company of duplicative personnel, office locations and
administrative functions as part of the Company's acquisition integration
strategy.
Depreciation and Amortization. Depreciation and amortization expenses
increased $1.7 million, or 50.3%, from $3.5 million in 1994 to $5.2 million in
1995, primarily as a result of depreciation of additional cable television
assets obtained in connection with the build-out of the Company's networks and
acquisitions. Depreciation and amortization expenses as a percentage of revenue
decreased from 39.4% in 1994 to 28.0% in 1995.
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.
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.
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 certain of the Principal Stockholders,
(ii) borrowings under available credit facilities and (iii) cash flow from
operations. In addition, in October 1996 PCI 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. The Company had negative cash flow from operating activities
for the first three months of 1997 of $1.7 million, due to the increase of cash
used for settlement of current trade and tax liabilities.
During 1996, PCI issued common and preferred stock to certain of the
Principal Stockholders of approximately $82 million. On March 29, 1996, PCI
consummated a transaction in which ECO purchased shares of common and preferred
stock of PCI for a price of $65 million. See "Certain Relationships and Related
Transactions -- Capital Contributions and Stockholder 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 PIHLP, which is beneficially owned by the Chase Family.
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<PAGE> 47
In January 1994, PTK, S.A. entered into a financing agreement with OPIC
providing for a loan facility which permitted PTK, S.A. to draw down funds
through December 31, 1995. PTK, S.A. requested and received three loan
disbursements under such loan facility, totaling $8.6 million in aggregate
principal amount. Loans under the facility bore interest at the floating 91-day
U.S. Treasury bill yield (compounded annually). The OPIC loan facility was
secured by the pledge of all PTK, S.A. shares owned by PCBV and Poltelkab, an
escrow of approximately $1 million and springing liens on certain agreements
with PTK, S.A., including PTK, S.A. agreements with certain program providers.
Certain affiliates of PTK, S.A. also entered into a share retention agreement
with OPIC. The Company used approximately $7.6 million of the proceeds of the
offering of the Old Notes to repay the outstanding balance of the loans under
such financing agreement, including a prepayment penalty of approximately
$147,000, and terminated such financing agreement.
PCI has entered into an agreement with AmerBank which provides for a credit
facility of approximately $6.5 million. Funds are available under the credit
agreement through December 31, 1998 and interest, based on LIBOR plus 3%, is due
quarterly. All advances under the loan must be repaid by August 20, 1999. As of
the date hereof, there is no amount outstanding under this facility. PCI will be
able to utilize this facility for future borrowings.
On October 31, 1996, $130 million aggregate principal amount of Old Notes
were sold by PCI to the initial purchaser pursuant to a purchase agreement. The
initial purchaser subsequently completed a private placement of the Old Notes.
In June 1997 substantially all of the outstanding Old Notes were exchanged for
an equal aggregate principal amount of publicly-registered Notes. The Notes were
issued pursuant to the Indenture.
Pursuant to the Indenture, PCI 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.
Pursuant to the AmerBank credit facility, PCI is subject to certain
informational and notice requirements but is not subject to restrictive
covenants. PCI 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. At March 31, 1997, the Company had, on a consolidated basis,
approximately $129.5 million in principal amount of indebtedness outstanding.
Since the commencement of its operations in 1990, the Company has required
external funds to finance the build-out of its existing networks and to finance
acquisitions of new cable television networks. The Company has relied on the
equity investments described above, as well as loans, from certain of the
Principal Stockholders and borrowings under available credit facilities to
provide the funding for these activities. The Company does not expect that its
Principal Stockholders will continue to make capital contributions and loans to
the Company.
The Company expects that an aggregate of approximately $315 million through
the end of 1998 will be required to fund (i) the commencement and development of
its D-DTH business, which will include capital expenditures and expenditures for
operating expenses, working capital and other general corporate purposes, (ii)
the expansion of its programming business, (iii) the consummation of the
Acquisitions and future acquisitions and (iv) the building out of its existing,
and the rebuilding of new, cable television networks.
Cash used for the build-out of the Company's cable television networks was
$11.7 million, $16.0 million, $25.4 million and $4.5 million in 1994, 1995, 1996
and the first three months of 1997, respectively. In 1997, the Company also
expects to spend an additional approximately $27.5 million building out and
upgrading existing cable television networks. Approximately $7.5 million of such
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<PAGE> 48
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 system upgrades 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.
Cash used for the acquisition of cable networks, net of cash received, was
$4.1 million and $13.8 million in 1995 and 1996, respectively. The Company did
not use any cash for the acquisition of cable networks during the first three
months of 1997. Since March 31, 1997, the Company has acquired all or a
substantial portion of the capital stock or assets of three cable television
systems in Poland and intends to acquire a fourth such system, as well as a 50%
equity stake in a Polish printing company with which it intends to develop
programming and ancillary services. See "-- Acquisitions" and "Business --
Cable -- Acquisitions". The aggregate consideration paid or to be paid by the
Company in connection with the Acquisitions (including amounts for stockholder
loans) is expected to be approximately $35.0 million. If all of the Acquisitions
are consummated, the Company estimates that it will spend approximately $3.6
million (which includes an approximately $2.2 million portion of the stockholder
loans referred to above) within 12 months of the consummation of the
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 acquired or expected to be acquired in the
Acquisitions currently meet PAR standards and, accordingly, that the timing and
extent of such upgrades would be subject to the Company's discretion.
The Company believes that, in addition to the net proceeds from the
Offerings, remaining funds from the offering of the Notes and cash from
operations, it will need additional funding of approximately $100 million to
fulfill its current business development plans through the end of 1998. There
can be no assurance 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 or, if available, that the terms thereof will be attractive to the
Company. However, the pace and amount of the Company's expenditures for its
business development plans are largely discretionary. See "Risk Factors -- Risks
Related to the Company -- Need for Additional Financing".
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
zffioty. 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
is, and is expected to be, denominated in zffioty and the proportion tends to
increase with inflation. In addition, the exchange rate for the zffioty has
stabilized and the rate of devaluation of the zffioty has decreased since 1991.
However, inflation and currency exchange fluctuations have had, and may continue
to have, an adverse 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 zffioty. Any
devaluation of the zffioty 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-denominated 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-denominated obligations and, thus, on the
Company's financial condition and results of operations.
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<PAGE> 49
IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued its
Statement No. 128, "Earnings per Share." Among other provisions, SFAS No. 128
simplifies the standards for computing earnings per share. The Company does not
expect the adoption of SFAS No. 128 to have a material impact on its financial
statements.
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<PAGE> 50
THE INDUSTRY
GENERAL
The Company serves multichannel pay television customers exclusively in
Poland, where it is the largest such operator. With approximately 39 million
people and 12.3 million television households (as estimated by the Company at
May 31, 1997), the Company believes that Poland represents a highly attractive,
dynamic market for multichannel pay 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 approximately $0.1 billion in 1990 to approximately $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 27% in 1995 and approximately 20% in 1996, and following a period
of rising unemployment, unemployment in Poland has declined to 13.6% at 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 Investors
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 average annual rates of 9% and
7% in 1995 and 1996, respectively. Furthermore, in certain urban markets where
the Company operates, including Warsaw, Krakow, Wrocffiaw 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% at September 1996.
THE POLISH MULTICHANNEL TELEVISION INDUSTRY
POLISH CABLE MARKET
Poland is Europe's fifth largest television market with approximately 12.3
million television households as estimated by the Company at May 31, 1997.
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 multichannel services, and which distinguish the Polish cable
market from other cable markets, as outlined below.
VIEWER DEMAND. Television viewing is a significant leisure activity in
Poland, and in 1995 Poland had one of the highest television viewing rates in
Europe, 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 4 1/2 hours) of
television per day per household, as compared with averages of 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 viewing and indicate Polish consumers'
willingness to allocate disposable income for multichannel pay television. These
factors include limited entertainment alternatives, strong demand for
high-quality programming, a long generally cold winter season and a low
telephone penetration rate of approximately 15 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 (based on Company estimates only 28% of television
households were passed by cable at May 31, 1997), which the Company believes
provides a substantial market opportunity for cable operators. Once homes are
passed by cable, the Company has generally experienced strong take-up rates,
with an average basic penetration rate at May 31, 1997 of approximately 42% for
the Company as
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<PAGE> 51
a whole. In certain areas where the Company has operated its networks for an
extended period of time, such as portions of Gdansk, the Company's basic
penetration rate is 63%.
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 Company expects, however, that it may experience increases in its churn rate
above historical levels during the implementation across its cable networks of
its new pricing strategy, designed to maximize revenue per subscriber and
achieve real profit margin increases in U.S. Dollar terms, commenced in January
1997. See "Business -- Cable -- Services and Fees -- Pricing Strategy".
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 at December 31, 1995.
<TABLE>
<CAPTION>
CABLE
HOMES
NUMBER OF AVERAGE TV PASSED BY
TELEVISION VIEWING AS A % OF
HOUSEHOLDS MINUTES COLOR TV VCR TELEVISION ANNUALIZED
(IN MILLIONS) PER DAY PENETRATION PENETRATION(1) HOUSEHOLDS CHURN
------------- ---------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Poland.................. 11.8 279 83% 48% 20% 10%(2)
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>
- ---------------
(1) VCR households as a percentage of TV households.
(2) 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). At May 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 cable network 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.
CO-OPERATIVE HOUSING FRANCHISE PROCESS. The franchise process in Poland is
unique in that the right to build a cable system is typically secured 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
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<PAGE> 52
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.
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 parallel to the Company's 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 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 financial costs and subscription rates generally do not favor
overbuilding large cable operators, the lack of contractual exclusivity provides
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, professional
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.
POLISH CABLE MARKET CONSOLIDATION. The cable industry in Poland has
experienced significant consolidation in recent years. The Company believes that
this consolidation will continue as small SMATV operators face the burden of
compliance with the recently enacted regulations that set minimum technical
standards for cable television networks and require payment for programming
produced by others. As Poland's economy has grown and become more stable,
certain well-capitalized cable television operators have acquired numerous cable
television operators in Poland in order to build systems and acquire a critical
mass of subscribers. The Company also has actively pursued acquisitions,
acquiring approximately 40 cable television operators since 1992. These
acquisitions have added approximately 326,000 of the Company's present total
subscribers.
DEVELOPMENT OF THE POLISH CABLE INDUSTRY. Prior to 1989, during the
Communist political regime, the Polish government controlled and regulated the
television industry and all frequency usage. 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
49
<PAGE> 53
government began to monitor compliance with regulations requiring all cable
operators to obtain government permits and, more recently, has begun to enforce
such regulations. Poland ratified the Rome Convention, which extends copyright
protection to programs of foreign producers on December 31, 1996, and became
bound by its terms on June 13, 1997. See "Regulation -- Poland -- Copyright
Protection". The Company believes that the enforcement of technical standards
and 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, the Polish cable industry has developed rapidly, due in part to
the growth in the economy and to the development of cable industry regulations.
This development has included the entry of well capitalized Western-style cable
operators such as the Company that have constructed high-quality cable systems
with numerous channel offerings. The following chart illustrates the growth of
the Polish cable market in terms of homes passed and basic subscribers since
1990.
[Chart shows number of subscribers plotted against the number of homes passed
demonstrating growth in the Polish Cable Television Industry from 1990 to 1996
from approximately 100,000 subscribers and 500,000 homes passed in 1990 to
approximately 1,500,000 subscribers and 2,700,000 homes passed in 1996.]
- ---------------
Source: Baskerville Communications Corp., TV International Sourcebook 1997.
Despite the strong recent growth in the cable television industry, the
Company estimates only 28% of the television households in Poland were passed by
cable at May 31, 1997, 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 systems and the
provision of cable television services.
THE POLISH DTH MARKET
A-DTH
The only multichannel distribution method currently widely available in
Poland other than cable television is A-DTH satellite services. The A-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 A-DTH satellite services
was driven primarily by
50
<PAGE> 54
the widespread availability of high-quality, unencrypted programming that could
be obtained without charge from various European satellites, including the Astra
and Eutelsat satellites.
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 paying subscribers, and (ii) reducing the quality of reception
due to the location of the new satellites. In order to receive a similar number
of channel offerings and clear reception, Polish consumers were forced to
subscribe to an 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 multichannel
television alternative to A-DTH at an attractive price. As the cable market has
grown, A-DTH has continued to lose market share. The Company believes that this
trend will continue particularly in urban markets because of A-DTH's poor signal
quality relative to cable television, limited channel offerings, expensive
equipment and short life of motorized dishes as well as an increasing reluctance
by co-op authorities to permit the use of satellite dishes. While the Company
believes that A-DTH (and new D-DTH) satellite service will be favored in certain
rural areas of Poland where cable television is not available, it also believes
that cable provides a more attractive option than A-DTH (and to a far lesser
extent D-DTH) services in those markets where it is available.
The following chart outlines the relative market shares of A-DTH and cable
in Poland as measured by the number of subscribers for the years 1991 through
1995.
<TABLE>
<S> <C> <C>
1991 100 400
1992 200 760
1993 600 1000
1994 1000 1200
1995 1320 1320
</TABLE>
[Chart shows the market share of cable operators versus A-DTH providers in
Poland from 1991 to 1995 demonstrating that the market share of cable operators
(against A-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.]
- ---------------
Source: Baskerville Communications Corp. TV International Sourcebook 1997. At
March 31, 1997, the latest edition of this source did not include 1996 or 1997
figures.
51
<PAGE> 55
D-DTH
The Company believes that a D-DTH service will offer Polish consumers
significant advantages over the current A-DTH offerings, due to, among other
factors (i) wider range of Polish-language programming available due to the
compression ability of digital technology, (ii) less-expensive, non-motorized
dishes, (iii) the improved signal quality of D-DTH, and (iv) the increasing
availability of premium services.
The Company intends to expand its distribution capacity by developing a
complementary satellite D-DTH broadcasting service for Poland under a new brand
name @TV. The Company believes @TV will be the first Polish-language D-DTH
service available in the Polish market and among the first in Europe. The
Company expects to launch its D-DTH service in the first half of 1998 with an
initial package of approximately 14 basic Polish-language channels and one
optional premium Polish-language movie channel. The Company believes that the
satellite D-DTH pay television industry in Poland offers substantial
opportunities for growth due to the large potential market size of 8.8 million
television homes which it estimates are not currently passed by cable, the
availability of a low-cost D-DTH reception system, the existing demand for
high-quality Polish-language programming, and the improved characteristics of
D-DTH compared with A-DTH. The Company believes that its D-DTH system, when
combined with the continued expansion of its cable television and programming
businesses, will enhance its position as the leading provider of multichannel
pay television in Poland. There can be no assurance, however, that the market
for D-DTH services will develop, or if it does develop, that the Company will be
successful in launching its D-DTH services. See "Risk Factors -- Risks Related
to the Company -- Limited D-DTH Experience and Uncertainties Associated with the
D-DTH Market".
52
<PAGE> 56
BUSINESS
The Company operates the largest multichannel pay television business in
Poland, and is developing its business in cable television, D-DTH and
programming. Through the Company's cable television networks, the most extensive
in Poland, the Company serves the largest base of subscribers of any cable
operator in Poland, totaling approximately 688,000 subscribers at May 31, 1997
(of whom approximately 79% subscribe to the Company's Basic Tier). The Company
believes that it has established a favorable reputation in the Polish market for
providing modern, reliable technology, a broad selection of quality programming
and professional customer service. The Company intends to expand its
distribution capacity in Poland through the expansion of its cable television
business and the development of a complementary D-DTH broadcasting service. The
Company currently creates, produces, develops and acquires programming,
including programming for its two proprietary Polish-language channels, for
distribution across its cable networks. The Company intends to expand these
activities to develop a branded digital encrypted platform of proprietary
Polish-language programming under the brand name @TV. This Programming Platform
will be distributed across its cable television and D-DTH systems and sold on a
wholesale basis to other cable networks in Poland.
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 cable operators) and through the build-out of its
own cable networks. Over the last three years, the Company has experienced
average annual growth of approximately 60% in revenue, 130% in EBITDA and 96% in
cable television subscribers.
STRATEGY AND OPERATING STRENGTHS
The Company's principal objective is to enhance its position as the leading
provider of multi-channel pay television in Poland by capitalizing on the
favorable market opportunities that it believes exist in Poland for high-quality
Polish-language programming carried over sophisticated cable television and
D-DTH broadcasting systems. The Company's business strategy is designed to
increase its market share and subscriber base, maximize revenue per subscriber
and minimize churn by emphasizing branding, advanced and expanded distribution
technology, superior Polish-language programming and customer service. The
Company believes that it is well-positioned to execute its business strategy in
the Polish multichannel pay television market based on the following operating
strengths.
LEADING MARKET POSITION. The Company is currently the largest cable
television operator in Poland, and estimates that it has approximately twice as
many subscribers as the next two largest operators in Poland combined. Upon the
completion of the Acquisitions, the Company estimates that it will have
approximately 708,000 cable television subscribers, representing approximately
28% of all cable television subscribers in Poland and approximately 47% of all
cable television subscribers in Poland to systems offering approximately 20 or
more channels. The Company believes that it is well-positioned to grow its cable
television business, as it estimates that at May 31, 1997, approximately 8.8
million Polish homes remained unpassed by cable television networks and, of the
approximately 3.5 million homes passed by cable in Poland, that approximately
29% were not subscribers. Many cable subscribers in Poland are served by small,
often poorly capitalized, cable operators, which generally feature poor quality
and limited channel offerings, but at low rates and with relatively high
penetration. The Company believes that there are opportunities for large,
professional companies such as the Company, to acquire at attractive prices or
displace these smaller cable operators in Poland, due to the burden on such
operators of attempting to comply with recently enacted regulations that, among
other things, set minimum technical standards for television networks, and the
frequent lack of exclusivity with co-operative authorities which facilitates
overbuilding of smaller, poor quality cable operators. The Company's D-DTH
strategy is to distribute at a significantly subsidized cost D-DTH Reception
Systems to the approximately 500,000 Initial Subscribers, which is designed to
achieve rapid and high penetration of the Polish market. The Company believes
that it will be the first Polish-language D-DTH service available to the Polish
market which, when combined with the continued expansion of its cable television
53
<PAGE> 57
and programming businesses, will enhance the Company's position as the leading
provider of multi-channel pay television in Poland.
PROPRIETARY POLISH-LANGUAGE PROGRAMMING. The Company believes that there is
significant unsatisfied demand in its market for a variety of high-quality
Polish-language programming. The Company intends to develop its Programming
Platform for distribution across its cable television and D-DTH systems, as well
as for sale on a wholesale basis to other cable networks in Poland. The Company
intends to expand its current proprietary Polish-language programming for its
Programming Platform by establishing equity ownership in, and/or exclusive
programming arrangements with, a wide variety of channels designed to provide
the Polish market with an offering of first-run films, live local sports and
multiple thematic channels in Polish, which the Company believes will be
attractive to its customer base and advertisers.
ADVANCED DISTRIBUTION TECHNOLOGY. The Company's cable television networks
(other than those it has acquired and is in the process of rebuilding to its
standards) have bandwidths of at least 550MHz and, in most cases, have the
capacity to be cost-effectively reconfigured to provide additional services such
as voice and data transmission. The Company's cable television networks
constructed by it also provide excess channel capacity. The Company expects that
its D-DTH service will be among the first digital television platforms launched
in Europe, and the Company believes it will be the first Polish-language D-DTH
service available to the Polish market. The Company is currently negotiating
with Philips for an end-to-end package of products and services, which the
Company expects will enable it to provide a wide range of sophisticated services
to its D-DTH customers.
ABILITY TO REALIZE OPERATING EFFICIENCIES AND ADDITIONAL REVENUE
SOURCES. The Company believes it can achieve substantial operating efficiencies
and higher margins through centralized billing systems and other subscriber
management functions, as well as through the sale of its Programming Platform to
other cable television networks in Poland. Continued expansion of the Company's
subscriber base should provide increasing economies of scale by, among other
things, permitting the Company to spread its fixed costs over an increasing
subscriber base. In addition, the Company believes that there are opportunities
to develop a variety of new value-added services, including (i) new television
services, such as premium channels, additional advertising and PPV, (ii) new
network services, such as internet access and voice telephony, and (iii)
ancillary services, such as database marketing, branded financial services and a
subscriber magazine.
HIGH PENETRATION AND LOW CHURN. The Company is currently achieving premise
penetration of approximately 53% of homes passed. In certain areas where the
Company has operated its network for an extended period of time, such as
portions of the Gdansk regional cluster, the penetration rate is approximately
63%. The Company believes that it can improve its penetration by expanding its
current program offering, which includes only ten Polish-language channels not
available on terrestrial frequencies, through the addition of its Programming
Platform. In addition, the Company has experienced annual churn of less than 10%
historically. Churn rates for 1994, 1995 and 1996 were 9.1%, 9.2% and 7.8%,
respectively. The Company expects, however, that it may experience increases in
its churn rate above historical levels during the implementation across its
cable networks if its new pricing strategy designed to maximize revenue per
subscriber and achieve real profit margin increases in U.S. Dollar terms, which
commenced in January 1997.
ATTRACTIVE OPERATING AND REGULATORY ENVIRONMENT. Poland is the
fifth-largest television market in Europe, with approximately 12.3 million
television homes at May 31, 1997 as estimated by the Company. Levels of
television viewing in Poland are among the highest in Europe, at an average of
279 minutes per day (over 4 1/2 hours) in 1995. The Company estimates that there
are approximately 1.6 million satellite homes (able to currently receive largely
unencrypted analog foreign-language programming) and nearly 2.5 million cable
television subscribers in Poland. Current law does not permit the Polish
authorities to regulate cable television or DTH rates, and Poland is a party to
the Convention which requires the Polish authorities to guarantee freedom of
reception and retransmission of program services which meet the requirements of
the Convention.
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<PAGE> 58
EXPERIENCED AND MOTIVATED MANAGEMENT. The Company has established a
management team of senior executives who have significant experience in the
cable television and DTH businesses, and are familiar with the Polish television
market, business practices, language and customs. The team is led by Robert E.
Fowler, III, Chief Executive Officer of @Entertainment, who has significant
cable, programming and broadcasting experience, having managed operations in
Poland and the United States, and George Z. Makowski, Chief Operating
Officer-Cable Television of PCI, who has significant cable and
telecommunications experience, having managed operations in Poland and Western
Europe. The management team also includes several key local executives and
managers who have significant experience in the Polish television market. The
Company's D-DTH business will be managed by David Warner, Chief Operating
Officer-DTH of @EL, who has significant experience in A-DTH services for Poland
and other countries in Europe. Mr. Warner will lead a team of local managers
experienced in the Polish A-DTH market. The Company believes that many of the
policies and procedures developed for its cable business will be applicable to
its D-DTH business, and that this management team will contribute local
expertise which the Company believes will be essential in expanding its cable
television and programming businesses and in developing its D-DTH broadcasting
business. The Company has established management and employee stock option plans
which it believes will improve its ability to retain its qualified management
and employees.
CABLE
Through the largest cable network in Poland, the Company serves the largest
base of subscribers of any cable operator in Poland, totaling approximately
688,000 subscribers, over approximately 1,292,000 homes passed at May 31, 1997.
The Company estimates that it has more than twice as many subscribers as the
next two largest cable operators in Poland combined. The Company believes that
it is well-positioned to grow its cable television business, as it estimates
that at May 31, 1997 approximately 8.8 million Polish homes remained unpassed by
cable television networks and, of the approximately 3.5 million homes passed by
cable in Poland, it estimates approximately 29% were not cable subscribers. Many
cable subscribers in Poland are served by small, often poorly capitalized, cable
operators, which generally feature poor quality and limited channel offerings,
but at low rates and with relatively high penetration. The Company believes that
there are opportunities for large, professional companies, such as the Company,
to acquire at attractive prices or displace these smaller cable operators in
Poland, due to the burden on such operators of attempting to comply with
recently enacted regulations that, among other things, set minimum technical
standards for television networks, and the frequent lack of exclusivity of cable
operators' agreements with co-op authorities, which facilitates overbuilding of
smaller, poor quality cable operators. The Company believes that the development
of its Programming Platform will increase its basic subscriber penetration and
will allow it to increase cable television subscription rates and maximize
revenue per cable television subscriber.
All of the Company's cable television subscribers are located in eight
regional clusters encompassing eight of the ten largest cities in Poland,
including those cities which the Company believes provide the most favorable
demographics for cable in the country. The Company has invested more than $85
million to construct fibre-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. The networks constructed by the Company provide
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.
CABLE OPERATING 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.
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<PAGE> 59
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 cable networks. To accomplish this objective, the
Company's business and operating strategy in the cable television business is to
(i) maximize revenue per cable subscriber, (ii) continue to expand its regional
clusters, (iii) increase subscriber penetration, and (iv) realize additional
operating efficiencies.
MAXIMIZE REVENUE PER CABLE SUBSCRIBER. Since the beginning of 1997, the
Company has adopted a new cable television pricing strategy designed to maximize
revenue per subscriber and to achieve real profit margin increases in U.S.
Dollar terms. In connection with this new pricing strategy, the Company intends
to introduce new program offerings and to continuously improve its services. As
a result, the Company expects that it may experience increases in churn rate
above historical levels during the implementation of its new pricing strategy
across its cable networks. The Company generally receives a premium for its
cable television 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 cable television churn rates. 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 cable television networks.
EXPAND AND CONSOLIDATE REGIONAL CLUSTERS. The Company's strategy is to
continue to expand the coverage areas of its regional clusters, both through
selected build-out and acquisitions. The Company intends to expand primarily in
areas where it can fill-in existing regional clusters and into cities and towns
adjacent to its regional clusters through the continued build-out of its
existing networks. The Company also plans to expand its regional clusters
through the continued acquisition of smaller cable television operators. In
addition, in markets where the Company has established operations, it intends to
selectively overbuild certain weaker competitors in an effort to consolidate the
market. By implementing this strategy for expanding its regional clusters, the
Company believes it can limit its per-subscriber build-out 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 a 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
subscribers who generate average annual subscription fees of approximately $65
in return for an average capital investment of approximately $18 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
its Programming Platform for distribution, at a competitive price, across its
cable system, 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, among other things, rationalizing headends, combining
customer service offices and reducing administrative personnel. For example,
following the recent acquisition of several cable systems in Katowice, the
Company has been able to reduce the number of employees by approximately 365 and
the number of headends from 69 to 46 and expects to further reduce personnel and
headends. 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
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<PAGE> 60
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
is designed to further improve employee productivity and customer service. The
Company believes that it can reduce costs and improve customer services by
centralizing services. For example, the Company is establishing a central
telephone customer service center to service both cable and D-DTH customers.
This center will be located in a low cost area of Poland and will consolidate
the functions of its existing regional centers. The Company also 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, which economies of scale
should continue to improve as its subscriber base increases.
REGIONAL CLUSTERS
The Company has established eight regional clusters for its cable
television business encompassing eight 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 CABLE SYSTEMS(1)
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
SUBSCRIPTION
REVENUE PER
TOTAL HOMES TOTAL BASIC BASIC BASIC
REGION HOMES PASSED SUBSCRIBERS SUBSCRIBERS(2) PENETRATION(2) SUBSCRIBER(2)(3)
- -------------------- --------- --------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gdansk.............. 250,000 213,331 119,590 101,547 47.60% $7.21
Katowice............ 1,200,000 410,151 174,054 167,078 40.74% 5.37
Warsaw.............. 800,000 194,498 103,826 86,133 44.28% 4.73
Krakow.............. 300,000 143,458 73,998 65,912 45.95% 5.47
Lublin.............. 120,000 62,937 55,851 27,385 43.51% 6.81
Szczecin............ 160,000 26,705 19,838 9,862 36.93% 7.58
Bydgoszcz........... 134,000 78,048 42,235 40,614 52.04% 4.32(4)
Wrocffiaw........... 624,000 162,907 98,191 79,637 48.88% 4.01(5)
--------- ------- ------- ------- ---- -----
Total...... 3,588,000 1,292,035 687,583 578,168 44.75% 5.44(6)
========= ======= ======= ======= ==== =====
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) All data at, or for the five months ended, May 31, 1997. Includes approximately 163,000 homes passed and
approximately 98,000 total cable subscribers attributable to cable systems recently acquired by the Company,
of which the Company took control after May 31, 1997 and prior to the date hereof, except where otherwise
indicated.
(2) Includes Basic and Intermediate Tiers. See "-- Services and Fees".
(3) Includes revenue from additional sources such as additional outlets, stereo, converters and premium channels.
(4) The Bydgoszcz regional cluster was acquired in December 1996. Average monthly subscription revenue per basic
subscriber calculated based on the revenue for the cluster for the three months ended May 31, 1997.
(5) The Wrocffiaw regional cluster was acquired in June 1997. Average monthly subscription revenue per basic
subscriber calculated based on the revenue for the cluster for the five months ended May 31, 1997.
(6) Represents a weighted average for the Company based on the total number of basic subscribers for the five
months ended May 31, 1997. Includes revenue from additional sources referenced in note (3) above, but does not
include results for the Bydgoszcz and Wrocffiaw regional clusters.
</TABLE>
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The following provides certain information regarding the regional clusters
in which the Company's cable television business operates. Population figures
presented herein are for the primary counties in each of the Company's eight
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 revenue 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.
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 revenue in both 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 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 multichannel
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 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 revenue in both 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
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continuing to overbuild a weaker competitor's system in several MDU areas that
are adjacent to the Company's operating areas.
KRAKOW. The Krakow regional cluster is located primarily in the county of
Krakow in the south of Poland. The population of the county of Krakow is
approximately 1.2 million. The Company commenced operations in Krakow in late
1993. The Krakow market currently contains only one significant competitor which
the Company believes has technical deficiencies and is experiencing problems in
its relationships with co-op authorities.
The Company believes that the majority of the MDUs in the city of Krakow
have been built-out by the Company and other cable system operators.
Accordingly, the Company believes that future expansion in the Krakow regional
cluster will consist of build-out of (i) newly constructed, single family homes,
(ii) historical preservation areas (which are subject to a more extensive permit
process), (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 network that has a
bandwidth of 1GHz, and will 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 its 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, 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.
WROCFFIAW. The Wrocffiaw regional cluster is located primarily in and
around the county of Wrocffiaw in the south-west of Poland. The population of
the county of Wrocffiaw is approximately 1.1 million. The Company commenced
operations in the Wrocffiaw regional cluster in May 1997 with an acquisition of
a small local operator, followed in June 1997 with the acquisition of a 61%
interest in a cable system with approximately 98,000 total subscribers in
approximately twenty locations throughout the region.
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The Company believes that Wrocffiaw offers considerable build-out
opportunities, as it has remained largely undeveloped in terms of professional
cable television service, with competition limited to smaller local operators.
In addition to gaining access to the city of Wrocffiaw, the acquisitions
provided the Company with a number of locations in southwest and central Poland,
with combined potential of approximately 624,000 television homes.
ACQUISITIONS
Since March 31, 1997, the Company has completed the acquisition of all or a
substantial portion of the capital stock or assets of three cable television
systems in Poland, and intends to acquire a fourth such system, as well as a 50%
equity interest in a Polish publishing company with which it intends to develop
programming and ancillary services. The aggregate consideration paid or to be
paid by the Company in connection with the Acquisitions (including amounts for
stockholder loans) is expected to be approximately $35.0 million. The three
cable systems already acquired in the Acquisitions serve approximately 113,000
subscribers and pass approximately 189,000 homes, while the cable system
expected to be acquired serves approximately 20,500 subscribers, representing
all of the homes passed by that system. The consummation of the Acquisitions has
or will result in the expansion of the Company's cable operations within its
existing regional clusters and the establishment of one new regional cluster in
Wrocffiaw. PCI has or intends to use a portion of the net proceeds of the
offering of the Old Notes in October 1996 to consummate the Acquisitions. The
Company has obtained the approval of the Anti-Monopoly Office for the
Acquisitions which have been consummated and the Company intends to apply for
approval of the remaining Acquisitions. The Company believes that it will be
required to obtain the Anti-Monopoly Office's approval for certain future
acquisitions as well. The Company continually evaluates acquisition candidates
and expects that it will continue to acquire attractive cable television
operators and programmers. There can be no assurance as to the timing of the
closing of the Acquisitions that are currently pending or as to whether or on
what terms the pending Acquisitions will actually be consummated.
In particular, PTK-Ryntronik entered into separate share purchase
agreements with each of the two 50% stockholders 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,
PTK-Ryntronik acquired 100% of the shares of Kolor-Sat. The two individual
stockholders agreed not to compete with the Company in areas where cable
networks are operated by Kolor-Sat for a three year period following the closing
date. In addition to the purchase price, PTK-Ryntronik agreed to assume
responsibility for the two individuals' personal taxes up to a specified amount.
The Company also agreed to employ the two stockholders for 48 months following
the signing date. The share purchase agreements became effective once the
Anti-Monopoly Office granted consent to the transactions. The purchase price of
approximately $1.4 million was put into escrow on December 31, 1996, pending
receipt of the approval of the Anti-Monopoly Office which was received on May
26, 1997, and verification of the number of subscribers. 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 Telewizja
Kablowa Vega Sp. z o.o. ("Vega"), pursuant to which it acquired all of the cable
television assets of Vega for approximately $530,000. Vega's networks, which are
located in Wrocffiaw (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 two years in all areas where PCI
operates cable systems, except for the towns of Czestochowa and Blachownia. The
Vega purchase agreement provided for the payment of the purchase price in three
equal installments. Such payments were made and title to the assets passed to
PTK-Ryntronik in May 1997.
PCI and Poltelkab have signed a commitment agreement with Telewizja Kablowa
GOSAT-Service Sp. z o.o. ("GOSAT") and its stockholders which provides for the
purchase (by March 31, 1998) of approximately 66% of the issued shares of a
company that operates cable television networks located in
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several cities and towns in western Poland, serving approximately 98,000 total
subscribers (70,000 basic subscribers) and passing approximately 163,000 homes.
The consummation of this acquisition occurred on June 11, 1997. At closing, PCI
purchased approximately 49% of shares in GOSAT and Poltelkab subscribed to
approximately 11.7% of GOSAT's enlarged share capital. In connection with this
transaction Poltelkab will subscribe for additional newly issued shares of GOSAT
and will make stockholder loans to GOSAT. The total purchase price for the GOSAT
acquisition was approximately $10.8 million. In addition, the Company is
obligated to loan $7.0 million to GOSAT, of which $400,000 had been loaned as of
June 13, 1997. Until December 31, 1999, current stockholders in GOSAT can
exercise options to sell their remaining shares in GOSAT using the same pricing
formula. The Company has the right to appoint a majority of the GOSAT management
board members. GOSAT entered into employment agreements with the stockholders of
GOSAT and those stockholders entered into non-compete agreements, in each case
for a period of five years following the signing date. Upon consummation of the
acquisition, the Company established the new Wrocffiaw regional cluster centered
in southwest Poland.
The Company is negotiating to purchase from two co-op authorities
approximately 94% of the shares in a company operating cable television networks
that serve approximately 20,500 subscribers, representing all of the homes
passed by those networks, 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 to 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 Szczecin regional cluster.
SERVICES AND FEES
The Company charges cable television 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 cable television service: a Basic Tier
throughout the Company's cable television systems, and Broadcast and
Intermediary Tiers in selected areas of Poland. At May 31, 1997, approximately
79% of the Company's subscribers received the Basic Tier, approximately 5%
received the Intermediate Tier and approximately 16% received the Broadcast Tier
of service.
BASIC TIER. The Company currently delivers approximately 18 to 45 channels
to its cable television subscribers 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 cable networks, its two proprietary Polish-language channels, PTK1
and PTK2. The Basic Tier costs approximately $2.59 to $5.89 per month (excluding
charges for premium channels) depending on location. The channels currently
offered by the Company to its Basic Tier subscribers vary by location and in
most of the Company's major markets include ten Polish-language channels
(including PTK1, PTK2 and Atomic), ten 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(1) Cable information Polish
PTK2(1) Cable general entertainment Polish
TVP1 State-owned terrestrial general entertainment Polish
TVP2 State-owned terrestrial general entertainment Polish
Formula 11 Regional state-owned terrestrial general
entertainment Polish
TV POLONIA State-owned satellite general entertainment Polish
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- -------------------- ------------------------------------------------ -----------------
<S> <C> <C>
Polsat Terrestrial and satellite general entertainment Polish
Atomic(2) Cable music Polish
RTL7 Satellite general entertainment Polish
Eurosport Satellite sports English/Polish(3)
Discovery(4) Satellite documentaries English/Polish(5)
TNT/Cartoon Network Satellite general entertainment and cartoons English
MTV(4) Satellite music English
NBC/Super channel Satellite news and entertainment English
CNN Satellite news and information English
CMT-Europe(4) Satellite country music English
Euronews Satellite news English
BBC World Satellite news and information English
BBC Prime(4) Satellite general entertainment 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
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>
- ---------------
(1) Proprietary channels produced by ProCable.
(2) Atomic became available as a separate digitally delivered satellite channel
during the second quarter of 1997.
(3) Limited amount (at least three hours per day) of Polish-language commentary,
with audio encryptions.
(4) Encrypted signal.
(5) Limited amounts of Polish subtitles.
INTERMEDIATE TIER. 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 basis of price, using a limited
programming offering. The channels currently offered by the Company to its
intermediate subscribers vary by location.
BROADCAST TIER. 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 can be a problem in Poland
and many cable television subscribers would otherwise have to 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 co-op authorities. 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 cable
systems and subsequently to convert them to higher-tier subscribers. Polish
regulations regarding the order in which channels can be added to cable
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systems mean that most Broadcast Tiers only broadcast public television
programs, which are required by Polish law to be the first channels carried on
any Polish cable television system.
PREMIUM AND OTHER SERVICES. For an additional monthly charge, certain of
the Company's cable systems currently offer two premium television channels
- -- HBO and Canal+ -- to customers on a monthly pay-per-channel basis. See
"-- Programming -- Premium Television Channels". In addition, the Company
intends to make the channels on its D-DTH service that are not currently offered
on its Basic Tier cable service available to its cable subscribers for an
additional monthly charge. Other optional services include additional outlets
and stereo service, which enables a subscriber to receive 12 or more radio
channels in stereo. Cable television subscribers who require the use of a tuner
to receive certain of the Company's cable services are charged an additional fee
of approximately $1.10 per month. Installation fees vary according to the type
of connection required by a cable television subscriber. The standard initial
installation fee is approximately $28 to $46 in MDUs and approximately $91 to
$132 for single family dwellings.
PRICING STRATEGY. Prior to December 1996, the Company's cable television
pricing strategy was designed 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 achieved low annual
cable television churn rates of less than 10%, and has been able to pass on the
effects of inflation through price increases. In January 1997, the Company
commenced a new cable television pricing strategy designed to maximize revenue
per subscriber and to achieve real profit margin increases in U.S. Dollar terms.
In connection with this new pricing strategy, the Company intends to introduce
new program offerings and to continuously improve its services. As a result, the
Company expects that it may experience increases in churn rate above historical
levels during the implementation of its new pricing strategy across its cable
networks.
The Company generally receives a premium for its cable television 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 cable television churn rates. 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 cable television 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 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 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.
Cable television 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 60
days after a bill becomes past due. The Company's system architecture enables it
to promptly shut off service to nonpaying customers and is designed to reduce
fraudulent use its cable systems. The Company does not consider bad debt to be
material to its operations. While the Company's bad debt expense was 2.2% of
revenue in 1996, the Company's bad debt expense has historically averaged 1.3%
of revenue.
SALES AND MARKETING
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 the diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in
attracting and retaining cable subscribers. The Company's sales and marketing
process is divided into
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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 permit for a 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, is 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. Such employees
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 most cable systems at a
location easily accessible to subscribers in order to manage installation and
service calls and to provide telephone sales service support. The Company
generally 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.
TECHNOLOGY AND INFRASTRUCTURE
The Company believes the fiber-optic cable television 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
television 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
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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 cable television 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
cable television networks.
The Company's cable television networks, in most cases, use a
fiber-to-the-feeder, 2,000 home node design. The Company uses a switched-star
configuration for its cable television 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 customers, 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 cable television subscriber homes.
The Company's cable television 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 television services and digital
data transmission, if the Company decides to pursue such ancillary sources of
revenue in the future. The Company's systems provide 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 cable television 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 cable television networks obtained in acquisitions as rapidly as
practicable.
Because the Company has entered into a series of agreements with regional
and local TPSA branches which permit the Company to use TPSA's conduit
infrastructure for periods up to 20 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. At May 31, 1997,
approximately 62.5% of the Company's cable television 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 television 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. At May 31,
1997, approximately 113,000, or 16%, of the Company's total subscribers were
serviced by conduits leased from TPSA for which one or more of these provisions
were applicable, so TPSA was 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
Related to the Company -- Agreements with TPSA" and "Business -- Properties".
The Company estimates that at the end of May 1997 it had over 2,838
kilometers of cable television plant constructed and that the fiber-optic
backbone of its networks was substantially complete. Other than a rebuild of one
of the Company's acquired cable systems in the Katowice region for a remaining
cost of approximately $10 million, of which $7.5 million relates to upgrades to
meet PAR and Company
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standards, the Company estimates that its future capital expenditures will
consist primarily of capital needed for the incremental addition of new MDUs and
cable television subscribers to its existing networks and for the build-out or
rebuilding associated with the acquisition of new cable television systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". 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 multichannel television industry in Poland has been, and is expected to
remain, highly 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 extent to which the Company's
multichannel 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 multichannel
television industry in Poland. See "The Industry -- The Polish Multichannel
Television Industry" and "Regulation".
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 significantly 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, among others, certain Polish persons, Bresnan
Communications, TCI Communications Inc. and certain financial investors, 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 A-DTH satellite-delivered
television services, and may in the future compete with MMDS systems and D-DTH
systems, including the Company's @TV D-DTH service.
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
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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.
D-DTH
The Company intends to increase its distribution capacity beyond that
provided by the expansion of its cable television business by developing a
complementary satellite D-DTH broadcast service for Poland under the brand name
@TV. The Company believes @TV will be the first Polish language service
available in the Polish market and among the first in Europe. The Company
expects to launch its D-DTH service in the first half of 1998 with an initial
package of approximately 14 basic Polish-language channels and one optional
premium Polish-language movie channel. The Company believes that its D-DTH
system, when combined with the continued expansion of its cable television
system and the development of its Programming Platform, will enhance its
position as the leading provider of multichannel pay television in Poland.
The Company believes that the satellite D-DTH pay television industry in
Poland offers substantial opportunities for growth due to the large potential
market size of 8.8 million television homes which it estimates are not currently
passed by cable, the availability of low cost D-DTH Reception Systems to the
Initial Subscribers, the existing demand for high-quality Polish-language
programming, and the improved characteristics of D-DTH compared with A-DTH.
There can be no assurance, however, that the market for D-DTH services will
develop, or if it does develop, that the Company will be successful in launching
its D-DTH service. See "Risk Factors -- Risks Related to the Company -- Limited
D-DTH Experience and Uncertainties Associated with the D-DTH Market".
D-DTH OPERATING STRATEGY
The Company's D-DTH strategy is to distribute D-DTH Reception Systems at a
significantly subsidized cost to approximately 500,000 Initial Subscribers,
which is designed to achieve rapid and high penetration of the Polish market.
The launch of the D-DTH service will be supported by the Company's development
of its Programming Platform, which the Company believes will satisfy the strong
demand for high-quality Polish-language programming in Poland.
The Company is currently negotiating agreements with Philips, which are
expected to be concluded shortly, for the supply of an end-to-end package of
products and services, including IRDs, ODUs and Philips' CryptoWorks(R)
proprietary conditional access system and associated smartcards, which will be
distributed through over 1,000 Philips authorized electronics retailers across
Poland, and the provision by Philips of installation and support services
through its retail network in Poland. The Company will use a portion of the net
proceeds from the Offerings to acquire approximately 500,000 D-DTH Reception
Systems for distribution at a significantly subsidized cost to Initial
Subscribers in Poland to the Company's D-DTH service. The Company is considering
entering into a preliminary agreement with Philips to permit Philips to initiate
preparations for its performance of the proposed agreements pending negotiation
and the anticipated finalization of those agreements. This preliminary agreement
would require certain phased payments by the Company of amounts of up to $9
million, which would be non-recoverable in the event definitive agreements are
not entered into between the Company and Philips. There can be no assurance that
the Company will be successful in negotiating such definitive agreements with
Philips on mutually acceptable terms, if at all. See "Risk Factors -- Risks
Related to the Company -- Dependence on Philips as Principal Supplier".
The Company plans to broadcast digital programming from its U.K. production
facility through the Company's uplink facilities to one of three transponders
leased by it on the Astra 1E and 1F satellites, which will then reflect the
signals back to the D-DTH decoder systems of the Polish subscribers. Towards
this end, the Company has applied, or intends to apply for, licenses from the
ITC in the United Kingdom for each of its proposed D-DTH channels and expects to
receive the first of such licenses
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shortly. The Company is currently studying the feasibility of locating its
uplink and production facilities in Poland and applying for Polish broadcasting
licenses necessary to engage in such activities.
All of the Company's D-DTH broadcasts will be digital. The Company expects
that its D-DTH system will be among the first in Europe and will be the first
Polish-language D-DTH service available to the Polish market. D-DTH systems use
medium or high-power satellites to deliver signals to satellite dish antennae at
homes, hotels and apartment buildings. In contrast to MMDS signals which are
locally transmitted, a D-DTH satellite footprint can cover large land areas.
Among the advantages of D-DTH systems are: (i) the additional capacity available
from digital compression enables the Company to offer a much wider range of
programming, including dedicated thematic, sports and film channels; this extra
capacity is expected to lead to increased demand for Polish-language
programming, (ii) digital technology also provides enhanced picture and sound
quality and allows interactive features, such as an electronic program guide
("EPG"), which are not available using analog technology, and (iii) digital
technology allows the Company to reach the SMATV and A-DTH segments, as well as
the section of the Polish market which is not passed by cable. The disadvantages
of D-DTH systems presently include (i) limited ability to tailor local
programming packages to serve different geographic markets in Poland, (ii)
line-of-sight restrictions (although less than for MMDS systems), and (iii)
intermittent interference from atmospheric conditions and terrestrially
generated radio frequency noise.
Prior to the launch of its D-DTH service, the Company expects to conduct a
pilot scheme for 40,000 subscribers throughout Poland, which the Company intends
to commence by the beginning of 1998.
DTH SERVICES AND FEES
With the introduction of its D-DTH service, the Company aims to provide
Polish viewers with a wider selection of high-quality Polish-language
programming. The Company expects its D-DTH service to provide potential
subscribers with an attractive alternative to A-DTH services and cable offerings
at competitive subscription prices.
The Company expects to launch its D-DTH service in the first half of 1998
with an initial package of approximately 14 basic Polish-language channels and
one optional premium Polish-language movie channel, which it believes will be
the first Polish-language D-DTH service available to the Polish market (the
"Initial Digital Programming Platform"). The Company expects to expand its basic
package to include additional premium channels, and eventually, to introduce
tiered packages consisting of a variety of combinations of up to 21 basic and
premium channels. This expansion is dependent on a number of factors, some of
which are outside the Company's ability to control or predict, including the
market acceptance of D-DTH services, the Company's ability to secure rights to
high-quality, high-demand programming (either internally produced or from third
parties), the availability of digital transmission satellite capacity, as well
as the introduction of competing service offerings by its present or future
competitors. See "Risk Factors -- Risks Related to the Company -- Limited D-DTH
Experience and Uncertainties Associated with the D-DTH Market", "-- Dependence
on Philips as Principal Supplier", "-- Dependence Upon Satellites" and "--
Availability of Programming and Dependence on Third Party Programmers; Program
Development Risk".
The Company has recently signed a letter of intent with World Shopping
Network plc (the "Shopping Network") in connection with the establishment of a
joint venture for the purposes of developing and distributing an electronic
retailing service to the cable television and DTH markets in Poland. The Company
expects a definitive agreement to be signed by the end of June 1997 and for a
shopping television channel to be included in its Initial Digital Programming
Platform. In addition, to date the Company has entered into letters of intent
with Knowledge TV, BET on Jazz and Twoj Styl, a Polish lifestyle magazine, to
provide programming for the Company's Initial Digital Programming Platform for
distribution over its D-DTH and cable television systems. The Company expects to
enter into definitive agreements with respect to such channels by the end of
September 1997. The Company has also entered into negotiations with certain
international program providers regarding the creation of a
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branded Polish-language premium movie channel. The Company is concurrently
negotiating with HBO for the exclusive distribution of the HBO service as a
premium channel to the Polish D-DTH market. These premium channels are expected
to be priced at a rate of $4.00 each per month. Although these letters of intent
contemplate the negotiation of definitive agreements, there can be no assurance
that such agreements will be completed, that the Company's other negotiations
for premium channels will lead to agreement or that the Company will be
successful in obtaining the desired programming for its Programming Platform.
The Company is currently negotiating with a number of international and
Polish program providers for the right to distribute the Polish language version
of a variety of programs in Poland. The Company is currently negotiating a
partnership with TVP, the Polish state-owned broadcaster, to transmit TVP's
popular channels, TVP1 and TVP2, and to transmit TVP's new music channel on its
Initial Digital Programming Platform, and to provide the Company with exclusive
pay television access to TVP's extensive Polish-language television library.
Such a partnership is subject to certain Polish regulatory and other approvals,
and there can be no assurance that the Company can enter into an agreement on
satisfactory terms with TVP.
The Company expects to be able to offer a PPV service to its D-DTH
subscribers by the middle of 1999. The Company expects to offer certain premier
movies and sports and other live events on such a service.
The Company expects that its D-DTH services will also include EPG, an
interactive service which will allow the Company to communicate with subscribers
with respect to movie, sports event and channel promotions and subscriptions. In
addition, the EPG will be linked to the Company's proposed DTH subscriber
magazine. The digital nature of the Company's D-DTH signals will also allow the
Company to offer stereo audio channels to its subscribers in the future.
PRICING STRATEGY. The Company expects to charge D-DTH subscribers fixed
monthly fees for their choice of service tiers and for other services, such as
premium channels. Initially, the Company expects to offer to subscribers one
level of service together with an optional premium movie channel. Further
premium channels are expected to become available later on a per-channel basis.
The Company expects that its Initial Digital Programming Platform package will
offer approximately 14 Polish-language basic channels for a monthly fee of
approximately $7.50 and an optional premium Polish-language movie channel for a
monthly fee of approximately $4.00. When available, the Company currently
expects to offer additional premium Polish-language channels for monthly fees of
approximately $4.00 each. The Company expects that new subscribers to its D-DTH
service during the launch period will be charged one package price which, in
addition to the first year of subscription (excluding premium channel
subscription) to the D-DTH service, will also include the lease and installation
of the D-DTH Reception Systems at a subscriber's home. If the subscriber
subscribes for a second year, he will own the D-DTH Reception Systems. See
"-- Sales and Marketing". From the commencement of its D-DTH service, the
Company intends to make the channels on its D-DTH service that are not present
on its Basic Tier cable service available to its cable subscribers for an
additional monthly fee and to sell the Programming Platform on a wholesale basis
to other cable networks in Poland.
The Company is in the process of formulating a detailed pricing strategy
for its D-DTH business based upon parameters existing within the Polish
television market and synergies with its existing cable television business. The
Company believes that certain of the factors applicable to its cable television
business, such as those giving the Company the ability to successfully command
higher prices, will be equally applicable to the D-DTH business. The Company
also believes that the availability of D-DTH channels on its cable television
service will be one factor contributing to the maintenance of a relatively low
annual churn rate on its cable television service.
The Company intends to contract with its D-DTH subscribers for annual
periods and bill such subscribers in advance. After the initial one year initial
subscription period, such subscribers will be required to pay their bills
quarterly in advance. See "-- Cable -- Services and Fees".
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SALES AND MARKETING
The Company plans to begin marketing and distributing its D-DTH service in
the first half of 1998, with an aim to establishing a base of approximately
500,000 Initial Subscribers within the first year of operation. The Company
believes that it will be able to draw upon its extensive internal experience in
the Polish cable television business to support the introduction, development
and marketing of its D-DTH service. In addition, the Company's continuing
negotiations with Philips contemplate the establishing of a comprehensive
relationship which will give the Company access to Philips' well developed and
established network of authorized electronics retailers throughout Poland.
In order to receive @TV's D-DTH service, subscribers will need to obtain
certain reception equipment, including an IRD with a smartcard-based conditional
access system and an ODU. Additionally, subscribers will require installation
and support services. The Company is negotiating with Philips for an end-to-end
package of products and services which will include digital compression,
multiplexing, conditional access system, an EPG, smartcards, up to 500,000 IRDs
and up to 500,000 ODUs. The Company expects the agreements to be negotiated with
Philips to provide an option for the Company to purchase in excess of 500,000
IRDs and ODUs from Philips, that a second supplier of IRDs in addition to
Philips may be licensed after the first 500,000 IRDs are purchased by the
Company, and that the Company and Philips will establish a distribution, sales,
marketing and service relationship. The Company believes that it has selected a
D-DTH reception system for its subscribers which will be relatively simple to
use and available at a low cost.
Under the proposed agreements with Philips, a complete package comprising
of the D-DTH Reception System, a one-year subscription to the Initial Digital
Programming Platform (not including the premium channel), as well as
installation and support services, would be offered exclusively through
approximately 1,000 of Philips over 3,000 authorized electronics retailers in
Poland (the "Introductory Digital Package"). The Company believes that in each
of the last two years Philips was the largest retailer of electronics goods by
volume in Poland. The Company believes that, if successful, this relationship
with Philips gives it access to a well-known and established retail network in
Poland, with knowledgeable and trained staff capable of supporting and promoting
the @TV brand.
The Company currently anticipates distributing the Introductory Digital
Package at a significantly subsidized cost to the Initial Subscribers. Premium
channels are expected to be offered at an additional monthly charge per channel.
Upon completion of the first year of subscription, a D-DTH subscriber will have
the option of renewing the subscription for a further one-year period and
retaining the D-DTH Reception System or cancelling the subscription and
returning the D-DTH Reception System. The Company will continuously review the
subscription rate and other package features during the launch period and will
determine whether the Introductory Digital Package should be modified and, if
so, on what terms.
The Company expects to establish a dedicated D-DTH customer service
facility within a centralized customer service center. The Company believes this
will allow it to offer a high level of customer service at low cost to its new
D-DTH subscribers.
The Company intends to develop a comprehensive marketing strategy for its
D-DTH service and plans to advertise the service primarily through terrestrial
television, press, radio and outdoor poster sites. The Company will also rely on
Philips as the point-of-sale intermediary between the Company and its
subscribers.
TECHNOLOGY AND INFRASTRUCTURE
Through the Company's D-DTH service, digital video, audio and data will be
encoded, processed, compressed, encrypted, multiplexed (i.e., combined with
other channels), modulated (i.e., applied to the designated carrier frequency
for transmission to satellite) and transmitted from its uplink facilities to
geosynchronous satellites which receive, convert and amplify the digital signals
and retransmit them to
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earth in a manner that allows individual subscribers to receive and be billed
for the particular program services to which they subscribe.
BROADCASTING AND UPLINK FACILITIES. The channels available on the
Company's D-DTH service will include the Company's own proprietary programming
and programming from third parties which will have originated from a number of
sources in Poland, the United Kingdom and elsewhere. All of such programming
will be backhauled (i.e., transmitted via satellite or other medium) to the
Company's production facility, which will initially be located in the United
Kingdom, for transmission on its D-DTH system. Prior to transmission, editorial
control and program packaging will occur at the Company's facility in the form
of, among other things, program localization, principally adding subtitles or
dubbing in Polish, or post-production work, including the insertion of
commercials. Once the Company's D-DTH programming is ready for transmission it
will be uplinked to the Company's transponders on Astra satellites 1E and 1F.
The Company's D-DTH signal will be beamed by such satellites back to the earth
and may be received in Poland by those who have the appropriate dedicated
satellite reception equipment and who have been connected by the Company to its
D-DTH service as subscribers. The Company will determine the optimum mix of
leasing and owning the necessary broadcasting and uplinking equipment and
facilities.
ENCRYPTION. The ability to receive encrypted pay-television channels
broadcast for DTH reception is controlled through the use of proprietary
conditional access technologies. The Company's negotiations with Philips
contemplate the grant to it of a non-exclusive license from Philips to use the
CryptoWorks(R) proprietary conditional access system in Poland, and for Philips
to distribute the associated smartcards in Poland. The Company does not intend
to acquire any license to manufacture either encoders or decoders.
CryptoWorks(R) is a new generation conditional access system developed and
marketed by Philips. CryptoWorks(R) is currently being utilized by a broadcaster
serving Malaysia.
Any new D-DTH broadcaster wishing to commence the operation of an encrypted
pay-TV service within Poland would need to obtain a license from Philips to use
CryptoWorks(R) or acquire an alternative encryption and conditional access
technology and build its own decoder base capable of receiving transmissions
encrypted using such technology. If a competitor obtained a licence from
Philips, it could contract with the Company for access to the installed
encryption decoder base utilized by the Company.
Transmissions using conditional access technology are encrypted prior to
being uplinked to satellites. The signal from the satellite is received by a
subscriber through a satellite dish and IRD, and is decrypted via a smartcard
inserted into a decoder, which is usually integrated with a receiver into the
IRD connected to a viewer's television set. A smartcard is a plastic card, the
size of a credit card, carrying an embedded computer chip that implements the
secure management and delivery of decryption keys necessary to descramble
pay-television channels and thereby enable and disable viewing according to
whether the subscriber is authorized to receive a particular service. The
smartcard receives instructions as to whether to enable, disable, upgrade or
downgrade a subscriber's level of service via the datastream sent to the decoder
within the broadcast signal. Smartcards can be easily updated or replaced
periodically.
The delivery of subscription programming requires the use of encryption
technology to prevent signal theft or "piracy". Historically, piracy in the
cable television and European A-DTH industries has been widely reported. The
Company's IRDs use smartcard technology making it possible to change the
conditional access system in the event of a security breach through the use of
over-the-air methods or by issuing new smartcards. The Company intends to
purchase piracy insurance from Philips. As part of this insurance, Philips will
replace the smartcards of the Company's then-existing subscribers with new
smartcards incorporating Philips' latest anti-piracy technology at no cost to
the Company except delivery costs in the event piracy reaches a proportion of
the Company's D-DTH service to be determined in the definitive agreement with
Philips. Although the Company expects its conditional access system, subscriber
management system and smartcard to adequately prevent unauthorized access to
programming, there can be no assurance that the encryption technology to be
utilized in connection with the Company's D-DTH system will be, or remain,
effective. If the encryption technology is compromised in a
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manner which is not promptly corrected, the Company's revenue and its ability to
contract for programming services would be adversely affected. See "Risk Factors
- -- Risks Related to the Company -- Risk of Signal Theft".
Although the Company believes that the Astra satellites, CryptoWorks(R)
encryption technology and the IRDs together constitute a reliable, end-to-end
cost-effective solution, certain other large European providers of D-DTH
services have selected different satellites, encryption technology and decoders.
If another satellite, encryption technology or decoder becomes the preferred
standard in Poland, or if Poland enacts regulations regarding such technology or
decoders, such a development could adversely impact the Company's ability to
attract subscribers. Such a development could force the Company to switch its
suppliers, thus causing confusion for existing and potential subscribers, delays
in providing subscribers with decoders and significant unexpected costs.
SATELLITES. The Company expects to transmit all of its proprietary
programming and that of third party programmers from its production facility in
the United Kingdom by cable to an earth station transmitting antenna (an
"uplink"). The uplink facility will transmit the Company's programming signal
over an orbiting satellite transponder to cable system headend receiving
antennae and D-DTH subscribers' reception equipment throughout Poland. The
Company expects that its production facility will be located in the United
Kingdom. The Company is currently considering whether it will perform the
uplinking of its own programming or contract such uplinking to a third-party
service provider. The Company is currently studying the feasibility of locating
its uplink and production facilities in Poland and applying for Polish
broadcasting licenses necessary to engage in such activities.
In March 1997, the Company entered into a contract with Societe Europeanne
des Satellites S.A. ("SES"), a Luxembourg company in which the Government of
Luxembourg controls a significant interest, for the lease of three transponders
on two satellites, Astra 1E and 1F, under leases that expire in 2007 and 2008.
The Company currently has access to two transponders on the Astra 1F satellite.
The Company's access to a third transponder on the Astra 1E satellite is
dependent upon the successful launch of the Astra 1G satellite, which is
expected to occur in October 1997. Aggregate charges for each transponder are
capped at $6.75 million per year and $200 million for all three transponders for
the term of the contract, but either party may terminate any or all of the
transponder leases on six months' prior notice if the Company 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. The Company's transponder leases provide that the Company's rights
are subject to termination in the event that SES's franchise is withdrawn by the
Luxembourg Government.
The Company has been designated a "non-pre-emptible customer" under each of
its relevant transponder leases. As a result, in the event of satellite or
transponder malfunction, the Company's use of its transponders cannot be
suspended or terminated by another broadcaster which has pre-emption rights
permitting it to gain access to additional transponders in preference to other
customers. The Company is not, however, a "protected customer" under the
relevant transponder leases and, in the event of a failure of one or more of the
transponders leased by it, the Company would not be able to pre-empt any other
transponder customer. The operation of the Astra satellites is outside the
control of the Company, and a disruption of the transmissions could have a
material adverse effect on the Company, depending upon its duration. While the
Company has sufficient channel capacity to initiate its planned D-DTH service on
the two transponders to which it currently has access, the ability of the
Company to add channels to its Programming Platform will depend upon its ability
to obtain access to the third transponder leased by it or other transponder
capacity on the Astra satellites or other favorably positioned satellites. See
"Risk Factors -- Risks Related to the Company -- Dependence Upon Satellites".
Due to the high cost of insurance policies relating to satellite operations, the
Company does not insure against possible interruption of access to the
transponders leased by it for satellite transmission of its broadcasting.
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PROGRAMMING
The Company believes that the quality and variety of programming is a
critical component in building successful multichannel television systems in
both its cable television and D-DTH businesses. The Company's programming
strategy is focused on the development of a Programming Platform of high-quality
Polish-language programming which will be distributed over its cable television
and D-DTH businesses. The Company currently creates, produces, develops and
acquires programming, including programming for its two proprietary
Polish-language channels (PTK1 and PTK2), for distribution across its cable
networks. The Company currently obtains its programming content from third party
providers, as well as in-house through its ProCable and Mozaic subsidiaries. In
order to expand its offering selection and establish its branded proprietary
Programming Platform, @TV, the Company intends to form a variety of joint
ventures or subsidiaries to own and develop proprietary Polish-language
programming. The Company believes that the establishment of its Programming
Platform will increase the basic penetration rate for its cable television
networks, will support the expansion of the cable networks and the launch of the
D-DTH service, and will allow the Company to increase its subscription rates and
maximize revenue per subscriber.
PROGRAMMING PLATFORM
The Company believes that the provision of Polish-language programming,
with local cultural content and theme, as well as localized versions of
high-quality non-Polish programmes tailored to appeal to mass audiences in
Poland, will be a key factor in the success of the Company's cable television
and D-DTH businesses. The Company intends to combine its current Polish-language
programming offering with a variety of new high-quality Polish-language
offerings, including branded and premium channels, to form the basis of a
proprietary Programming Platform under the brand name @TV. This Programming
Platform will be distributed on a subscription basis across the Company's cable
television and D-DTH systems and sold on a wholesale basis to other cable
networks in Poland.
Like many of those in other emerging markets, the Polish television
industry currently depends primarily on programming from foreign sources
(translated into Polish) and limited local broadcasting alternatives. The
Company believes that there is strong demand for local-language (content)
programming in Poland, as evidenced by the market share of TVP1 and TVP2, the
Polish government-owned channels. The Company expects that copyright laws and
regulations will be increasingly enforced and that program providers will
increasingly encrypt their channels, which combined with the breadth of the
Company's channel offerings on both its cable television and D-DTH systems, will
become an increasing competitive advantage.
The Company sources its cable 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 of up to five years in length and pricing is
often based on the number of the cable television subscribers serviced by the
Company's networks. As the Company's cable television subscriber base has grown,
it has generally been able to achieve volume pricing discounts under these
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 currently owns a 33% interest in 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 cable
networks that carry these channels, except for eleven small cable networks for
which ProCable does not currently have broadcast licenses but for which it will
seek to obtain broadcast licenses in the near future. PTK1, which was introduced
in 1994, offers general local information, program scheduling, and local
advertising and in some areas began offering more expansive local news, weather
and other information in the fall of 1996. PTK2, which was introduced in the
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spring of 1995, offers general entertainment in Polish (or with voice-overs in
Polish), including full-length feature films, music, childrens' programs and
documentaries.
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.
The Company has established Mozaic as a wholly owned U.S. subsidiary
engaged in the development and production outside of Poland of Polish-language
thematic television channels. Mozaic plans to develop programming designed to
generate both advertising revenue and subscription fees from PTK and other cable
operators. In December 1996, Mozaic acquired 45% of Ground Zero Media Sp. z o.o.
("GZM"), a joint venture with Polygram, the recording company, Atomic
Entertainment LLP, 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.
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 revenue from such advertising. Atomic TV began satellite broadcasting on
April 7, 1997. 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 shortly.
The Company has entered into letters of intent regarding the World Shopping
Network, Knowledge TV, BET on Jazz and Twoj Styl, a Polish lifestyle magazine,
to provide programming for its Programming Platform. In addition, the Company
intends to develop @TV 1 as the anchor channel for its Programming Platform. @TV
1 will offer a wide-range of Polish-language programming, including full-length
feature films, music, sports events and childrens' programs. As opportunities
arise in the rapidly developing pay television market in Poland, management
intends to consider adding thematic channels to its package. In particular, the
Company currently intends to create thematic channels, such as sports, movies,
news, weather, lifestyle, gameshows and childrens' programming. Thematic
channels permit subscribers to choose easily the theme of the programming to be
viewed at any particular time. Programs which generate significant consumer and
advertising appeal may eventually be expanded into thematic channels. For
example, Atomic TV, which debuted on PTK2 in the spring of 1996, has generated
substantial cable television viewer and advertising interest, and it began to be
offered as a separate channel in April 1997.
The Company expects to significantly expand and enhance the quality of
programming on PTK1 and PTK2, and on @TV 1 once it has been established, and
also to increase the number of proprietary channels on both its cable television
and D-DTH systems. Additional programs and channels under consideration by the
Company for development include family entertainment, sports and childrens'
channels, among others. Towards this end, the Company is currently negotiating
with a number of Polish and international programming providers to form joint
ventures which will be responsible for the creation of thematic programs and
channels, such as action and adventure, science fiction, sports and family
entertainment channels. The Company intends to either have equity ownership in,
and/or exclusive agreements with, a number of such programming providers, thus
allowing it to create an attractive branded package of proprietary high-quality
programming designed specifically for the Polish market.
The Company is in the process of negotiating a partnership with TVP, the
state-owned Polish national broadcaster, to transmit TVP's popular channels,
TVP1 and TVP2, and to transmit TVP's new music channel on its Programming
Platform. In addition, this partnership is expected to provide the Company with
exclusive pay television access to TVP's extensive television library of
high-quality Polish-language programs. The Company believes that such access
would provide a significant source of classic Polish content programming for use
on @TV 1 and throughout the Company's Programming Platform, through the
repackaging of TVP's programming library into particular program formats. The
Company expects that the partnership will also allow the Company access to TVP's
state-of-the-art
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production facilities, which the Company believes are currently under-utilized,
for the development and production of programming for the D-DTH Programming
Platform. The Company also believes that such a partnership would provide the
Company with certain other technical facilities, such as backhauling and program
packaging, and would offer opportunities for the marketing and promotion of the
Company's D-DTH Programming Platform on TVP's television service. The proposed
partnership with TVP would be subject to certain Polish regulatory and other
approvals. There can be no assurance that agreement in respect of such a
partnership will be concluded with TVP or if concluded that such approvals will
be obtained on acceptable terms or at all. See "Risk Factors -- Risks Related to
the Company -- Availability of Programming and Dependence on Third Party
Programmers; Program Development Risk".
PREMIUM TELEVISION CHANNELS
The Company is in the process of introducing Polish-language versions of
premium movie channels to its cable 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 cable networks since entering into a preliminary distribution agreement with
Canal+ in October 1995. 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 is
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 is
priced at $6.00 per month. The Company believes that the service will generate
significant subscriber interest at this price level. The Company began
distribution of the HBO service in Warsaw in April and in Gdansk and Krakow in
May 1997, and expects to roll out such service to the Company's remaining cable
systems by the end of 1997. The Company is negotiating with HBO for the
exclusive distribution of the HBO service to the D-DTH market in Poland.
The Company has also entered into negotiations with certain international
programmers regarding the creation of a branded Polish-language premium movie
channel. Although these letters of intent and negotiations contemplate the
negotiation of definitive agreements, there can be no assurance that the Company
will be successful in establishing the relationships necessary to produce the
high-quality Polish-language programming which the Company's Programming
Platform is dependent upon. See "Risk Factors -- Risks Related to the Company --
Availability of Programming and Dependence on Third Party Programmers; Program
Development Risk".
ADVERTISING
The Company expects to attract significant advertising to its channels as
part of the developing Polish television advertising market, which the Company
believes is still relatively underdeveloped, with television advertising
constituting a lower per capita spend than in comparable markets. The Company
estimates that the current size of the Polish television advertising market is
approximately $320 million per year and believes that the market is dominated by
TVP and Polsat. The Company expects that its channels will increase the size of
the Polish television advertising market by giving advertisers new and better
targeted outlets in Polish television. In particular, the Company believes that
its channels will be attractive to advertisers because of the relatively
affluent demographic profile of the Company's subscribers and the focus of the
Company on large, high economic growth, urban areas. Furthermore, the Company's
channels will give advertisers local customer access that cannot easily be
replicated through any other advertising media.
PTK1 and PTK2 also serve, and once established @TV 1 is expected to 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 and potentially to other DTH operators.
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ProCable began selling local and national advertising on its channels in 1996
and the Company expects that as the demand for its proprietary channels
increases and Poland's advertising market for cable and satellite television
matures, advertising may become a significant source of revenue for the Company.
PROPERTIES
At May 31, 1997, the Company owned equipment used for its cable television
business, including 119 headends, and approximately 2,838 kilometers of cable
plant. The Company has approximately 83 lease agreements for offices, storage
spaces and land adjacent to the buildings. The total area leased amounts to
approximately 28,800 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 those for an unspecified period may be
terminated with relatively short notice periods by either party, usually three
months. The Company recently purchased two parcels of land for which it procured
the required permits of the Polish Minister of the Interior.
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 Related to the
Company -- Agreements with TPSA".
The Company believes that its existing owned properties, lease agreements
and conduit agreements are adequate for purposes of the Company's cable
television operations, although additional space and conduits will be needed in
the future if the Company consummates further acquisitions of cable television
networks.
In connection with the development of its programming business and the
establishment of a D-DTH service, the Company expects to lease additional office
space and premises providing backhauling, production, post-production and
program packaging facilities. The Company is currently considering whether it
will perform the uplinking of its own programming or contract such uplinking to
a third party service provider. This additional space is expected to aggregate
approximately 6,500 square meters and will initially be located in the United
Kingdom. The Company is currently studying the feasibility of locating its
uplink and production facilities in Poland and applying for Polish broadcasting
licenses necessary to engage in such activities.
TRADEMARKS
The Company has not registered the PTK trademark used in its cable
television and programming businesses. 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 PTK 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. The Company has filed for
registration of its @TV trademark and intends to file for registration of
related trademarks in Poland.
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EMPLOYEES
At May 31, 1997, the Company had approximately 825 permanent full-time
employees and approximately 82 part-time employees. In addition, as of such date
the Company employed approximately 75 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 33 permanent full-time employees of ProCable. In connection with
the development of its programming business and the establishment of a D-DTH
business the Company has hired an additional 19 permanent full-time employees
and expects to hire a further 120 employees by the end of 1997, the majority of
whom will be administrative, post-production and technical personnel located at
the Company's facility in the United Kingdom. Certain personnel are expected to
be hired in Poland to staff the Company's new customer service center and engage
in related activities. The Company expects that certain functions, such as
uplinking and program production, will be performed by employees of third
parties pursuant to medium- and long-term service agreements with the Company.
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 and DTH 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 systems and must register certain
programming that they transmit over their networks with the Council. Poland is a
party to the provisions of the Convention which regulates international
transmission and retransmission of television programs. The operation of a D-DTH
service in Poland uplinked from facilities in the United Kingdom will also be
subject to regulation in the United Kingdom and the European Union (the "EU").
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; however, excessive rates could be challenged by the Anti-Monopoly
Office should they be deemed to constitute monopolistic or other
anti-competitive practices. 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.
POLAND
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 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 must 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, among other things, the applicant fails to
submit the evidence described above or if the applicant's cable network fails to
comply with the 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 if renewed are generally
renewed for 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 Polish laws, including copyright laws. See
"-- Copyright Protection".
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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
instances, where a violation of the terms or conditions of a Permit or the
Communications Act have occurred, PAR is required by law to give the cable
television operator an opportunity to rectify the violation.
NON-TRANSFERABILITY OF PERMITS. 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 or related to the foreign ownership
of real estate, 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. In the Company's view, based on the MOC's
written explanations, these restrictions also do not apply to Permits issued at
any time pursuant to certain licenses obtained under the Foreign Commercial
Activity Act described below or to renewals of any such Permits. As of February
27, 1997, approximately 45% of the Company's basic subscribers were covered by
Grandfathered Permits that are not subject to foreign ownership restrictions.
Enforcement of Poland's regulatory restrictions on foreign ownership of
cable television operators is the responsibility of PAR. Applications for
Permits, and for renewals thereof, require disclosure of the applicant's
ownership structure, stockholders 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, the stockholders of
PTK, S.A. received a license to establish PTK, S.A. to operate cable television
systems in Warsaw, Krakow and the areas surrounding these cities (as described
in the license) under the Foreign Commercial Activity Act. 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. Although the Foreign Commercial Activity Act has been
repealed, the MOC has confirmed to PTK, S.A. that this license enables PTK, S.A.
to acquire Permits covering areas in Warsaw, Krakow and the surrounding areas
without regard to the regulatory restrictions on foreign ownership described
above. There can be no assurance that the MOC correctly interpreted the law and
will not change its views. In Poland, however, interpretation of the law is
vested in the Constitutional Court which has not considered the issue. The MOC's
interpretation of the law is therefore not binding. Any such adverse
determination could have a material adverse effect on the Company's business,
financial condition and results of operations.
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 and former executives of the Company 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
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lease the assets to Poltelkab who will operate the network, 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
do not contradict the requirements of Polish law. PAR has 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 ability of the Company's subsidiaries to acquire Permits to operate
cable television systems and could result in the loss of Permits held by certain
subsidiaries of the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
THE COMPANY'S PERMITS. Subsidiaries of the Company had received
approximately 93 Permits from PAR, covering approximately 450,000 of the
Company's approximately 544,000 basic subscribers as of May 31, 1997 (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
128,000 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, certain subsidiaries of the Company do
not have Valid Permits covering certain of the areas in which it operates cable
networks. Of the approximately 95,000 basic subscribers as of May 31, 1997
located in areas for which subsidiaries of the Company do not currently have
Valid Permits, approximately 21% 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 60% are located in areas serviced by recently
acquired or constructed networks in Warsaw, Krakow and the areas surrounding
these cities, which PCI plans to transfer to PTK, S.A. in order to comply with
foreign ownership restrictions, and approximately 19% are located in areas
serviced by networks for which subsidiaries of the Company have Permit
applications pending. These subsidiaries of the Company have 18 Permit
applications pending. There can be no assurance that PAR will issue any or all
of the Permits for which such subsidiaries have 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's subsidiaries will be able to receive Permits in the future permitting
it to operate any other networks that they 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 meet certain criteria
specified therein, including but not limited to, making modifications, such as
inserting commercials, to programming transmitted over their networks or failing
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
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cable networks. An exception to this registration requirement exists for
programming that is broadcast by public broadcasters and 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 specification of the programming to be transmitted and the
broadcaster of the programming, and evidence that the applicant has a Permit
covering the cable networks on which the programming will be transmitted.
Registration of programming occurs automatically if the Chairman of the Council
does not reject an application within two months of its submission.
In general, the Chairman of the Council will refuse registration of
programming if (i) the applicant is not legally entitled to use the cable
network over which the programming will be distributed (i.e., does not have a
Permit covering the network), (ii) the broadcasting of the programming in Poland
would violate Polish law, including provisions of the Television Act governing
sponsorship, advertising and minimum Polish content requirements for programming
broadcast by Polish broadcasters or (iii) the transmission of the programming
over the cable network would violate Polish law, including the Television Act.
Once programming is registered with the Chairman of the Council by a cable
television operator, it remains registered with respect to such operator until
the term, if any, requested in the application for registration expires or until
the Chairman of the Council revokes the registration. Applications to renew the
registration of programming are usually filed two months prior to the end of the
term of the registration thereof and will usually only be rejected for the
reasons described above. The Chairman of the Council is authorized to revoke
registration if a program for any of the same reasons for which it is entitled
to refuse to register programming, or if the cable television operator violates
the "must carry" provisions of the Television Act that require cable operators
to transmit programming broadcast by public broadcasters nationwide or
regionally.
Certain subsidiaries of the Company have registered with the Chairman of
the Council most of the programming that they transmit on their cable networks,
except programming distributed on networks for which they do 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 the Company's
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 the
wireless emission of a program for the purpose of simultaneous and general
reception and 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, but not limited to, whether the planned
broadcasting activity by the applicant will serve to provide information,
facilitate access to culture and art or provide entertainment, minimum Polish
content, 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. The Television Act is silent as to the possibility
of the license renewal and, to the extent applicable, upon termination of a
license, a new application or submission of a tender might be required. 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".
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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 stockholders. In addition, the
Television Act and applicable Polish regulatory restrictions provide that the
majority of the management and supervisory boards of any broadcaster company
holding a broadcasting license must be comprised of Polish citizens residing in
Poland.
While PCI is not a broadcaster under the Television Act, it owns a 33%
interest in a programming company, ProCable, which holds broadcast licenses to
distribute PTK1 and PTK2 over all of the Company's networks that carry these
channels, except for eleven small cable networks for which ProCable currently
does not have broadcast licenses but for which it will seek to obtain broadcast
licenses in the near future. The other stockholders of ProCable are its
president, a Polish citizen who owns a 40% interest, and a Polish children's
charitable trust. The Company has established Mozaic 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 its
branded digital encrypted DTH platform of proprietary Polish-language
programming and other programming produced by Mozaic throughout Poland via
satellite systems from outside of Poland. The Company believes that the
ownership structure of ProCable, @EL and/or Mozaic satisfy Poland's regulatory
restrictions on foreign ownership. However, there can be no assurance that
Polish regulatory authorities will not determine that all or part of this
ownership or distribution structure, or the distribution structure to be
established for such future subsidiaries or joint ventures, violates Polish
regulatory restrictions on foreign ownership. 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.
REQUIREMENTS CONCERNING PROGRAMS BROADCAST OUTSIDE OF POLAND. The
Television Act does not include regulations directly applicable to the
broadcasting of programs being broadcast from abroad by foreign broadcasters and
received in Poland. Specifically, there are no regulations in force concerning
satellite broadcasting of a program directed at a Polish audience if the uplink
for the broadcasting of such program is made by a foreign broadcaster outside
Poland. The Company believes that the Television Act does not apply to such
broadcasting and that such activity is not affected by Polish broadcasting
requirements. The Council has not officially adopted an interpretation of this
issue. As different interpretations of this issue have been made, including by
some members of the Council, there can be no assurance that this interpretation
will not be challenged or that the Company will not be required to comply, and,
if so, that it will be able to comply, with such requirements. In addition, in
certain situations, including, but not limited to, where a program is produced
or assembled entirely in Poland and only provided to a third-party for
transmission from abroad, there may be a risk of considering the producer of
such a program a broadcaster under the Television Act. This would result in the
obligation to obtain a license from the Chairman of the Council, which would
require meeting certain conditions (including foreign ownership restrictions).
Currently Poland has not sought to regulate foreign DTH broadcasters who
uplink outside of Poland. However, there can be no assurances that Poland will
not seek to regulate the DTH industry by, for example, imposing standards for
encryption technology or DTH decoders. If the Company's encryption technology,
DTH decoders or other activities did not meet such standards, the Company's
business, financial condition and results of operations could be materially
adversely affected as the Company seeks to comply with such standards.
As Poland is a party to the Convention, Polish authorities are obligated to
guarantee freedom of reception and shall not restrict the retransmission on
Polish territory of program services which comply with the terms of the
Convention. However, the Council has recently submitted a proposal to amend the
Convention to waive the protection for freedom of reception in the case of
foreign broadcasters broadcasting from outside Poland in order to evade Polish
broadcasting regulations. Any amendment to the
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Convention would require the approval of all state signatories to the
Convention. Parties can withdraw from the Convention on six months notice. There
can be no assurance that the Convention will not be so amended or that Poland
will not withdraw from the Convention.
The Television Act authorizes the Council to specify the requirements
regarding the Polish and European content of programs of foreign broadcasters to
be distributed through cable networks in Poland. The adoption of such a
regulation may influence the ability of Polish cable television operators to
register programs with the Council. Such registration is required for lawful
cable distribution of programs. The Council has not so far issued any
regulations concerning this matter.
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. Most of the Company's subsidiaries operate
under a contract with ZASP and all of them under a contract with ZAIKS. 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 also constitutes 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
originally published in Poland or is originally published simultaneously in
Poland and abroad or originally published in Polish-language form. In addition,
foreign authors of programming receive Polish copyright protection under the
terms of the Berne Convention of 1886 as amended in Paris in 1971 (the "Berne
Convention"), which was adopted by Poland in 1994. Foreign producers of
programming who satisfy certain criteria may receive some form of copyright
protection under TRIPS, which was recently adopted by Poland. In addition,
foreign programming producers will receive Polish copyright protection under 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 became bound by its terms on June
13, 1997. The Company currently makes copyright payments to the
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foreign programmers requiring such payments, such as CNN, Eurosport and the
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 recent
adoption of the Rome Convention on the Polish cable television industry, and
there can be no assurance that either will not result in the Company paying
additional fees to broadcasters for programming or being unable to obtain
certain commercially desirable programming.
ANTI-MONOPOLY ACT
Competition in Poland is governed by the Anti-Monopoly Act which
established the Anti-Monopoly Office to regulate monopolistic and other
anti-competitive practices. The current Polish anti-monopoly body of law with
respect to the cable television industry is not well-established, and the
Anti-Monopoly Office has not articulated comprehensive standards that may be
applied in an antitrust review in the cable television industry. In particular,
the relevant markets for cable television services have not been defined by the
Anti-Monopoly Office.
As a general rule, companies that obtain control of 40% or more of their
market face greater scrutiny from the Anti-Monopoly Office. Additionally,
several types of concentrations between undertakings, including acquisitions of
stock, under circumstances specified in the Anti-Monopoly Act require prior
notification to the Anti-Monopoly Office. Sanctions for failure to notify
include fines imposed on parties to the transaction and members of their
governing bodies. 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. Pursuant to the current interpretation of
the Anti-Monopoly Office, transactions between non-Polish parties affecting
market conditions in Poland may also require notification to the Anti-Monopoly
Office. According to the Anti-Monopoly Act, transactions made on a stock
exchange do not require such notification, but the Act does not stipulate
whether this is applicable to stock exchanges outside Poland or only to those
inside Poland. Furthermore, the proposed Law on Public Trading in Securities,
which is currently being debated by the Polish Parliament provides for the
amendment of the Anti-Monopoly Act to repeal the exemption for notification of
transactions made on a stock exchange. 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. The Company has not obtained clearances from
the Anti-Monopoly Office in connection with certain past acquisitions. The
Company does not believe that sanctions by the Anti-Monopoly Office for any such
missing clearances would be material, although there can be no assurance as to
the severity of such sanctions, if any.
UNITED KINGDOM
BROADCASTING REGULATION
The D-DTH services to be launched by the Company's wholly owned subsidiary
@EL will be regulated by the Independent Television Commission (the "ITC") as a
satellite television service ("STS"). The ITC is the body responsible for
regulation of substantially all commercial television in the UK. Under the
Broadcasting Act, as amended by the recently enacted Satellite Television
Service Regulations, a satellite television broadcaster will be licensed as an
STS if certain criteria are satisfied. The principal criteria is that the
broadcaster is established in the United Kingdom or, if the broadcaster is not
established in the United Kingdom, it makes use of a frequency or satellite
capacity granted by the ITC or its signal is transmitted from the United
Kingdom. The Company has been told formally by the ITC that upon the
verification of certain matters, which @EL believes have now been confirmed to
the ITC, an STS license will be issued to @EL for the Atomic TV service. The STS
license to be issued to @EL will be one of the first such licenses issued by the
ITC. The ITC has indicated that it requires time to ensure proper arrangements
for administering the new licensing system are in place before issuing
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STS licenses. However, the Company understands that the terms of the STS license
that will eventually be issued to it will be similar to the non-domestic
satellite licenses (NDS licenses) which were issued previously by the ITC to
satellite broadcasters operating from the UK. All existing NDS licenses will
either be varied to bring them into line with the new regulatory regime.
The Company understands that the ITC will follow the "establishment" test
set out in the recently adopted revision to the Television Without Frontiers
Directive (the "New Directive") to determine whether a broadcaster falls within
its jurisdiction.
The New Directive has recently been agreed upon between the European
Commission, the Council of Ministers and the European Parliament and became
effective in June 1997. The New Directive states that broadcasters fall within
the jurisdiction of an EU member state where they are established in that state
and provides that a broadcaster is deemed to be established in an EU member
state if, among other things, its head office is in that state and editorial
decisions about program schedules are taken there. If this test is not
satisfied, there are other tests which are set out in the New Directive to
determine where a broadcaster is established. The Company intends to apply for
an STS license for each of the channels it intends to broadcast at the
commencement of its D-DTH service in accordance with the Broadcasting Act which
are not otherwise licensed.
When issued by the ITC, the STS license will permit the operation of an STS
service but does not confer on an STS licensee the right to use any specific
satellite, transponder or frequency to deliver the service. STS licenses will be
granted for a period of ten years and are renewable for one or more further 10
year periods. The ITC will continue to have authority to impose fines, shorten
the license period or revoke licenses if the licensee fails to remedy a breach
of any license condition or to comply with any direction which the ITC lawfully
gives to the STS licensee. The ITC may also revoke a license if any change in
the nature or characteristics of the licensee, or any change in the persons
having control over or interests in it, is such that, had the change occurred
before the granting of the license, such change would have induced the ITC to
refrain from granting the license. In addition, the ITC may revoke a license in
order to enforce the restrictions contained in the Broadcasting Act on the
ownership of media companies. The ITC has wide discretion to vary the conditions
of licenses issued under the Broadcasting Act.
In common with all television licenses issued by the ITC, any licenses
awarded to the Company or @EL would impose on the Company or @EL an obligation
to comply with the Codes and directions issued by the ITC from time to time.
These Codes include the Program Code (including the guidance notes on PPV
services), the Code of Advertising Standards and Practice, the ITC Code of
Conduct on Electronic Program Guides, the Rules on Advertising Breaks and the
Code of Program Sponsorship. These Codes include requirements as to impartiality
and accuracy of news programming, requirements as to taste and decency in the
portrayal of sex and violence and restrictions on the quantity and content of
advertisements. The Codes currently apply less rigorous criteria to STS
licensees in certain respects, such as permitting more advertising per hour than
commercial terrestrial and U.K. domestic satellite services channels and greater
flexibility in respect of sponsorship credits. Penalties for non-compliance with
the Codes principally include fines of up to the greater of L50,000
(approximately $84,000 based on the approximate exchange rate of L1.00 = $1.68
at July 10, 1997) or 3% of a licensee's annual qualifying revenue (or 5% of
annual qualifying revenue for further offences) per violation and, in certain
circumstances, revocation of the license.
The Broadcasting Act classifies some persons as "disqualified persons" who
are not permitted to hold STS licenses. Disqualified persons include any bodies
whose objects are wholly or mainly of a political or religious nature and
advertising agencies. The Broadcasting Act also precludes a person from holding
an STS license if it is owned as to more than 5% by a disqualified person or if
it is otherwise associated with a disqualified person in any manner specified in
the relevant provisions of the Broadcasting Act.
The Broadcasting Act lays down rules to prevent certain media companies
from accumulating interests in persons licensed under the Broadcasting Act and
other media companies. Among other
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things, the ITC has the power to revoke an STS license where the STS licensee
(or a connected person) holds or has a 20% interest in the holder of one or more
licenses to provide regional or national Channel 3 services, Channel 5 services,
licensable program services or digital program services where the audience time
for those services exceeds 15% of the total audience time for television program
services capable of being received in the United Kingdom.
If any person with an interest in excess of 5% of the Company's issued
share capital is or becomes a disqualified person or is or becomes associated
(in any manner specified in the relevant provisions of the Broadcasting Act)
with such a person (ie. a disqualified person), or if the Company or any person
with an interest in shares of the Company (or any person associated or connected
with any of them) does or were to fall within the scope of the restrictions
imposed from time to time by the Broadcasting Act in respect of accumulations of
interests in license-holders, then that would affect the Company's entitlement
to hold STS licenses.
REGULATION OF COMPETITION
U.K. law controls agreements which affect competition through the
Restrictive Trade Practices Act 1976 (the "RTPA"), monopolies and mergers
through the Fair Trading Act 1973 and unilateral anti-competitive practices
through the Competition Act 1980.
The RTPA provides that restrictions will exist where parties to an
agreement accept some limitation on their freedom to make their own decisions
about matters relating to the supply or receipt of goods or services, and sets
out a number of categories of restrictions relating, for example, to prices and
other charges, the terms and conditions of supply, and the persons or places in
relation to which supply is to be made.
A broad range of commercial agreements fall within the provisions of the
RTPA and are required to be filed with the Office of Fair Trading (the "OFT")
for review under the RTPA. If an agreement that requires filing is not filed in
a timely fashion, the relevant restrictions which it contains are void and
unenforceable and the parties are at risk of claims for damages by affected
third parties and of court action aimed at preventing a repetition of the
breach.
Where an agreement has been duly filed, the OFT considers whether the
restrictions which it contains are significant. Significant restrictions are
referred to the Restrictive Practices Court ("RPC") for consideration. On
reference to the RPC, the restrictions in the agreement are presumed to be
against the public interest unless they fall within certain exceptions. In
addition, the restrictions must be reasonable, balancing the interests of the
public against those of the parties to the agreement. Where agreements do not
contain significant restrictions, the Secretary of State will release the
Director General of Fair Trading (the "DGFT") from any obligation under the RTPA
to refer them to the RPC.
The monopoly provisions of the Fair Trading Act 1973 provide for the review
of markets by the DGFT to identify enterprises which alone, or together with
others, supply or acquire over 25% of the goods or services of any description
in the United Kingdom, or in any part of the United Kingdom. The Competition Act
1980 provides for the DGFT to examine a course of conduct by an individual
enterprise which may be anti-competitive. The DGFT also has a duty to keep under
review mergers and minority holdings which confer control over an enterprise for
the purposes of the mergers provisions of the Fair Trading Act 1973 and which
qualify for investigation under those provisions.
In relation to the mergers provisions of the Fair Trading Act 1973, the
Secretary of State may either take certain undertakings or assurances from the
enterprises concerned or refer them to the Monopolies and Mergers Commission
(the "MMC") for investigation and consideration against a broad public interest
test laid down in the Fair Trading Act 1973. Monopolies and anti-competitive
practices are considered by the MMC against the same test. Monopolies and
anti-competitive practices references to the MMC are made by the DGFT, although,
in the latter case, he may accept undertakings or assurances instead of making a
reference. In all three cases, the MMC may recommend action where they find that
there are matters operating, or which can be expected to operate, against the
public interest.
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Ultimately, the Secretary of State has extensive powers to impose remedial
action (including divestment and the imposition of conditions on the contracts,
pricing policies and other conduct of the enterprises) either through
undertakings negotiated by the DGFT or by secondary legislation.
There are no current proceedings involving the Company before the RPC, nor
are any investigations which involve the Company underway before the OFT or the
MMC.
EUROPEAN UNION
BROADCASTING REGULATION
The Directive lays down basic principles for the regulation of broadcasting
activity in the EU. In essence, it provides that each EU broadcasting service
should be regulated by the authorities of one member state (the "home member
state") and that certain minimum standards should be required by each member
state of all broadcasting services which the state's authorities regulate. The
United Kingdom, which will be regarded as the Company's "home member state" for
the purposes of its D-DTH services if the Company's license holding subsidiary,
@EL, were established in the United Kingdom has, since then, adopted a variety
of statutory and administrative measures based on the Directive to give effect
to the requirements of the Directive. The European Commission is responsible for
monitoring compliance and can initiate infringement proceedings against member
states who fail properly to implement the Directive.
The Directive requires member states to ensure "where practicable and by
appropriate means" that broadcasters reserve "a majority proportion of their
transmission time" for European works. In applying this rule, broadcast time
covering news, games, advertisements, sports events and teletext services are
excluded. The Directive recognizes that member states are to move progressively
towards requiring their broadcasters to devote a majority of relevant
transmission time to European works, having regard to the broadcaster's
informational, educational, cultural and entertainment responsibilities to its
viewing public. The term "where practicable and by appropriate means" has not
been defined in the Directive and there is uncertainty about its proper
application and whether the United Kingdom has properly implemented this
provision into U.K. law as it applies to satellite television services.
The Directive also requires that member states should ensure "where
practicable and by appropriate means" that broadcasters reserve at least 10% of
their transmission time (excluding time covering news, sports events, games,
advertising and teletext services) or, at the option of the member state, 10% of
their programming budget, for European works created by producers who are
independent of broadcasters. An adequate proportion of the relevant works should
be recent works (that is, works produced within the five years preceding their
transmission). Polish programming produced or commissioned by the Company will
almost certainly be counted for the purposes of determining whether any service
broadcast by the Company complies with these quotas.
Certain other amendments are made to the Directive by the New Directive. In
particular, the New Directive establishes a system to require certain sporting
events to be made available on free-to-air television. These rules have been
largely implemented in the United Kingdom by virtue of the Broadcasting Act
1996. The New Directive also clarifies and liberalizes the rules on home
shopping.
Following on from the 1992 EU Green Paper on plurality and concentration in
the media, the European Commission announced, in its Communication of 1994, that
it would proceed to a second phase of consultation and would then decide whether
or not to propose EU legislation to govern media concentration and, if so, the
nature of any such legislative proposal.
In late 1996 and early 1997, the European Commission was considering a
draft Directive on media concentration which would provide that any organisation
reaching more than 30% of a country's television or radio audience would be
prevented from increasing its audience share. This proposal has met with
considerable opposition and is unlikely to be adopted.
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Apart from the Directive, the other primary source of European regulation
affecting television broadcasting is the Convention. Both the United Kingdom and
Poland are members of the Council of Europe which typically regulates through
international conventions. In order for the convention to be binding on a
particular member state, the national parliament of that country must ratify the
convention and a specific quorum (which varies from convention to convention) of
other member states' parliaments must also ratify the Convention. The contents
of a convention binding in a particular country are dependent upon the
ratification and implementation procedures of that country.
The Convention contains provisions that are substantially similar to the
Directive. The Convention is effective in those countries which have ratified
it. Both the United Kingdom and Poland have ratified the Convention. The Company
believes that the Convention is likely to be amended now that the New Directive
has been approved.
The Directive on the use of standards in transmission of television signals
(Directive 95/47/EC) has been implemented into U.K. law by the Advanced
Television Services Regulations 1996 and also the Conditional Access Class
Licence which are enforced by the U.K. Office of Telecommunications ("Oftel").
Although the Directive will not apply to the DTH broadcasting services to be
established by the Company as they are not to be transmitted to viewers in the
European Union, Poland would be required to implement the provisions of that
Directive if it joined the European Union. In addition, as the Company's licence
holding company will be subject to the jurisdiction of the ITC and will be
established in the United Kingdom it is possible that, in the future, Oftel may
seek to take jurisdiction over the activities of the Company in these areas
including in relation to conditional access services.
REGULATION OF COMPETITION
EU competition law governs agreements which prevent, restrict or distort
competition and prohibits the abuse of dominant market positions through
Articles 85 and 86 of the EU Treaty. In addition, the European Council
Regulation (EEC) No. 4064/89 (the "Regulation") contains a mandatory regime
regulating certain large scale mergers and minority holdings which confer
control over an enterprise for the purposes of the Regulation and which meet the
turnover thresholds specified in the Regulation. The EU Commission reviews such
mergers and minority holdings under the Regulation to determine whether they are
"compatible with the common market" and may attach conditions and obligations to
its decisions.
Article 85(1) renders unlawful agreements and concerted practices which may
affect trade between member states and which have as their object or effect the
prevention, restriction or distortion of competition within the Common Market
(that is, the member states of the EU/EEA collectively). Article 85(2) makes
offending provisions, if severable from the main agreement, void. Article 85(3)
allows for exemption from the provisions of Articles 85(1) and 85(2) for
agreements whose beneficial effects in improving production or distribution or
promoting technical or economic progress outweigh their restrictive effects,
provided that consumers receive a fair share of the benefit, that competition
will not be eliminated and that no unnecessary restrictions are accepted. The
word "agreement" in this context is not confined to legally binding agreements
and agreements may be written or oral and can consist in an informal continuing
business relationship. In addition, the so-called Europe Agreement between the
EU and Poland has a provision broadly compatible with Articles 85 and 86,
infringement of which would be considered incompatible with the proper
functioning of the Agreement. Practices contrary to this provision are assessed
on the basis of the criteria arising from the application of Articles 85 and 86
of the EU Treaty.
The EU Commission is entrusted with the principal enforcement powers, and
the exclusive right to grant exemptions under Article 85(3). It has power to
impose heavy fines (up to 10% of a group's annual revenue) in respect of
breaches of Article 85(1). A prohibited agreement will also be unenforceable
before the national courts. In most cases, notification of potentially
infringing agreements to the EU Commission under Article 85 with a request for
an exemption under Article 85(3) protects against the risk of fines from the
date of notification.
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The published exemption decisions of the EU Commission and judgments of the
European Court of Justice (which has powers to review EU Commission decisions),
together with the so-called block exemptions covering certain common types of
agreements, give broad indications of the EU Commission's attitude to certain
types of agreement and to some common contractual provisions. These sources
demonstrate that, in assessing whether an agreement infringes Article 85(1), the
EU Commission will examine the effect of the agreement in its legal and economic
context. For example, an agreement by one company not to compete with another
will infringe Article 85(1) and will be unlikely to merit exemption under
Article 85(3) unless, in its context, it is necessary to protect a legitimate
interest of the parties to the agreement. In addition, the EU Commission will
examine whether the agreement under scrutiny is part of a pattern of similar
agreements which individually or cumulatively have the effect of foreclosing
access to a particular market. For example, an individual agreement may infringe
Article 85(1) if it confers on a single distributor an exclusive right to
distribute goods or services of a particular kind, thereby making it more
difficult for other companies to distribute such goods or services in the
contract territory. A network of similar agreements may together achieve a
similar anti-competitive effect. The EU Commission may regard such contracts as
being more objectionable if they are of long duration, thereby causing barriers
to entry to be created and competitors to be foreclosed from this market for
longer. The EU Commission is, however, aware that new entrants to a market may
require the protection of exclusive rights to provide them with the necessary
incentives to invest in the development of their new businesses, and to enable
them to establish themselves. In such cases, the EU Commission is often willing
to grant an exemption for agreements which infringe Article 85(1) to enable them
to be enforced for a finite period of time. The EU Commission may require an
agreement to be amended (including as to scope, exclusivity and/or duration) as
a condition of granting an exemption.
Article 86 prohibits undertakings from abuse of a dominant market position
in the EU or a substantial part of it, in so far as the abuse may affect trade
between member states. A company may be dominant in several member states or
part of a single member state. A company enjoys a dominant position whenever it
possesses such market strength that it can act to an appreciable extent
independently of its competitors and customers. Determining whether an
undertaking occupies a dominant position is a complex question of law and
economics, but broadly a market share of as little as 40% may confer dominance
in a market for a product. However dominance is not unlawful per se; only the
abuse of a dominant position is prohibited by Article 86. An enterprise may
abuse a dominant position under Article 86 by, for example, engaging in
excessive pricing of its products or services, or by denying other enterprises
access to an essential facility or asset which it controls. Any action that is
designed to, or could, seriously injure competitors, suppliers, or distributors
is likely to raise issues under Article 86. The EU Commission has the same
powers to fine in relation to abusive conduct as in relation to breach of
Article 85, but there is no procedure for obtaining exemption.
It is possible that a third party who suffers loss as a result of the
performance by an entity of an agreement which infringes Article 85(1) could
claim damages against such entity to compensate it for its quantifiable loss or
an injunction. The position in relation to infringement of Article 86 is
similar.
The Company is expected to review those agreements which potentially fall
within Article 85(1) (including transponder leases and film and sports rights
agreements) to determine whether they should be notified to the EU Commission.
The Company will decide whether to notify specific agreements by taking account
of a number of factors, including the importance to the Company of the agreement
and the likelihood that adverse consequences to the Company would result from
any failure to notify. The EU Commission would review each notified agreement
for compliance with Article 85 and may conclude that some of the Company's
agreements need to be amended to qualify for exemption under Article 85(3).
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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(1)............................ 68 Chairman of the Board of Directors
Robert E. Fowler, III(1)(2).................. 38 Chief Executive Officer and Director
Arnold L. Chase(1)........................... 45 Director
Scott A. Lanphere(3)......................... 31 Director
Jerzy Z. Swirski(3).......................... 40 Director
John S. Frelas............................... 46 Chief Financial Officer, Vice President and
Treasurer
George Makowski.............................. 42 Vice President; Chief Operating Officer --
Cable Operations of PCI
Andrzej Muras................................ 58 Executive Vice President of Corporate
Development of PTK, S.A.
Marek Sowa................................... 34 Director of Corporate Development of PCI
Przemysffiaw Szmyt........................... 34 Vice President, General Counsel and
Secretary
David Warner................................. 50 Vice President; Chief Operating Officer --
DTH Operations of @EL
</TABLE>
- ---------------
(1) Appointed as a director by the Chase Group (as hereinafter defined) under
the Stockholders' Agreement (as hereinafter defined). See "Certain
Relationships and Related Transactions -- Stockholders' Agreement".
(2) Appointed as Chief Executive Officer by the Chase Group and accepted as such
by the ECO Group (as hereinafter defined) under the Stockholders' Agreement
pursuant to which the Chief Executive Officer is also appointed as a
director. See "Certain Relationships and Related Transactions --
Stockholders' Agreement".
(3) Appointed as a director by the ECO Group under the Stockholders' Agreement.
See "Certain Relationships and Related Transactions -- Stockholders'
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
@Entertainment since its inception and PCI since March 1996. Since January 1990,
Mr. Chase has been a director and President of D. T. Chase Enterprises, Inc. and
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
@Entertainment since its inception and PCI since December 1996 and has served as
a director of @Entertainment since its inception and 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. From December 1993 to February 1997,
he served as Vice President of D.T. Chase Enterprises, Inc. Mr. Fowler has
served as director of Mozaic (formerly PCI Programming) since July 1996. From
July 1996 to December 1996, Mr. Fowler also served as Vice President and
Treasurer of Mozaic. From March 1995 to late 1996, Mr. Fowler served as
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a director of ACCEL. Since December 1996, he has served as Chairman of the Board
of Directors of Mozaic. Mr. Fowler has been a Managing Director of PCBV since
1997. During the period of 1994 to 1996, Mr. Fowler devoted 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 as a director of @Entertainment since its
inception and of PCI since December 1996. Mr. Chase has also served as President
of the Managing Board of PTK-Warsaw, from October, 1993 to September, 1996. Mr.
Chase served as President of the Management Board of PTK-Krakow and
PTK-Ryntronik from October 1993 to May 1995, and from October 1993 to December
1994, respectively. 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. Mr. 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 Management 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 1972. 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 @Entertainment since its
inception and 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 @Entertainment since its
inception and 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., a Polish subsidiary of PepsiCo Foods,
International ("Wedel"), and General Manager of Frito-Lay, Poland.
JOHN S. FRELAS has been the Chief Financial Officer of @Entertainment since
its inception and of PCI since September 1996 and the Treasurer of
@Entertainment since its inception and of PCI since December 1996, and a Vice
President of @Entertainment since its inception. Mr. Frelas has been the
Treasurer of Mozaic since December 1996. From 1995 to 1996, Mr. Frelas was the
Chief Financial Officer of Eurofund Management Polska. During 1995, he served as
a consultant to the Polish-American Enterprise Fund. From 1972 to 1994, Mr.
Frelas worked for PepsiCo Foods International and certain of its subsidiaries,
most recently as a Corporate Planning Manager for Hostess Frito-Lay Canada
during 1994 and as a Corporate Controller for Wedel from 1992 to 1993.
GEORGE MAKOWSKI has been a Vice President of @Entertainment since its
inception and the Chief Operating Officer -- Cable Operations 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.
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.
MAREK SOWA has served as Director of Corporate Development of PCI since
January 1997 and has also served as Vice President of Poltelkab since March
1996. From August 1994 until May 1996,
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Mr. Sowa served as Corporate Development Manager of PTK, S.A. Mr. Sowa also
served on the Supervisory Board of ETV Sp. z o.o ("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. From 1991 to 1992 Mr. Sowa served as International Acquisitions Manager at
the Los Angeles office of Artfilm-Plus, an independent Polish film distribution
company. From 1987 to 1990, Mr. Sowa served as an associate producer for the CBS
News Warsaw Bureau.
PRZEMYSFFIAW A. SZMYT has served as Vice President, General Counsel and
Secretary of @Entertainment since its inception and Vice President and General
Counsel of PCI 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 Soffitysinski, Kawecki &
Szlezak, a law firm in Warsaw. From October 1994 to late 1996, 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.
DAVID WARNER has served as a Vice President of @Entertainment since its
inception and the Chief Operating Officer -- DTH Operations of @EL since April
7, 1997. From August 1996 to April 1997, Mr. Warner was General Manager for
FilmNet Central Europe of the NetHold Group. From October 1995 to August 1996,
Mr. Warner served as a television operations consultant to Rapture Channel. From
May 1993 to October 1995, Mr. Warner worked as Operations Director of the Family
Channel UK of the International Family Entertainment Group. From 1983 to May
1993, Mr. Warner served as the general manager of TVS Main ITV Terrestrial
Broadcaster. Mr. Warner is also an advisor and a board member of the
Ravensbourne Communication College.
BOARD OF DIRECTORS
@Entertainment's Bylaws provide that the Board of Directors shall consist
of at least one and no more than nine directors and shall be subject to change
pursuant to resolutions duly adopted by a majority of the Board of Directors.
The current number of directors is five. All of the current members of the Board
of Directors were elected pursuant to the Stockholders' Agreement. Under the
Stockholders' Agreement, the ECO Group (as hereinafter defined) has the right to
designate two directors and the Chase Group (as hereinafter defined) has 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
@Entertainment. Pursuant to the Stockholders' Agreement, the ECO Group consists
of ECO, any limited partner of ECO to whom ECO permissibly transfers shares of
stock of @Entertainment and any Affiliate (as hereinafter defined). Pursuant to
the Stockholders' Agreement, the Chase Group consists of PIHLP, Mr. Freedman,
the Cheryl Anne Chase Marital Trust ("CACMT") and Steele LLC. Pursuant to a
voting agreement dated at June 22, 1997 among the members of the Chase Group
(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. The Stockholders' Agreement will automatically
terminate upon the successful completion of the Offerings. See "Certain
Relationships and Related Transactions -- Stockholders' Agreement" and "Certain
Relationships and Related Transactions -- Voting Agreement".
The Certificate and Bylaws provide that the directors shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible. Upon the effective date of the
U.S. Offering (the "Effective Date"), the first class of directors shall
initially consist of two directors (Messrs. Swirski and A. Chase) whose term
shall expire at the annual meeting of
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stockholders to be held in the first year following the Effective Date; the
second class shall initially consist of two directors (Messrs. D. Chase and
Lanphere) whose term shall expire at the annual meeting of stockholders to be
held in the second year following the Effective Date; and the third class shall
initially consist of one director, Mr. Fowler (and shall be increased to three
directors by the appointment of two Independent Directors (as hereinafter
defined) at a later date), whose term shall expire at the annual meeting of
stockholders to be held in the third year following the Effective Date. Each
class of directors will hold office until its respective successors are duly
elected and qualified. At each annual meeting of the stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their elections. Any decrease in
the authorized number of directors shall not be effective until the expiration
of the terms of the directors then in office, unless at the time of such
decrease there shall be vacancies on the Board of Directors which are being
eliminated by such decrease.
The Certificate and Bylaws provide that any director may resign at any time
by giving written notice to the Chairman of the Board of Directors, the Chief
Executive Officer or the Board of Directors. If, at any other time than the
annual meeting of the stockholders, any vacancy occurs in @Entertainment's Board
of Directors caused by resignation, death, retirement, disqualification or
removal from office of any director or otherwise, or any new directorship is
created by an increase in the authorized number of directors, a majority of the
Directors then in office, although less than a quorum, may choose a successor,
or fill the newly created directorship, and the director so chosen shall hold
office until the next election for that class of directors by the stockholders
and until his successor shall be duly elected and qualified, unless sooner
displaced. The Certificate and Bylaws provide that any director may be removed
from office only with cause and only by the affirmative vote of the holders of
at least two-thirds of the voting power of all shares entitled to vote, unless
two-thirds of the Continuing Directors (as hereinafter defined) vote to
recommend the removal of a director with or without cause to the stockholders
and such recommendation is approved by the affirmative vote of the holders of at
least a majority of the outstanding shares entitled to vote.
The Bylaws provide that a majority of the total number of directors then in
office constitutes a quorum of the Board of Directors. The Bylaws 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 by statute or in the Certificate. The Certificate provides
that the Board of Directors or stockholders shall have the power to amend the
Bylaws by majority vote, except for certain provisions of the Bylaws for which
the affirmative vote of two-thirds of the continuing directors or of the holders
of at least two-thirds of the voting power of all shares entitled to vote is
required.
The Bylaws provide that regular meetings of the Board of Directors may be
held without notice immediately following the annual meeting of the stockholders
of @Entertainment. Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Chief Executive Officer or any two directors.
The Board of Directors of @Entertainment has determined that, within 90
days of the closing of the Offerings, it will elect two directors who are not
affiliated with or employed by the Company and who, in the opinion of the Board
of Directors, do not have a relationship which would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director (the
"Independent Directors"). The Independent Directors will be in the class of
directors whose term shall expire at the annual meeting of stockholders to be
held in the third year following the Effective Date.
@Entertainment intends to establish an Audit Committee, a Compensation
Committee and a Stock Option Committee. Upon the election of the Independent
Directors, it is expected that the Independent Directors will be the members of
the Compensation Committee with Mr. Fowler and the sole members of the Audit and
Stock Option Committees.
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REMUNERATION OF DIRECTORS
Each non-employee director may receive such fees and other compensation,
along with reimbursement of expenses incurred on behalf of the Company or in
connection with attendance at meetings, as the Board of Directors may from time
to time determine.
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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, III............... 1996 66,000(1) 66,000(1) -- --
Chief Executive Officer and
Director 1995 66,000(1) 66,000(1) -- --
1994 66,000(1) 66,000(1) -- --
Richard B. Steele(2)................ 1996 356,000(1) 250,000(1) 5,000(4) --
1995 356,000(1) -- 7,500(4) --
1994 358,000(1)(3) -- 7,500(3)(4) --
Arnold L. Chase(5).................. 1996 300,000(1)
Director 1995 250,000(1) -- -- 86,000(6)
1994 250,000(1) -- -- 75,000(6)
Gilbert L. Tash(7).................. 1996 120,000 -- 25,200(8) 6,790(6)
1995 120,000 45,000 25,200(8) --
1994 120,000 43,400 25,200(8) --
Michael J. Houlehan(9).............. 1996 150,000 25,000 24,000(8) --
1995 150,000 25,000 24,000(8) --
1994 31,731(10) -- -- --
John S. Frelas...................... 1996 46,153(11) -- 6,000(8) --
Chief Financial Officer 1995 -- -- -- --
1994 -- -- -- --
</TABLE>
- ---------------
(1) 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 @Entertainment and
beneficially owned by the Chase Family for services rendered to those
companies. See "Management -- Certain Information Concerning Directors and
Executive Officers".
(2) Mr. Steele was the President of PCI. He resigned on June 23, 1997. 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.
(3) Represents amounts paid by David T. Chase Enterprises, Inc., an affiliate
of @Entertainment.
(4) Represents portion of 401k plan paid pursuant to a matching contribution.
(5) Prior to being named to the Board of Directors of PCI in December 1996, Mr.
A. 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.
(6) Represents interest on accumulated deferred compensation.
(7) Mr. Tash was a Vice President of PCI. He retired on June 20, 1997.
(8) Represents housing allowance.
(9) Mr. Houlehan was the Chief Executive Officer of Mozaic from December 1996
to June 1997.
(10) Represents compensation for partial year of service beginning in October
1994.
(11) Represents compensation for partial year of service beginning in September
1996.
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COMPENSATION PLANS
1997 STOCK OPTION PLAN
@Entertainment's 1997 Stock Option Plan (the "1997 Plan") was adopted on
June 22, 1997 and approved by stockholders as of June 22, 1997. The 1997 Plan
provides for the grant to employees of the Company (including officers and
employee directors) of incentive stock options within the meaning of Section 422
of the Code, and for the grant of qualified stock options to employees and
consultants of the Company (collectively the "Options"). The 1997 Plan is to be
administered by a Stock Option Committee appointed by the Board of Directors
(the "Stock Option Committee"), which selects the optionees (from among those
eligible), determines the number or shares to be subject to each Option and
determines the exercise price of each Option. It is presently anticipated that
approximately 15 to 25 individuals (including Messrs. Fowler, Frelas and
Makowski whose option agreements with PCI became subject to the 1997 Plan
pursuant to Assignment and Assumption Agreements with @Entertainment, and
Messrs. Szmyt and Warner whose option agreements became subject to the 1997 Plan
pursuant to a resolution of the Board of Directors of @Entertainment) will
initially participate in the 1997 Plan.
In addition, the Stock Option Committee has the authority to interpret the
1997 Plan and to prescribe, amend and rescind rules and regulations relating to
the 1997 Plan. The Stock Option Committee's interpretation of the 1997 Plan and
determinations pursuant to the 1997 Plan will be final and binding on all
parties claiming an interest under the 1997 Plan. The maximum number of shares
of Common Stock that may be subject to Options under the 1997 Plan is 2,436,000
shares, subject to adjustment in accordance with the terms of the 1997 Plan. As
of June 23, 1997 options for 2,174,000 shares were outstanding and 262,000
shares remained available for future grants. The exercise price of all incentive
stock options granted under the 1997 Plan must be at least equal to the fair
market value of the Common Stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of stock of @Entertainment, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the maximum term of an incentive stock option must not exceed five
years.
The term of all other options granted under the 1997 Plan may not exceed
ten years. Options become exercisable at such times as determined by the Stock
Option Committee and as set forth in the individual stock option agreements.
Payment of the purchase price of each Option will be payable in full in cash
upon the exercise of the Option. In the discretion of the Stock Option
Committee, payment may also be made by surrendering shares owned by the optionee
which have a fair market value on the date of exercise equal to the purchase
price, by delivery of a full recourse promissory note meeting certain
requirements or in some combination of the above payment methods.
In the event of a merger of @Entertainment with or into another
corporation, as a result of which @Entertainment is not the surviving
corporation, the 1997 Plan requires that each outstanding option be assumed or
an equivalent option substituted by the successor corporation or a parent or
subsidiary of such successor corporation. If the successor corporation does not
assume or substitute for the options, the optionee will have the right to
exercise the option as to those shares which are vested for a period beginning
not less than fifteen days prior to the proposed consummation of such
transaction and ending immediately prior to the consummation of such
transaction, at which time the Options will terminate.
The number of shares covered by the 1997 Plan and the number of shares for
which each Option is exercisable shall be proportionately adjusted for any
change in the number of issued shares resulting from any reorganization of
@Entertainment. In the event of dissolution or liquidation of @Entertainment,
each Option shall terminate immediately prior to the consummation of such
action.
No Options may be granted under the 1997 Plan after ten years from its
effective date. The Board of Directors has authority to amend or terminate the
1997 Plan subject to certain limitations set forth in the 1997 Plan.
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EMPLOYMENT AGREEMENTS
@Entertainment has employment agreements with each of Messrs. Fowler,
Frelas, Makowski, Muras, Sowa, Szmyt and Warner.
Mr. Fowler entered into a three year employment agreement with PCI
effective as of January 1, 1997. The employment agreement was assigned to
@Entertainment in June 1997 in connection with the Reorganization. Pursuant to
such agreement, Mr. Fowler serves as the Chief Executive Officer of
@Entertainment. Mr. Fowler receives a base salary of $325,000, allowances for
relocation and 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 received an additional bonus of $250,000 upon
the signing of the employment agreement. Pursuant to Mr. Fowler's employment
contract, and in part to induce Mr. Fowler to move closer to the Company's
operations in Europe, @Entertainment purchased Mr. Fowler's house in Connecticut
for approximately $354,000 in June 1997 (including payments of $295,000 to
extinguish the mortgages relating to the house), and sold the house shortly
thereafter to a third party for approximately $267,000. @Entertainment is
obligated to pay Mr. Fowler the difference between the mortgage amounts of
$295,000 and the purchase price of $354,000. Mr. Fowler may terminate the
employment agreement at any time upon three months' written notice, and
@Entertainment 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, @Entertainment may terminate the agreement immediately without
further obligation to Mr. Fowler for cause (as defined in the employment
agreement). Pursuant to the employment agreement also provides that Mr. Fowler
has been granted a non-transferable option to purchase 1,286,000 shares of
Common Stock at a price of $3.707 per share, subject to the terms and conditions
of a stock option agreement. Options to purchase 515,000 shares of Common Stock
vested upon the execution of the stock option agreement and options to purchase
257,000 shares of Common Stock vest on December 31 of each of the following
three years, beginning on December 31, 1997. However, the options vest
immediately upon the successful completion of the Offerings or upon a change of
control (as defined in the Indenture). @Entertainment has a right of first
refusal with respect to the shares underlying the options, under certain
circumstances, Mr. Fowler has certain registration rights for the underlying
shares if @Entertainment makes certain filings under the Securities Act of 1933.
Mr. Frelas entered into a five-year employment agreement with PCI
commencing on September 1, 1996. The employment agreement was assigned to
@Entertainment in June 1997 in connection with the Reorganization. Pursuant to
such agreement, Mr. Frelas serves as the Chief Financial Officer, Vice President
and Treasurer of @Entertainment. 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 upon the successful
completion of the Offerings and $50,000 for the successful completion of a bank
line of credit of $75 million or more. Mr. Frelas or @Entertainment may
terminate the agreement at any time upon six month's written notice. In
addition, @Entertainment may terminate the agreement immediately without further
obligation to Mr. Frelas for cause (as defined in the employment agreement).
Pursuant to the employment agreement, Mr. Frelas has been granted a
non-transferable option to purchase 241,000 shares of Common Stock at a price of
$1.99170 per share, subject to the terms and conditions of a stock option
agreement, which options vest ratably over a five-year period. @Entertainment
has a right of first refusal with respect to shares underlying the options,
under certain circumstances. Subject to certain conditions, @Entertainment has a
right to repurchase the options and, if exercised, the Common Stock, upon
termination of the agreement at the greater of (i) 85% of the fair market value
thereof (as defined in the agreement) or (ii) prices mutually established in the
agreement.
Mr. Makowski entered into a five-year employment agreement with PCI
commencing on January 21, 1997. The employment agreement was assigned to
@Entertainment in June 1997 in connection with the Reorganization. Pursuant to
such agreement, Mr. Makowski serves as the Chief Operating Officer -- Cable
Operations of PCI and a Vice President of @Entertainment. Mr. Makowski
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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 upon the successful completion of
the Offerings. Mr. Makowski or PCI may terminate the agreement at any time upon
six month's written notice. In addition, @Entertainment may terminate the
agreement immediately without further obligation to Mr. Makowski for cause (as
defined in the employment agreement). Pursuant to the employment agreement Mr.
Makowski has been granted a non-transferable option to purchase 385,000 shares
of the Common Stock at a price of $3.70808 per share, subject to the terms and
conditions of a stock option agreement, which options vest ratably over a
three-year period. However, the options vest immediately upon the successful
completion of the Offerings or upon a change of control (as defined in the
Indenture). @Entertainment has a right of first refusal with respect to the
shares underlying the option under certain circumstances. Subject to certain
conditions, @Entertainment 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. 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 Stockholders 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 months' 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 months' salary payable over a six
month period as compensation for his role in organizing PTK-Warsaw.
Mr. Sowa entered into a three year agreement with PCI effective as of
January 1, 1997. Pursuant to such agreement, Mr. Sowa serves as Director of
Corporate Development of PCI. Under an employment agreement with Poltelkab and a
services agreement with PCI, Mr. Sowa receives an annual remuneration totalling
$64,000, and is eligible to receive an annual performance-based bonus of up to
$32,000. Mr. Sowa may terminate his contracts with PCI at any time upon two
months' written notice and PCI may terminate the contracts at any time upon four
months' written notice. Notwithstanding such right, PCI may terminate the
contracts without further obligation for cause (as defined in the agreements).
Mr. Sowa's employment agreement with Poltelkab may be terminated by either party
upon one month's written notice.
Mr. Szmyt entered into a three year agreement with PCI effective at
February 7, 1997, which was assigned to @Entertainment in June 1997 in
connection with the Reorganization. Pursuant to such agreement, Mr. Szmyt serves
as Vice President, General Counsel and Secretary of @Entertainment. Pursuant
also to an employment agreement with PTK-Warsaw and a services agreement with
PCI, Mr. Szmyt receives an annual remuneration totalling $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 the Offerings. Mr. Szmyt may terminate
his contract with @Entertainment at any time upon two months' written notice and
@Entertainment may terminate the contract at any time upon four months' written
notice. Notwithstanding such right, @Entertainment may terminate the contract
without further obligation for cause (as defined in the agreement). Mr. Szmyt's
employment agreement with PTK-Warsaw may be terminated by either party upon one
month's written notice. Mr. Szmyt may terminate his services agreement with PCI
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at any time upon two months' written notice and PCI may terminate the services
agreement at any time upon four months' written notice. Mr. Szmyt has been
granted a non-transferable option to purchase 131,000 shares of Common Stock at
a price of $15.24 per share, subject to the terms and conditions of a stock
option agreement dated June 1997, which options vest ratably over a three year
period. @Entertainment has a right of first refusal with respect to shares
underlying the options, under certain circumstances. Mr. Szmyt has certain
registration rights for the underlying shares if @Entertainment makes certain
filings under the Act.
Mr. Warner entered into a five year employment agreement with PCI effective
at April 7, 1997, which was assigned to @Entertainment in June 1997 in
connection with the Reorganization. Pursuant to such agreement, Mr. Warner
serves as Vice President of @Entertainment and Chief Operating Officer - DTH
Operations of @EL. Mr. Warner receives an annual salary of L95,000
(approximately $159,600, based on the exchange rate of L1.00 = $1.68 at July 10,
1997), and is eligible to receive an annual performance-based bonus of up to
L45,000 (approximately $75,600, based on the approximate exchange rate of L1.00
= $1.68 at June 20, 1997). Mr. Warner is eligible for an additional bonus of
L155,000 (approximately $260,400, based on the exchange rate of L1.00 = $1.68 on
July 10, 1997) upon successful completion of the Offerings. Mr. Warner and
@Entertainment may terminate the contract at any time with six months' written
notice. Notwithstanding such right, @Entertainment may terminate the contract
without further obligation for cause (as defined in the agreement). Mr. Warner
has been granted a non-transferable option to purchase 131,000 shares of Common
Stock at a price of $15.24 per share, subject to the terms and conditions of a
stock option agreement, which options vest ratably over a five year period.
@Entertainment has a right of first refusal with respect to shares underlying
the options, under certain circumstances. Mr. Warner has certain registration
rights for the underlying shares if @Entertainment makes certain filings under
the Act.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of @Entertainment's capital stock at June 23, 1997 and as it will be
immediately following the consummation of the Offerings by (i) each person known
by @Entertainment to own beneficially 5% or more of any class of
@Entertainment'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").
After completion of the Offerings, the Principal Stockholders will own
beneficially in the aggregate approximately 54% of the outstanding Common Stock.
As a result, the Principal Stockholders, acting together, will be able to elect
all of @Entertainment's directors and otherwise control the Company's
operations. See "Risk Factors -- Risks Related to the Company -- Control by
Existing Stockholders; Potential Anti-Takeover Provisions".
<TABLE>
<CAPTION>
JUNE 23, 1997
-------------------------------------------------------------- AFTER THE OFFERINGS
SHARES OF PERCENTAGE -----------------------
SHARES OF PERCENTAGE SERIES B OF SERIES B PERCENTAGE SHARES OF PERCENTAGE
COMMON OF COMMON PREFERRED PREFERRED OF VOTING COMMON OF VOTING
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK POWER STOCK POWER
- ----------------------------- ---------- ---------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Polish Investments Holding
L.P.
One Commercial Plaza
Hartford, CT 06103......... 10,303,000 52.81% -- -- 42.27% 10,303,000 28.26%
ECO Holdings III Limited
Partnership(1)
c/o Advent International
Corp.
101 Federal Street
Boston, MA 02110........... 4,662,000 23.89 2,500(2) 100.00 39.07(3) 9,524,000 26.13
Steele LLC
19 Warren Terrace
Longmeadow, MA 01106....... 1,429,000 7.32 -- -- 5.86 1,429,000 3.92
Roger M. Freedman
67 Prospect Avenue
West Hartford, CT 06106.... 1,221,000 6.26 -- -- 5.00 1,221,000 3.35
DIRECTORS AND EXECUTIVE
OFFICERS:
David T. Chase............... 13,686,000(4) 70.15 -- -- 56.15 10,303,000(5) 28.26
Robert E. Fowler, III(6)..... 515,000 2.64 -- -- 2.11 1,286,000 3.53
Arnold L. Chase(7)........... 10,303,000 52.81 -- -- -- 10,303,000 28.26
Scott A. Lanphere(8)......... 2,880 * -- -- -- *
Jerzy Z. Swirski(9).......... -- -- -- -- -- --
George Makowski(10).......... -- -- -- -- -- 385,000 1.06
John S. Frelas(11)........... 48,000 * -- -- -- 48,000 *
Andrzej Muras................ -- -- -- -- -- --
Marek Sowa................... -- -- -- -- -- --
Przemysffiaw Szmyt(12)....... -- -- -- -- -- --
David Warner(13)............. -- -- -- -- -- --
------ ----- ----- --- -----
ALL DIRECTORS AND OFFICERS AS
A GROUP (11 PERSONS):...... 14,203,880 72.79% -- -- 58.26% 12,024,880 32.98%
</TABLE>
- ---------------
* less than 1%.
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(1) The general partner of ECO is Advent ECO III LLC. Certain members of Advent
ECO III LLC are venture capital funds managed by Advent International
Corporation. In its capacity as manager of these funds, Advent
International Corporation exercises sole voting and investment power with
respect to all shares of Common Stock held on behalf of these funds.
(2) All shares of Series B Preferred Stock will automatically convert into
4,862,000 shares of Common Stock upon the successful completion of the
Offerings.
(3) Such shares of Series B Preferred Stock are currently convertible into
4,862,000 shares of Common Stock and vote with the Common Stock on an as if
converted basis.
(4) Includes (i) 10,303,000 shares of Common Stock owned by PIHLP which may be
deemed to be beneficially owned by the Chase Family, which includes David
T. Chase, and David T. Chase has an irrevocable proxy to vote such shares
in his sole discretion pursuant to the Voting Agreement; (ii) 1,221,000
shares of Common Stock owned by Mr. Freedman with respect to which David T.
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) 733,000 shares of Common Stock owned by
CACMT with respect to which David T. Chase has an irrevocable proxy to vote
in his sole discretion with respect to all the shares of Common Stock held
of record by CACMT pursuant to the Voting Agreement; and (iv) 1,429,000
shares of Common Stock owned by Steele LLC with respect to which David T.
Chase has an irrevocable proxy to vote in his sole discretion pursuant to
the Voting Agreement (the shares of Common Stock owned by PIHLP, Mr.
Freedman and Steele LLC voted by Mr. David T. Chase pursuant to the Voting
Agreement are collectively referred to as the "Voting Agreement Shares").
By its terms, the Voting Agreement will terminate upon the successful
consummation of the Offerings.
(5) Includes 10,303,000 shares of Common Stock owned by PIHLP which may be
deemed to be beneficially owned by the Chase Family, which includes David
T. Chase. Mr. Chase's beneficial ownership of shares of Common Stock will
decrease after the Offerings due to the termination of the Voting Agreement
upon the successful completion of the Offerings.
(6) During 1997, Mr. Fowler was granted options to purchase 1,286,000 shares of
Common Stock, of which 515,000 are exercisable within 60 days of the date
of this Prospectus, but all such shares shall become exercisable upon the
successful consummation of the Offerings.
(7) Includes 10,303,000 shares of Common Stock owned by PIHLP which may be
deemed to be beneficially owned by the Chase Family, which includes Arnold
L. Chase.
(8) Includes 2,880 shares of Common Stock which are indirectly owned by Mr.
Lanphere as a limited partner of Advent Partners Limited Partnership. Mr.
Lanphere is a Director of Advent International Corporation, the venture
capital firm which is the manager of the funds affiliated with the Advent
International Group. Mr. Lanphere disclaims beneficial ownership of the
remaining shares of Common Stock held by ECO.
(9) Mr. Swirski disclaims beneficial ownership of the shares held by ECO.
(10) During 1997, Mr. Makowski was granted options to purchase 385,000 shares of
Common Stock, none of which are exercisable within 60 days of the date of
this Prospectus, but all such shares shall become exercisable upon the
successful completion of the Offerings.
(11) Mr. Frelas has been granted options to purchase 241,000 shares of Common
Stock, 48,000 of which shall vest on September 1, 1997.
(12) Mr. Szmyt has been granted options to purchase 131,000 shares of Common
Stock, none of which are exerciseable within 60 days of the date of this
Prospectus.
(13) Mr. Warner has been granted options to purchase 131,000 shares of Common
Stock, none of which are exerciseable within 60 days of the date of this
Prospectus.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS
David T. Chase is the father of Arnold L. Chase. No other family
relationship exists between any of the directors and executive officers of
@Entertainment.
CAPITAL CONTRIBUTIONS AND STOCKHOLDER 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 of PCI, 4,000
shares of Series A Preferred Stock of PCI and 2,500 shares of Series B Preferred
Stock of PCI. Simultaneously, PIHLP purchased 2,000 shares of Series C Preferred
Stock of PCI and 812 shares of common stock of 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.
On June 20, 1997, PIHLP sold the Series C Preferred Stock to an entity
owned by certain of the beneficial owners of PIHLP and members of their families
(the "Chase Entity").
As part of the ECO Stock Purchase Agreement, D.T. Chase Enterprises, Inc.
("D.T. Chase"), ECO, PIHLP 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.
THE REORGANIZATION
Before the Offerings, all the holders of shares of PCI common stock and
@Entertainment entered into the Contribution Agreement. Pursuant to the
Contribution Agreement, each holder of shares of PCI common stock transferred
all shares of its common stock to @Entertainment. In addition, ECO transferred
all of the outstanding shares of voting PCI Series B Preferred Stock to
@Entertainment. All of these transfers were designed to qualify as a tax-free
exchange under section 351 of the Code, as amended. Each holder of PCI common
stock received 1,000 shares of Common Stock in exchange for each share of PCI
common stock transferred. ECO also received an equivalent number of shares of
@Entertainment's Series B Preferred Stock in exchange for its shares of PCI
Series B Preferred Stock. The @Entertainment Series B Preferred Stock has
identical rights and preferences to those of the PCI Series B Preferred Stock,
except that the ratio for conversion of such shares into common stock increased
from 1:1.9448 to 1:1,944.80 in order to reflect the Capital Adjustment. The
2,500 outstanding shares of @Entertainment Series B Preferred Stock will
automatically convert into 4,862,000 shares of @Entertainment Common Stock upon
the completion of the Offerings.
On June 20, 1997, PIHLP transferred all the outstanding shares of PCI's
Series C Preferred Stock to the Chase Entity. The Chase Entity, ECO and
@Entertainment entered into the Purchase Agreement. Among other matters, the
Purchase Agreement obligates @Entertainment to purchase all of the outstanding
shares of PCI's Series A Preferred Stock and Series C Preferred Stock for cash
from ECO and the Chase Entity, respectively, at the closing of the Offerings.
The aggregate purchase price of $60.0 million ($40.0 million to ECO and $20.0
million to the Chase Entity) for PCI's Series A Preferred Stock and Series C
Preferred Stock equals the aggregate redemption price of such shares as set
forth in PCI's certificate of incorporation. The Cash Purchases will be funded
with a portion of the net proceeds of the Offerings. See "Risk Factors -- Risks
Associated With the Offering -- Benefits of the Offerings to Insiders" and "Use
of Proceeds".
In June 1997, @Entertainment acquired all of the outstanding stock of @EL,
a new corporation organized under the laws of England and Wales. @EL will be
responsible for the Company's D-DTH business.
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<PAGE> 106
In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreement were assigned to @Entertainment. As part of the Assignment and the
Capital Adjustment, the agreements were amended to provide that each option for
a share of PCI's common stock was exchanged for an option for 1,000 shares of
Common Stock with a proportionate reduction in the exercise price. See
"Executive Compensation -- Employment Agreements."
As a result of the Reorganization, @Entertainment owns all of the
outstanding shares of voting stock of PCI and all of the outstanding shares of
common stock of @EL. The Automatic Conversion and the Cash Purchases will occur
upon the closing of the Offerings.
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 stock 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 two annexes to the addendum to the share sale agreement.
The addendum, as amended, provides 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, $600,000 on June 6, 1997, and
$1,150,000 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.
STOCKHOLDERS' AGREEMENT
The following is a summary of the stockholders' agreement entered into by
and among ECO, PIHLP, Mr. Freedman, Steele LLC, The AESOP Fund L.P. ("AESOP"),
CACMT and @Entertainment on June 22, 1997 (the "Stockholders' Agreement"). The
following summary does not purport to be complete, and it is qualified in its
entirety by reference to the Stockholders' 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 @Entertainment. Parties to the
Stockholders' Agreement, other than @Entertainment, are hereinafter referred to
as the "Stockholders".
In connection with the Reorganization, at June 22, 1997, the Stockholders
and @Entertainment entered into the Stockholders' Agreement to govern the
conduct of the business of @Entertainment and relations among the Stockholders.
The Stockholders' Agreement will terminate upon the successful completion of the
Offerings.
@Entertainment currently has a five-member Board of Directors. Pursuant to
the Stockholders' Agreement, the ECO Group has the right to designate two
directors, and the Chase Group has the right to designate two directors in
addition to a Chief Executive Officer acceptable to the ECO Group, who is also a
member of the Board of Directors. The ECO Group has chosen Scott Lanphere, a
director of
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@Entertainment, as the ECO Group Representative. Pursuant to the Stockholders'
Agreement and the Voting Agreement, the Chase Group has chosen David T. Chase,
@Entertainment's Chairman, as the Chase Group Representative. See "-- Voting
Agreement".
The Stockholders' Agreement also contains several restrictions on the
Stockholders' ability to transfer their shares. Any Stockholder 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 Stockholders' Agreement, "Affiliate" means a person or entity that is
any one or more of the following: (a) in relation to any person or entity,
another person or entity that controls, is controlled by or is under common
control with such person or entity; (b) in relation to any partnership, any of
its partners who control the partnership; (c) in relation to any Stockholder
which holds shares as trustee, the beneficial owner of those shares or a trustee
for the same beneficial owner; (d) in relation to any Stockholder, a person
which holds shares as trustee pursuant to a grantor trust in which that
Stockholder 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 @Entertainment's Common Stock, Stockholders 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, digital satellite
broadcasting, programming or cable television in any city in Poland or the
United Kingdom where @Entertainment or any subsidiary of @Entertainment engages
in that line of business, and (ii) whose ownership of shares would not cause
@Entertainment to lose, or fail to obtain, or result in a limitation of, a
license, permit, certificate, deed or approval material to the operations of
@Entertainment and its subsidiaries, and (iii) the transfer of shares to whom
would not require @Entertainment to become a reporting company pursuant to
Section 12 of the Exchange Act. If any Stockholder other than AESOP wishes to
sell less than 21% of its shares of any class (but in no event more than 21% of
its shares of any class), or if CACMT, Mr. Freedman or Steele LLC wish to sell
all or any portion of their shares of any class, then certain other Stockholders
have rights of first negotiation with respect to the shares offered by the
Stockholder wishing to sell. If ECO or PIHLP wishes to sell 21% or more of its
shares of any class to a Qualified Person, the Stockholder wishing to sell must
procure an offer from that Qualified Person to purchase on the same terms all
the outstanding shares of the Applicable Stock (as hereinafter defined); and
certain other Stockholders have a right of first refusal on all such shares
before the Qualified Person may purchase them. If AESOP wishes to transfer all
or any portion of its shares of any class to a Qualified Person, then certain
other Stockholders have rights of first negotiation with respect to such shares.
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.
In the event that a third-party offers to purchase all of the outstanding
stock of @Entertainment and holders of 65% of voting securities of
@Entertainment vote to accept the offer to sell their shares to the third party,
all of the Stockholders are required to accept the offer. If a third-party
purchaser offers to purchase all or substantially all of the assets of
@Entertainment and the Board of Directors approves said sale, the Stockholders
are required to consummate the sale.
Pursuant to the Stockholders' Agreement, 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 stockholders as required under the Delaware General
Corporation Law ("GCL"), if such action is required to be submitted to the
stockholders under the GCL, or (ii) if any such action is not approved by at
least four directors, then any such action will require the affirmative vote of
at least 61% of the total voting power of the capital stock issued and
outstanding and entitled to vote thereon, provided however that if board
approval of such action is required under the GCL, 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.
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A. A fundamental change in the business of @Entertainment or any
subsidiary;
B. The adoption of, and approval of any modification to, the annual
budget of @Entertainment for each fiscal year;
C. An expenditure, not accounted for in the budget during any fiscal
year, in excess of $5 million;
D. A merger or other business combination or the sale, lease, transfer
or other disposition of all or any material portion of the assets;
E. Certain encumbrances;
F. Related-party transactions;
G. The issuance by @Entertainment 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 of @Entertainment;
L. Amending the @Entertainment Certificate or Bylaws;
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, fiscal year-end or registered office of
@Entertainment;
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 or voluntarily seek the protection of
bankruptcy laws.
The Stockholders' 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 the Stockholders' Agreement 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)
@Entertainment fails to redeem any series of preferred stock on the date set for
mandatory redemption under the Certificate, (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, (v) @Entertainment fails to
comply with certain of its obligations under the Purchase Agreement, or (vi)
either stockholder 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 @Entertainment 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 @Entertainment, or to purchase
all of the Initiating Group's shares at the price derived from the Initiating
Group's valuation of @Entertainment.
The Stockholders' Agreement also contains restrictions on the rights of
Stockholders to pledge, hypothecate or otherwise encumber their shares.
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The Stockholders' Agreement, which terminates upon the successful
completion of the Offerings, also provides that on or about March 29, 2001, the
Stockholders 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 bank is not retained by @Entertainment or @Entertainment
has not otherwise adopted a plan for maximizing the value of the Common Stock by
March 29, 2002, the Stockholders Agreement requires the Stockholders to hire an
investment bank to secure a purchaser for @Entertainment.
In the drag-down provisions of the Stockholders' Agreement, the
Stockholders 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 and PCBV.
In addition, the Stockholders' Agreement requires that any transferee of
shares held by any of the parties to the Stockholders' Agreement sign an
accession agreement pursuant to which the transferee shall be bound to the terms
of the Stockholders' Agreement.
Pursuant to the Stockholders' Agreement, the Stockholders agreed to cause
@Entertainment not to issue any shares of capital stock, or options or warrants
to acquire capital stock, or securities convertible into capital stock, to a
person who has not executed and delivered an accession agreement, provided that
@Entertainment may issue such shares as may be required to honor any options for
shares that are issued by @Entertainment in exchange for outstanding
@Entertainment common stock options.
The Stockholders' Agreement contains covenants against competition that
limit the ability of the Stockholders and of certain other persons and entities
connected with the Stockholders to engage in certain kinds of business in
Poland. Such covenants shall terminate on the earlier of seven years from the
date of the Stockholders' Agreement or upon the sale of substantially all of the
capital stock or assets of @Entertainment to a third-party purchaser or
purchasers.
The Stockholders' Agreement remains effective until the earlier of the
following events: (i) Stockholders holding at least 65% of the total voting
power agree to terminate the Stockholders' Agreement, (ii) an initial public
offering of at least 20% of @Entertainment's Common Stock, or (iii) the date on
which no party to the Stockholders' Agreement holds any shares.
@ENTERTAINMENT REGISTRATION RIGHTS AGREEMENT
Also in connection with the Reorganization, @Entertainment entered into a
registration rights agreement (the "Stockholder Registration Rights Agreement")
with PIHLP, ECO, Mr. Freedman, Steele LLC, AESOP and CACMT (collectively, the
"Rightsholders") as of June 22, 1997. Pursuant to the Stockholder Registration
Rights Agreement, PIHLP and ECO will after March 29, 1999, have the right under
certain circumstances to demand that @Entertainment register their shares of
Common Stock under the Securities Act of 1933. After March 29, 2001, PIHLP and
ECO will have the right to demand that @Entertainment register their shares of
Common Stock in a shelf registration under Rule 415 of the Securities Act of
1933. In addition, if @Entertainment proposes to register any of its securities
under the 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 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 registrations
that can be demanded by PIHLP and ECO.
PCBV STOCKHOLDERS' 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
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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 stockholders' agreement (the "PCBV
Stockholders' 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 Stockholders"), 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 Stockholders'
Agreement. The parties to the PCBV Stockholders' Agreement other than PCBV are
hereinafter referred to as the "PCBV Stockholders". Shares of the capital stock
of PCBV are hereinafter referred to as "PCBV shares".
The PCBV Stockholders' Agreement protects shareholdings of each Minority
Stockholder from dilution, by requiring that the PCBV shares of each Minority
Stockholder must continue to represent a constant percentage of the total equity
in PCBV and of the total votes to be cast by the PCBV Stockholders on any
subject, regardless of changes to the capital structure of PCBV and regardless
of any additional equity funds that may be contributed to PCBV by PCI.
The PCBV Stockholders' Agreement contains restrictions on the PCBV
Stockholders' ability to sell, pledge, hypothecate or otherwise transfer or
encumber their PCBV shares. In addition, PCBV Stockholders have the right of
first refusal to purchase PCBV shares upon the death of an individual PCBV
Stockholder, and upon the liquidation, dissolution or other termination of a
corporate PCBV Stockholder. Furthermore, PCI has the right of first refusal to
purchase PCBV shares from Minority Stockholders, and the Minority Stockholders
have the right of first refusal to purchase PCBV shares from PCI, before such
shares can be sold to a third party.
The PCBV Stockholders' Agreement includes certain limitations on payments
that can be paid by PCBV to the PCBV Stockholders. If the managing board of PCBV
solicits and receives loans from any of the PCBV Stockholders, the loans cannot
bear interest at a rate exceeding 10% per annum.
Under the PCBV Stockholders' Agreement, PCI has the option to purchase the
PCBV shares owned by the Minority Stockholders 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
Stockholders' Agreement, one-ninth of the Minority Stockholders' 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 Stockholders' Agreement also includes covenants against
competition that limit the ability of each PCBV Stockholder to engage directly
or indirectly in any aspect of the cable television business in Poland for a
period ending ten years after such PCBV Stockholder ceases to be a PCBV
Stockholder. PCI has direct or indirect ownership interests in a number of
entities that engage in certain aspects of the cable television business in
Poland. Under the PCBV Stockholders' Agreement, the Minority Stockholders 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 Stockholders 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 Stockholders.
On April 11, 1997 PCBV elected to be treated as a partnership for United
States Federal income tax purposes instead of a corporation. The deemed
conversion from the status of corporation to partnership was effective as of
January 29, 1997. Although PCBV has made this election, it will continue in
existence in its present legal form under Dutch Company Law, and will not make
any actual liquidating distributions to its stockholders. PCBV has received
inquiries from certain of its shareholders regarding the legal basis for such
deemed conversion, and one shareholder has intimated that it is considering
legal action, but PCBV has not received any formal claims as at the date of this
Prospectus.
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VOTING AGREEMENT
Pursuant to the Voting Agreement among PIHLP, Mr. Freedman, Steele LLC and
CACMT dated at June 22, 1997, David T. Chase received an irrevocable proxy to
vote all of the Voting Agreement Shares on all corporate actions. Pursuant to
the Voting Agreement, Mr. Chase was appointed as the Chase Group Representative
(as defined in the Stockholders' Agreement). The Voting Agreement also contains
restrictions on the transferability of Voting Agreement Shares during the term
of the Voting Agreement, except as permitted by the Stockholders Agreement. The
Voting Agreement will terminate upon (i) the successful completion of the
Offerings (which will cause the Stockholders' Agreement to terminate); (ii) the
written consent of all the parties; (iii) the termination of the Stockholders'
Agreement in accordance with its terms; or (iv) the failure of the parties to
the Voting Agreement to appoint a successor to the Chase Group Representative
within a specified period. The Chase Group Representative will not receive any
compensation and may be removed at any time by written consent of holders of
more than 50% of the Voting Agreement Shares.
SERVICE AGREEMENTS
PCI has entered into service agreements with PCBV and other of its direct
and indirect subsidiaries (the "Service Agreements"), including Poltelkab,
PTK-Telkat, PTK-Szczecin, PTK-Lublin, ETV, PTK, S.A., PTK-Ryntronik, PTK-Warsaw,
and PTK-Krakow pursuant to which PCI provides various services, including
administrative, technical, managerial, financial, operational and marketing
services to each of the subsidiaries and PCBV serves as PCI's agent. PCI also
entered into a service agreement, dated August 31, 1995, with PCBV and ETV,
whereby PCBV is the principal service provider and PCI acts as agent to PCBV
(the "ETV Service Agreement"). The services provided under these agreements are
intended to enable the subsidiaries to construct, develop, operate and manage
cable television systems throughout Poland. Except for the ETV Service
Agreement, which requires ETV to pay $18,740 per calendar quarter to PCBV, the
Service Agreements provide that the subsidiaries will each pay to PCI or PCBV,
as the case may be, a fee of $10,000 per calendar quarter for performing general
administrative services, and a commercially reasonable rate for legal, financial
and other specific professional services. With the exception of the ETV Service
Agreement, if a subsidiary is obligated to pay fees to PCI pursuant to a
management agreement (described below), any fee payable under the Service
Agreements is waived. The Service Agreements also typically require the
subsidiaries to reimburse PCBV for any reasonable out-of-pocket expenses
incurred by PCBV or PCI, acting as agent for PCBV, including salaries and
benefits, housing allowances, travel expenses, and equipment supply or other
goods costs. The agreements expire on December 31, 1998, but will automatically
be extended for successive one-year periods unless a party gives notice on or
before January 31, in which case the agreement will terminate at the end of the
calendar year during which such notice was provided.
MANAGEMENT AGREEMENTS
PCI 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 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
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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.
PURCHASE OF HOUSE
Pursuant to Mr. Fowler's employment contract, and in part to induce Mr.
Fowler to move closer to the Company's operations in Europe, @Entertainment
purchased Mr. Fowler's house in Connecticut for approximately $354,000 in June
1997 (including payments of $295,000 to extinguish the mortgages relating to the
house), and sold the house shortly thereafter to a third party for approximately
$267,000. @Entertainment is obligated to pay Mr. Fowler the difference between
the mortgage amounts of $295,000 and the purchase price of $354,000.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is certain information concerning @Entertainment's capital
stock and a brief summary of the material provisions of @Entertainment's capital
stock, Certificate and Bylaws. This description does not purport to be complete
and is qualified in its entirety by reference to @Entertainment's Certificate
and Bylaws.
@Entertainment is authorized to issue 90,002,500 shares of capital stock,
of which 70,000,000 shares are Common Stock, and 20,002,500 shares of preferred
stock of which 2,500 shares have been designated Series B Preferred Stock, par
value of $0.01 per share.
At July 11, 1997, there were (i) 18,948,000 shares of Common Stock, and
(ii) 2,500 shares of Series B Preferred Stock, outstanding and fully paid. The
Series B Preferred Stock will be converted into 4,862,000 shares of Common Stock
upon the completion of the Offerings.
COMMON STOCK
DIVIDENDS. Holders of Common Stock are entitled to dividends when, as and
if declared by the Board of Directors.
VOTING RIGHTS. Holders of Common Stock are entitled to one vote per share
on all matters submitted to the stockholders of the Company.
Under Delaware law, the affirmative vote of a majority of the outstanding
shares of Common Stock are required to approve, among other things, a change in
the designations, preferences or limitations of the shares of Common Stock.
LIQUIDATION RIGHTS. Upon liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share ratably all assets
available for distribution after payment in full of creditors and distributions
to preferred stockholders.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series ("Blank Check
Preferred Stock"), any or all of which may be greater than the rights of the
Common Stock. It is not possible to state the actual effect of the issuance of
any shares of Blank Check Preferred Stock upon the rights of holders of the
Common Stock until the Board of Directors determines the specific rights of the
holders of such Blank Check Preferred Stock. However, the effects might include,
among other things, restricting dividends on the Common Stock, diluting the
voting power of the Common Stock, impairing the liquidation rights of the Common
Stock and delaying or preventing a change in control of @Entertainment without
further action by the stockholders. @Entertainment has no present plans to issue
any shares of preferred stock in addition to the series described below. See
"Risk Factors -- Risks Related to the Company -- Control by Existing
Stockholders; Potential Anti-Takeover Provisions".
SERIES B PREFERRED STOCK
DIVIDENDS. The holders of Series B Preferred Stock are not entitled to
receive dividends.
VOTING RIGHTS. Except as otherwise required by law, the shares of Series B
Preferred Stock are entitled to vote on an equal basis together with the shares
of Common Stock at any annual or special meeting of the stockholders of
@Entertainment, or may act by written consent in the same manner as the Common
Stock. The number of votes which a holder of the Series B Preferred Stock is
entitled to vote is the number of shares of Common Stock into which all shares
of Series B Preferred Stock held by such holder are convertible on the record
date fixed for such a meeting or action by written consent.
REDEMPTION. On March 31, 2004, @Entertainment is required to redeem the
Series B Preferred Stock (the "Series B Redemption Date"). At the option of
@Entertainment, the Series B Preferred Stock
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may be redeemed at any time, in whole or in part. The redemption price per share
of Series B Preferred Stock is $10,000. From and after the close of business on
the Series B Redemption Date, unless there has been a default in the payment of
the redemption price, all rights of holders of shares of Series B Preferred
Stock which have been redeemed cease and thereafter such shares will not be
deemed to be outstanding for any purposes whatsoever. Any shares of Series B
Preferred Stock that have at any time been redeemed or repurchased by
@Entertainment will, after such redemption or repurchase, be cancelled by
@Entertainment and will not be available for reissuance.
CONVERSION. At any time, or from time to time, prior to March 31, 2004, the
holders of Series B Preferred Stock may convert shares thereof into shares of
Common Stock equal to the then applicable Conversion Ratio multiplied by the
number of shares of Series B Preferred Stock to be converted. The Conversion
Ratio per share of Series B Preferred Stock is 1,944.80 shares of Common Stock
for each share of Series B Preferred Stock and is subject to adjustment to
protect holders of Series B Preferred Stock from dilution in the event of a
subdivision or combination of Common Stock. Holders of Series B Preferred Stock,
when converting, must convert at least 25% of the total number of authorized
shares of Series B Preferred Stock into shares of Common Stock, provided,
however, that a holder of less than 25% of the total number of authorized shares
of Series B Preferred Stock, when converting, must convert all of such holder's
shares of Series B Preferred Stock into shares of Common Stock. Each share of
Series B Preferred Stock will automatically be converted into shares of Common
Stock simultaneously with the closing of the Offerings. Upon conversion of any
shares of Series B Preferred Stock into Common Stock, such shares of Series B
Preferred Stock so converted will be cancelled and will not be available for
reissuance.
LIQUIDATION. Upon the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of @Entertainment, after payment or
provisions for the payment of the debts and other liabilities of @Entertainment,
the assets then available for distribution to the stockholders will be
distributed first to to the holders of the Series B Preferred Stock, to the
extent available, in an amount equal to $10,000.00 per share, but if the funds
available therefor are insufficient, then to the holders of Series B Preferred
Stock on a pro-rata basis in accordance with the number of shares held by each
holder.
CERTAIN VOTING PROVISIONS
Stockholders' rights and related matters are governed by the CGL, the
Certificate and the Bylaws. Certain provisions of the Certificate and the Bylaws
which are summarized below may affect potential changes in control of
@Entertainment, may make it more difficult to acquire and exercise control of
@Entertainment and may make changes in management more difficult to accomplish.
See "Risk Factors -- Risks Relating to the Company -- Control by Existing
Stockholders; Potential Anti-Takeover Provisions".
Article VIII of the Certificate contains provisions (the "Fair Price
Provisions") which require the approval (an "Unaffiliated 66 2/3% Vote") of the
holders of 66 2/3% of those shares that are not beneficially owned or controlled
by a stockholder who owns directly or indirectly 10% or more of the outstanding
voting shares of @Entertainment (a "Related Person") as a condition to specified
business combinations (the "Business Combinations") with or proposed by any
Related Person, except where the transaction (i) has been approved by two-thirds
of the directors who are not affiliated with the Related Person (the "Continuing
Directors") or (ii) meets certain minimum price criteria and procedural
conditions. The term Related Person is defined to exclude (i) @Entertainment or
any subsidiary or any other ownership interest which is directly or indirectly
owned by @Entertainment; (ii) any person whose acquisition of stock was approved
by not less than a two-thirds vote of the Continuing Directors; or (iii) any
pension, profit-sharing, employee stock ownership or other employee benefit plan
of @Entertainment or any subsidiary. If the Business Combination satisfies any
of these three criteria, the usual requirements of applicable law, regulations
and other provisions of the Certificate would apply.
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A Business Combination includes the following: (i) merger or consolidation
of @Entertainment or a subsidiary with or into a Related Person or any other
corporation which is, or after such merger or consolidation would be, an
affiliate or associate of a Related Person; (ii) sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of transactions) to or with any Related Person or any affiliate or associate of
any Related Person, of all or any substantial amount of the assets of
@Entertainment, one or more subsidiaries, or @Entertainment and one or more
subsidiaries, other than in the ordinary course of business; (iii) adoption of
any plan or proposal for the liquidation or dissolution of @Entertainment
proposed by or on behalf of a Related Person or any affiliate or associate of
any Related Person; (iv) sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
@Entertainment, one or more subsidiaries, or @Entertainment and one or more
subsidiaries (in one transaction or a series of transactions) of all or any
substantial amount of the assets of a Related Person or any affiliate or
associate of any Related Person, other than in the ordinary course of business;
(v) issuance, pledge or transfer of securities of @Entertainment, one or more
subsidiaries, or @Entertainment and one or more subsidiaries (in one transaction
or a series of transactions) to or with a Related Person or any affiliate or
associate of any Related Person in exchange for a substantial amount of cash,
securities or other property (or a combination thereof), except any issuance,
pledge or transfer of such securities to any such person if such person is
acting as an underwriter with respect to such securities; (vi) reclassification
of securities (including any reverse stock split) or recapitalization of
@Entertainment, any merger or consolidation of @Entertainment with or into one
or more subsidiaries, or any other transaction that would have the effect,
either directly or indirectly, of increasing the voting power or the
proportionate share of any class of equity or convertible securities of
@Entertainment or any subsidiary which is directly or indirectly beneficially
owned by any Related Person or any affiliate or associate of any Related Person;
(vii) agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination; and (viii)
any series of transactions that not less than two-thirds ( 2/3) of the
Continuing Directors determine are related and, if taken together, would
constitute a Business Combination.
The Fair Price Provisions require the consideration to be paid to
@Entertainment's stockholders in a Business Combination not approved by either
two-thirds of the Continuing Directors or an Unaffiliated 66 2/3% Vote to be
either cash or the same type of consideration paid by the Related Person in
acquiring @Entertainment's voting stock that it previously acquired. The fair
market value of any consideration other than cash or publicly traded securities
would be determined by a majority of the Continuing Directors. The Fair Price
Provisions require the Related Person to meet the minimum price criteria with
respect to each class or series of Common Stock or preferred stock, whether or
not the Related Person owned shares of that class or series prior to proposing
the Business Combination.
The Bylaws provide that candidates for directors shall be nominated only by
the Board of Directors, by a proxy committee appointed by the Board of Directors
or by a stockholder who gives written notice to @Entertainment at least 120 days
prior to the anniversary date of @Entertainment's notice of annual meeting
provided with respect to the previous year's annual meeting. The Bylaws further
provide that stockholder action must be taken at a meeting of stockholders and
may not be effected by any consent in writing unless approved by a vote of
two-thirds of the Continuing Directors. Special meetings of stockholders may be
called only by the Chairman of the Board, the Chief Executive Officer or any two
directors. If a stockholder wishes to propose an agenda item for consideration,
he must give a brief description of each item and notice to @Entertainment not
less than 120 days prior to the anniversary date of @Entertainment's notice of
annual meeting provided with respect to the previous year's annual meeting.
Stockholders will in most cases need to present their proposals or director
nominations in advance of the time they receive notice of the meeting since the
Bylaws provide that notice of a stockholders' meeting must be given not less
than ten or more than 60 days prior to the meeting date.
The Certificate in most cases provides that the foregoing provisions of the
Certificate and Bylaws may be amended or repealed by the stockholders only with
the affirmative vote of at least 66 2/3% of the shares entitled to vote
generally in the election of directors voting together as a single class. These
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provisions exceed the usual majority vote requirement of the GCL and are
intended to prevent the holders of less than 66 2/3% of the voting power from
circumventing the foregoing terms by amending the Certificate or Bylaws. These
provisions, however, enable the holders of more than 33 1/3% of the voting power
to prevent amendments to the Certificate or Bylaws even if they are approved by
the holders of a majority of the voting power.
The effect of such provisions of @Entertainment's Certificate and Bylaws
may be to delay or make more difficult the accomplishment of a merger or other
takeover or change in control of @Entertainment. To the extent that these
provisions have this effect, removal of @Entertainment's incumbent Board of
Directors and management may be rendered more difficult. Furthermore, these
provisions may make it more difficult for stockholders to participate in a
tender or exchange offer for Common Stock and in so doing may diminish the
market value of Common Stock. @Entertainment is not aware of any proposed
takeover attempt or any proposed attempt to acquire a large block of Common
Stock. See "Risk Factors -- Risks Related to the Company -- Control by Existing
Stockholders -- Potential Anti-Takeover Provisions."
CERTAIN CHANGE OF CONTROL PROVISIONS
In addition to the above provisions, as a Delaware corporation the Company
is subject to Section 203 of the GCL, an anti-takeover law. In general, Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date that the person became an interested stockholder, unless
(with certain exceptions) the "business combination" or the transaction in which
the person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have anti-takeover effects with respect to transactions not approved in advance
by the Board of Directors, such as discouraging takeover attempts that might
result in a premium over the market price of the Common Stock.
The Company's Certificate provides that the Board of Directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company and may maintain the incumbency of the Board of
Directors, as a classified board of directors generally increases the difficulty
of replacing a majority of the directors. The Certificate and Bylaws do not
provide for cumulative voting in the election of directors and allow for the
removal of directors only for cause and with a two-thirds vote of
@Entertainment's outstanding shares unless such removal is approved by
two-thirds of the Continuing Directors, in which case directors can be removed
with or without cause by vote of the majority of outstanding shares. In
addition, the Certificate and Bylaws eliminate the right of stockholders to act
by written consent without a meeting (unless approved by two-thirds of the
Continuing Directors) and require advanced stockholder notice to nominate
directors and raise matters at the annual stockholders meeting. Furthermore, the
authorization of undesignated Blank Check Preferred Stock makes it possible for
the Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
@Entertainment. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management of @Entertainment
and could limit the price that certain investors might be willing to pay in the
future for shares of @Entertainment's Common Stock. The amendment of any of
these provisions would require approval by holders of at least two-thirds of the
outstanding shares of @Entertainment's Common Stock (unless approved by
two-thirds of the Continuing Directors). See "Risk Factors -- Risks Related to
the Company -- Control by Existing Stockholders; Potential Anti-Takeover
Provisions".
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of shares of Common
Stock to be issued pursuant to the Offerings, but it does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase, own or dispose of shares. In particular, this summary
of United States federal income tax matters deals only with holders that will
hold shares as capital assets and does not address special tax situations, such
as the United States tax treatment of holders who are securities dealers, who
are holding shares as part of a hedging or larger integrated financial or
conversion transaction, who are citizens or residents of a possession or
territory of the United States, who are United States holders with a currency
other than the U.S. dollar as their functional currency or who own, directly or
indirectly, 10 percent or more of the voting stock of @Entertainment. The shares
will constitute voting stock of @Entertainment.
This summary is based upon the income tax laws of the United States as in
effect on the date of this Prospectus, including the Code, which are subject to
change, possibly with retroactive effect. Subsequent developments could have a
material effect on this summary. Prospective purchasers of shares should consult
their own tax advisers as to the United States federal income tax consequences
of the purchase, ownership and disposition of shares, including the effect of
any proposed legislation before Congress, in addition to the effect of any state
or local tax laws or the laws of any jurisdiction other than the United States.
@ENTERTAINMENT
The shares will be properly characterized as equity interests in
@Entertainment, and @Entertainment will so characterize all such shares for all
United States federal income tax purposes. @Entertainment will be classified as
a "corporation" for all United States federal income tax purposes.
TAXATION OF INVESTORS -- UNITED STATES HOLDERS
As used herein, a "United States holder" means a beneficial owner of shares
who is a citizen or resident of the United States; a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any State thereof; or an estate or trust, the income of which is subject to
United States federal income tax regardless of its source. A "resident" of the
United States includes an individual that (i) is lawfully admitted for permanent
residence in the United States, (ii) is present in the United States for 183
days or more during a calendar year; or (iii)(a) is present in the United States
for 31 days or more during a calendar year, (b) is present in the United States
for an aggregate of 183 days or more, on a weighted basis, over a 3-year period
ending in such calendar year, and (c) does not have a closer connection to a
"tax home" that is located outside the United States.
TAXATION OF DIVIDENDS
To the extent provided below, a United States holder will be required to
include in gross income when received by the holder as a dividend any cash or
the fair market value of any property distributed by @Entertainment.
A distribution by @Entertainment with respect to the shares, including a
pro rata redemption of shares, will be treated first as a dividend includible in
gross income to the extent of the current and accumulated earnings and profits
of @Entertainment as determined under United States federal income tax
principles, then as a tax-free return of basis in the shares to the extent of
the United States holder's adjusted tax basis in such shares, with the balance
of the distribution, if any, treated as a gain realized by the United States
holder from the sale or disposition of the shares that is includible in gross
income. Dividends paid by @Entertainment may be eligible for the dividends
received deduction generally allowed to corporations under the Code.
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TAXATION OF DISPOSITIONS OF SHARES
A gain or loss realized by a United States holder on the sale or other
disposition of a share (including upon the liquidation or dissolution of
@Entertainment or as a result of a non-pro rata redemption of shares) will be
subject to United States federal income tax, as a capital gain or loss, in an
amount equal to the difference between such United States holder's adjusted tax
basis in the share and the amount realized on its disposition. The United States
holder's adjusted tax basis in a share will generally be equal to the cost of
acquiring the share reduced (but not below zero) by the amount of any
distribution that is treated as a tax-free return of basis.
Any capital gain or loss recognized upon the sale or other disposition of a
share will be either short-term or, if held for more than one year, long-term.
For non-corporate United States holders, the United States income tax rate
applicable to the net long-term capital gain recognized for a year currently
will not exceed 28 percent. For corporate United States holders, a capital gain
is currently taxed at the same rate as ordinary income. The deductibility of a
capital loss is subject to limitations. For non-corporate United States holders,
net capital losses not in excess of $3,000 ($1,500 in the case of a married
individual filing a separate return) are deductible in the year incurred, with
any excess carried forward indefinitely to offset capital gains in future years,
with a limited allowance for deduction of net capital losses in each of such
years as in the year incurred. For corporate United States holders, capital
losses can only be used to offset capital gains recognized during the year
incurred or during the permitted carry back and carry forward period.
TAXATION OF INVESTORS -- NON-UNITED STATES HOLDERS
UNITED STATES WITHHOLDING TAX
Under United States federal income tax laws now in effect, and subject to
the discussions of United States income tax (see "-- United States Income Tax")
and backup withholding (see "United States Backup Withholding Tax and
Information Reporting"), dividends paid by @Entertainment to a holder other than
a United States holder (a "non-United States holder") with respect to shares
will be subject to United States withholding tax on the gross amount of the
dividends. Dividends will be subject to United States withholding tax at the
statutory rate of 30 percent, unless the non-United States holder is entitled to
a reduced rate of withholding tax under a United States income tax treaty with
the holder's country of residence.
UNITED STATES INCOME TAX
Subject to the discussion of United States withholding tax (see "-- United
States Withholding Tax") and backup withholding tax (see "-- United States
Backup Withholding Tax and Information Reporting"), a non-United States holder
will not be subject to United States federal income tax on income derived by
@Entertainment, dividends paid to a holder by @Entertainment or gains realized
on the sale, redemption or other disposition of shares, provided that:
(1) The holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such holder, if such holder is an estate or
trust; or a partner of such holder, if such holder is a partnership) shall
not be or have been engaged in a trade or business, or be or have been
present in, or have or have had a permanent establishment in the United
States;
(2) There shall not have been a present or former connection between
such holder (or between the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such holder, if such holder is an estate or
trust; or a partner of such holder, if such holder is a partnership) and
the United States, including, without limitation, such holder's status as a
citizen or former citizen thereof or resident or former resident thereof;
(3) The holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such holder, if such holder is an estate or
trust; or a partner of such holder, if such holder is a partnership) is not
and has not been, for United States tax purposes, (i) a personal holding
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company, (ii) a foreign personal holding company, or (iii) a corporation
that accumulates earnings to avoid United States federal income tax; and
(4) In the case of a gain from the sale or disposition of shares by an
individual, the non-United States holder is not present in the United
States for 183 days or more during the taxable year of the sale and certain
other conditions are met.
If a non-United States holder is engaged in a trade or business in the
United States and dividends, gain or income in respect of a share of such holder
is effectively connected with the conduct of such trade or business, the holder,
although exempt from the withholding tax discussed in the preceding paragraphs,
may be subject to United States income tax on such dividends, gain or income at
the statutory rates provided for United States holders after deduction of
deductible expenses allocable to such effectively connected dividends, gain or
income. In addition, if such a holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, as adjusted for certain items, unless
a lower rate applies under a United States income tax treaty with the holder's
country of residence. For this purpose, dividends, gain or income in respect of
a share will be included in earnings and profits subject to the branch tax if
the dividends, gain or income is effectively connected with the conduct of the
United States trade or business of the holder.
UNITED STATES BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Generally, a 31% "backup" withholding tax and information reporting
requirements apply to dividends paid on shares, and to proceeds from the sale of
the shares, to a noncorporate United States holder, if such a holder fails to
provide a correct taxpayer identification number and other information or fails
to comply with certain other requirements.
In the case of dividends paid on shares, and proceeds from the sale of the
shares, to a non-United States holder, backup withholding tax and information
reporting will not apply if the holder has provided the required certification
of its non-United States status under penalties of perjury or has otherwise
established an exemption. In addition, if payment is collected by a foreign
office of a foreign custodian, nominee or other agent acting on behalf of the
holder, such custodian, nominee or other agent will not be required to apply
backup withholding tax to its payments to such a holder. However, in such case
if the foreign custodian, nominee or other agent is a United States-related
person, such a foreign custodian, nominee or other agent will be subject to
certain information reporting requirements with respect to such payment unless
the foreign custodian, nominee or other agent has evidence in its records that
the holder is not a United States holder or the holder otherwise establishes an
exemption or is an exempt recipient.
A United States holder can establish an exemption from the imposition of
backup withholding tax either by providing a duly completed Internal Revenue
Service Form W-9 to his broker or paying agent, reporting his taxpayer
identification number, or by establishing its corporate or exempt status. A non-
United States holder can establish an exemption from the imposition of backup
withholding tax and information reporting by providing a duly completed Internal
Revenue Service Form W-8 to his broker or paying agent, or by otherwise
establishing his non-United States status.
Any amounts withheld under the backup withholding tax rules from a payment
to a holder will be allowed as a refund or a credit against such holder's United
States federal income tax, provided that the required information is furnished
to the United States Internal Revenue Service.
116
<PAGE> 120
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, @Entertainment will have 33,310,000
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 9,500,000 shares of Common Stock
sold in the Offerings will be freely transferable and tradeable without
restriction or further registration under the Securities Act of 1933 except for
any shares purchased by any "affiliate", as defined below, of @Entertainment
which will be subject to the resale limitations of Rule 144 adopted under the
Securities Act of 1933. All the remaining shares of Common Stock held by
existing stockholders are "restricted" securities within the meaning of Rule 144
and may only be sold in the public market pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to an applicable
exemption from registration, including Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares for at least one year, including an "affiliate", is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding number of shares of Common
Stock of @Entertainment or the average weekly trading volume in @Entertainment's
shares of Common Stock during the four calendar weeks preceding the filing of
the required notice of such sale. Sales under Rule 144 may also be subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about @Entertainment. A person (or persons whose
shares are required to be aggregated) who is not deemed to have been an
affiliate of @Entertainment during the three months preceding a sale, and who
has beneficially owned shares within the definition of "restricted securities"
under Rule 144 for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitation, manner of sale provisions, notice
requirements or public information requirements of Rule 144. Affiliates continue
to be subject to such limitations. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly or indirectly, through one of more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.
Upon completion of the Offerings, up to approximately 3,983,000 shares of
Common Stock, which are beneficially held by certain existing stockholders of
@Entertainment, may be eligible for sale under Rule 144. @Entertainment and
stockholders who own in the aggregate 23,810,000 shares of Common Stock have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of the Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any
securities of @Entertainment which are substantially similar to the Common Stock
or which are convertible into or exchangeable for securities which are
substantially similar to the Common Stock without the prior written consent of
Goldman, Sachs & Co., except for the shares of Common Stock offered in
connection with the concurrent U.S. and International Offerings. Robert E.
Fowler, III, John S. Frelas, George Makowski, Przemyslaw Szmyt and David Warner,
each of whom holds options to purchase shares of Common Stock, has agreed that,
during the period beginning on the date of this Prospectus and continuing to any
including the date 728 days (two years) after the date of this Prospectus they
will not offer, sell, contract to sell or otherwise dispose of any securities of
@Entertainment which are substantially similar to shares of Common Stock or
which are convertible into or exchangeable for securities which are
substantially similar to shares of Common Stock without the prior written
consent of Goldman, Sachs & Co. See "Underwriting".
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of shares of Common Stock for future sale,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial numbers of shares of Common Stock, pursuant to a
registration statement, Rule 144 or otherwise, or the perception that such sales
may occur, could adversely affect the prevailing market price of the Common
Stock.
117
<PAGE> 121
@ENTERTAINMENT REGISTRATION RIGHTS AGREEMENT
In connection with the Reorganization, @Entertainment entered into a
registration rights agreement (the "Stockholder Registration Rights Agreement")
with PIHLP, ECO, Mr. Freedman, Steele LLC, AESOP and CACMT (collectively, the
"Rightsholders") on June 22, 1997. Pursuant to the Stockholder Registration
Rights Agreement, PIHLP and ECO will, after March 29, 1999, have the right under
certain circumstances to demand that @Entertainment register their shares of
Common Stock under the Securities Act of 1933. After March 29, 1999, PIHLP and
ECO will have the right to demand that @Entertainment register their shares of
Common Stock in a shelf registration under Rule 415 of the Securities Act of
1933. In addition, if @Entertainment proposes to register any of its securities
under the Securities Act of 1933 (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 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 PIHLP and ECO.
Pursuant to their stock option agreements, Messrs. Fowler, Szmyt and Warner
will, if @Entertainment proposes to register any of its securities under the Act
(other than registrations in connection with employee benefit plans, offerings
of debt securities and offerings relating to certain business combinations),
have the right to have their shares of Common Stock be included in such
registration, subject to certain limitations.
118
<PAGE> 122
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for @Entertainment by Baker & McKenzie, Washington, District of Columbia and New
York, New York and for the Underwriters by Shearman & Sterling, New York, New
York. Certain matters of Polish law will be passed upon for the company by Baker
& McKenzie, Warsaw, Poland and for the Underwriters by Salans Hertzfeld &
Heilbronn, Warsaw, Poland.
EXPERTS
The consolidated financial statements and schedules of @Entertainment,
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.
With respect to the unaudited interim financial information for the periods
ended March 31, 1997 and 1996, included herein, the independent certified public
accountants have reported that they applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate reports included herein state that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of section 11 of the Act for their
reports on the unaudited interim financial information because those reports are
not reports or a "part" of the registration statement prepared or certified by
the accountants within the meaning of sections 7 and 11 of the Securities Act of
1933.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
@Entertainment is organized under the laws of the State of Delaware.
Although investors in the Common Stock will be able to effect service of process
in the United States upon @Entertainment and may be able to effect service of
process upon its directors, due to the fact that @Entertainment is primarily a
holding company which holds stock in various entities in Poland, the United
Kingdom, and the Netherlands, all or a substantial portion of the assets of
@Entertainment are located outside the United States. As a result, it may not be
possible for investors to enforce against @Entertainment's assets judgments of
U.S. courts predicated upon the civil liability provisions of U.S. laws.
@Entertainment 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.
@Entertainment has been advised by its English solicitors, Baker &
McKenzie, that there is doubt as to the enforceability in England, in original
actions or in actions for the enforcement of judgments of United States courts,
of certain civil liabilities predicated upon the United States federal and state
securities laws.
@Entertainment 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.
119
<PAGE> 123
ADDITIONAL INFORMATION
@Entertainment has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933 with respect to the shares of Common Stock 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 @Entertainment and the
Common Stock 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.
As a result of the Offerings, @Entertainment will become subject to the
information and reporting requirements of the Exchange Act, and in accordance
therewith will file periodic reports, proxy statements and other information
with the Commission. @Entertainment intends to furnish to its stockholders
annual reports containing audited financial statements and to make available to
its stockholders quarterly reports containing unaudited financial information
for the first three quarters of each fiscal year of the Company.
120
<PAGE> 124
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
@ENTERTAINMENT, INC.
Unaudited Interim Consolidated Financial Statements
Independent Accountants' Review Report........................................... F-2
Consolidated Balance Sheet....................................................... F-3
Consolidated Statements of Operations............................................ F-5
Consolidated Statements of Cash Flows............................................ F-6
Notes to Consolidated Financial Statements....................................... F-7
Audited Consolidated Financial Statements
Independent Auditors' Report..................................................... F-10
Consolidated Balance Sheets...................................................... F-11
Consolidated Statements of Operations............................................ F-13
Consolidated Statements of Changes in Stockholders' Equity....................... F-14
Consolidated Statements of Cash Flows............................................ F-15
Notes to Consolidated Financial Statements....................................... F-16
POLAND CABLEVISION (NETHERLANDS) B.V.
Unaudited Interim Consolidated Financial Statements
Independent Accountants' Review Report........................................... F-29
Consolidated Balance Sheet....................................................... F-30
Consolidated Statements of Operations............................................ F-32
Consolidated Statements of Cash Flows............................................ F-33
Notes to Consolidated Financial Statements....................................... F-34
Audited Consolidated Financial Statements
Independent Auditors' Report..................................................... F-35
Consolidated Balance Sheets...................................................... F-36
Consolidated Statements of Operations............................................ F-38
Consolidated Statements of Changes in Stockholders' Deficiency................... F-39
Consolidated Statements of Cash Flows............................................ F-40
Notes to Consolidated Financial Statements....................................... F-41
</TABLE>
F-1
<PAGE> 125
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
@Entertainment, Inc.:
We have reviewed the accompanying consolidated balance sheet of
@Entertainment, Inc. and subsidiaries as of March 31, 1997, and the related
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
June 23, 1997
F-2
<PAGE> 126
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 58,508
Investment securities.......................................................... 25,115
Accounts receivable, net of allowances of $489................................. 1,130
Other current assets........................................................... 2,943
--------
Total current assets................................................... 87,696
--------
Investment in cable television systems, at cost:
Property, plant and equipment:
Cable television system assets.............................................. 102,996
Construction in progress.................................................... 552
Vehicles.................................................................... 1,263
Other....................................................................... 2,821
--------
Total property, plant and equipment....................................... 107,632
Less accumulated depreciation............................................. (21,773)
--------
Net property, plant and equipment......................................... 85,859
Inventories for construction................................................... 7,866
Intangibles, net............................................................... 12,163
--------
Net investment in cable television systems............................. 105,888
--------
Notes receivable from affiliates................................................. 10,964
Other investments................................................................ 2,162
Other intangibles, net........................................................... 6,227
--------
Total assets........................................................... $ 212,937
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 127
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET, CONTINUED
MARCH 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 3,783
Accrued interest............................................................... 5,384
Deferred revenue............................................................... 1,137
Accrued income taxes........................................................... 3,723
Other current liabilities...................................................... 2,156
--------
Total current liabilities.............................................. 16,183
Notes payable.................................................................... 129,542
--------
Total liabilities...................................................... 145,725
--------
Minority interest................................................................ 4,780
Redeemable preferred stock (liquidation value $85,000) (8,500 shares authorized,
issued and outstanding)........................................................ 35,935
Stockholders' equity:
Common stock ($.01 par value, 50,000,000 shares authorized,
18,948,000 shares issued and outstanding)................................... 189
Paid-in capital................................................................ 53,154
Cumulative translation adjustment.............................................. (467)
Accumulated deficit............................................................ (26,379)
--------
Total stockholders' equity............................................. 26,497
--------
Total liabilities and stockholders' equity............................. $212,937
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 128
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cable television revenue.......................................... $ 7,508 $ 5,621
-------- --------
Operating expenses:
Direct operating expenses....................................... 2,100 1,514
Selling, general and administrative............................. 2,974 1,633
Depreciation and amortization................................... 3,450 1,729
-------- --------
Total operating expenses................................ 8,524 4,876
-------- --------
Operating income (loss)................................. (1,016) 745
Interest and investment income.................................... 750 43
Interest expense.................................................. (3,205) (1,604)
Foreign currency translation loss................................. (305) (94)
-------- --------
Loss before income taxes and minority interest............... (3,776) (910)
Income tax expense................................................ (271) (505)
Minority interest in subsidiary (income) loss..................... 476 (49)
-------- --------
Net loss..................................................... (3,571) (1,464)
Accretion of redeemable preferred stock........................... (980) --
-------- --------
Net loss applicable to common stockholders................... $ (4,551) $ (1,464)
======== ========
Net loss per share........................................... $ (.23) $ (0.11)
======== ========
Weighted average number of shares of common and common equivalent
shares outstanding.............................................. 19,474,800 12,741,800
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 129
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(3,571) $(1,464)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Minority interest in subsidiary income (loss)..................... (476) 49
Depreciation and amortization..................................... 3,450 1,729
Other............................................................. 204 26
Changes in operating assets and liabilities:
Accounts receivable............................................. (15) 309
Other current assets............................................ (696) 2,139
Accounts payable................................................ (2,498) (25)
Income taxes payable............................................ (749) 505
Accrued interest................................................ 3,209 --
Deferred revenue................................................ 35 (68)
Other current liabilities....................................... (549) (406)
------- -------
Net cash provided (used) by operating activities............. (1,656) 2,794
------- -------
Cash flows from investing activities:
Construction of cable television systems............................. (4,471) (7,408)
Purchase of other capital assets..................................... (396) (241)
Notes receivable from affiliate...................................... (2,412) --
Other investments.................................................... (383) (111)
Purchase of subsidiaries, net of cash received....................... -- (40)
------- -------
Net cash used by investing activities........................ (7,662) (7,800)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock.................................. -- 82,028
Redemption of preferred stock........................................ -- (8,500)
Costs to obtain loans................................................ (107) (80)
Repayment of notes payable........................................... (550) (10,642)
Repayments to affiliates............................................. -- (39,859)
------- -------
Net cash (used) provided by financing activities............. (657) 22,947
------- -------
Net (decrease) increase in cash and cash equivalents......... (9,975) 17,941
Cash and cash equivalents at beginning of period....................... 68,483 2,343
------- -------
Cash and cash equivalents at end of period............................. $58,508 $20,284
======== ========
Supplemental cash flow information:
Cash paid for interest............................................ $ 3 $ 1,485
Cash paid for income taxes........................................ $ 1,005 $ 445
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 130
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
The information furnished by @Entertainment ("the Company") in the
accompanying unaudited Consolidated Balance Sheet, Statements of Operations, and
Statements of Cash Flows reflect all adjustments (consisting only of items of a
normal recurring nature) which are, in the opinion of management, necessary for
a fair statement of the Company's results of operations and financial position
for the interim periods. The financial statements should be read in conjunction
with the audited financial statements and notes for the year ended December 31,
1996. The interim financial results are not necessarily indicative of results
for the full year.
1. THE REORGANIZATION
The Company is in the process of an initial public offering of stock in the
United States and internationally (the "Offerings"). Before the Offerings, all
the holders of shares of Poland Communications, Inc.'s ("PCI's") common stock
and @Entertainment, Inc. entered into a Contribution Agreement dated as of June
22, 1997 (the "Contribution Agreement"). Pursuant to the Contribution Agreement,
each holder of shares of PCI's common stock transferred all shares of PCI common
stock owned by it to @Entertainment, Inc. In addition, ECO Holdings III Limited
Partnership ("ECO") transferred all of the outstanding shares of PCI's voting
Series B Preferred Stock (the "PCI Series B Preferred Stock") to @Entertainment,
Inc. All of these transfers (the "Share Exchange") were designed to qualify as a
tax-free exchange under section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"). Each holder of PCI's common stock received 1,000 shares of
Common Stock of @Entertainment, Inc. in exchange for each share of PCI's common
stock transferred by it (the "Capital Adjustment"). ECO also received an
equivalent number of shares of @Entertainment, Inc.'s Series B Preferred Stock
("@Entertainment, Inc. Series B Preferred Stock") in exchange for its shares of
PCI Series B Preferred Stock. The @Entertainment, Inc. Series B Preferred Stock
has identical rights and preferences to those of the PCI Series B Preferred
Stock, except that the ratio for conversion of such shares into common stock
increased from 1:1.9448 to 1:1,944.80 in order to reflect the Capital
Adjustment. The 2,500 outstanding shares of @Entertainment, Inc. Series B
Preferred Stock will automatically convert into 4,862,000 shares of common stock
of @Entertainment, Inc. upon the closing of the Offerings (the "Automatic
Conversion").
On June 20, 1997, Polish Investments Holding L.P. ("PIHLP") transferred all
of the outstanding shares of PCI's Series C Preferred Stock to an entity owned
by certain of the beneficial owners of PIHLP and members of their families (the
"Chase Entity"). The Chase Entity, ECO and @Entertainment, Inc. entered into a
Purchase Agreement dated as of June 22, 1997 (the "Purchase Agreement"). Among
other matters, the Purchase Agreement obligates @Entertainment, Inc. to purchase
all of the outstanding shares of PCI's Series A Preferred Stock and Series C
Preferred Stock for cash from ECO and the Chase Entity, respectively, at the
closing of the Offerings (the "Cash Purchases"). The aggregate purchase price of
$60.0 million for PCI's Series A Preferred Stock and Series C Preferred Stock
equals the aggregate redemption price of such shares as set forth in PCI's
certificate of incorporation. The Cash Purchases will be funded with a portion
of the net proceeds of the Offerings.
In June 1997, @Entertainment, Inc. acquired all of the outstanding stock of
@EL, a new corporation organized under the laws of England and Wales (the "@EL
Incorporation"). @EL will be responsible for the Company's D-DTH business.
In June 1997, certain employment agreements for the executive officers of
the Company who were employed by PCI and their employee stock option agreements
were assigned to the Company by PCI (the "Assignment"). As part of the
Assignment and the Capital Adjustment, the employment agreements were amended to
provide that each option to purchase a share of PCI's common stock was exchanged
F-7
<PAGE> 131
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for an option to purchase 1,000 shares of @Entertainment, Inc. Common Stock,
with a proportionate reduction in the per share exercise price.
The Share Exchange, Capital Adjustment, @EL Incorporation and the
Assignment are collectively referred to as the "Reorganization". As a result of
the Reorganization, the Company owns all of the outstanding shares of voting
stock of PCI and all of the outstanding shares of common stock of @EL. The
Automatic Conversion and Cash Purchases will occur upon the closing of the
Offerings.
PCI's consolidated assets and liabilities were transferred to
@Entertainment, Inc. using PCI's historical cost.
2. PER SHARE INFORMATION
The Company has presented historical loss per common share information
assuming the common stock exchange of 1 to 1,000 shares outlined in Note 1
occurred on January 1, 1995. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin Topic 4:D stock and stock options granted during the
12-month period preceding the date of the Company's initial public offering
(IPO) have been included in the calculation of weighted average common shares
outstanding for periods prior to the IPO including where the impact is
anti-dilutive. The computation of weighted average common shares and equivalent
outstanding as of March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average common shares outstanding exclusive of
issuances within 12 months of IPO............................ 18,948,000 12,215,000
Incremental shares assumed to be outstanding related to stock
options granted within 12 months prior to IPO................ 727,700 727,700
----------- -----------
Weighted average common shares and equivalents outstanding..... 19,675,700 12,942,700
========== ==========
</TABLE>
3. ACQUISITION
On March 31, 1997, the Company acquired a cable television system located
in Wroclaw for $530,000.
4. STOCK OPTION AGREEMENTS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), which gives companies the option to adopt the fair value based method for
expense recognition of employee stock options and other stock-based awards or to
account for such items using the intrinsic value method as outlined under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25") with pro forma disclosure of net income (loss) and earnings
(loss) per share as if the fair value method had been applied. The Company has
elected to apply APB 25 and related interpretations for stock options and other
stock-based awards.
The Company has entered into Stock Option Agreements with certain executive
officers. The Stock Option Agreements in place on March 31, 1997 would provide
for the issuance of an additional 1,912,000 shares of common stock at a price in
excess of $6.7 million over various vesting periods through the year 2002.
However, 1,671,000 shares become fully vested and available upon the Company
filing of an initial public offering.
Had compensation cost been recognized consistent with SFAS 123, the
Company's pro forma net loss applicable to common stockholders for the quarter
ended March 31, 1997 would have been
F-8
<PAGE> 132
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increased to $(4,726) from the reported amount of $(4,551), and pro forma net
loss per share for this period would have increased from $(.23) to $(.24). The
per share weighted-average value of stock options issued by the Company through
March 31, 1997 was $1.39 on the grant date using a Black-Scholes calculation.
The Company used the following weighted-average assumptions to determine the
fair value of stock options granted: expected term of four years, risk-free
interest rate of 6.1%, expected volatility of 40%, and no dividend yield.
5. SUBSEQUENT EVENTS
On April 11, 1997 Poland Cablevision B.V. ("PCBV"), a subsidiary of the
Company elected to be treated as a partnership for United States Federal income
tax purposes instead of a corporation. The deemed conversion from the status of
corporation to partnership was effective as of January 29, 1997. Although PCBV
has made this election, it will continue in existence in its present legal form
under Dutch Company Law, and will not make any actual liquidating distributions
to its stockholders.
On April 1, 1997, the Company contracted to buy all of the remaining
advertising inventory for the Term of the Agreement defined as a period of 12
months for a total price of $4,950,000 from Ground Zero Media, a limited
liability company, organized and existing under the laws of the Republic of
Poland and in which the Company through its wholly owned subsidiary, Mozaic,
Inc. owns 45% of the outstanding common stock. The Agreement will have the
Company assume the responsibility for selling advertising to be shown on and
marketing of Atomic TV, a music program aired in Poland.
On June 11, 1997, the Company purchased 66% of a cable television system
company that services approximately 65,000 subscribers in several cities and
towns in western Poland for approximately $10.8 million. In addition, the
Company is obligated to loan an additional $7.0 million to the newly acquired
company.
F-9
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
The Board of Directors
@Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of @Entertainment,
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 @Entertainment, 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, except as to
Notes 1, 15 and 16 which are as of
June 23, 1997
F-10
<PAGE> 134
@ENTERTAINMENT, 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-11
<PAGE> 135
@ENTERTAINMENT, 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, 50,000,000 shares authorized, 18,948,000
shares issued and outstanding)................................. 189 --
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.................................................... 54,134 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-12
<PAGE> 136
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<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 stockholders.......... (5,938) (1,289) (2,383)
======== ======= =======
Loss per common share before extraordinary item..... $ (0.23) $ (0.11) $ (0.21)
Extraordinary loss per share........................ (0.10) -- --
-------- ------- -------
Net loss per common share...................... $ 0.33 $ (0.11) $ (0.21)
======== ======= =======
Weighted average number of common shares
outstanding....................................... 17,797,800 11,563,800 11,346,800
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 137
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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)
Reorganization......... -- 188 (188) -- -- --
------ ------ ------ ---- ------ ------
Balance December 31,
1996................... $ -- 189 54,134 (162) (23,113) 31,048
====== ====== ====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 138
@ENTERTAINMENT, 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-15
<PAGE> 139
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Reporting Entity
@Entertainment, Inc. was formed in May 1997. On June 22, 1997 the common
stockholders of Poland Communications, Inc. ("PCI") exchanged each of their
shares in PCI for 1,000 shares of @Entertainment, Inc. in a transaction
accounted for in a manner similar to a pooling of interests. @Entertainment,
Inc. had no prior operations. All share and per share data have been revised to
reflect the new capital structure.
@Entertainment, Inc. (the "Company") wholly owns PCI and Mozaic, Inc. All
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. The Company, 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". Mozaic, Inc. 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
the Company and its wholly owned and majority owned subsidiaries. Also
consolidated are two 49% owned subsidiaries for which PCI maintains control of
operating activities and has the ability to influence the appointment of members
to the Managing Boards. As discussed in Note 14, PCI has entered into an
agreement in 1997 with one of these subsidiaries (PTK-Ryntronik) to purchase the
remaining 51% ownership. PCI 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.
F-16
<PAGE> 140
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 and PCI are subject to U.S. Federal taxation of their 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>
F-17
<PAGE> 141
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 zffioty)
was redenominated at a rate of 10,000 old zffioty to one new zffioty and one
hundred old zffioty to one groszy. The new and old Polish zffioty 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 computation of net loss per common share is based on the weighted
average number of shares of common stock outstanding determined in accordance
with Securities and Exchange Commission Staff Accounting Bulletin Topic 4:D.
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.
F-18
<PAGE> 142
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's financial instruments include cash, cash equivalents,
investment securities, accounts receivable, notes receivable from affiliates,
other current assets, other investments, accounts payable, other liabilities,
notes payable and redeemable preferred stock.
The carrying value of cash, cash equivalents, investment securities,
accounts receivable, other current assets, other investments, accounts payable,
and other liabilities on the accompanying consolidated balance sheets
approximates fair value due to the short maturity of these instruments.
The carrying value of the redeemable preferred stock has been determined
based upon the amount of future cash flows required discounted using the
Company's estimated borrowing rate for similar instruments.
The recorded balance of the Company's notes payable approximates their fair
values which have been estimated based on the current rates offered for debt of
the same type and maturity. It was not practicable to estimate the fair value of
notes receivable from affiliates due to the nature of these instruments, the
circumstances surrounding their issuance, and the absence of quoted market
prices for similar financial instruments.
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.
F-19
<PAGE> 143
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-20
<PAGE> 144
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-21
<PAGE> 145
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-22
<PAGE> 146
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-23
<PAGE> 147
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholders an
additional 2,437 shares of Class A Common Stock in accordance with the
provisions of the Stockholder 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 stockholder.
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.
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.
F-24
<PAGE> 148
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholder 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 stockholders of PCI.
Interest expense associated with these notes was $1,040,000, $3,284,000 and
$2,164,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Programming
Pro Cable Sp. z o.o. provides programming to the PTK Companies. The Company
incurred programming fees from Pro Cable Sp. z o.o. of $412,000, $186,000 and
$91,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Corporate Administration
During 1994 the Company reimbursed an affiliate of the stockholders 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
F-25
<PAGE> 149
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-26
<PAGE> 150
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholder 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 stockholder will transfer all
of its shares of PTK-Ryntronik to PCI or its nominee. PCI agreed to pay the
stockholder $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.
15. THE REORGANIZATION
The Company is in the process of an initial public offering of stock in the
United States and internationally (the "Offerings"). Before the Offerings, all
the holders of shares of PCI's common stock and @Entertainment, Inc. entered
into a Contribution Agreement dated as of June 22, 1997 (the "Contribution
Agreement"). Pursuant to the Contribution Agreement, each holder of shares of
PCI's common stock transferred all shares of PCI common stock owned by it to
@Entertainment, Inc. In addition, ECO transferred all of the outstanding shares
of PCI's voting Series B Preferred Stock (the "PCI Series B Preferred Stock") to
@Entertainment, Inc. All of these transfers (the "Share Exchange") were designed
to qualify as a tax-free exchange under section 351 of the Internal Revenue Code
of 1986, as amended (the "Code"). Each holder of PCI's common stock received
1,000 shares of common stock of @Entertainment, Inc. in exchange for each share
of PCI's common stock transferred by it (the "Capital Adjustment"). ECO also
received an equivalent number of shares of @Entertainment, Inc.'s Series B
Preferred Stock ("@Entertainment, Inc. Series B Preferred Stock") in exchange
for its shares of PCI Series B Preferred Stock. The @Entertainment, Inc. Series
B Preferred Stock has identical rights and preferences to those of the PCI
Series B Preferred Stock, except that the ratio for conversion of such shares
into common stock increased from 1:1.9448 to 1:1,944.80 in order to reflect the
Capital Adjustment. The 2,500 outstanding shares of @Entertainment, Inc. Series
B Preferred Stock will
F-27
<PAGE> 151
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
automatically convert into 4,862,000 shares of Common Stock of @Entertainment,
Inc. upon the closing of the Offerings (the "Automatic Conversion").
On June 20, 1997, Polish Investments Holding L.P. ("PIHLP"), transferred
all of the outstanding shares of PCI's Series C Preferred Stock to an entity
owned by certain of the beneficial owners of PIHLP and members of their families
(the "Chase Entity"). The Chase Entity, ECO and @Entertainment, Inc. entered
into a Purchase Agreement dated as of June 22, 1997 (the "Purchase Agreement").
Among other matters, the Purchase Agreement obligates @Entertainment, Inc. to
purchase all of the outstanding shares of PCI's Series A Preferred Stock and
Series C Preferred Stock for cash from ECO and the Chase Entity, respectively,
at the closing of the Offerings (the "Cash Purchases"). The aggregate purchase
price of $60.0 million for PCI's Series A Preferred Stock and Series C Preferred
Stock equals the aggregate redemption price of such shares as set forth in PCI's
certificate of incorporation. The Cash Purchases will be funded with a portion
of the net proceeds of the Offerings.
In June 1997, @Entertainment, Inc. acquired all of the outstanding stock of
@EL, a new corporation organized under the laws of England and Wales (the "@EL
Incorporation"). @EL will be responsible for the Company's D-DTH business.
In June 1997, certain employment agreements for the executive officers of
@Entertainment, Inc. who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment, Inc. by PCI (the "Assignment"). As
part of the Assignment and the Capital Adjustment, the employment agreements
were amended to provide that each option to purchase a share of PCI's common
stock was exchanged for an option to purchase 1,000 shares of @Entertainment,
Inc. Common Stock with a proportionate reduction in the per share exercise
price.
The Share Exchange, Capital Adjustment, @EL Incorporation and the
Assignment are collectively referred to as the "Reorganization". As a result of
the Reorganization, @Entertainment, Inc. owns all of the outstanding shares of
voting stock of PCI and all of the outstanding shares of common stock of @EL.
The Automatic Conversion and the Cash Purchase will occur upon the closing of
the Offerings.
PCI's consolidated assets and liabilities were transferred to
@Entertainment, Inc. using PCI's historical cost.
16. PER SHARE INFORMATION
The Company has presented historical loss per common share information
assuming the common stock exchange of 1 to 1,000 shares outlined in Note 15
occurred on January 1, 1992. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin Topic 4:D stock and stock options granted during the
12-month period preceding the date of the Company's initial public offering
(IPO) have been included in the calculation of weighted average common shares
outstanding for periods prior to the IPO including where the impact is
anti-dilutive. The computation of weighted average common shares and equivalent
outstanding follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding exclusive
of issuances within 12 months of IPO.............. 17,271,000 11,037,000 10,880,000
Incremental shares assumed to be outstanding related
to stock options granted within 12 months prior to
IPO............................................... 526,800 526,800 526,800
----------- ----------- -----------
Weighted average common shares and equivalents
outstanding....................................... 17,797,800 11,563,800 11,346,800
========== ========== ==========
</TABLE>
F-28
<PAGE> 152
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
Poland Cablevision (Netherlands) B.V.:
We have reviewed the accompanying consolidated balance sheet of Poland
Cablevision (Netherlands) B.V. and subsidiaries as of March 31, 1997, and the
related consolidated statements of operations and cash flows for the three-month
periods ended March 31, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
June 23, 1997
F-29
<PAGE> 153
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 5,878
Accounts receivable, net of allowances of $459................................. 611
Other current assets........................................................... 1,088
--------
Total current assets................................................... 7,577
--------
Investment in cable television systems, at cost:
Property, plant and equipment:
Cable television system assets.............................................. 88,569
Construction in progress.................................................... 81
Vehicles.................................................................... 1,131
Other....................................................................... 2,615
--------
Total property, plant and equipment....................................... 92,396
Less accumulated depreciation............................................. (20,973)
--------
Net property, plant and equipment......................................... 71,423
Inventories for construction................................................... 5,715
Intangibles, net............................................................... 10,544
--------
Net investment in cable television systems............................. 87,682
--------
Other investments................................................................ 1,409
--------
Total assets........................................................... $96,668
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 154
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEET, CONTINUED
MARCH 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 2,590
Deferred revenue............................................................... 754
Other current liabilities...................................................... 560
--------
Total current liabilities.............................................. 3,904
Due to affiliate................................................................. 12,941
Notes payable to affiliate....................................................... 110,576
--------
Total liabilities...................................................... 127,421
--------
Minority interest................................................................ 2,699
Stockholders' equity:
Common stock ($.50 par, 200,000 shares authorized, issued and
outstanding)............................................................... 100
Cumulative translation adjustment.............................................. (804)
Accumulated deficit............................................................ (32,748)
--------
Total stockholders' equity............................................. (33,452)
--------
Total liabilities and stockholders' equity............................. $ 96,668
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 155
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cable television revenue............................................... $ 6,279 $ 5,499
-------- -------
Operating expenses:
Direct operating expenses............................................ 1,722 1,466
Selling, general and administrative.................................. 2,152 1,758
Depreciation and amortization........................................ 2,716 1,687
-------- -------
Total operating expenses..................................... 6,590 4,911
-------- -------
Operating income (loss)...................................... (311) 588
Interest and investment income......................................... 57 35
Interest expense....................................................... (2,699) (2,233)
Foreign currency translation gain (loss)............................... (460) (80)
-------- -------
Loss before income taxes and minority interest.................... (3,413) (1,690)
Income tax expense..................................................... (49) --
Minority interest in subsidiary (income) loss.......................... 222 (194)
-------- -------
Net loss.......................................................... $ (3,240) $ (1,884)
======== =======
Net loss per share................................................ $ (16.20) $ (9.42)
======== =======
Weighted average number of common and common equivalent shares
outstanding.......................................................... 200,000 200,000
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 156
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(3,240) $(1,884)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in subsidiary income (loss)..................... (222) 194
Depreciation and amortization..................................... 2,716 1,687
Other............................................................. -- 20
Interest expense added to notes payable to affiliate.............. 2,727 767
Changes in operating assets and liabilities:
Accounts receivable............................................. 95 281
Other current assets............................................ 194 2,120
Accounts payable................................................ (95) (387)
Amounts due to affiliate........................................ 2,142 (391)
Deferred revenue................................................ (69) (64)
Other current liabilities....................................... 21 6
------- -------
Net cash provided by operating activities.................... 4,269 2,349
------- -------
Cash flows from investing activities:
Construction of cable television systems............................. (5,060) (6,924)
Purchase of other capital assets..................................... (346) (232)
Other investments.................................................... -- (71)
------- -------
Net cash used by investing activities............................. (5,406) (7,227)
------- -------
Cash flows from financing activities:
Repayment of notes payable........................................... -- (614)
Borrowings from affiliates........................................... -- 4,718
------- -------
Net cash provided by financing activities.................... -- 4,104
------- -------
Net decrease in cash and cash equivalents.................... (1,137) (774)
Cash and cash equivalents at beginning of period....................... 7,015 2,278
------- -------
Cash and cash equivalents at end of period............................. $ 5,878 $ 1,504
======== ========
Supplemental cash flow information:
Cash paid for interest............................................ $ -- $ 1,346
Cash paid for income taxes........................................ $ 34 $ 443
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 157
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
The information furnished in the accompanying unaudited Consolidated
Balance Sheet, Statements of Operations and Statements of Cash Flows reflects
all adjustments (consisting only of items of a normal recurring nature) which
are, in the opinion of management, necessary for a fair statement of the
Company's results of operations and financial position for the interim periods.
The financial statements should be read in conjunction with the audited
financial statements and notes for the year ended December 31, 1996. The interim
financial results are not necessarily indicative of results for the full year.
The computation of net loss per share is based on the weighted average
number of shares of common stock outstanding.
F-34
<PAGE> 158
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-35
<PAGE> 159
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-36
<PAGE> 160
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-37
<PAGE> 161
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<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-38
<PAGE> 162
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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-39
<PAGE> 163
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-40
<PAGE> 164
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
F-41
<PAGE> 165
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes and income tax reporting purposes which may result in deferred income
tax assets and liabilities.
Investment in Cable Television Systems
The investment in the Company's cable television systems includes property,
plant and equipment used in the development and operation of the various cable
television systems. During the period of construction, plant costs and a portion
of design, development and related overhead costs are capitalized as a component
of the Company's investment in cable television systems. 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%.
F-42
<PAGE> 166
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1995, the Polish monetary denomination (old zffioty)
was redenominated at a rate of 10,000 old zffioty to one new zffioty and one
hundred old zffioty to one groszy. The new and old Polish zffioty had an
exchange rate of 2.875 PLN, 2.468 PLN and 24,372zl to one U.S. dollar at
December 31, 1996, 1995 and 1994, respectively.
Computation of Net Loss per Share
The net loss per share computation is based on the weighted average number
of shares of common stock outstanding.
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 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. 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,
F-43
<PAGE> 167
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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-44
<PAGE> 168
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.
F-45
<PAGE> 169
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense relating to the above loans was $992,000, $654,000 and
$159,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
7. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into
transactions with entities under common control of the stockholders and
affiliated parties. When appropriate, outstanding balances bear interest until
settlement. The principal related party transactions are described below.
Due from Affiliate
Amounts due from affiliate primarily represent advances and payments made
on behalf of a stockholder 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 stockholders 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 stockholders of
PCI, $75,000 per quarter for certain general
F-46
<PAGE> 170
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
overhead costs associated with providing the services described above, including
the costs of supplying phone systems, office space, supplies and equipment, and
computers. In addition, legal and financial services requested are reimbursed
and are not material.
Pursuant to SFAS No. 51, certain reimbursed overhead costs of $950,000 and
$942,000 at December 31, 1996 and 1995, respectively, have been capitalized and
are included in investment in cable television system assets. The remaining
overhead costs allocated to the Company of $1,162,000, $395,000 and $86,000
during the years ended December 31, 1996, 1995 and 1994, respectively, are
included in corporate administration and operating expenses.
Management Consulting Agreement
The PTK Companies entered into management consulting agreements with PCI to
recommend, advise, and consult the PTK Companies as to design, construction,
development, and operation of the cable television systems. Management
consulting fees charged to corporate administration expense were $1,520,000,
$1,280,000 and $1,280,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Payment of management consulting fees are contingent until such
time as net income of the PTK Companies' is sufficient to service the fee.
Contingent management consulting fees payable to PCI are reflected in amounts
due to affiliate in the accompanying consolidated balance sheets.
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
F-47
<PAGE> 171
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connected to the system each month. For the years ended December 31, 1996, 1995
and 1994, the Company incurred programming fees of approximately $1,685,000,
$1,298,000 and $681,000, respectively, pursuant to these agreements.
Some of the programming suppliers the Company entered into agreement with
are located outside of Poland. The categorization by the Polish tax authorities
of the payments to be paid under such agreements as a royalty rather than a
payment for services has yet to be determined. Should the payments made be
determined by Polish tax authorities to be royalties (license payments) rather
than payments for services, the PTK Companies making such payments would be
required to withhold and pay over to the Polish tax authorities certain portions
of such payments. The portions would vary depending upon the country of
residence of each programming supplier and the provisions of the international
tax treaty (if any) between such country and Poland. The maximum amount that
could be due under these laws is approximately $350,000. PCBV has not recorded
any amounts related to this in the accompanying financial statements due to the
uncertainties involved.
Regulatory Approvals
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2 million (approximately
$695,000 at the December 31, 1996 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed 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-48
<PAGE> 172
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.
BASIC-TIER: Package with the largest number of non-premium channels.
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.
BROADCAST TIER: Company's package with the smallest number of non-premium
channels.
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 multichannel 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
large 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.
A-1
<PAGE> 173
HEADEND: The originating point of a signal in cable television systems
comprised of a collection of hardware, typically including satellite receivers,
modulators, amplifiers and video cassette playback machines. Signals, when
processed, are then combined for distribution within the cable network.
HOMES: The Company's estimate of the number of homes within its service
areas.
HOMES PASSED: Homes which have active signals, are covered by contracts
with a co-op authority and can be connected to a cable distribution system
without further extension of the distribution network.
INTERACTIVE SERVICES: Cable-based services which both send signals to the
subscribers and utilize or require responses or other signals from the
subscriber. Typical interactive services include telephony, pay-on-demand,
shop-at-home, video games and ATM services. Interactive services can be more
easily provided with high-capacity hybrid fiber-optic/coaxial distribution
networks.
INTERMEDIATE TIER: A package, with limited programming offerings, of 17 to
24 channels for monthly fees of approximately $1.32 to $3.40.
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.
PPV: Pay-per-view
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.
SMARTCARD: A plastic card, the size of a credit card, carrying an embedded
computer chip that implements the secure management and delivery of decryption
keys necessary to descramble pay-TV channels.
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> 174
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (U.S.
Version) (the "U.S. Underwriting Agreement"), @Entertainment has agreed to sell
to each of the U.S. Underwriters named below, and each of such U.S. Underwriters
has severally agreed to purchase from @Entertainment, the respective number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
---------------------------------------------------------------------- ---------
<S> <C>
Goldman, Sachs & Co...................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
---------
Total............................................................... 6,175,000
=========
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
@Entertainment has entered into an underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
International Offering (the "International Underwriters" and together with the
U.S. Underwriters, the "Underwriters") providing for the concurrent offer and
sale of 3,325,000 shares of Common Stock in an international offering outside
the United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the International
Offering, and vice versa.
@Entertainment has granted the U.S. Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to an aggregate of
926,250 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
6,175,000 shares of Common Stock offered hereby. @Entertainment has granted the
International Underwriters a similar option to purchase up to an aggregate of
498,750 additional shares of Common Stock.
@Entertainment has agreed that during the period beginning from the date of
the U.S. Underwriting Agreement and continuing to and including the date 180
days after the date of this Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided under the U.S. Underwriting Agreement
and under the International Underwriting Agreement, any securities of
@Entertainment that are substantially similar to the shares of Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, shares of Common Stock
or any such substantially similar securities (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of the U.S.
Underwriting Agreement), without the prior written consent of Goldman, Sachs &
Co., except for the shares of Common Stock offered in connection with the
concurrent U.S. and International offerings.
U-1
<PAGE> 175
Each of Messrs. Robert E. Fowler, III, John S. Frelas, George Makowski,
Przemyslaw Szmyt and David Warner has agreed not to offer, sell, contract to
sell or otherwise dispose of, any securities of @Entertainment that are
substantially similar to the shares of Common Stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, shares of Common Stock or any such substantially
similar securities, without the prior written consent of Goldman, Sachs & Co.,
during the period beginning from the date of the U.S. Underwriting Agreement and
continuing to and including the date 728 days (two years) after the date of this
Prospectus.
Each stockholder of the Company and each holder of options or warrants in
securities of the Company has agreed not to offer, sell, contract to sell or
otherwise dispose of, any securities of @Entertainment that are substantially
similar to the shares of Common Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, shares of Common Stock or any such substantially similar
securities (other than upon the conversion or exchange of convertible or
exchangeable securities outstanding as of the date of the U.S. Underwriting
Agreement), without the prior written consent of Goldman, Sachs & Co., during
the period beginning from the date of the U.S. Underwriting Agreement and
continuing to and including the date 180 days after the date of this Prospectus.
In connection with the Offerings, the Underwriters may purchase and sell
the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock, and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from @Entertainment in
the Offerings. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offerings for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
The Underwriters have informed @Entertainment that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed five percent of the total number of shares of Common Stock offered by
them.
Prior to these Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among @Entertainment and
the representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ATEN".
The Company is currently investigating the possibility of seeking a listing
of the Common Stock on the Warsaw Stock Exchange.
@Entertainment has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
U-2
<PAGE> 176
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 @ENTERTAINMENT, INC. SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 10
The Reorganization.................... 31
Use of Proceeds....................... 32
Dividend Policy....................... 32
Dilution.............................. 33
Exchange Rate Data.................... 34
Capitalization........................ 35
Selected Consolidated Financial
Data................................ 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 38
The Industry.......................... 47
Business.............................. 53
Regulation............................ 78
Management............................ 90
Executive Compensation................ 95
Principal Stockholders................ 100
Certain Relationships and
Related Transactions................ 102
Description of Capital Stock.......... 110
U.S. Federal Income Tax
Considerations...................... 114
Shares Eligible for Future Sale....... 117
Legal Matters......................... 119
Experts............................... 119
Enforceability of Certain
Civil Liabilities................... 119
Additional Information................ 120
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. A-1
Underwriting.......................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
9,500,000 SHARES
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
LOGO
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 177
The Information contained herein is subject to completion or amendment.
SUBJECT TO COMPLETION, DATED JULY 11, 1997
9,500,000 SHARES
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
Of the 9,500,000 shares of Common Stock offered, 3,325,000 shares of Common
Stock are being offered hereby in an International Offering outside of the
United States and 6,175,000 shares of Common Stock are being offered in a
concurrent offering in the United States. The initial public offering price and
the aggregate underwriting discount per share of Common Stock are identical for
both Offerings. See "Underwriting".
All the shares of Common Stock offered hereby are being sold by
@Entertainment, Inc. Prior to the Offerings, there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price of the Common Stock will be between $18.50 and $22.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting".
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ATEN".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
---------------------
THIS INTERNATIONAL PROSPECTUS IS INTENDED FOR USE ONLY IN CONNECTION WITH OFFERS
AND SALES OF SHARES OUTSIDE THE UNITED STATES AND IS NOT TO BE SENT OR GIVEN TO
ANY PERSON WITHIN THE UNITED STATES. THE SHARES OFFERED HEREBY ARE NOT BEING
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 FOR THE PURPOSE OF SALES
OUTSIDE THE UNITED STATES.
---------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING @ENTERTAINMENT,
OFFERING PRICE DISCOUNT(1) INC.(2)
------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock............... $ $ $
Total(3)................................ $ $ $
</TABLE>
- ---------------
(1) @Entertainment, Inc. has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of approximately $1.5 million payable by
@Entertainment, Inc.
(3) @Entertainment, Inc. has granted the International Underwriters an option
for 30 days to purchase up to an additional 498,750 shares of Common Stock
at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, @Entertainment,
Inc. has granted the U.S. Underwriters a similar option with respect to an
additional 926,250 shares as part of the concurrent U.S. Offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to @Entertainment, Inc. will be
$ , $ and $ , respectively. See "Underwriting".
---------------------
The shares of Common Stock offered hereby are offered severally by the
International Underwriters, as specified herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part. It is expected that certificates for the shares will be ready for delivery
in New York, New York on or about , 1997, against payment therefor in
immediately available funds.
GOLDMAN SACHS INTERNATIONAL MERRILL LYNCH INTERNATIONAL
---------------------
The date of this Prospectus is July , 1997.
LOGO
<PAGE> 178
LOGO
------------------------
IN CONNECTION WITH THE OFFERINGS, GOLDMAN SACHS INTERNATIONAL OR ONE OF ITS
AFFILIATES MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
THIS PROSPECTUS MAY NOT BE ISSUED OR PASSED ON IN THE UNITED KINGDOM TO ANY
PERSON UNLESS THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE
FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996,
AS AMENDED, OR IS A PERSON TO WHOM THE PROSPECTUS MAY OTHERWISE LAWFULLY BE
ISSUED OR PASSED ON.
THE SHARES OF COMMON STOCK MAY NOT BE OFFERED OR SOLD IN POLAND EXCEPT
UNDER CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION OF
SECURITIES UNDER POLISH LAWS AND REGULATIONS. THE SHARES HAVE NOT BEEN, AND WILL
NOT BE, REGISTERED WITH THE KOMISJA PAPIEROW WARTOSCIOWYCH ("KPW"), THE
SECURITIES COMMISSION OF POLAND.
<PAGE> 179
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
(International Version) (the "International Underwriting Agreement"),
@Entertainment has agreed to sell to each of the International Underwriters
named below, and each of such International Underwriters has severally agreed to
purchase from @Entertainment, the respective number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
---------------------------------------------------------------------- ---------
<S> <C>
Goldman Sachs International...........................................
Merrill Lynch International...........................................
---------
Total............................................................... 3,325,000
=========
</TABLE>
Under the terms and conditions of the International Underwriting Agreement,
the International Underwriters are committed to take and pay for all of the
shares offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the shares of Common
Stock are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the representatives.
@Entertainment has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S.
Underwriters" and together with the International Underwriters, the
"Underwriters") providing for the concurrent offer and sale of 6,175,000 shares
of Common Stock in an offering within the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the U.S. Offering, and vice versa.
@Entertainment has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 498,750 additional shares of Common Stock solely to cover
over-allotments, if any. If the International Underwriters exercise their over-
allotment option, the International Underwriters have severally agreed, subject
to certain conditions, to purchase approximately the same percentage thereof
that the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the 3,325,000 shares of Common Stock offered hereby.
@Entertainment has granted the U.S. Underwriters a similar option to purchase up
to an aggregate of 926,250 additional shares of Common Stock.
@Entertainment has agreed that during the period beginning from the date of
the U.S. Underwriting Agreement and continuing to and including the date 180
days after the date of this Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided under the U.S. Underwriting Agreement
and under the International Underwriting Agreement, any securities of
@Entertainment that are substantially similar to the shares of Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, shares of Common Stock
or any such substantially similar securities (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of the U.S.
Underwriting Agreement), without the prior written consent of Goldman Sachs
International, except for the shares of Common Stock offered in connection with
the concurrent U.S. and International offerings.
Each of Messrs. Robert E. Fowler, III, John S. Frelas, George Makowski,
Przemyslaw Szmyt and David Warner has agreed not to offer, sell, contract to
sell or otherwise dispose of, any securities of
U-1
<PAGE> 180
@Entertainment that are substantially similar to the shares of Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, shares of Common Stock
or any such substantially similar securities, without the prior written consent
of Goldman Sachs International, during the period beginning from the date of the
U.S. Underwriting Agreement and continuing to and including the date 728 days
(two years) after the date of this Prospectus.
Each stockholder of the Company and each holder of options or warrants in
securities of the Company has agreed not to offer, sell, contract to sell or
otherwise dispose of, any securities of @Entertainment that are substantially
similar to the shares of Common Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, shares of Common Stock or any such substantially similar
securities (other than upon the conversion or exchange of convertible or
exchangeable securities outstanding as of the date of the U.S. Underwriting
Agreement), without the prior written consent of Goldman Sachs International,
during the period beginning from the date of the U.S. Underwriting Agreement and
continuing to and including the date 180 days after the date of this Prospectus.
In connection with the Offerings, the Underwriters may purchase and sell
the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock, and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from @Entertainment in
the Offerings. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offerings for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each International Underwriter has represented and agreed that (i) it has
not offered or sold and prior to the date six months after the latest closing
date will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 (the "1986 Act ") with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on, and will only issue
and pass on to any person in the United Kingdom, any investment advertisement
(within the meaning of the 1986 Act) relating to the shares of Common Stock if
that person falls within Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
Each International Underwriter has represented and agreed that the shares
of Common Stock have not been and will not be admitted to public trading in
Poland and may not be offered or sold or publicly traded in Poland except under
circumstances which do not constitute a public offering or distribution of
securities under the law on Public Trading in Securities and Trust Funds of 22
March, 1991, as amended. The shares of Common Stock have not been, and will not
be, registered with the KPW, the Securities Commission of Poland.
None of the shares of Common Stock have been or will be qualified for sale
in Canada pursuant to a prospectus and may not be offered or sold directly or
indirectly in any province or territory of Canada
U-2
<PAGE> 181
except pursuant to an exemption from the applicable prospectus filing
requirement, and in compliance with the applicable securities rules, of such
province or territory.
The shares of Common Stock shall not be offered or sold, directly or
indirectly, in or to residents of Japan or to any persons for reoffering or
resale, directly or indirectly, in Japan to any resident of Japan except
pursuant to an exemption from the registration requirements of the Securities
and Exchange Law of Japan available thereunder (that the shares of Common Stock
will not be offered to more than 49 offerees in Japan) and in compliance with
the other relevant laws of Japan. Except in accordance with Japanese
regulations, no document used in connection with the Offering may be distributed
in Japan or to any resident thereof for the purpose of solicitation of
subscriptions or offers for sale of any shares of Common Stock or in the context
where its distribution may be construed as such a solicitation or offer.
This Prospectus is intended for use only in connection with offers and
sales of shares of Common Stock outside of the United States and is not to be
sent or given to any person within the United States. The shares of Common Stock
offered hereby are not being registered under the Securities Act of 1933 for the
purpose of sales outside the United States.
Any failure to comply with the restrictions on distribution of this
Prospectus referred to above may constitute a violation of the securities laws
of the country concerned. The distribution of this Prospectus in other
jurisdictions may be restricted by law and therefore, persons into whose
possession this Prospectus comes should inform themselves about and observe any
such restrictions.
Buyers of shares of Common Stock offered hereby may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the public offering price.
The Underwriters have informed @Entertainment that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed five percent of the total number of shares of Common Stock offered by
them.
Prior to these Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among @Entertainment and
the representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ATEN".
The Company is currently investigating the possibility of seeking a listing
of the Common Stock on the Warsaw Stock Exchange.
@Entertainment has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
U.S. Offering, to persons located outside of the United States.
U-3
<PAGE> 182
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 @ENTERTAINMENT, INC. SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 10
The Reorganization.................... 31
Use of Proceeds....................... 32
Dividend Policy....................... 32
Dilution.............................. 33
Exchange Rate Data.................... 34
Capitalization........................ 35
Selected Consolidated Financial
Data................................ 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 38
The Industry.......................... 47
Business.............................. 53
Regulation............................ 78
Management............................ 90
Executive Compensation................ 95
Principal Stockholders................ 100
Certain Relationships and
Related Transactions................ 102
Description of Capital Stock.......... 110
U.S. Federal Income Tax
Considerations...................... 114
Shares Eligible for Future Sale....... 117
Legal Matters......................... 119
Experts............................... 119
Enforceability of Certain
Civil Liabilities................... 119
Additional Information................ 120
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. A-1
Underwriting.......................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
INTERNATIONAL PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK IN THE UNITED STATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER THE U.S. PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THE U.S. PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS IN TRANSACTIONS IN
THE UNITED STATES.
======================================================
======================================================
9,500,000 SHARES
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
LOGO
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of issuance and distribution of the shares
of Common Stock registered hereunder on Form S-1, other than underwriting
discounts and commissions. All amounts except the Registration Fee are
estimated:
<TABLE>
<S> <C>
Registration Fee................................................ $ 72,834
NASD Fee........................................................ $ 6,250
Nasdaq National Market Fee...................................... $ 42,312
Blue Sky Fees and Expenses...................................... $ 12,500
Legal Fees and Expenses......................................... $ 500,000
Accounting Fees and Expenses.................................... $ 275,000
Printing and Engraving Expenses................................. $ 550,000
Registrar and Transfer Agent's Fees............................. $ 5,000
Miscellaneous................................................... $ 36,104
----
Total................................................. $1,500,000
====
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("GCL") permits a
corporation to indemnify its directors, officers, employees and other agents in
terms sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933.
The Registrant's Bylaws provide for the indemnification of directors and
executive officers to the fullest extent not prohibited by the GCL and authorize
the indemnification by the Registrant of other officers, employees and other
agents as set forth in the GCL. The Registrant has entered into, or will enter
into, indemnification agreements with its directors and executive officers, in
addition to the indemnification provided for in the Registrant's Bylaws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act of 1933 or otherwise.
Upon completion of the Offerings, officers and directors of the Registrant
will be covered by insurance which (with certain exceptions and within certain
limitations) indemnifies them against losses and liabilities arising from any
alleged "wrongful act" including any alleged error or misstatement or misleading
statement, or wrongful act or omission or neglect or breach of duty.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All the holders of shares of common stock of Poland Communication, Inc.
("PCI") and the Registrant entered into a Contribution Agreement dated as of
June 22, 1997 (the "Contribution Agreement"). Pursuant to the Contribution
Agreement, each holder of shares of PCI's common stock transferred all shares
common stock owned by it to the Registrant. In addition, ECO transferred all of
the outstanding shares of PCI's voting Series B Preferred Stock (the "PCI Series
B Preferred Stock") to the Registrant. All of these transfers were designed to
qualify as a tax-free exchange under section 351 of the Internal Revenue Code of
1986, as amended (the "Share Exchange"). Each holder of PCI's common stock
received 1,000 shares of Common Stock of the Registrant in exchange for each
share of PCI's common stock transferred by it (the "Capital Adjustment"). ECO
also received an equivalent number of shares of the Registrant's Series B
Preferred Stock in exchange for its shares of PCI Series B Preferred Stock. The
Series B Preferred Stock has identical rights and preferences to those of the
PCI Series B
II-1
<PAGE> 184
Preferred Stock, except that the ratio for conversion of such shares into common
stock increased from 1:1.9448 to 1:1,944.80 in order to reflect the Capital
Adjustment. These transfers were made pursuant to Section 4(2) of the Securities
Act of 1933.
In addition, the Registrant has granted options for 2,174,000 shares of the
Registrant's Common Stock to certain of its executive officers. In some cases,
these options were original issued by PCI and assumed by the Registrant. These
grants were made pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"), ECO Holdings
III Limited Partnership ("ECO"), Roger M. Freedman, Steele LLC, the AESOP Fund, LP,
the Cheryl Anne Chase Marital Trust (the "CACMT") and @Entertainment, Inc. dated at
June 22, 1997.
2.2 Purchase Agreement among ECO, @Entertainment, Inc. and L. Ciesffia International,
Inc. dated at June 22, 1997.
3.1 Amended and Restated Certificate of Incorporation of @Entertainment, Inc. dated at
June 22, 1997.
3.2 Bylaws of @Entertainment, Inc. as amended through July 14, 1997.
3.3 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele LLC, the CACMT,
the AESOP Fund, LP and @Entertainment, Inc. dated at June 22, 1997.
3.4 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele LLC, the
AESOP Fund, LP, and the CACMT dated at June 22, 1997.
3.5 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger Freedman,
Steele LLC, the AESOP Fund, LP, and the CACMT dated at June 22, 1997 (the
"Registration Rights Agreement").
3.6 Amendment to Registration Rights Agreement.
4.1- Form of Common Stock Certificate.
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.
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC, and the CACMT
dated at June 22, 1997.
9.2 Side Letter dated June 22, 1997 regarding the Voting Agreement.
10.1* Indenture dated at October 31, 1996 between PCI and State Street Bank and Trust
Company relating to PCI's 9 7/8% Senior Notes due 2003 and its 9 7/8% Series B
Senior Notes due 2003. (Incorporated by reference to Exhibit 4.11 of PCI's Form S-4
Registration Statement, Registration No. 333-20307).
10.2 Form of Management Agreement among PCI and subsidiaries.
10.3 Form of Service Agreement among PCI and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among PCI and subsidiaries. (Incorporated by
reference to Exhibit 10.4 of PCI's Form S-4 Registration Statement, Registration No.
333-20307).
</TABLE>
II-2
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.5* Amendment to Service Agreement. (Incorporated by reference to Exhibit 10.5 of PCI's
Form S-4 Registration Statement, Registration No. 333-20307).
10.6* Side Letter regarding Service Agreement. (Incorporated by reference to Exhibit 10.6
of PCI's Form S-4 Registration Statement, Registration No. 333-20307).
10.7* Employment Agreement, dated at January 1, 1997, between PCI and Robert E. Fowler,
III, including Stock Option Agreement. Assigned to @Entertainment (See Exhibits
10.22 and 10.25). (Incorporated by reference to Exhibit 10.7 of PCI's Form S-4
Registration Statement, Registration No. 333-20307).
10.8* Deferred Compensation Agreement, dated at January 1, 1991, between Chase
International Corporation (merged into World Cable Communications, Inc. ("WCCI"),
now PCI) and Arnold L. Chase. Assigned to @Entertainment (See Exhibits 10.22 and
10.25). (Incorporated by reference to Exhibit 10.8 of PCI's Form S-4 Registration
Statement, Registration No. 333-20307).
10.9* Employment Agreement, dated at January, 1997, between PCI and George Makowski,
including Stock Option Agreement. Assigned to @Entertainment (See Exhibits 10.22 and
10.25). (Incorporated by reference to Exhibit 10.10 of PCI's Form S-4 Registration
Statement, Registration No. 333-20307).
10.10* Employment Agreement, dated at September 1, 1996, between WCCI, and John Frelas,
including Stock Option Agreement. Assigned to @Entertainment (See Exhibit 10.22 and
10.25). (Incorporated by reference to Exhibit 10.11 of PCI's Form S-4 Registration
Statement, Registration No. 333-20307).
10.11* Employment Agreement, dated at February 7, 1997, between PCI and Przemyslaw A.
Szmyt, as amended. Assigned to @Entertainment (See Exhibit 10.22 and 10.25).
10.12* Stock Option Agreement dated June 23, 1997 between @Entertainment and Przemyslaw A.
Szmyt.
10.13* Employment Agreement, dated at January 1, 1997, between PCI and Marek Sowa, as
amended. Assigned to @Entertainment (See Exhibit 10.22).
10.14* Form of Employment Agreement, dated April 7, 1997, between PCI and David Warner
Assigned to @Entertainment (See Exhibit 10.22).
10.15* Form of Stock Option Agreement dated at June 23, 1997 between @Entertainment and
David Warner.
10.16 Stock Option Plan of @Entertainment.
10.17 Employment Agreement, dated at January 1, 1996, between PTK-Warszawa S.A. and
Andrzej Muras. (Incorporated by reference to Exhibit 10.15 of PCI's Form S-4
Registration Statement, Registration No. 333-20307).
10.18- Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.
10.19+ Agreement for Digital Transmission on the Astra System between Societe Europeene des
Satellites S.A. ("SES") and PCI Programming, Inc. (Mozaic Entertainment, Inc.
(formerly, PCI Programming, Inc., "Mozaic") (ASTRA 1F Satellite) dated March 26,
1997.
10.20+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA
1F Satellite) dated March 26, 1997.
10.21+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA
1E Satellite) dated March 27, 1997.
10.22 Form of Assignment and Assumption Agreement related to employment contracts with
certain of the executive officers of @Entertainment.
</TABLE>
II-3
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.23 Shareholders Agreement between Chase International Corporation, Frank N. Cooper,
Rutter-Dunn Communications, Inc., Poland Cablevision U.S.A., Inc., and Poland
Cablevision B.V. ("PCBV"), dated at March 8, 1990.
10.24 Form of Assignment and Assumption Agreement related to stock option agreements with
certain of the executives of @Entertainment.
11.1 Statement Regarding Calculation of Per Share Earnings.
15 Letter from KPMG Peat Marwick LLP regarding unaudited interim financial information.
21* List of subsidiaries of @Entertainment.
23.1 Consent of KPMG Peat Marwick LLP with respect to @Entertainment.
23.2 Consent of KPMG Peat Marwick LLP with respect to Poland Cablevision (Netherlands)
B.V.
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).
25 Power of Attorney (included on the signature page in Part II of this Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
- - To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
The following are included in Part II of this Registration Statement.
Schedule II -- Valuation and Qualifying Accounts
-- @Entertainment, Inc.
-- Poland Cablevision (Netherlands) B.V.
II-4
<PAGE> 187
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(a) to provide to the U.S. Underwriters at the closing specified in
the U.S. Underwriting Agreement certificates in such denominations and
registered in such names as required by the U.S. Underwriters to permit
prompt delivery to each purchaser;
(b) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or Rule 497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective; and
(c) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 188
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 15th day of July, 1997.
@Entertainment, Inc.
By: /s/ ROBERT E. FOWLER, III
------------------------------------
Robert E. Fowler, III
Chief Executive Officer
Pursuant to 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>
* Chairman of the Board of Directors July 15, 1997
- -------------------------------------
David T. Chase
* Director July 15, 1997
- -------------------------------------
Arnold L. Chase
* Director July 15, 1997
- -------------------------------------
Scott A. Lanphere
* Director July 15, 1997
- -------------------------------------
Jerzy Z. Swirski
/s/ ROBERT E. FOWLER, III Chief Executive Officer and Director July 15, 1997
- ------------------------------------- (Principal Executive Officer)
Robert E. Fowler, III
* Chief Financial Officer July 15, 1997
- ------------------------------------- (Principal Financial and Principal
John S. Frelas Accounting Officer)
*By: /s/ ROBERT E. FOWLER, III
- -------------------------------------
Robert E. Fowler, III
</TABLE>
<PAGE> 189
SCHEDULE II
@ENTERTAINMENT, 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 Doubtful Accounts:
Years ended December 31:
1996.......................................... $ 510 $549 $ 514 $ 545
==== ==== ==== ====
1995.......................................... $ 132 $402 $ 24 $ 510
==== ==== ==== ====
1994.......................................... $ 60 $ 93 $ 21 $ 132
==== ==== ==== ====
</TABLE>
<PAGE> 190
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 Doubtful Accounts:
Years ended December 31:
1996............................................. $ 510 $387 $460 $ 437
==== ==== ==== ====
1995............................................. $ 132 $402 $ 24 $ 510
==== ==== ==== ====
1994............................................. $ 60 $ 93 $ 21 $ 132
==== ==== ==== ====
</TABLE>
<PAGE> 191
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"),
ECO Holdings III Limited Partnership ("ECO"), Roger M. Freedman,
Steele LLC, the AESOP Fund, LP, the Cheryl Anne Chase Marital Trust
(the "CACMT") and @Entertainment, Inc. dated at June 22, 1997.
2.2 Purchase Agreement among ECO, @Entertainment, Inc. and L. Ciesffia
International, Inc. dated at June 22, 1997.
3.1 Amended and Restated Certificate of Incorporation of @Entertainment,
Inc. dated at June 22, 1997.
3.2 Bylaws of @Entertainment, Inc. as amended through July 14, 1997.
3.3 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele
LLC, the CACMT, the AESOP Fund, LP and @Entertainment, Inc. dated at
June 22, 1997.
3.4 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele
LLC, the AESOP Fund, LP, and the CACMT dated at June 22, 1997.
3.5 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger
Freedman, Steele LLC, the AESOP Fund, LP, and the CACMT dated at June
22, 1997 (the "Registration Rights Agreement").
3.6 Amendment to Registration Rights Agreement.
4.1- Form of Common Stock Certificate.
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.
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC,
and the CACMT dated at June 22, 1997.
9.2 Side Letter dated June 22, 1997 regarding the Voting Agreement.
10.1* Indenture dated at October 31, 1996 between PCI and State Street Bank
and Trust Company relating to PCI's 9 7/8% Senior Notes due 2003 and
its 9 7/8% Series B Senior Notes due 2003. (Incorporated by reference
to Exhibit 4.11 of PCI's Form S-4 Registration Statement, Registration
No. 333-20307).
10.2 Form of Management Agreement among PCI and subsidiaries.
10.3 Form of Service Agreement among PCI and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among PCI and subsidiaries.
(Incorporated by reference to Exhibit 10.4 of PCI's Form S-4
Registration Statement, Registration No. 333-20307).
10.5* Amendment to Service Agreement. (Incorporated by reference to Exhibit
10.5 of PCI's Form S-4 Registration Statement, Registration No.
333-20307).
10.6* Side Letter regarding Service Agreement. (Incorporated by reference to
Exhibit 10.6 of PCI's Form S-4 Registration Statement, Registration
No. 333-20307).
10.7* Employment Agreement, dated at January 1, 1997, between PCI and Robert
E. Fowler, III, including Stock Option Agreement. Assigned to
@Entertainment (See Exhibits 10.22 and 10.25). (Incorporated by
reference to Exhibit 10.7 of PCI's Form S-4 Registration Statement,
Registration No. 333-20307).
</TABLE>
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10.8* Deferred Compensation Agreement, dated at January 1, 1991, between
Chase International Corporation (merged into World Cable
Communications, Inc. ("WCCI"), now PCI) and Arnold L. Chase. Assigned
to @Entertainment (See Exhibits 10.22 and 10.25). (Incorporated by
reference to Exhibit 10.8 of PCI's Form S-4 Registration Statement,
Registration No. 333-20307).
10.9* Employment Agreement, dated at January, 1997, between PCI and George
Makowski, including Stock Option Agreement. Assigned to @Entertainment
(See Exhibits 10.22 and 10.25). (Incorporated by reference to Exhibit
10.10 of PCI's Form S-4 Registration Statement, Registration No.
333-20307).
10.10* Employment Agreement, dated at September 1, 1996, between WCCI, and
John Frelas, including Stock Option Agreement. Assigned to
@Entertainment (See Exhibit 10.22 and 10.25). (Incorporated by
reference to Exhibit 10.11 of PCI's Form S-4 Registration Statement,
Registration No. 333-20307).
10.11* Employment Agreement, dated at February 7, 1997, between PCI and
Przemyslaw A. Szmyt, as amended. Assigned to @Entertainment (See
Exhibit 10.22 and 10.25).
10.12* Stock Option Agreement dated June 23, 1997 between @Entertainment and
Przemyslaw A. Szmyt.
10.13* Employment Agreement, dated at January 1, 1997, between PCI and Marek
Sowa, as amended. Assigned to @Entertainment (See Exhibit 10.22).
10.14* Form of Employment Agreement, dated April 7, 1997, between PCI and
David Warner Assigned to @Entertainment (See Exhibit 10.22).
10.15* Form of Stock Option Agreement dated at June 23, 1997 between
@Entertainment and David Warner.
10.16 Stock Option Plan of @Entertainment.
10.17 Employment Agreement, dated at January 1, 1996, between PTK-Warszawa
S.A. and Andrzej Muras. (Incorporated by reference to Exhibit 10.15 of
PCI's Form S-4 Registration Statement, Registration No. 333-20307).
10.18- Form of Agreement for Lease of Cable Conduits with Telekomunikacja
Polska S.A.
10.19+ Agreement for Digital Transmission on the Astra System between Societe
Europeene des Satellites S.A. ("SES") and PCI Programming, Inc.
(Mozaic Entertainment, Inc. (formerly, PCI Programming, Inc.,
"Mozaic") (ASTRA 1F Satellite) dated March 26, 1997.
10.20+ Agreement for Digital Transmission on the Astra System between SES and
Mozaic (ASTRA 1F Satellite) dated March 26, 1997.
10.21+ Agreement for Digital Transmission on the Astra System between SES and
Mozaic (ASTRA 1E Satellite) dated March 27, 1997.
10.22 Form of Assignment and Assumption Agreement related to employment
contracts with certain of the executive officers of @Entertainment.
10.23 Shareholders Agreement between Chase International Corporation, Frank
N. Cooper, Rutter-Dunn Communications, Inc., Poland Cablevision
U.S.A., Inc., and Poland Cablevision B.V. ("PCBV"), dated at March 8,
1990.
10.24 Form of Assignment and Assumption Agreement related to stock option
agreements with certain of the executives of @Entertainment.
11.1 Statement Regarding Calculation of Per Share Earnings.
15 Letter from KPMG Peat Marwick LLP regarding unaudited interim
financial information.
21* List of subsidiaries of @Entertainment.
23.1 Consent of KPMG Peat Marwick LLP with respect to @Entertainment.
</TABLE>
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23.2 Consent of KPMG Peat Marwick LLP with respect to Poland Cablevision
(Netherlands) B.V.
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).
25 Power of Attorney (included on the signature page in Part II of this
Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
- - To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
The following are included in Part II of this Registration Statement.
Schedule II -- Valuation and Qualifying Accounts
-- @Entertainment, Inc.
-- Poland Cablevision (Netherlands) B.V.
<PAGE> 1
Exhibit 1.1
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 EACH)
UNDERWRITING AGREEMENT
(U.S. VERSION)
July [ ], 1997
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters,
up to ......... additional shares (the "Optional Shares") of Common Stock,
par value $.01 each ("Stock"), of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of ........
shares of Stock (the "International Shares"), including the overallotment
option thereunder, through arrangements with certain underwriters outside the
United States (the "International Underwriters"), for whom Goldman Sachs
International and Merrill Lynch International are acting as lead managers.
Anything herein or therein to the contrary notwithstanding, the respective
closings under this Agreement and the International Underwriting Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder
and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the
"Agreement between Syndicates") which provides, among other things, for the
transfer of shares of Stock between the two syndicates. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Stock contemplated by the foregoing, one relating to the Shares hereunder and
the other relating to the International Shares. The latter form of prospectus
will be identical to the former except for certain substitute pages and
amendments thereto as mentioned below. Except as used in Sections 2, 3, 4, 9
and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references
<PAGE> 2
herein to any prospectus whether in preliminary or final form, and whether as
amended or supplemented, shall include both the U.S. and the international
versions thereof.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any pre-effective or post-effective
amendments thereto, each in the form heretofore delivered to you, and,
excluding exhibits thereto, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
2
<PAGE> 3
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the capital stock or consolidated long-term or short-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"), otherwise
than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title
to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus
or such as do not result in a Material Adverse Effect; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by
the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in
the Prospectus;
(h) This Agreement and the International Underwriting Agreement has
been duly authorized, executed and delivered by the Company;
(i) Each subsidiary of the Company that (i) is a "significant
subsidiary" (as that term is defined in Regulation S-X under the 1933
Act) or (ii) that holds any valid Permits (as such term is defined in the
Prospectus) is listed on Schedule II hereto (each subsidiary listed on
Schedule II hereto is hereinafter referred to as a "Designated
Subsidiary" and, collectively, the "Designated Subsidiaries"), and has
been duly organized and is validly existing as a corporation under the
laws of the jurisdiction of its incorporation, has corporate power and
corporate authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and is not required
to be qualified as a foreign corporation to transact
3
<PAGE> 4
business or to own or lease property in any jurisdiction where it owns or
leases property or transacts business; all of the issued and outstanding
capital stock of each Designated Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable (except, in the case of
any Polish limited liability company, any statutory liability for taxes)
and, except as otherwise disclosed in the Prospectus, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except
for (i) the pledge of o shares of Polska Telewizja Kablowa - Warszawa
S.A. and of o shares of Polska Telewizja Kablowa - Krakow S.A. held by
Poland Cablevision (Netherlands) B.V. ("PCBV") and of o shares of Polska
Telewizja Kablowa - Lublin S.A. held by Poltelkab Sp z o.o. as security
for the loan of $o granted on August 28, 1996 by the American Bank in
Poland to Poland Communications, Inc. ("PCI") and (ii) the pledge of
shares of Polska Telewizja Kablowa S.A. held by PCBV as security for the
loan of $o granted on o by [OPIC] to [PCI] (collectively, the "Share
Pledges"); none of the outstanding shares of capital stock of the
Designated Subsidiaries was issued in violation of any preemptive or
similar rights arising by operation of law, or under the statute or
by-laws (or other similar organizational documents) of any Designated
Subsidiary or under any agreement to which the Company or any Designated
Subsidiary is a party. The subsidiaries of the Company other than the
Designated Subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X;
(j) There are no restrictions (legal, contractual or otherwise) on
the ability of the Designated Subsidiaries to declare and pay dividends
or make any payment or transfer of property or assets to their
shareholders other than those referred to in the Prospectus and except
for restrictions relating to the Share Pledges and the pledge of certain
assets of [GOSAT] as security for the loan of $- granted on May 18, 1993
by Polski Bank Rozwoju to [PCI] (the "Asset Pledge" and, together with
the Share Pledges, the "Pledges");
(k) The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein and in
the International Underwriting Agreement, will be duly and validly issued
and fully paid and non-assessable and will conform to the description of
the Stock contained in the Prospectus;
(l) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws (or other similar organizational documents) of
the Company or any of its subsidiaries or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except the registration under the
Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") of the Shares, the
4
<PAGE> 5
quotation of the Shares on the National Association of Securities
Dealers Automated Quotations National Market System ("NASDAQ") and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(m) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws (or other similar
organizational documents) or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, except as otherwise disclosed in the
Prospectus and except for such defaults that would not result in a
Material Adverse Effect;
(n) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, under the captions "U.S. Federal
Income Tax Considerations", "Regulation", "Certain Relationships and
Related Transactions", "Shares Eligible for Future Sale" and
"Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and fair;
(o) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others. The
aggregate of all pending legal or governmental proceedings to which the
Company or any subsidiary thereof is a party or of which any of their
respective property or assets is the subject which are not described in
the Prospectus, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(p) No labor dispute with the employees of the Company or any of its
subsidiaries exists or is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any of its subsidiaries' principal suppliers, customers or contractors,
which, in either case, may reasonably be expected to result in a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(q) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act");
(r) The Company has not been in any prior taxable year, and, based
on its understanding and estimates of its income and receipts, will not
be for the taxable year that includes the offering a "personal holding
company" within the meaning of Section 542 of the Internal Revenue Code
of 1986, as amended.
5
<PAGE> 6
(s) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(t) The financial statements, together with the related schedules
and notes, of the Company and its consolidated subsidiaries included in
the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Prospectus present fairly in accordance with GAAP the
information required to be stated therein. The selected consolidated
financial data and the summary consolidated financial data included in
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the unaudited interim
consolidated financial statements and the audited consolidated financial
statements included in the Prospectus;
(u) Except as otherwise disclosed in the Prospectus, the Company and
each of its subsidiaries own or possess, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on
the business now operated by them. Neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries;
(v) Except as otherwise disclosed in the Prospectus, the Company and
each of its subsidiaries possess such permits, licenses, approvals,
concessions, consents and other authorizations (including, without
limitation, all permits required for the operation of the business of the
Company and each of its subsidiaries by the Republic of Poland and the
United Kingdom) issued by the appropriate domestic or foreign regulatory
agencies or bodies, other governmental authorities or self regulatory
organizations (collectively, the "Licenses") necessary to conduct the
business now operated by them or any business currently proposed to be
conducted by them; the Company and each of its subsidiaries are in
compliance with the terms and conditions of all such Licenses; all of the
Licenses are valid and in full force and effect; and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Licenses. There
exists no reason or cause that could justify the variation, suspension,
cancellation or termination of any such Licenses held by the Company or
any of its subsidiaries with respect to the construction or operation of
their respective businesses. In so far as the Company currently does not
possess the Licenses necessary to conduct its business in certain areas
where it currently operates cable systems, the Company is either (i)
applying for the necessary Licenses or (ii) making the necessary
investments which will enable it to obtain the necessary Licenses, and in
each case, the Company has no reason to believe that
6
<PAGE> 7
such Licenses will not be granted, and further, the Company has no reason
to believe that the operations for which it currently does not possess
the necessary Licenses will suffer a Material Adverse Effect by reason of
them not possessing such necessary Licenses;
(w) The Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith
and by appropriate proceedings; and adequate charges, accruals and
reserves have been provided for in the financial statements referred to
in Section 1(t) above in respect of all domestic and foreign taxes for
all periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
As of the date hereof, no material income, stamp or other taxes or
levies, imposts, deductions, charges, compulsory loans or withholdings
whatsoever are or will be, under applicable law in the Republic of
Poland, imposed, assessed, levied or collected by the Republic of Poland
or any political subdivision or taxing authority thereof or therein on or
in respect of principal, interest, premiums, penalties or other amounts
payable under any indebtedness of any of the Company's subsidiaries;
(x) (i) Neither the Company nor any of its subsidiaries is in
violation of any statute, law, rule, regulation, ordinance, code, policy
or rule of common law or any judicial or administrative interpretation
thereof including any judicial or administrative order, consent, decree
or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (ii) the
Company and its subsidiaries have all permits, authorizations and
approvals, if any, required under any applicable Environmental Laws and
are each in compliance with their requirements, (iii) there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (iv) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to Hazardous
Materials or Environmental Laws;
(y) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
7
<PAGE> 8
The Company and its subsidiaries have not made, and, to the knowledge of
the Company, no employee or agent of the Company or any subsidiary has
made, any payment of the Company's funds or any subsidiary's funds or
received or retained any funds (i) in violation of the Foreign Corrupt
Practices Act, as amended, or (ii) in violation of any other applicable
law, regulation or rule; and
(z) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in
similar businesses or similar industries.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ............ Optional Shares, at the purchase price per
share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
to Goldman, Sachs & Co., for the account of such Underwriter, against payment
by or on behalf of such Underwriter of the purchase price therefor by certified
or official bank check or checks, payable to the order of the Company in same
day funds. The Company will cause the certificates representing the Shares to
be made available for checking and packaging at least twenty-four hours prior
to the Time of Delivery (as defined below) with respect thereto at the office
of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1997 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional
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<PAGE> 9
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co.
in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(o) hereof, will be delivered at the offices of Shearman &
Sterling, 199 Bishopsgate, London, EC2M 3TY, England (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at .......p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Agreement, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof;
to advise you, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus or suspending any such qualification, promptly
to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, to furnish the Underwriters with copies of the Prospectus in New
York City in such quantities as
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<PAGE> 10
you may reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the
time of issue of the Prospectus in connection with the offering or sale
of the Shares and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your
request to prepare and furnish without charge to each Underwriter and to
any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder and under the International Underwriting Agreement,
any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, Stock
or any such substantially similar securities (other than pursuant to
employee stock option plans existing on, or upon the conversion or
exchange of convertible or exchangeable securities outstanding as of, the
date of this Agreement), without your prior written consent; and to cause
(i) each of Messrs. Robert E. Fowler, III, John S. Frelas, George
Makowski, Przemyslaw Szmyt and David Warner (each a "Manager") to furnish
to the Company and to the Underwriters, prior to the First Time of
Delivery, a letter or letters (the "Lock-up Letters"), in form and
substance satisfactory to counsel to the Underwriters, pursuant to which
such Manager shall agree not to offer, sell, contract to sell or
otherwise dispose of, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities, without your prior written consent, during the period
beginning from the date hereof and continuing to and including the date
728 days (two years) after the date of the Prospectus, and (ii) each
shareholder of the Company (other than the Managers) and each holder of
options or warrants in securities of the Company to furnish to the
Company and to the Underwriters, prior to the First Time of Delivery, a
Lock-up Letter, in form and substance satisfactory to counsel to the
Underwriters, pursuant to which such shareholder shall agree not to
offer, sell, contract to sell or otherwise dispose of, any securities of
the Company that are substantially similar to the Shares, including but
not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Stock or any such
substantially similar securities (other than upon the conversion or
exchange of convertible or exchangeable securities outstanding as of the
date of this Agreement), without your prior written
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<PAGE> 11
consent, during the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption
"Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on
NASDAQ;
(j) [For all tax years commencing after the latest Time of
Delivery], to take such reasonable steps as may be necessary in any year
to avoid it becoming a "personal holding company" within the meaning of
Section 542 of the Internal Revenue Code, as amended;
(k) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
(l) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters
and dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum,
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<PAGE> 12
closing documents (including compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering
and sale under state securities laws as provided in Section 5(b) hereof,
including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of
any transfer agent or registrar; (viii) all costs and fees incurred by the
Company and the Underwriters in connection with any roadshows; and (ix) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section.
It is understood, however, that, except as provided in this Section, and
Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and
expenses.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have been filed and
become effective by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion
is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (viii), (xiii),
and (xviii) of subsection (d) below as well as such other related matters
as you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Salans Hertzfeld & Heilbronn, special Polish counsel for the
Underwriters, shall have furnished to you their written opinion (a draft
of such opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each Polish Designated Subsidiary has been duly
incorporated and is validly existing as a corporation under the
laws of the Republic of Poland, has corporate power and authority
to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is not required to be
qualified as a foreign corporation to transact business or to own
or lease property in any jurisdiction where it owns or leases
property or transacts business; all of the issued and outstanding
capital stock of each Polish Designated Subsidiary has been duly
authorized and validly issued, is
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<PAGE> 13
fully paid and non-assessable (except, in the case of any Polish
limited liability company, any statutory liability for taxes) and,
except as otherwise disclosed in the Prospectus, is owned by the
Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity;
(ii) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent it
constitutes matters of law, summarizes legal matters or legal
proceedings, has been reviewed by them and is correct in all
material respects; and
(iii) The execution, delivery and performance of this
Agreement and the International Underwriting Agreement, the
issuance and sale of the Shares being delivered at such time of
delivery by the Company and the consummation of the transactions
herein and therein contemplated will not result in any violation of
the provisions of the statutes or by-laws (or other similar
organizational documents) of any Polish Designated Subsidiary, or
any applicable law, statute, rule, regulation, judgment, order,
writ or decree, of any government, government instrumentality or
court having jurisdiction over the Company or any of its Polish
Designated Subsidiaries or any of their respective properties,
assets or operations.
In rendering such opinion, such counsel may rely as to matters
involving the application of United States federal and New York
State law, upon the opinion of Shearman & Sterling, counsel to the
Underwriters (which opinion shall be delivered to the Underwriters
at each Time of Delivery pursuant to this Agreement). Such counsel
may also rely, to the extent necessary, as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials.
(d) Baker & McKenzie, New York, special counsel for the Company,
shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex II(c) hereto), dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, except where the failure to so qualify or to be in
good standing would not result in a Material Adverse
13
<PAGE> 14
Effect;
(iv) Each U.S. Designated Subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and
all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and issued, are fully paid
and non-assessable, and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act and the Exchange
Act of the Shares, the quotation of the Shares on NASDAQ, and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities
or Blue Sky laws in connection with the purchase and distribution
of the Shares by the Underwriters and the International
Underwriters;
(ix) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws (or other
similar organizational documents) or of any applicable law,
statute, rule, regulation, judgment,
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<PAGE> 15
order, writ or decree of any government, government instrumentality
or court having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except as
described in the Prospectus, or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, license, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound;
(x) There are no restrictions (legal, contractual or
otherwise) on the ability of the U.S. Designated Subsidiaries to
declare and pay dividends or make any payment or transfer of
property or assets to their shareholder other than those referred
to in the Prospectus;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the captions
"U.S. Federal Income Tax Considerations", "Certain Relationships
and Related Transactions", "Shares Eligible for Future Sale" and
"Underwriting", insofar as they purport to describe the provisions
of the laws and documents referred to therein, are accurate,
complete and fair;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined
in the Investment Company Act;
(xiii) The Company has not been a "personal holding company"
within the meaning of Section 542 of the Internal Revenue Code, as
amended, for any taxable year of its existence, and has not been
required to pay any personal holding tax under Section 541 of the
Internal Revenue Code, as amended, for any taxable year;
(xiv) All descriptions in the Prospectus of contracts,
licenses and other documents to which the Company or any of its
subsidiaries is a party are accurate in all material respects; to
the best of their knowledge, there are no franchises, contracts,
licenses, indentures, mortgages, loan agreements, notes, leases or
other instruments that are required to be described in the
Prospectus that are not described or referred to in the Prospectus
other than those described or referred to therein, and the
descriptions thereof and references thereto are correct in all
material respects; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules and other historical and pro forma financial
data included or incorporated by reference therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder, although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xiii) of this Section 7(d); they have no reason to
believe that, as of its effective date, the Registration Statement
or any further amendment thereto made by the Company prior to such
Time of
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<PAGE> 16
Delivery (other than the financial statements and related schedules
and other historical and pro forma financial data included or
incorporated by reference therein, as to which such counsel need
express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
or that, as of its date, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
and other historical and pro forma financial data included or
incorporated by reference therein, as to which such counsel need
express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules and other historical and pro forma financial
data included or incorporated by reference therein, as to which
such counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading; and they do not know of
any amendment to the Registration Statement required to be filed or
of any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are
not filed or described as required.
In rendering such opinion, such counsel may rely (A) as to
matters involving documents in the Polish language and the
application of Polish law, upon the opinion of Baker & McKenzie,
Warsaw, special Polish counsel to the Company (which opinion shall
be delivered to the Underwriters at each Time of Delivery pursuant
to this Agreement), (B) as to matters involving the application of
Netherlands law, upon the opinion of Baker & McKenzie, Amsterdam,
special Netherlands counsel to PCBV (which opinion shall be
delivered to the Underwriters at each Time of Delivery pursuant to
this Agreement), and (C) as to matters involving the application of
United Kingdom law, upon the opinion of Ashurst Morris & Crisp,
special United Kingdom counsel to the Company (which opinion shall
be delivered to the Underwriters at each Time of Delivery pursuant
to this Agreement). Such counsel may also rely, to the extent
necessary, as to matters of fact (but not as to legal conclusions),
to the extent they deem proper, on certificates of responsible
officers of the Company and public officials.
(e) Baker & McKenzie, Warsaw, special Polish counsel for the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(d) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each Polish Designated Subsidiary has been duly
incorporated and is validly existing as a corporation under the
laws of the Republic of Poland, has corporate power and authority
to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is not required to be
qualified as a foreign corporation to transact business or to own
or lease property in any jurisdiction where it owns or leases
property or transacts business; all of the issued and outstanding
capital stock of each Polish Designated Subsidiary has been duly
authorized and validly issued, is
16
<PAGE> 17
fully paid and non-assessable (except, in the case of any Polish
limited liability company, any statutory liability for taxes) and,
to the best of their knowledge and information, except as otherwise
disclosed in the Prospectus, is owned by the Company, directly or
through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, except for
the Share Pledges;
(ii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company
or any subsidiary is subject, before or brought by any court or
governmental agency or body, which might be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or
the consummation of (1) this Agreement or the performance by the
Company of its obligations hereunder or (2) the transactions
contemplated by the Prospectus;
(iii) The Company and its Polish Designated Subsidiaries have
good and marketable title to all real property owned by them, in
each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
result in a Material Adverse Effect; and any real property and
buildings held under lease by the Company and its Polish Designated
Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as do not result in a
Material Adverse Effect;
(iv) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent
that it constitutes matters of law, summaries of legal matters, or
legal proceedings, or legal conclusions, has been reviewed by them
and is correct in all material respects;
(v) All descriptions in the Prospectus of contracts, licenses
and other documents to which the Company or any of its subsidiaries
is a party are accurate in all material respects; to the best of
their knowledge, there are no franchises, contracts, licenses,
indentures, mortgages, loan agreements, notes, leases or other
instruments that are required to be described in the Prospectus
that are not described or referred to in the Prospectus other than
those described or referred to therein, and the descriptions
thereof and references thereto are correct in all material
respects;
(vi) None of the Polish Designated Subsidiaries is in
violation of its statutes or by-laws (or other similar
organizational documents) nor is the Company or any of its
subsidiaries in violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court having jurisdiction over the
Company or any of its subsidiaries or any of their assets or
properties, except as described in the Prospectus, and no default
by the Company or any of its subsidiaries exists in the due
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, license, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that
is described or referred to in the Prospectus except as described
in the Prospectus and except for such defaults that would not
result in a Material Adverse Effect;
17
<PAGE> 18
(vii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby and in the Prospectus (including the use of proceeds from
the sale of the Shares and described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement, will not, whether with or without
the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default under or result in the creation
or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any subsidiary thereof pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known
to them, to which the Company or any subsidiary thereof is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary thereof is
subject, nor will such action result in any violation of the
provisions of the statutes or by-laws (or other similar
organizational documents) of any Polish Designated Subsidiary, or
any applicable law, statute, rule, regulation, judgment, order,
writ or decree, of any government, government instrumentality or
court having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties, assets or
operations;
(viii) Except as otherwise disclosed in the Prospectus, each
of the Polish Designated Subsidiaries owns or possesses or has
obtained all material governmental licenses, certificates, permits,
concessions, consents, orders, approvals and other authorizations
necessary to hold all concessions, leases and permits or own its
properties, including, without limitation, all licenses and permits
relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the Prospectus, and none
of the Polish Designated Subsidiaries has received any notice
relating to the revocation or modification of any such concession,
license, certificate, permit, consent, order, approval or other
authorizations;
(ix) There are no restrictions (legal, contractual or
otherwise) on the ability of the Polish Designated Subsidiaries to
declare and pay dividends or make any payment or transfer of
property or assets to their shareholder other than those referred
to in the Prospectus and except for the Pledges; and
(x) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be
required under the applicable securities laws of the various
jurisdictions in which the Shares will be offered or sold, as to
which they need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or
for the offering issuance, sale or delivery of the Shares to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of United States federal and New
York State law, upon the opinion of Baker & McKenzie, New York,
special counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement), (B) as to matters involving the application of
Netherlands law, upon the opinion of Baker & McKenzie, Amsterdam,
special Netherlands counsel to PCBV (which opinion shall be
delivered to the Underwriters at each Time of Delivery pursuant to
this Agreement), and (C) as to matters involving the application of
United Kingdom law, upon the opinion of Ashurst Morris & Crisp,
special United
18
<PAGE> 19
Kingdom counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement). Such counsel may also rely, to the extent necessary,
as to matters of fact (but not as to legal conclusions), to the
extent they deem proper, on certificates of responsible officers of
the Company and public officials.
(f) Baker & McKenzie, Amsterdam, special Netherlands counsel to the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(e) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) PCBV has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Netherlands,
has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and is duly registered with the local Dutch trade
register. Under Dutch law, PCBV is not required to be qualified as
a foreign corporation to transact business in the Netherlands. All
of the issued and outstanding capital stock of PCBV, consisting of
200,000 shares, has been duly authorized and validly issued, is
fully paid and non-assessable. The Company owns 184,600 out of
such 200,000 shares (92.3% of the total ) free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity;
(ii) There are no restrictions (legal, contractual or
otherwise) on the ability of PCBV to declare and pay dividends or
make any payment or transfer of property or assets to its
shareholders other than those described in the Prospectus and such
descriptions, if any, fairly summarize such restrictions;
(iii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which PCBV is a
party, or to which the property of PCBV is subject, before or
brought by any Dutch court or governmental agency or body, which
might be expected to result in a material adverse effect on the
current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its
subsidiaries, or which might reasonably be expected to materially
and adversely affect the properties or assets thereof in a manner
that is material and adverse to the Company and its subsidiaries
considered as one enterprise or the consummation of (A) this
Agreement or the performance by the Company of its obligations
hereunder (if any) or (B) the transactions contemplated by the
Prospectus;
(iv) All descriptions in the Prospectus of contracts and other
documents to which PCBV is a party are accurate in all material
respects; to the best of their knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that are required to be described in the
Prospectus that are not described or referred to in the Prospectus
other than those described or referred to therein, and the
descriptions thereof and references thereto are correct in all
material respects;
(v) PCBV is not in violation of its certificate of
incorporation or by-laws (or other similar organizational
documents) nor is PCBV in violation of any applicable Dutch law,
statute, rule, regulation, judgment, order, writ or
19
<PAGE> 20
decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over PCBV or any of its
assets or properties, except for as described in the Prospectus and
no default by PCBV exists in the due performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the
Prospectus, except as described in the Prospectus;
(vi) Except as otherwise disclosed in the Prospectus, PCBV
owns or possesses or has obtained all material governmental
licenses, certificates, permits, concessions, consents, orders,
approvals and other authorizations necessary to hold all
concessions, leases and permits or own its properties, including,
without limitation, all licenses and permits relating to
intellectual property, and to carry on its business as presently
conducted and as contemplated in the Prospectus, and PCBV has not
received any notice relating to the revocation or modification of
any such concession, license, certificate, permit, consent, order,
approval or other authorizations; and
(vii) No authorization, approval, consent or order of any
Dutch court or Dutch governmental authority or agency (other than
such as may be required under the applicable securities laws of the
various jurisdictions in which the Shares will be offered or sold,
as to which they need express no opinion) is required in connection
with the due authorization, execution and delivery of this
Agreement or for the offering issuance, sale or delivery of the
Shares to the Underwriters.
In rendering such opinion, such counsel may rely, to the
extent necessary, (A) as to matters involving documents in the
Polish language and the application of Polish law, upon the opinion
of Baker & McKenzie, Warsaw, special Polish counsel to the Company
(which opinion shall be delivered to the Underwriters at each Time
of Delivery pursuant to this Agreement), (B) as to matters
involving the application of United States federal and New York
State law, upon the opinion of Baker & McKenzie, New York, special
counsel to the Company (which opinion shall be delivered to the
Underwriters at each Time of Delivery pursuant to this Agreement),
and (C) as to matters involving the application of United Kingdom
law, upon the opinion of Ashurst Morris & Crisp, special United
Kingdom counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement). Such counsel may also rely, to the extent necessary,
as to matters of fact (but not as to legal conclusions), to the
extent they deem proper, on certificates of responsible officers of
the Company and public officials.
(g) Ashurst Morris & Crisp, special United Kingdom counsel to the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(f) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each U.K. Designated Subsidiary has been duly incorporated
and is validly existing as a corporation under the laws of the
United Kingdom, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Prospectus and is not required to be qualified as a foreign
corporation to transact business or to own or lease property in any
jurisdiction where it owns or leases property or transacts
business; all of the issued and outstanding capital stock of each
U.K.
20
<PAGE> 21
Designated Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and, to the best of their
knowledge and information, except as otherwise disclosed in the
Prospectus, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity;
(ii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company
or any subsidiary is subject, before or brought by any court or
governmental agency or body, which might be expected to result in a
material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations
of the Company and its subsidiaries, or which might reasonably be
expected to materially and adversely affect the properties or
assets thereof or the consummation of (1) this Agreement or the
performance by the Company of its obligations hereunder or (2) the
transactions contemplated by the Prospectus;
(iii) The Company and its U.K. Designated Subsidiaries have
good and marketable title in fee simple to all real property owned
by them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its U.K. Designated Subsidiaries; and
any real property and buildings held under lease by the Company and
its U.K. Designated Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its U.K.
Designated Subsidiaries;
(iv) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent
that it constitutes matters of law, summaries of legal matters, or
legal proceedings, or legal conclusions, has been reviewed by them
and is correct in all material respects;
(v) All descriptions in the Prospectus of contracts, licenses
and other documents to which a U.K. Designated Subsidiary is a
party are accurate in all material respects; to the best of their
knowledge, there are no franchises, contracts, licenses,
indentures, mortgages, loan agreements, notes, leases or other
instruments that are required to be described in the Prospectus
that are not described or referred to in the Prospectus other than
those described or referred to therein, and the descriptions
thereof and references thereto are correct in all material
respects;
(vi) None of the U.K. Designated Subsidiaries is in violation
of its Memorandum and Articles of Association (or other similar
organizational documents) nor is any U.K. Designated Subsidiary in
violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction
over a U.K. Designated Subsidiary or any of their assets or
properties, except as described in the Prospectus, and no default
by a U.K. Designated Subsidiary exists in the due performance or
observance of
21
<PAGE> 22
any obligation, agreement, covenant or condition contained in any
contract, license, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described or referred to
in the Prospectus except as described in the Prospectus;
(vii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby and in the Prospectus (including the use of proceeds from
the sale of the Shares and described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement, will not, whether with or without
the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default under or result in the creation
or imposition of any lien, charge or encumbrance upon any property
or assets of any U.K. Designated Subsidiary pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known
to them, to which any U.K. Designated Subsidiary is a party or by
which it or any of them may be bound, or to which any of the
property or assets of such U.K. Designated Subsidiary is subject,
nor will such action result in any violation of the provisions of
the memorandum and articles of association (or other similar
organizational documents) of any U.K. Designated Subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree, of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over any U.K. Designated
Subsidiary or any of their respective properties, assets or
operations;
(viii) Each of the U.K. Designated Subsidiaries owns or
possesses or has obtained all material governmental licenses,
certificates, permits, concessions, consents, orders, approvals and
other authorizations necessary to hold all concessions, leases and
permits or own its properties, including, without limitation, all
licenses and permits relating to intellectual property, and to
carry on its business as presently conducted and as contemplated in
the Prospectus, and none of the U.K. Designated Subsidiaries has
received any notice relating to the revocation or modification of
any such concession, license, certificate, permit, consent, order,
approval or other authorizations;
(ix) There are no restrictions (legal, contractual or
otherwise) on the ability of the U.K. Designated Subsidiaries to
declare and pay dividends or make any payment or transfer of
property or assets to their shareholder other than those described
in the Prospectus; and
(x) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be
required under the applicable securities laws of the various
jurisdictions in which the Shares will be offered or sold, as to
which they need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or
for the offering issuance, sale or delivery of the Shares to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of United States federal and New
York State law, upon the opinion of Baker & McKenzie, New York,
special counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement), (B) as to matters involving the
22
<PAGE> 23
application of Netherlands law, upon the opinion of Baker &
McKenzie, Amsterdam, special Netherlands counsel to PCBV (which
opinion shall be delivered to the Underwriters at each Time of
Delivery pursuant to this Agreement), and (C) as to matters
involving documents in the Polish language and the application of
Polish law, upon the opinion of Baker & McKenzie, Warsaw, special
Polish counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement). Such counsel may also rely, to the extent necessary,
as to matters of fact (but not as to legal conclusions), to the
extent they deem proper, on certificates of responsible officers of
the Company and public officials.
(h) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, KPMG Peat Marwick LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery
is attached as Annex I(b) hereto;
(i)(1) Neither the Company nor any of its Designated Subsidiaries
shall have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus, and (2) since the respective dates as of which
information is given in the Prospectus there shall not have been any
change in the capital stock or consolidated long-term or short-term debt
of the Company or any of its Polish subsidiaries or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company and its Polish subsidiaries, otherwise than
as set forth or contemplated in the Prospectus, the effect of which, in
any such case described in Clause (1) or (2), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(j) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded PCI's debt securities or preferred stock
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications,
its rating of any of PCI's debt securities or preferred stock;
(k) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State or Polish authorities; (iv)
the outbreak or escalation of hostilities involving the
23
<PAGE> 24
United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this
Clause (iv) in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; or (v) the occurrence of any
material adverse change in the existing financial, political or economic
conditions in the United States, the United Kingdom or Poland or
elsewhere which, in the judgment of the Representatives would materially
and adversely affect the financial markets or the market for the Shares
and other equity securities.
(l) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(m) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each [Principal Shareholder]
substantially to the effect set forth in Subsection 5(e) hereof in form
and substance satisfactory to you;
(n) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(o) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder to
be performed at or prior to such Time of Delivery, as to the matters set
forth in subsections (a) and (i) of this Section and as to such other
matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission
24
<PAGE> 25
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Goldman, Sachs & Co. expressly for
use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs
of investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of,
or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
party is an actual or potential party to such action or claim) unless
such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such
action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection
(c) above, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Shares purchased under
this Agreement (before deducting expenses) received by the Company bear
to the total underwriting discounts and
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<PAGE> 26
commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time
of Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein.
If within thirty-six hours after such default by any Underwriter you do
not arrange for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for
the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than
seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the Prospectus which in
your opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under this
Section with like effect as if such person had originally been a party to
this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which
26
<PAGE> 27
remains unpurchased does not exceed one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter
to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require
each non-defaulting Underwriter to purchase its pro rata share (based on
the number of Shares which such Underwriter agreed to purchase hereunder)
of the Shares of such defaulting Underwriter or Underwriters for which
such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b)
above to require non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for
its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the Representatives in care of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth
in the Registration Statement, Attention: Secretary; provided, however, that
any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered
or sent by mail, telex or facsimile transmission to such Underwriter at its
address set forth in its Underwriters' Questionnaire, or telex constituting
such Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements
27
<PAGE> 28
shall take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of
the Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
28
<PAGE> 29
If the foregoing is in accordance with your understanding, please sign and
return to us one counterpart for the Company and one counterpart for each of
the Representatives plus one counterpart for each counsel, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter
and such acceptance hereof shall constitute a binding agreement between each of
the Underwriters and the Company. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters (U.S. Version), the form of
which shall be submitted to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
@Entertainment, Inc.
By: ______________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: ________________________________________________________
(Goldman, Sachs & Co.)
By: ________________________________________________________
(Merrill Lynch, Pierce, Fenner & Smith Incorporated)
On behalf of each of the Underwriters
29
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- ----------------------------------------------------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co..................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated...
[Names of other Underwriters]........................
Total..............................................
</TABLE>
30
<PAGE> 31
SCHEDULE II
DESIGNATED SUBSIDIARIES
U.S. DESIGNATED SUBSIDIARIES:
Poland Communications, Inc.
Mozaic, Inc.
POLISH DESIGNATED SUBSIDIARIES:
Polska Telewizja Kablowa S.A
Polska Telewizja Kablowa -- Warszawa S.A.
Polska Telewizja Kablowa -- Krakow, S.A.
Polska Telewizja Kablowa -- Ryntronik, S.A.
Polska Telewizja Kablowa -- Lublin, S.A.
Polska Telewizja Kablowa -- Szczecin Sp. z o.o.
Potlekab Sp. z o.o.
TV Kabel Sp. z o.o.
31
<PAGE> 32
ProCable Sp. z o.o.
Mozaic Entertainment Sp. z o.o.
Polskie Media. S.A.
Ground Zero Media Sp. z o.o.
Telewizja Kablowa GOSAT-Service Sp. z o.o.
U.K. DESIGNATED SUBSIDIARY:
At Entertainment Limited
NETHERLANDS DESIGNATED SUBSIDIARY:
Poland Cablevision (Netherlands) B.V.
32
<PAGE> 1
Exhibit 2.1
CONTRIBUTION AGREEMENT
BETWEEN
POLISH INVESTMENTS HOLDING L.P.,
ECO HOLDINGS III LIMITED PARTNERSHIP,
ROGER M. FREEDMAN, STEELE, LLC, THE AESOP FUND, L.P.,
THE CHERYL ANNE CHASE MARITAL TRUST,
AND
@ ENTERTAINMENT, INC.
DATED JUNE 22, 1997
<PAGE> 2
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement"), is made as of the 22nd day
of June 1997, by and between Polish Investments Holding L.P., a limited
partnership organized under the laws of Delaware ("PIHLP"); ECO Holdings III
Limited Partnership, a limited partnership organized under the laws of Delaware
("ECO"); Roger M. Freedman, an individual resident of the State of Connecticut
("RMF"); Steele, LLC, a Connecticut limited liability company ("Steele"); The
AESOP Fund, L.P., a Delaware limited partnership ("AESOP"); The Cheryl Ann Chase
Marital Trust, a trust organized under the laws of Connecticut ("CACMT"); and @
Entertainment, Inc., a corporation organized under the laws of Delaware (the
"Company"). PIHLP, ECO, RMF, Steele, AESOP and CACMT shall hereinafter be
referred to as the "Shareholders."
WITNESSETH
WHEREAS, 18,948 shares of common stock, par value $0.01 per share (the "PCI
Common"), of Poland Communications, Inc., a New York corporation ("PCI") are
issued and outstanding; 4,000 shares of Series A Preferred Stock, par value
$0.01 per share ("PCI Series A Preferred") of PCI are issued and outstanding;
2,500 shares of Series B Preferred Stock, par value $0.01 per share ("PCI Series
B Preferred") of PCI are issued and outstanding; and 2,000 shares of Series C
Preferred Stock, par value $0.01 per share ("PCI Series C Preferred") of PCI are
issued and outstanding.
WHEREAS, there is no other class of capital stock PCI which has shares
issued and outstanding.
WHEREAS, the only shares of capital stock of PCI which have voting rights
are the shares of PCI Common and the shares of PCI Series B Preferred.
WHEREAS, PIHLP owns 10,303 shares of PCI Common, ECO owns 4,662 shares of
PCI Common, Steele owns 1,429 shares of PCI Common, RMF owns 1,221 shares of
PCI Common, CACMT owns 733 shares of PCI Common and AESOP owns 600 shares of
PCI Common, which in the aggregate represent all of the issued and outstanding
shares of PCI Common;
<PAGE> 3
WHEREAS, ECO owns 2,500 shares of PCI Series B Preferred, which
represents all of the issued and outstanding shares of PCI Series B Preferred.
WHEREAS, the Shareholders desire to contribute all of the
above-referenced shares of PCI Common and PCI Series B Preferred owned by them
(the "PCI Shares") to the Company, upon the terms and conditions and in exchange
for the consideration herein specified in a tax-free exchange qualifying under
Section 351 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and of other good and valuable consideration,
the parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE CONTRIBUTION
1.1 CONTRIBUTION OF PCI SHARES. The Shareholders hereby agree to
assign, transfer, and convey to the Company at the Closing hereinafter
identified, for the consideration set forth in accordance with the provisions
of Article II, all of their rights, title, and interest in and to the PCI
Shares. At the Closing, the Shareholders shall deliver to the Company
certificates representing all the PCI Shares owned by them, validly endorsed in
blank or accompanied by stock powers with respect to such shares validly
endorsed in blank.
ARTICLE II
TERMS OF THE CONTRIBUTION
2.1 THE SHAREHOLDERS' COMMON EQUITY INTEREST IN THE COMPANY. As
consideration for the contribution of shares of PCI Common to the Company, the
2
<PAGE> 4
Shareholders shall receive 1,000 shares of common stock par value one cent
($0.01) per share (the "Common Stock"), of the Company for each share of PCI
Common so contributed.
2.2 ECO'S PREFERRED EQUITY INTEREST IN THE COMPANY. As
consideration for the contribution of shares of PCI Series B Preferred, ECO
shall receive a like number of shares of a like series of preferred stock of
the Company. The preferred stock of the Company which shall be exchanged for
the PCI Series B Preferred shall be designated Series B Preferred Stock and
shall have rights and preferences set forth in Article Fourth of the Amended
and Restated Certificate of Incorporation of the Company in the form attached
hereto as Exhibit A.
ARTICLE III
PARTY AUTHORIZATIONS
3.1 Each party represents and warrants to the Company and each of
the other parties that it has obtained, by means in conformity with all
applicable provisions of all applicable laws, the approval of its execution and
delivery of this Agreement and the performance by such party of its obligations
hereunder.
ARTICLE IV
CLOSING
4.1 The actual consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place on the date on which the last
of the parties hereto shall have executed this Agreement (the "Closing Date").
4.2 If the IPO Closing (as defined in Article IV, Section 3(D)(2)
of Exhibit A) has not occurred by the September 1, 1997 (the "Delayed Closing
Date"), the Shareholders agree that by September 15, 1997 they will replicate,
with respect to the Company, the corporate governance and shareholder relation
provisions in effect at PCI immediately prior to the execution of this
Agreement, including but not limited to all provisions contained in the
Certificate of Incorporation and Bylaws of PCI (subject to the inherent
differences between the New York Business Corporation Law and the Delaware
General
3
<PAGE> 5
Corporation Law).
ARTICLE V
OBLIGATIONS AT THE CLOSING
5.1. SHAREHOLDERS' OBLIGATIONS. At the Closing, each of the Shareholders
shall deliver to the Company:
1. If such Shareholder is not a natural person, a copy of certified
resolutions adopted by the governing body or such other authority of such
Shareholder authorizing or ratifying the execution and delivery of this
Agreement, and the performance by such Shareholder of its obligations hereunder.
2. Certificates representing all of the PCI Shares owned by such
Shareholder, together with appropriate stock powers in a form satisfactory to
the Company and executed by such Shareholder, assigning such certificates to
the Company, free and clear of any liens, claims, options, encumbrances or
restrictions of any nature whatsoever.
5.2. THE COMPANY'S OBLIGATIONS.
1. At the Closing, the Company shall issue Common Stock of the
Company to the Shareholders listed below in the following amounts:
10,303,000 shares PIHLP
4,662,000 shares ECO
1,429,000 shares Steele
1,221,000 shares RMF
733,000 shares CACMT
600,000 shares AESOP
4
<PAGE> 6
2. At the Closing, the Company shall issue Company preferred stock
of the following series to ECO in the following amount:
2,500 shares of Series B Preferred Stock ECO
5.3 MUTUAL OBLIGATIONS. At the Closing, each party shall deliver to the
other parties, duly executed by such party, each of the following Exhibits to
which such party is a signatory the Shareholders' Agreement in the form attached
hereto as Exhibit B, the Registration Rights Agreement in form attached hereto
as Exhibit C, the Voting Agreement in the form attached hereto as Exhibit D and
the Side Letter in the form attached hereto as Exhibit E, duly executed by such
party.
ARTICLE VI
FURTHER COVENANTS OF THE PARTIES
6.1 FURTHER ASSURANCES WITH RESPECT TO PCI SHARES. The Shareholders and
the Company agree that, from time to time and without further consideration,
each of them shall execute and deliver such further documents and take such
other action as the Company may require more effectively to transfer to and
vest in the Company and put the Company in possession of the PCI Shares and all
right and interest in the PCI Shares.
6.2 FURTHER ASSURANCES WITH RESPECT TO THE COMPANY'S SHARES. The
Shareholders and the Company agree that, from time to time and without further
consideration, each of them shall execute and deliver such further documents
and take such other action as the Shareholders may require to issue to and vest
in the Shareholders all right and interest in the shares of Company capital
stock referenced in Section 5.2. above.
5
<PAGE> 7
ARTICLE VII
TAX MATTERS
7.1. TAX FREE TRANSACTION. The Shareholders and the Company intend that the
transfers described in Articles I and II, above, constitute a tax-free exchange
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended.
7.2. Each of the Shareholders agrees to file with its federal income tax
return for the taxable year in which the Closing occurs the statement required
by Treasury Regulations Section 1.351-3(a).
7.3. The Company agrees to file with its federal income tax return for the
taxable year in which the Closing occurs the statement required by Treasury
Regulations Section 1.351-3(b).
ARTICLE VIII
EFFECTIVENESS AND ASSIGNABILITY OF AGREEMENT
8.1. EFFECTIVENESS GENERALLY. This Agreement shall become effective when
executed and delivered by the Company and each of the Shareholders, and shall
be binding in all respects upon the respective successors and permitted assigns
of each of the Company and the Shareholders. No party hereto may assign this
Agreement in whole or in part without first obtaining the written consent of
all other parties hereto.
6
<PAGE> 8
ARTICLE IX
COMPLETENESS OF AGREEMENT
This Agreement and the Exhibits hereto represent the entire contract
between the Company and the Shareholders with respect to the subject matter
hereof and supersede all offers, proposals, statements, representations and
agreements with respect to the subject matter hereof. The Exhibits hereto are
incorporated herein by reference, and shall be deemed to be included in any
reference to this Agreement. This Agreement may not be amended except by action
of the Company and each of the Shareholders hereto set forth in an instrument
in writing signed on behalf of the Company and each of the Shareholders hereto.
ARTICLE X
CAPTIONS
The captions to the Articles and Sections contained in this Agreement are
for reference only, do not form a substantive part of this Agreement and shall
not restrict nor enlarge any substantive provision of this Agreement.
ARTICLE XI
APPLICABLE LAW
This Agreement, and the Exhibits, and all other documents given in
connection herewith, shall be construed in accordance with the laws of the
State of Delaware, without regard to the principles of conflicts of laws.
7
<PAGE> 9
ARTICLE XII
CHOICE OF FORUM; VENUE; SERVICE OF PROCESS
Any suit, action, or proceeding among any or all of the parties hereto
relating to this Agreement, to any document, instrument, or agreement
delivered pursuant hereto, referred to herein, or contemplated hereby, or in
any other manner arising out of or relating to the transactions contemplated by
or referenced in this Agreement, shall be commenced and maintained exclusively
in the Court of Chancery of the State of Delaware or, if that Court lacks
jurisdiction over the subject matter, in a state court of competent
subject-matter jurisdiction sitting in New Castle County, Delaware. The parties
hereto hereby submit themselves unconditionally and irrevocably to the personal
jurisdiction of such courts. The parties hereto further agree that venue shall
be in New Castle County, Delaware. The parties hereto irrevocably waive any
objection to such personal jurisdiction or venue including, but not limited to,
the objection that any suit, action, or proceeding brought in Delaware, has
been brought in an inconvenient forum. The parties hereto irrevocably agree
that process issuing from such courts may be served on them, either personally
or by certified mail, return receipt requested, at the addresses on the books
and records of the Company; and further irrevocably waive any objection to
service of process made in such manner and at such addresses, including without
limitation any objection that service in such manner and at such addresses is
not authorized by the local or procedural laws of the State of Delaware.
ARTICLE XIII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute but one
and the same Agreement by and among the Company and the Shareholders.
8
<PAGE> 10
ARTICLE XIV
NO THIRD PARTY BENEFICIARY
This Agreement is intended to inure to the benefit of the Company and the
Shareholders only; and no third party shall have any rights, express or
implied, by reason of this Agreement.
ARTICLE XV
UNILATERAL RIGHT TO WAIVE FAILURES OF OTHER PARTIES
15.1. WAIVER. The Company or any of the Shareholders may:
1. Extend in writing the time for the performance of any of the
obligations herein contained to be performed for the benefit of such entity; and
2. Waive in writing the failure in performance of any of the
conditions herein expressed for its benefit.
15.2. EFFECT OF WAIVER. No such waiver or extension shall be valid unless
in writing and signed by the entity granting the waiver or extension, and no
such waiver or extension shall be construed to excuse or mitigate any
subsequent breach or violation of this Agreement not specifically covered by
such waiver.
ARTICLE XVI
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions hereof, and the Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted. Furthermore, upon the request of the Company or any of the
Shareholders, the Company and the Shareholders shall add to this Agreement, in
lieu of such invalid or unenforceable provisions, provisions as similar in
9
<PAGE> 11
terms to such invalid or unenforceable provisions as may be possible and legal,
valid and enforceable.
IN WITNESS WHEREOF, the Company and the Shareholders have caused this
Agreement to be executed as of the day and year first above written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
/s/ ROBERT E. FOWLER, III
By: ------------------------------
Name: Robert E. Fowler, III
Title: Chief Executive Officer
POLISH INVESTMENTS HOLDING L.P.,
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
MANAGING GENERAL PARTNER
/s/ CHERYL A. CHASE
By: -------------------------------
Name: Cheryl A. Chase
Title: Executive Vice President
ECO HOLDINGS III LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Advent ECO III L.L.C., General Partner
By: Global Private Equity II Limited
Partnership, Member
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
/s/ JANET L. HENNESSY
By: ________________________________
10
<PAGE> 12
Name: Janet L. Hennessy
Title: Vice President
STEELE LLC, a Connecticut limited liability
company
/s/ RICHARD B. STEELE
By: ----------------------------------
Name: Richard B. Steele
Title:
THE CHERYL ANNE CHASE MARITAL TRUST,
a Connecticut trust
/s/ CHERYL A. CHASE
By: ----------------------------------
Name: Cheryl A. Chase
Title: Trustee, and not individually or
in any other capacity
/s/ KENNETH MUSEN
By: ----------------------------------
Name: Kenneth Musen
Title: Trustee, and not individually or
in any other capacity
THE AESOP FUND, L.P., a Delaware limited
partnership
Capital Investors, G.P.,
By: ----------------------------------
a partnership
----------------------------------
MANAGING GENERAL PARTNER
/s/ DUFF KENNEDY
By: ----------------------------------
Name: Duff Kennedy
Title: Chairman
/s/ ROGER M. FREEDMAN
----------------------------------
Roger M. Freedman
11
<PAGE> 13
Exhibit A
ARTICLE IV OF THE AMENDED RESTATED
CERTIFICATE OF INCORPORATION
ARTICLE IV
SECTION 1. AUTHORIZED. The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is
ninety million two thousand and five hundred (90,002,500), of which seventy
million (70,000,000) shares are authorized for common stock, par value one cent
(U.S. $0.01) per share ("Common Stock") and twenty million two thousand and five
hundred (20,002,500) shares are authorized for preferred stock, par value of one
cent (U.S. $0.01) per share ("Preferred Stock"). The Common Stock and Preferred
Stock shall have the voting rights, designations, preferences, qualifications,
privileges, limitations, options and other rights as follows:
SECTION 2. COMMON STOCK.
A. VOTING RIGHTS. The holders of Common Stock shall be entitled to
one (1) vote per share on all matters submitted to the shareholders of the
Corporation.
B. DIVIDEND PROVISIONS. The holders of shares of Common Stock shall be
entitled to receive dividends when, as and if declared by the Board of
Directors.
SECTION 3. PREFERRED STOCK. The Preferred Stock of the Corporation may be
issued as a class, without series or, if so determined from time to time by the
Board of Directors of the Corporation, in one or more series, each series to be
expressly designated by a distinguishing number, letter or title. The
Preferred Stock, and each series thereof, shall have such voting powers and
other rights, privileges, preferences and restrictions as shall be set forth in
the resolutions of the Board of Directors providing for the issuance of such
preferred stock. There is hereby expressly granted to the Board of Directors
of the Corporation the authority to determine, fix, alter or revoke any and all
of the rights, preferences, privileges and restrictions and other terms of the
Preferred Stock and any series thereof, and the number of shares constituting
any series and the designation thereof, and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series,
but not below the number of shares of such series then outstanding, or to
eliminate entirely any series if there no longer are any outstanding shares of
such series (and, thereupon, the shares previously designated for such series
shall become authorized but undesignated shares). In case the number of shares
of any series shall be so decreased, the shares constituting such shall resume
the status they had prior to the adoption of the resolution originally setting
forth the number of shares of such series.
12
<PAGE> 14
Two thousand five hundred (2,500) of the authorized shares of Preferred
Stock are hereby designated the "Series B Preferred Stock."
A. VOTING RIGHTS. Except as otherwise required by law, the shares of
Series B Preferred Stock shall be entitled to vote on an equal basis together
with the shares of Common Stock and not as a separate class or series or
sub-series at any annual or special meeting of the stockholders of the
Corporation, or may act by written consent in the same manner as the Common
Stock, in either case upon the following basis: each holder of shares of Series
B Preferred Stock shall be entitled to such number of votes for the Series B
Preferred Stock held by such holder on the record date fixed for such meeting,
or on the effective date of such written consent, as shall be equal to the
number of shares (rounded to the nearest whole share) of Common Stock into
which all shares of Series B Preferred Stock held by such holder are
convertible on such date.
B. DIVIDEND PROVISIONS. The holders of shares of Series B Preferred Stock
shall not be entitled to receive dividends.
C. REDEMPTION.
(1) MANDATORY REDEMPTION. On March 31, 2004, the Corporation shall be
required to redeem the Series B Preferred Stock (the "Series B Redemption
Date").
(2) OPTIONAL REDEMPTION. At the option of the Corporation, the Series B
Preferred Stock may be redeemed at any time, in whole or in part. Prior to the
date set for redemption of the Series B Preferred Stock pursuant to this
Section 3(C)(2), the holders of any shares thereof shall have the option to
convert their shares into Common Stock in accordance with Section 3(D). The
Corporation shall exercise said option by providing notice of redemption in
accordance with Article IV, Section 3(C)(4).
(3) REDEMPTION PRICE. The redemption price per share of Series B
Preferred Stock to be paid upon a redemption under this Section 3(C) shall be
equal to ten thousand dollars (U.S. $10,000) (the "Series B Redemption Price").
The Series B Redemption Price shall be adjusted proportionately in the event
the Series B Preferred Stock is adjusted into a lesser number of shares or
subdivided into a greater number of shares. The Series B Redemption Price
shall be paid in cash.
(4) REDEMPTION NOTICE. Notice of any redemption pursuant to this
Section 3(C), shall be given by the Corporation by mailing notice (the "Series B
Redemption Notice"), via registered or certified mail, postage prepaid, or by
hand delivery to the holders of record of the Series B Preferred Stock (as the
close of business on the business day next preceding the day on which the Series
B Redemption Notice is given) at their respective addresses as the same shall
appear on the stock books of the Corporation, not less than 3 days nor more than
60
13
<PAGE> 15
days prior to the date of such redemption and the Series B Redemption
Notice shall state the time and place fixed for such redemption.
(5) SURRENDER OF CERTIFICATES. Upon surrender of a certificate or
certificates representing shares to be redeemed pursuant to this Section 3(C),
the Corporation shall remit an amount equal to the product of, (i) the Series B
Redemption Price, times (ii) the number of shares of the Series B Preferred
Stock to be redeemed. If fewer than all of the shares represented by any such
certificate or certificates presented for redemption are to be redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder. If so required by the Corporation, any certificate for Series B
Preferred Stock surrendered for redemption shall be accompanied by instruments
of transfer, duly executed by the holder of such Series B Preferred Stock or
his duly authorized representative.
(6) Rights After the Series B Redemption Date. From and after the close
of business on the Series B Redemption Date, unless there shall have been a
default in the payment of the redemption price, all rights of holders of shares
of Series B Preferred Stock redeemed pursuant to Section 3(C) shall cease with
respect to such shares, and thereafter such shares shall not be deemed to be
outstanding for any purposes whatsoever.
(7) Cancellation of Redeemed Shares. Any shares of Series B preferred
Stock that shall at any time have been redeemed or repurchased by the
Corporation shall, after such redemption or repurchase, be cancelled by the
Corporation and shall not be available for reissuance.
D. CONVERSION RIGHTS.
(1) Conversion Ratio. Subject to and in compliance with the provisions
of this Section 3(D), each holder of outstanding shares of Series B Preferred
Stock shall have the right at any time, or from time to time, prior to March 31,
2004, at such holder's option, without charge by the Corporation to such holder,
to convert such shares of Series B Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock (calculated as to each conversion
to the nearest 1/100th of a share) equal to the then applicable Conversion Ratio
(as defined below) multiplied by the number of shares of Series B Preferred
Stock to be converted pursuant to this Section 3(D). The Conversion Ratio per
share of Series B Preferred Stock shall be 1,944.80 shares of Common Stock for
each share of Series B Preferred Stock, subject to adjustment from time to time
as provided in Sections 4(D)(4) and 4(D)(5).
(2) Automatic Conversion. Notwithstanding any other provision of this
Section 3(D), each share of Series B Preferred Stock shall automatically be
converted into shares of Common Stock at the then applicable Conversation Ratio
for such shares of Series B Preferred Stock (i) simultaneously with the closing
(the "IPO Closing") of an underwritten public offering of shares to be listed
on the New York Stock Exchange or the American Stock Exchange, or to be quoted
on the National Association of Securities Dealers Automated
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<PAGE> 16
Quotation System or the National Market System of the National Association
of Securities Dealers pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale to the public
of at least twenty percent (20%) of the Common Stock of the Corporation
outstanding immediately after the IPO Closing or (ii) immediately prior to the
closing of a merger or consolidation of the Corporation with or into another
corporation or entity which is not an affiliate of the Corporation. For
purposes of this Section 4(D)(2), "affiliate of the Corporation" shall mean any
person or entity that controls, is controlled by or is under common control
with the Corporation.
(3) De Minimis Conversion. At no time shall any holder of outstanding
shares of Series B Preferred Stock convert less than twenty-five percent (25%)
of the total number of authorized shares of Series B Preferred Stock into
shares of Common Stock pursuant to this Section 3(D), provided, however, if at
any time a holder of Series B Preferred Stock holds less than twenty-five
percent (25%) of the total number of authorized shares of Series B Preferred
Stock, such holder shall have the right to convert all such holder's shares of
Series B Preferred Stock into Common Stock.
(4) Anti-Dilution. If at any time, or from time to time, the
Corporation shall declare and pay on or in respect of, Common Stock any dividend
payable in Common Stock or subdivide the outstanding number of shares of Common
Stock into a greater number of shares, or contract the number of outstanding
shares of Series B Preferred Stock by combining such shares into a smaller
number of shares of Series B Preferred Stock, the Conversion Ratio in effect at
the time of the taking of a record for such dividend or the taking of such other
action shall be proportionately increased as of such time;
(5) Anti-Dilution. If at any time, or from time to time, the
Corporation shall reduce the number of outstanding shares of Common Stock by
combining such shares into a smaller number of shares, or subdivide the
outstanding shares of Series B Preferred Stock into a greater number of shares
of Series B Preferred Stock, the Conversion Ratio in effect at the time of the
taking of any such action shall be proportionately decreased as of such time;
(6) Merger, Consolidation or Reclassification. If the Corporation shall
consolidate with or merge into any corporation (other than a merger or
consolidation referred to in clause (ii) of Section 3(D)(2) or reclassify its
outstanding Common Stock, each share of Series B Preferred Stock shall
thereafter be convertible into the number of shares of stock or other
securities or property of the Corporation, or of the entity resulting from such
consolidation or merger, to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series B Preferred Stock
would have been entitled upon such consolidation or merger or reclassification,
had the holder of such share of Series B Preferred Stock exercised his right of
conversion and had such shares been issued and outstanding and had such holder
been the holder of record of such shares of Common Stock at
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<PAGE> 17
the time of such consolidation, merger or reclassification; and the Corporation
shall make lawful provision therefor as part of such consolidation, merger or
reclassification;
(7) Conversion Notice. In order to exercise his conversion privilege,
the holder of any Series B Preferred Stock to be converted into Common Stock
shall present and surrender the certificate representing such Series B Preferred
Stock during usual business hours at any office or agency of the Corporation and
shall deliver a written notice of the election of such holder to convert the
shares represented by such certificate or any portion thereof specified in such
notice, and shall fix a date for conversion which is not less than five nor more
than ten days ("conversion date") from the date of the notice. Such notice
shall also specify the name or names (with addresses) in which the certificate
or certificates representing the Common Stock which shall be issuable on such
conversion shall be issued. If so required by the Corporation, any certificate
for Series B Preferred Stock surrendered for conversion into Common Stock shall
be accompanied by instruments of transfer, duly executed by the holder of such
Series B Preferred Stock or his duly authorized representative. Each conversion
of Series B Preferred Stock into Common Stock shall be deemed to have been
effected on the conversion date provided for in such notice, provided that the
certificates representing the Series B Preferred Stock, and any required
instruments of transfer, shall have been received by the Corporation as
aforesaid, and thereafter the person or persons in whose name or names any
certificate or certificates representing Common Stock which shall be issuable on
such conversion shall be deemed to have become, immediately prior to the close
of business on the conversion date, the holder or holders of record of the
Common Stock represented thereby;
(8) Lapse of Rights on Redemption. In case any of the Series B
Preferred Stock shall have been redeemed by the Corporation, such rights of
conversion shall cease and terminate with respect to such shares so redeemed
unless default shall have been made in the payment of the redemption price on
the date fixed for the redemption of such shares;
(9) Corporation's Obligation. As promptly as practicable after the
presentation and surrender for conversion into Common Stock, as herein provided,
of any certificate representing any Series B Preferred Stock, after the
conversion date, the Corporation shall issue and deliver to or upon the written
order of the holder thereof, certificates representing the number of shares of
Common Stock issuable upon such conversion. In case any certificates
representing Series B Preferred Stock shall be surrendered for conversion of
only a part of the shares represented thereby into Common Stock, the Corporation
shall also deliver to or upon the written order of the holder thereof, a
certificate or certificates representing the number of shares of Series B
Preferred Stock represented by such surrendered certificate which are not being
converted. The issuance of certificates representing Common Stock issuable upon
conversion of Series B Preferred Shares shall be made without charge by the
Corporation to the converting holder including, without limitation, charges for
any tax imposed on the Corporation with respect to the issuance thereof. The
Corporation shall not, however, be required to pay any tax which may be payable
with respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of
16
<PAGE> 18
the holder of the shares being converted, and the Corporation shall not be
required to issue or deliver any such certificate unless and until the person
requesting the issue thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid;
(10) Rights of Converted Shares. All Series B Preferred Stock which
shall have been surrendered for conversion into Common Stock as herein provided
upon the conversion date shall no longer be deemed to be outstanding, and all
rights of the holders of such surrendered shares including the rights, if any,
to receive dividends, proceeds from redemption or liquidation and notices and to
vote, shall thereupon cease and terminate, except only the right of the holders
thereof to receive Common Stock in exchange therefor;
(11) Conversion Adjustment. If applicable, whenever the Conversion
Ratio is adjusted, as herein provided or as provided in the appropriate
amendment to this Certificate of Incorporation, the Corporation shall promptly
file with the transfer agent, if any, for the Common Stock of the Corporation a
statement signed by the President or a Vice President or the Secretary or the
Treasurer setting forth the adjusted Conversion Ratio determined as so provided.
Such statement shall set forth in reasonable detail such facts as may be
necessary to show the reason for and the manner of computing such adjustment;
and
(12) No Reissuance. Upon conversion of any shares of Series B Preferred
Stock into Common Stock, such shares of Series B Preferred Stock so converted
shall be canceled and shall not be reissued.
(13) No Fractional Shares. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of the Series B Preferred Stock. Any fractional interest in a share of Common
Stock resulting from conversion of Series B Preferred Stock shall be paid in
cash (computed to the nearest cent). Consideration paid for each fractional
share shall be an amount equal to (i) the amount resulting from dividing (x)
the fraction for such fractional share by (y) the Conversion Ratio, multiplied
by (ii) the Series B Redemption Price.
Section 4. LIQUIDATION PREFERENCES OF PREFERRED STOCK.
A. ORDER OF DISTRIBUTION. Subject to Section 6(B), upon the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, after payment or provisions for the payment of the debts
and other liabilities of the Corporation, the assets then available for
distribution to the shareholders shall be distributed as follows:
(1) First to the holders of the Series B Preferred Stock, to the extent
available, in an amount equal to $10,000.00 per share (the "Series B
Liquidation Preference"), but if the funds available therefor are insufficient,
then to the holders of Series B Preferred Stock on a pro-rata basis in
accordance with the number of shares held by each holder.
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<PAGE> 19
(2) After distribution in accordance with clause (1) above, all
remaining assets available for distribution to the shareholders shall be
distributed to the holders of shares of the outstanding Common Stock on a pro
rata basis in accordance with the number of shares held by each holder.
B. DISTRIBUTIONS AFTER IPO CLOSING. Upon the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation that occurs after the IPO Closing, after payment or provisions for
the payment of the debts and other liabilities of the Corporation, the assets
then available for distribution to the shareholders shall be distributed as
follows: first, an amount equal to the aggregate Series B Liquidation
Preference for all outstanding shares of Series B Preferred Stock shall be
distributed pro rata among all holders of the Series B Preferred Stock based on
the number of shares held by each holder; and second, all remaining assets
available for distribution to the shareholders shall be distributed to the
holders of the outstanding Common Stock on a pro rata basis in accordance with
the number of shares held by each holder.
C. ADJUSTMENTS TO LIQUIDATION PREFERENCE. Notwithstanding the foregoing,
the Series B Liquidation Preference, as the case may be, shall be adjusted
proportionately in the event that the number of shares of such series of
preferred stock is adjusted into a lesser number of shares or adjusted into a
greater number of shares.
18
<PAGE> 1
Exhibit 2.2
PURCHASE AGREEMENT
BETWEEN
L. CIESLA INTERNATIONAL, INC.
ECO HOLDINGS III LIMITED PARTNERSHIP,
AND
@ ENTERTAINMENT, INC.
DATED JUNE 22, 1997
<PAGE> 2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement"), is made as of the 22nd day
of June 1997, by and between L. Ciesla International, Inc., a corporation
organized under the laws of Delaware ("LCII"); ECO Holdings III Limited
Partnership, a limited partnership organized under the laws of Delaware ("ECO")
and @ Entertainment, Inc., a corporation organized under the laws of Delaware
(the "Company"). LCII and ECO shall hereinafter be referred to as the "Preferred
Shareholders."
WITNESSETH
WHEREAS, ECO owns 4,000 shares of Series A Preferred Stock, par value
one cent ($0.01) per share ("PCI Series A Preferred") of Poland Communications,
Inc., a New York corporation ("PCI") and LCII owns 2,000 shares of Series C
Preferred Stock, par value one cent ($0.01) per share ("PCI Series C
Preferred") of PCI. The PCI Series A Preferred and the PCI Series C Preferred
shall hereinafter be referred to as the "PCI Preferred."
WHEREAS, the Preferred Shareholders desire to sell all of the shares of
PCI Preferred to the Company, upon the terms and conditions and in exchange for
the consideration herein specified;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and of other good and valuable consideration,
the parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE PURCHASE
1.1. SALE OF PCI PREFERRED. The Preferred Shareholders hereby agree
to sell, assign, transfer, and convey to the Company at the Closing hereinafter
identified, for the consideration set forth in accordance with the provisions of
Article II, all of their rights, title, and interest in and to all of their
shares of the PCI Preferred. At the Closing, the Preferred Shareholders shall
deliver to the Company certificates representing all of the shares of the PCI
Preferred owned by them, validly endorsed in blank or accompanied by stock
powers with respect to such shares validly endorsed in blank.
1
<PAGE> 3
ARTICLE II
TERMS OF THE PURCHASE
2.1 CONSIDERATION. As consideration for the purchase of shares of PCI
Series A Preferred and PCI Series C Preferred, the Company hereby agrees to pay
ECO and LCII the amount equal to ten thousand dollars (U.S. $10,000.00) for
each share of PCI Series A Preferred or PCI Series C Preferred sold to the
Company by ECO or LCII, as the case may be, in cash.
ARTICLE III
CONDITIONS PRECEDENT TO CLOSING
The Company and the Preferred Shareholders shall not be required to
proceed on the Closing Date (as hereinafter defined) with the transactions
contemplated by this Agreement unless the following conditions precedent shall
have been fulfilled and satisfied, or shall have been waived in writing by the
Company and the Preferred Shareholders:
3.1. IPO CLOSING. By September 1, 1997, there shall have been a
closing (the "IPO Closing") of an underwritten public offering of shares to be
listed on the New York Stock Exchange or the American Stock Exchange, or to be
quoted on the National Association of Securities Dealers Automated Quotation
System or the National Market System of the National Association of Securities
Dealers pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale to the public of at least
twenty percent (20%) of the Common Stock of the Company outstanding immediately
after the IPO Closing.
3.2. PARTY AUTHORIZATIONS. There shall have been obtained, by means
in conformity with all applicable provisions of all applicable laws, the
approval to the transactions contemplated by this Agreement from each of the
Preferred Shareholders as required by its partnership agreement.
3.3. CORPORATE AUTHORIZATIONS. There shall have been obtained, by
means in conformity with all applicable provisions of all applicable laws, the
approval of the Directors of the Company to the transactions contemplated by
this Agreement.
2
<PAGE> 4
3.4. THIRD PARTY CONSENTS. The Company and the Preferred
Shareholders shall have received from all applicable third parties all
consents,non-objections or permits needed for the consummation of the
transactions contemplated by this Agreement.
3.5. LITIGATION. No action, suit or proceeding shall have been
instituted or threatened before a court, arbitration panel or governmental body
with respect to the transactions contemplated hereby, and no regulatory
enforcement proceeding shall be pending before any governmental agency or body
with respect to the transactions contemplated hereby.
3.6. WAIVER. In the event that one or more of the foregoing
conditions in this Article III is not fulfilled as of the Closing, and no party
to this Agreement shall have objected to proceeding with the Closing despite
such non-fulfillment, fulfillment of the condition shall be deemed to have been
waived.
ARTICLE IV
CLOSING
4.1. The actual consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place on the date on which the first
business day after all of the conditions precedent to closing described in
Article III have been satisfied, or waived in writing by all partners hereto.
ARTICLE V
OBLIGATIONS AT THE CLOSING
5.1. PREFERRED SHAREHOLDERS' OBLIGATIONS. At the Closing, each of
the Preferred Shareholders shall deliver to the Company:
1. A copy of certified resolutions adopted by the
governing body or such other authority of such Preferred Shareholder
authorizing or ratifying the execution and delivery of this Agreement, and the
performance by such Preferred Shareholder of its obligations hereunder.
2. Certificates representing all of the shares of PCI
Preferred owned by such Preferred Shareholder, together with appropriate
stock powers in a form satisfactory to the Company and executed by such
3
<PAGE> 5
Preferred Shareholder, assigning such certificates to the Company, free and
clear of any liens, claims, options, encumbrances or restrictions of any
nature whatsoever.
5.2 THE COMPANY'S OBLIGATIONS.
1. The Company shall deliver to the Preferred Shareholders cash
in the amounts specified below:
$40,000,000.00 ECO
$20,000,000.00 LCII
ARTICLE VI
FURTHER COVENANTS OF THE PARTIES
6.1 COVENANT REGARDING ISSUANCE OF COMPANY PREFERRED STOCK. If the
condition precedent set forth in Article 3.1., above, has not been satisfied by
September 1, 1997 or waived in writing by the Company and the Preferred
Shareholders in accordance with Article XIV, then (i) the Company shall on
September 15, 1997 issue: to ECO, an equivalent number of shares of Series A
Preferred Stock, with identical rights and preferences as the PCI Series A
Preferred, in exchange for ECO's shares of PCI Series A Preferred Stock; (ii)
the Company shall issue to LCII, an equivalent number of shares of Series C
Preferred Stock, with identical rights and preferences as the PCI Series C
Preferred, in exchange for LCII's shares of PCI Series C Preferred Stock, (iii)
the Preferred Shareholders will replicate, with respect to the Company, the
capital structure, corporate governance and shareholder relation provisions
currently in effect at PCI immediately prior to the execution of this Agreement,
including but not limited to all provisions contained in the Certificate of
Incorporation and Bylaws of PCI (subject to the inherent differences between the
New York Business Corporation Law and the Delaware General Corporation Law); and
(iv) the Preferred Shareholders will contribute all of their shares of PCI
Series A Preferred and PCI Series C Preferred to the Company in exchange for a
like number of shares of a like series of preferred stock of the Company, with
the same rights and preferences of the PCI Series A Preferred and the PCI Series
C Preferred, respectively.
4
<PAGE> 6
6.2 FURTHER ASSURANCES WITH RESPECT TO COMPANY STOCK. The Preferred
Shareholders and the Company agree that, from time to time and without further
consideration, each of them shall execute and deliver such further documents
and take such other action as the Company may require more effectively to
transfer to and vest in the Company and put the Company in possession of the
PCI Preferred and all right and interest in the PCI Preferred.
ARTICLE VII
EFFECTIVENESS AND ASSIGNABILITY OF AGREEMENT
This Agreement shall become effective when executed and delivered by
the Company and each of the Preferred Shareholders, and shall be binding in all
respects upon the respective successors and permitted assigns of each of the
Company and the Preferred Shareholders. No party hereto may assign this
Agreement in whole or in part without first obtaining the written consent of
all other parties hereto.
ARTICLE VIII
COMPLETENESS OF AGREEMENT
This Agreement and the Exhibits hereto represent the entire contract
between the Company and the Preferred Stockholders with respect to the subject
matter hereof and supersede all offers, proposals, statements, representations
and agreements with respect to the subject matter hereof. The Exhibits hereto
are incorporated herein by reference, and shall be deemed to be included in any
reference to this Agreement. This Agreement may not be amended except by action
of the Company and each of the Preferred Shareholders hereto set forth in an
instrument in writing signed on behalf of the Company and each of the Preferred
Shareholders hereto.
5
<PAGE> 7
ARTICLE IX
CAPTIONS
The captions to the Articles and Sections contained in this Agreement
are for reference only, do not form a substantive part of this Agreement and
shall not restrict nor enlarge any substantive provision of this Agreement.
ARTICLE X
APPLICABLE LAW
This Agreement, and the Exhibits, and all other documents given in
connection herewith, shall be construed in accordance with the laws of the
State of Delaware, without regard to the principles of conflicts of laws.
ARTICLE XI
CHOICE OF FORUM; VENUE; SERVICE OF PROCESS
Any suit, action, or proceeding among any or all of the parties hereto
relating to this Agreement, to any document, instrument, or agreement delivered
pursuant hereto, referred to herein, or contemplated hereby, or in any other
manner arising out of or relating to the transactions contemplated by or
referenced in this Agreement, shall be commenced and maintained exclusively in
the Court of Chancery of the State of Delaware or, if that Court lacks
jurisdiction over the subject matter, in a state court of competent
subject-matter jurisdiction sitting in New Castle County, Delaware. The parties
hereto hereby submit themselves unconditionally and irrevocably to the personal
jurisdiction of such courts. The parties hereto further agree that venue shall
be in New Castle County, Delaware. The parties hereto irrevocably waive any
objection to such personal jurisdiction or venue including, but not limited to,
the objection that any suit, action, or proceeding brought in Delaware, has
been brought in an inconvenient forum. The parties hereto irrevocably agree
that process issuing from such courts may be served on them, either personally
or by certified mail, return receipt requested, at the addresses on the books
and records of the Company; and further irrevocably waive any objection to
service of process made in such manner and at such
6
<PAGE> 8
addresses, including without limitation any objection that service in such
manner and at such addresses is not authorized by the local or procedural laws
of the State of Delaware.
ARTICLE XII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute but one
and the same Agreement by and among the Company and the Preferred Shareholders.
ARTICLE XIII
NO THIRD PARTY BENEFICIARY
This Agreement is intended to inure to the benefit of the Company and
the Preferred Shareholders only; and no third party shall have any rights,
express or implied, by reason of this Agreement.
ARTICLE XIV
UNILATERAL RIGHT TO WAIVE FAILURES OF OTHER PARTIES
14.1. WAIVER. The Company or any of the Preferred Shareholders may:
1. Extend in writing the time for the performance of any of the
obligations herein contained to be performed for the benefit of such entity;
and
2. Waive in writing the failure in performance of any of the
conditions herein expressed for its benefit.
14.2. EFFECT OF WAIVER. No such waiver or extension shall be valid
unless in writing and signed by the entity granting the waiver or extension,
and no such waiver or extension shall be construed to excuse or mitigate any
subsequent breach or violation of this Agreement not specifically covered by
such waiver.
7
<PAGE> 9
ARTICLE XV
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions hereof, and the Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted. Furthermore, upon the request of the Company or any of the Preferred
Shareholders, the Company and the Preferred Shareholders shall add to this
Agreement, in lieu of such invalid or unenforceable provisions, provisions as
similar in terms to such invalid or unenforceable provisions as may be possible
and legal, valid and enforceable.
ARTICLE XVI
TERMINATION
16.1. Termination Events. This Agreement may be terminated at any time
prior to the Closing Date, by mutual written consent of the Company and the
Preferred Shareholders.
16.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 16.1, this Agreement shall forthwith become
void, and there shall be no liability on the part of the Company or any of the
Preferred Shareholders; provided that the foregoing shall not relieve any party
for liability for damages actually incurred as a result of any breach of this
Agreement.
IN WITNESS WHEREOF, the Company and the Preferred Shareholders have
caused this Agreement to be executed as of the day and year first above written.
@ ENTERTAINMENT, INC.
a Delaware corporation
By: /s/ Robert E. Fowler, III
-------------------------------
Name: Robert E. Fowler, III
Title: Chief Executive Officer
8
<PAGE> 10
L. CIESLA INTERNATIONAL, INC.
a Delaware corporation
By: /s/ John P. Redding
----------------------------------
Name: John P. Redding
Title: Executive Vice President
ECO HOLDINGS III LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Advent ECO III L.L.C., General Partner
By: Global Private Equity II Limited
Partnership, Member
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation,
General Partner
By: /s/ Janet L. Hennessy
----------------------------------
Name: Janet L. Hennessy
Title: Vice President
9
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
POLSTAR HOLDINGS, INC.
It is hereby certified that:
FIRST: The present name of the corporation (hereinafter called the
"Corporation") is: Polstar Holdings, Inc., which is the name under
which the Corporation was originally incorporated; and the date of
filing of the original certificate of incorporation of the
corporation with the Secretary of State of the State of Delaware is
May 27, 1997.
SECOND: The Corporation has not received any payment for any of its stock.
THIRD: The certificate of incorporation of the Corporation is hereby
amended by striking out Article First through Article Tenth thereof
and by substituting in lieu of said Articles the following new
Articles:
FOURTH: The provisions of the certificate of incorporation of the
Corporation, as herein amended, are hereby restated and integrated
into the single instrument which is hereinafter set forth:
ARTICLE I
The name of the corporation is "@ ENTERTAINMENT, INC." (hereinafter
referred to as the "CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, State
of Delaware. The name of its registered agent at such address is Corporation
Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
<PAGE> 2
ARTICLE IV
SECTION 1. AUTHORIZED. The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is
ninety million two thousand five hundred (90,002,500), of which seventy million
(70,000,000) shares are authorized for common stock, par value one cent (U.S.
$0.01) per share ("Common Stock") and twenty million two thousand five hundred
(20,002,500) shares are authorized for preferred stock, par value of one cent
(U.S. $0.01) per share ("Preferred Stock"). The Common Stock and Preferred
Stock shall have the voting rights, designations, preferences, qualifications,
privileges, limitations, options and other rights as follows:
SECTION 2. COMMON STOCK.
A. VOTING RIGHTS. The holders of Common Stock shall be entitled to one
(1) vote per share on all matters submitted to the shareholders of the
Corporation.
B. DIVIDEND PROVISIONS. The holders of shares of Common Stock shall be
entitled to receive dividends when, as and if declared by the Board of
Directors.
SECTION 3. PREFERRED STOCK. The Preferred Stock of the Corporation may be
issued as a class, without series or, if so determined from time to time by the
Board of Directors of the Corporation, in one or more series, each series to be
expressly designated by a distinguishing number, letter or title. Except for
the Series B Preferred Stock described below, the Preferred Stock, and each
series thereof, shall have such voting powers and other rights, privileges,
preferences and restrictions as shall be set forth in the resolutions of the
Board of Directors providing for the issuance of such preferred stock. There is
hereby expressly granted to the Board of Directors of the Corporation the
authority to determine, fix, alter or revoke any and all of the rights,
preferences, privileges and restrictions and other terms of the Preferred Stock
and any series thereof, and the number of shares constituting any series and the
designation thereof, and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not below the
number of shares of such series then outstanding, or to eliminate entirely any
series if there no longer are any outstanding shares of such series (and,
thereupon, the shares previously designated for such series shall become
authorized but undesignated shares). In case the number of shares of any series
shall be so decreased, the shares constituting such shall resume the status they
had prior to the adoption of the resolution originally setting forth the number
of shares of such series.
2
<PAGE> 3
Two thousand five hundred (2,500) of the authorized shares of Preferred
Stock are hereby designated the "Series B Preferred Stock."
A. VOTING RIGHTS. Except as otherwise required by law, the shares of
Series B Preferred Stock shall be entitled to vote on an equal basis together
with the shares of Common Stock and not as a separate class or series or
sub-series at any annual or special meeting of the stockholders of the
Corporation, or may act by written consent in the same manner as the Common
Stock, in either case upon the following basis: each holder of shares of Series
B Preferred Stock shall be entitled to such number of votes for the Series B
Preferred Stock held by such holder on the record date fixed for such meeting,
or on the effective date of such written consent, as shall be equal to the
number of shares (rounded to the nearest whole share) of Common Stock into
which all shares of Series B Preferred Stock held by such holder are
convertible on such date.
B. DIVIDEND PROVISIONS. The holders of shares of Series B Preferred Stock
shall not be entitled to receive dividends.
C. REDEMPTION.
(1) MANDATORY REDEMPTION. on March 31, 2004, the Corporation shall be
required to redeem the Series B Preferred Stock (the "Series B Redemption
Date").
(2) OPTIONAL REDEMPTION. At the option of the Corporation, the Series B
Preferred Stock may be redeemed at any time, in whole or in part. Prior to the
date set for redemption of the Series B Preferred Stock pursuant to this
Section 3(C)(2), the holders of any shares thereof shall have the option to
convert their shares into Common Stock in accordance with Section 3(D). The
Corporation shall exercise said option by providing notice of redemption in
accordance with Article IV, Section 3(C)(4).
(3) REDEMPTION PRICE. The redemption price per share of Series B
Preferred Stock to be paid upon a redemption under this Section 3(C) shall be
equal to ten thousand dollars (U.S. $10,000) (the "Series B Redemption Price").
The Series B Redemption Price shall be adjusted proportionately in the event
the Series B Preferred Stock is adjusted into a lesser number of shares or
subdivided into a greater number of shares. The Series B Redemption Price
shall be paid in cash.
(4) REDEMPTION NOTICE. Notice of any redemption pursuant to this Section
3(C), shall be given by the Corporation by mailing notice (the "Series B
Redemption Notice"), via registered or certified mail, postage prepaid, or by
hand delivery to the holders of record of the Series B Preferred Stock (as the
close of business on the business day next preceding the day on which the
Series B Redemption Notice is given) at their respective addresses as the same
shall appear on the stock books of the Corporation, not less than 3 days nor
more than 60 days prior
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to the date of such redemption and the Series B Redemption Notice shall state
the time and place fixed for such redemption.
(5) SURRENDER OF CERTIFICATES. Upon surrender of a certificate or
certificates representing shares to be redeemed pursuant to this Section 3(C),
the Corporation shall remit an amount equal to the product of, (i) the Series B
Redemption Price, times (ii) the number of shares of the Series B Preferred
Stock to be redeemed. If fewer than all of the shares represented by any such
certificate or certificates presented for redemption are to be redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder. If so required by the Corporation, any certificate for Series B
Preferred Stock surrendered for redemption shall be accompanied by instruments
of transfer, duly executed by the holder of such Series B Preferred Stock or
his duly authorized representative.
(6) Rights After the Series B Redemption Date. From and after the close
of business on the Series B Redemption Date, unless there shall have been a
default in the payment of the redemption price, all rights of holders of shares
of Series B Preferred Stock redeemed pursuant to Section 3(C) shall cease with
respect to such shares, and thereafter such shares shall not be deemed to be
outstanding for any purposes whatsoever.
(7) Cancellation of Redeemed Shares. Any shares of Series B preferred
Stock that shall at any time have been redeemed or repurchased by the
Corporation shall, after such redemption or repurchase, be cancelled by the
Corporation and shall not be available for reissuance.
D. CONVERSION RIGHTS.
(1) Conversion Ratio. Subject to and in compliance with the provisions
of this Section 3(D), each holder of outstanding shares of Series B Preferred
Stock shall have the right at any time, or from time to time, prior to March
31, 2004, at such holder's option, without charge by the Corporation to such
holder, to convert such shares of Series B Preferred Stock into that number of
fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) equal to the then applicable
Conversion Ratio (as defined below) multiplied by the number of shares of
Series B Preferred Stock to be converted pursuant to this Section 3(D). The
Conversion Ratio per share of Series B Preferred Stock shall be 1,944.80 shares
of Common Stock for each share of Series B Preferred Stock, subject to
adjustment from time to time as provided in Sections 3(D)(4) and 3(D)(5).
(2) Automatic Conversion. Notwithstanding any other provision of this
Section 3(D), each share of Series B Preferred Stock shall automatically be
converted into shares of Common Stock at the then applicable Conversation Ratio
for such shares of Series B Preferred Stock (i) simultaneously with the closing
(the "IPO Closing") of an underwritten public offering of shares to be listed
on the New York Stock Exchange or the American Stock Exchange, or to be quoted
on the National Association of Securities Dealers Automated Quotation System or
the
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National Market System of the National Association of Securities Dealers
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale to the public of at least twenty
percent (20%) of the Common Stock of the Corporation outstanding immediately
after the IPO Closing or (ii) immediately prior to the closing of a merger or
consolidation of the Corporation with or into another corporation or entity
which is not an affiliate of the Corporation. For purposes of this Section
3(D)(2), "affiliate of the Corporation" shall mean any person or entity that
controls, is controlled by or is under common control with the Corporation.
(3) De Minimis Conversion. At no time shall any holder of outstanding
shares of Series B Preferred Stock convert less than twenty-five percent (25%)
of the total number of authorized shares of Series B Preferred Stock into
shares of Common Stock pursuant to this Section 3(D), provided, however, if at
any time a holder of Series B Preferred Stock holds less than twenty-five
percent (25%) of the total number of authorized shares of Series B Preferred
Stock, such holder shall have the right to convert all such holder's shares of
Series B Preferred Stock into Common Stock.
(4) Anti-Dilution. If at any time, or from time to time, the Corporation
shall declare and pay on or in respect of, Common Stock any dividend payable in
Common Stock or subdivide the outstanding number of shares of Common Stock into
a greater number of shares, or contract the number of outstanding shares of
Series B Preferred Stock by combining such shares into a smaller number of
shares of Series B Preferred Stock, the Conversion Ratio in effect at the time
of the taking of a record for such dividend or the taking of such other action
shall be proportionately increased as of such time;
(5) Anti-Dilution. If at any time, or from time to time, the Corporation
shall reduce the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, or subdivide the outstanding shares of
Series B Preferred Stock into a greater number of shares of Series B Preferred
Stock, the Conversion Ratio in effect at the time of the taking of any such
action shall be proportionately decreased as of such time;
(6) Merger, Consolidation or Reclassification. If the Corporation shall
consolidate with or merge into any corporation (other than a merger or
consolidation referred to in clause (ii) of Section 3(D)(2)) or reclassify its
outstanding Common Stock, each share of Series B Preferred Stock shall
thereafter be convertible into the number of shares of stock or other
securities or property of the Corporation, or of the entity resulting from such
consolidation or merger, to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series B Preferred Stock
would have been entitled upon such consolidation or merger or reclassification,
had the holder of such share of Series B Preferred Stock exercised his right of
conversion and had such shares been issued and outstanding and had such holder
been the holder of record of such shares of Common Stock at the time of such
consolidation, merger or reclassification; and the Corporation shall make
lawful provision therefor as part of such consolidation, merger or
reclassification;
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(7) Conversion Notice. In order to exercise his conversion privilege, the
holder of any Series B Preferred Stock to be converted into Common Stock shall
present and surrender the certificate representing such Series B Preferred
Stock during usual business hours at any office or agency of the Corporation
and shall deliver a written notice of the election of such holder to convert
the shares represented by such certificate or any portion thereof specified in
such notice, and shall fix a date for conversion which is not less than five
nor more than ten days ("conversion date") from the date of the notice. Such
notice shall also specify the name or names (with addresses) in which the
certificate or certificates representing the Common Stock which shall be
issuable on such conversion shall be issued. If so required by the
Corporation, any certificate for Series B Preferred Stock surrendered for
conversion into Common Stock shall be accompanied by instruments of transfer,
duly executed by the holder of such Series B Preferred Stock or his duly
authorized representative. Each conversion of Series B Preferred Stock into
Common Stock shall be deemed to have been effected on the conversion date
provided for in such notice, provided that the certificates representing the
Series B Preferred Stock, and any required instruments of transfer, shall have
been received by the Corporation as aforesaid, and thereafter the person or
persons in whose name or names any certificate or certificates representing
Common Stock which shall be issuable on such conversion shall be deemed to have
become, immediately prior to the close of business on the conversion date, the
holder or holders of record of the Common Stock represented thereby;
(8) Lapse of Rights on Redemption. In case any of the Series B Preferred
Stock shall have been redeemed by the Corporation, such rights of conversion
shall cease and terminate with respect to such shares so redeemed unless
default shall have been made in the payment of the redemption price on the date
fixed for the redemption of such shares;
(9) Corporation's Obligation. As promptly as practicable after the
presentation and surrender for conversion into Common Stock, as herein
provided, of any certificate representing any Series B Preferred Stock, after
the conversion date, the Corporation shall issue and deliver to or upon the
written order of the holder thereof, certificates representing the number of
shares of Common Stock issuable upon such conversion. In case any certificates
representing Series B Preferred Stock shall be surrendered for conversion of
only a part of the shares represented thereby into Common Stock, the
Corporation shall also deliver to or upon the written order of the holder
thereof, a certificate or certificates representing the number of shares of
Series B Preferred Stock represented by such surrendered certificate which are
not being converted. The issuance of certificates representing Common Stock
issuable upon conversion of Series B Preferred Shares shall be made without
charge by the Corporation to the converting holder including, without
limitation, charges for any tax imposed on the Corporation with respect to the
issuance thereof. The Corporation shall not, however, be required to pay any
tax which may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the holder of the
shares being converted, and the Corporation shall not be required to issue or
deliver any such certificate unless and until the person requesting the issue
thereof shall
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have paid to the Corporation the amount of such tax or shall have established
to the satisfaction of the Corporation that such tax has been paid;
(10) Rights of Converted Shares. All Series B Preferred Stock which shall
have been surrendered for conversion into Common Stock as herein provided upon
the conversion date shall no longer be deemed to be outstanding, and all rights
of the holders of such surrendered shares including the rights, if any, to
receive dividends, proceeds from redemption or liquidation and notices and to
vote, shall thereupon cease and terminate, except only the right of the holders
thereof to receive Common Stock in exchange therefor;
(11) Conversion Adjustment. If applicable, whenever the Conversion Ratio
is adjusted, as herein provided or as provided in the appropriate amendment to
this Certificate of Incorporation, the Corporation shall promptly file with the
transfer agent, if any, for the Common Stock of the Corporation a statement
signed by the Chief Executive Officer or a Vice President or the Secretary or
the Treasurer setting forth the adjusted Conversion Ratio determined as so
provided. Such statement shall set forth in reasonable detail such facts as
may be necessary to show the reason for and the manner of computing such
adjustment; and
(12) No Reissuance. Upon conversion of any shares of Series B Preferred
Stock into Common Stock, such shares of Series B Preferred Stock so converted
shall be canceled and shall not be reissued.
(13) No Fractional Shares. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of the Series B Preferred Stock. Any fractional interest in a share of Common
Stock resulting from conversion of Series B Preferred Stock shall be paid in
cash (computed to the nearest cent). Consideration paid for each fractional
share shall be an amount equal to (i) the amount resulting from dividing (x)
the fraction for such fractional share by (y) the Conversion Ratio, multiplied
by (ii) the Series B Redemption Price.
SECTION 4. LIQUIDATION PREFERENCES OF PREFERRED STOCK.
A. ORDER OF DISTRIBUTION. Subject to Section 4(B), upon the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, after payment or provisions for the payment of the debts
and other liabilities of the Corporation, the assets then available for
distribution to the shareholders shall be distributed as follows:
(1) First to the holders of the Series B Preferred Stock, to the extent
available, in an amount equal to $10,000.00 per share (the "Series B
Liquidation Preference"), but if the funds available therefor are insufficient,
then to the holders of Series B Preferred Stock on a pro-rata basis in
accordance with the number of shares held by each holder.
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(2) After distribution in accordance with clause (1) above, all remaining
assets available for distribution to the shareholders shall be distributed to
the holders of shares of the outstanding Common Stock on a pro rata basis in
accordance with the number of shares held by each holder.
B. DISTRIBUTIONS AFTER IPO CLOSING. Upon the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation that occurs after the IPO Closing, after payment or provisions for
the payment of the debts and other liabilities of the Corporation, the assets
then available for distribution to the shareholders shall be distributed as
follows: first, an amount equal to the aggregate Series B Liquidation
Preference for all outstanding shares of Series B Preferred Stock shall be
distributed pro rata among all holders of the Series B Preferred Stock based on
the number of shares held by each holder; and second, all remaining assets
available for distribution to the shareholders shall be distributed to the
holders of the outstanding Common Stock on a pro rata basis in accordance with
the number of shares held by each holder.
C. ADJUSTMENTS TO LIQUIDATION PREFERENCE. Notwithstanding the foregoing,
the Series B Liquidation Preference, as the case may be, shall be adjusted
proportionately in the event that the number of shares of such series of
preferred stock is adjusted into a lesser number of shares or adjusted into a
greater number of shares.
ARTICLE V
The Board of Directors shall have the power to adopt, amend and repeal the
Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any Bylaws adopted by
the directors under the powers conferred hereby may be amended or repealed by
the directors or by the stockholders. Notwithstanding the foregoing and
anything contained in this Certificate of Incorporation to the contrary,
Sections 1(c), 5 and 7 of Article II, Section 2 of Article III and Article VII
of the Bylaws of the Corporation, as originally adopted by the directors, shall
not be amended or repealed and no provision inconsistent therewith shall be
adopted without the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, unless such amendment, repeal or newly adopted
provision is approved by not less than a two-thirds (2/3) vote of the
Continuing Directors (as defined in ARTICLE VIII).
ARTICLE VI
A. The Corporation shall indemnify to the fullest extent permitted by the
General Corporation Law of Delaware any person who has been made, or is
threatened to be made, a party to an action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise (including an action, suit
or proceeding by or in the right of the Corporation), by reason of the fact
that the person is or was a director or officer of the Corporation, or a
fiduciary within the meaning of the Employee Retirement Income Security Act of
1974 with respect to an employee benefit plan of the Corporation, or serves or
served at the request of the Corporation as a director
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or officer, or as a fiduciary of an employee benefit plan, of another
corporation, partnership, joint venture, trust or other enterprise. In
addition, the Corporation shall pay for or reimburse any expenses incurred by
such persons who are parties to such proceedings, in advance of the final
disposition of such proceedings, to the fullest extent permitted by the General
Corporation Law of Delaware.
B. Neither any amendment nor repeal of this ARTICLE VI, nor the adoption
of any provisions of this Certificate of Incorporation inconsistent with this
ARTICLE VI, shall eliminate or reduce the effect of this ARTICLE VI in respect
of any matter occurring or arising or that, but for this ARTICLE VI, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE VII
A. The business and affairs of the Corporation shall be managed by the
Board of Directors of the Corporation.
B. Except as otherwise provided for or fixed by or pursuant to the
provisions of ARTICLE IV hereof relating to the rights of the holders of
Preferred Stock to elect directors under specified circumstances, the number of
the directors of Corporation shall be fixed from time to time by or pursuant to
the Bylaws of the Corporation. From and after the effective date of the
Corporation's initial public offering (the "EFFECTIVE DATE") pursuant to the
Securities Act of 1933, as amended, the directors shall be classified, with
respect to the time for which they severally hold office, into three classes,
as nearly equal in number as possible, as shall be provided in the manner
specified in the Bylaws of the Corporation, the first class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
the first year following the Effective Date, the second class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
the second year following the Effective Date, and the third class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in the third year following the Effective Date, with each class to hold
office until its respective successors are duly elected and qualified. At each
annual meeting of the stockholders, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their elections.
C. Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the Bylaws of the Corporation.
Election of directors need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
D. Except as otherwise provided for or fixed by or pursuant to the
provisions of ARTICLE IV hereof in relation to the rights of the holders of
Preferred Stock to elect directors under specified circumstances, newly-created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative
vote of a majority of the
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remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until
such director's successor shall have been elected and qualified. No decrease
in the number of directors constituting the Board of Directors shall shorten
the term of any incumbent director.
E. Subject to the rights of any Preferred Stock to elect directors under
specified circumstances, any director may be removed from office only with cause
and only by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class; provided, however, that if the Continuing Directors
shall have adopted, by not less than a two-thirds (2/3) vote of such Continuing
Directors, a resolution approving the removal of any director and have
determined to recommend such removal for approval by the holders of stock
entitled to vote thereon, then such director may be removed from office with or
without cause upon the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote thereon, voting together as a single
class. For purposes of paragraph (E) of this ARTICLE VII, "cause" shall mean (1)
dishonesty or fraud resulting in damage to the business of the Corporation or
any of its subsidiaries; (2) embezzlement or theft of assets of the Corporation
or any of its subsidiaries; (3) competing with the Corporation or aiding a
competitor of the Corporation or any of its subsidiaries to the detriment of the
Corporation or any of its subsidiaries; (4) conduct of an illegal or criminal
nature under the laws of the United States, Poland, the United Kingdom, or any
political subdivision thereof; (5) conduct or activities that, as determined by
the Corporation in the reasonable exercise of its discretion, is injurious to
the reputation or affairs of the Corporation or any subsidiary; (6) violation,
as determined by the Corporation in the reasonable exercise of its discretion,
of any applicable polices and procedures set forth in the Corporation's policy
manual as established from time to time; or (7) any other willful misconduct by
the Director which, as determined by the Corporation in the reasonable exercise
of its discretion, is materially injurious to the Corporation, monetarily or
otherwise.
F. To the fullest extent permitted by the General Corporation Law of the
State of Delaware, a director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this paragraph
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director of the Corporation with respect to any act or
omission occurring prior to the time of such repeal or modification.
G. Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all outstanding shares of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with or repeal this ARTICLE VII; provided, however, that
if the Continuing Directors (as defined in ARTICLE VIII) shall have adopted, by
not less than a two-thirds (2/3) vote of such Continuing Directors, a
resolution approving the amendment or repeal proposal and have determined to
recommend it for approval by the holders of stock entitled to vote thereon,
then the vote required shall be the affirmative vote of the holders of at least
a majority of the outstanding shares entitled to vote thereon.
ARTICLE VIII
A. In addition to any affirmative vote required by law, this Certificate
of Incorporation, any resolution or resolutions adopted by the Board of
Directors pursuant to its authority under ARTICLE IV of this Certificate of
Incorporation, any agreement with any national securities exchange or
otherwise, any Business Combination involving the Corporation or any Subsidiary
and any Related Person or any Affiliate or Associate of a Related Person shall
be
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subject to approval or authorization in the manner provided by this ARTICLE
VIII. Certain capitalized terms used herein are defined in paragraph (D) of
this ARTICLE VIII.
B. Except as otherwise expressly provided in paragraph (C) of this ARTICLE
VIII, no Business Combination shall be consummated or effected, either directly
or indirectly, unless such Business Combination shall have been approved or
authorized by the affirmative vote of the holders of not less than sixty-six
and two-thirds percent (66 2/3%) of the shares of Voting Stock which are not
Beneficially Owned by any Related Person or an Affiliate or Associate of such
Related Person, voting together as a single class (it being understood for
purposes of this ARTICLE VIII, each share of Voting Stock shall have one vote,
notwithstanding any provision contained in ARTICLE IV to the contrary),
notwithstanding the fact that no vote for such transaction or approval by some
lesser percentage of stockholders may be required or specified by law, this
Certificate of Incorporation, any resolution or resolutions adopted by the
Board of Directors of the Corporation pursuant to its authority under ARTICLE
IV of this Certificate of Incorporation, any agreement with any national
securities exchange or otherwise.
C. The approval or authorization of any Business Combination in the manner
provided for by paragraph (B) of this ARTICLE VIII shall not be required if all
the conditions specified in either paragraph (C)(1) or paragraph (C)(2) of this
ARTICLE VIII are satisfied:
(1) such Business Combination shall have been expressly approved by not
less than two-thirds (2/3) of the Continuing Directors, either in advance of or
subsequent to a Related Person having become a Related Person; or
(2) all of the conditions specified in the following clauses shall have
been met:
(a) the Fair Market Value as of the Consummation Date of the
consideration to be received per share of each class or series of Capital Stock
by Disinterested Stockholders in the Business Combination is not less than the
Highest Per Share Price (it being understood that the provisions of this
subparagraph (C)(2)(a) shall be required to be met with respect to every class
or series of the outstanding Capital Stock, whether or not the Related Person
has previously acquired any shares of a particular series or class of Capital
Stock); and
(b) the form of consideration to be received by Disinterested
Stockholders in the Business Combination shall be United States currency or the
form of consideration used by the Related Person in acquiring the largest
aggregate number of shares of the Capital Stock that such Related Person has
previously acquired; and
(c) after such Related Person has become a Related Person and
prior to the Consummation Date: (1) except as approved by not less than
two-thirds (2/3) of the Continuing Directors, there shall have been no failure
to declare and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) due on the outstanding Capital Stock; and (2) such
Related Person shall have not become the Beneficial Owner of any additional
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shares of Voting Stock except as part of the transaction which results in such
Related Person becoming a Related Person; and
(d) after such Related Person has become a Related Person, such
Related Person shall not have received the benefit, directly or indirectly
(except proportionately as a stockholder of the Corporation), of any loans,
advances, guarantees, pledges or other financial assistance or tax advantages
provided by the Corporation or any Subsidiary, whether in anticipation of or in
connection with such Business Combination or otherwise; and
(e) a proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Act as then in
effect shall have been mailed to all Disinterested Stockholders at least thirty
(30) days prior to the date of the stockholders' meeting at which such Business
Combination is to be considered (whether or not a proxy or information statement
is required to be mailed pursuant to the Act) and such proxy or information
statement shall have contained at the front thereof, in a prominent place, such
recommendations and other relevant information concerning the Business
Combination as a majority of the Continuing Directors may determine so to
include.
D. For the purposes of this ARTICLE VIII:
(1) The term "Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, or any similar
United States statute enacted to supersede or supplement the Act.
(2) The term "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 under the Act, as in effect on June 1, 1997, and shall include any Person
that, after giving effect to a Business Combination, would become an Affiliate.
(3) The term "Announcement Date" shall mean the date of the first public
announcement of a proposed Business Combination.
(4) The term "Associate" shall have the meaning ascribed to it in Rule
12b-2, under the Act as in effect on June 1, 1997 (the term "registrant," as
used in such Rule 12b-2, meaning in this case the Corporation), and shall
include any Person that, after giving effect to a Business Combination, would
become an Associate.
(5) The terms "Beneficial Owner" or "Beneficially Owned" shall mean, or
refer to stock ownership by, any person who beneficially owns any Voting Stock
within the meaning ascribed in Rule 13d-3 under the Act as in effect on June 1,
1997 or who has the right to acquire any such beneficial ownership (whether or
not such right is exercisable immediately, with the passage of time or subject
to any condition) pursuant to any agreement, contract, arrangement or
understanding or upon the exercise of any conversion, exchange or other right,
warrant or option,
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or otherwise. A Person shall be deemed the Beneficial Owner of all Capital
Stock of which any Affiliate or Associate of such Person is the Beneficial
Owner.
(6) The term "Business Combination" shall mean any: (a) merger or
consolidation of the Corporation or a Subsidiary with or into a Related Person
or any other corporation which is, or after such merger or consolidation would
be, an Affiliate or Associate of a Related Person; (b) sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of transactions) to or with any Related Person or any Affiliate or Associate of
any Related Person, of all or any Substantial Amount of the assets of the
Corporation, one or more Subsidiaries, or the Corporation and one or more
Subsidiaries, other than in the ordinary course of business; (c) adoption of
any plan or proposal for the liquidation or dissolution of the Corporation
proposed by or on behalf of a Related Person or any Affiliate or Associate of
any Related Person; (d) sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to the
Corporation, one or more Subsidiaries, or the Corporation and one or more
Subsidiaries (in one transaction or a series of transactions) of all or any
Substantial Amount of the assets of a Related Person or any Affiliate or
Associate of any Related Person, other than in the ordinary course of business;
(e) issuance, pledge or transfer of securities of the Corporation, one or more
Subsidiaries, or the Corporation and one or more Subsidiaries (in one
transaction or a series of transactions) to or with a Related Person or any
Affiliate or Associate of any Related Person in exchange for a Substantial
Amount of cash, securities or other property (or a combination thereof), except
any issuance, pledge or transfer of such securities to any such Person if such
Person is acting as an underwriter with respect to such securities; (f)
reclassification of securities (including any reverse stock split) or
recapitalization of the Corporation, any merger or consolidation of the
Corporation with or into one or more Subsidiaries, or any other transaction
that would have the effect, either directly or indirectly, of increasing the
voting power or the proportionate share of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly or indirectly
Beneficially Owned by any Related Person or any Affiliate or Associate of any
Related Person; (g) agreement, contract or other arrangement providing for any
of the transactions described in this definition of Business Combination; and
(h) any series of transactions that not less than two-thirds (2/3) of the
Continuing Directors determine are related and, if taken together, would
constitute a Business Combination under this definition of Business Combination
(7) The term "Capital Stock" shall mean all capital stock of any class of
the Corporation authorized to be issued from time to time under this
Certificate of Incorporation whether now or hereafter outstanding.
(8) The term "Consummation Date" shall mean the date of the consummation
of a Business Combination.
(9) The term "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is not the Related Person, and not an
Affiliate, Associate, representative or nominee of the Related Person or of
such an Affiliate or Associate, that is
13
<PAGE> 14
involved in the relevant Business Combination, and (a) was a member of the
Board of Directors prior to the Determination Date with respect to such Related
Person or (b) whose initial election as a director of the Corporation succeeds
a Continuing Director and was recommended by a majority vote of the Continuing
Directors then in office; provided, that in either case, such Continuing
Director shall have continued in office after becoming a Continuing Director.
(10) The term "Determination Date" shall mean the date and time at which a
Person became a related Person.
(11) The term "Disinterested Stockholder" shall mean a holder of shares of
a particular class or series of Capital Stock who is not (a) a Related Person
with or for the benefit of whom a Business Combination is proposed to be
consummated or (b) an Affiliate or Associate of such Related Person.
(12) The term "Fair Market Value" shall mean: (a) in the case of United
States currency, the amount thereof; (b) in the case of stock and other
securities, the highest closing sales price during the 30-day period
immediately preceding the date in question of a share or trading unit of such
stock or security on the Composite Tape for New York Stock Exchange-- Listed
Stocks, or, if such stock or security is not listed on the New York Stock
Exchange, on the principal United States securities exchange registered under
the Act on which such stock or security is listed, or, if such stock or
security is not listed on any such securities exchange, the highest closing
sale price or bid quotation with respect to a share or trading unit of such
stock or security during the 30-day period on the National Association of
Securities Dealers, Inc. Automated Quotations System or any successor system
or, if no such quotations are available, the fair market value on the date in
question of a share or trading unit of such stock or security as determined in
good faith by a majority vote of the Continuing Directors; or (c) in the case
of property other than cash, stock or other securities, the fair market value
of such property on the date in question as determined in good faith by a
majority vote of the Continuing Directors.
(13) The term "Highest Per Share Price" shall mean, with respect to the
consideration to be received per share of each class or series of Capital Stock
by Disinterested Stockholders in any particular Business Combination, the
higher of the following:
(a) the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by or on behalf of the Related Person
in acquiring Beneficial Ownership of any of its holdings of such class or
series of Capital Stock of the Corporation (1) within the two-year period
immediately prior to the Announcement Date or (2) in the transaction or series
of transactions in which the Related Person became a Related Person, whichever
is higher; or
(b) the Fair Market Value per share of the shares of Capital Stock being
acquired in the Business Combination as of (1) the Announcement Date or (2) the
date on which the Related Person became a Related Person, whichever is higher.
14
<PAGE> 15
For the purposes of this paragraph (D)(13), (i) price deemed to have been
paid by a Related Person for any shares of Capital Stock of which an Affiliate
or Associate is the Beneficial Owner shall be the price which is the highest of
the following: (1) the price paid upon the acquisition thereof by the relevant
Affiliate or Associate (if any, and whether or not such Affiliate or Associate
was an Affiliate or Associate at the time of such acquisition) or (2) the Fair
Market Value of such Capital Stock as of the day when the Related Person became
a Beneficial Owner thereof; (ii) in determining the Highest Per Share Price, all
purchases by the Related Person shall be taken into account, regardless of
whether the shares were purchased before or after the Related Person became a
Related Person; (iii) a Person shall be deemed to have acquired a share of
Capital Stock at the time when such Person became the Beneficial Owner thereof;
and (iv) appropriate adjustments shall be made to reflect the relevant effect of
any stock dividends, splits and distributions and any combination or
reclassification of Capital Stock.
(14) The phrase "consideration to be received" as used in subparagraph
(C)(2)(a) of this ARTICLE VIII shall include, without limitation, the shares of
Common Stock or any other class or series of Capital Stock retained by the
Disinterested Stockholders in the event of a Business Combination that is a
merger or consolidation in which the Corporation is the surviving entity.
(15) The term "Person" shall mean any individual, corporation, partnership
or other entity, including any group comprised of any Person and any other
Person or any Affiliate or Associate thereof with whom such Person or any
Affiliate or Associate thereof has any agreement, arrangement or understanding,
directly or indirectly, for the purpose of acquiring, holding, voting, or
disposing of Voting Stock and each Person, and any Affiliate or Associate
thereof, that is a member of such group.
(16) The term "Related Person" shall mean any person who alone or together
with any Affiliates or Associates is:
(a) the Beneficial Owner, directly or indirectly, of an aggregate
percentage of the Voting Stock equal to or exceeding ten percent (10%), or
(b) an assignee of or otherwise has succeeded to the Beneficial Ownership
of any shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question Beneficially Owned by any Related
Person, if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended; provided, however, that
the term "Related Person" shall not include: (x) the Corporation or any
Subsidiary, all of the Capital Stock of or other ownership interest in which is
directly or indirectly owned by the Corporation; (y) any Person whose
acquisition of such aggregate percentage of Voting Stock was approved by not
less than a two-thirds (2/3) vote of the Continuing Directors prior to such
acquisition; or (z) any pension, profit sharing, employee stock ownership or
other
15
<PAGE> 16
employee benefit plan of the Corporation or any Subsidiary or any trustee or
fiduciary when acting in such capacity with respect to any such Plan.
(17) The term "Subsidiary" shall mean any Person, a majority of any class
of equity securities in which is owned, directly or indirectly, by the
Corporation, one or more Subsidiaries, or the Corporation and one or more
Subsidiaries.
(18) The term "Substantial Amount" shall mean an amount of stock,
securities or other assets or property having a Fair Market Value equal to ten
percent (10%) or more of the Fair Market Value of the total consolidated assets
of the Corporation and its Subsidiaries taken as a whole as of the end of the
most recent fiscal year of the Corporation ended prior to the time as of which
the determination is being made.
(19) The term "Voting Stock" shall mean all outstanding shares of Common
Stock of the Corporation and all other outstanding shares of Capital Stock, if
any, entitled to vote on each matter on which the holders of record of Common
Stock shall be entitled to vote, and each reference to a proportion of shares
of Voting Stock shall refer to such proportion of the votes entitled to be cast
by the holders of such shares of Common Stock and other Capital Stock voting as
one class (it being understood that for purposes of this ARTICLE VIII, each
share of Voting Stock shall have the number of votes granted to it in
accordance with ARTICLE IV of this Certificate of Incorporation).
E. The fact that any Business Combination complies with the provisions of
paragraph (C)(2) of this ARTICLE VIII shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Combination or recommend its adoption
or approval to the stockholders of the Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
F. A two-thirds (2/3) majority of the Continuing Directors of the
Corporation shall have the power and duty to determine for the purposes of this
ARTICLE VIII, on the basis of information known to them after reasonable
inquiry, (i) whether a person is a Related Party, (ii) the number of shares of
Voting Stock Beneficially Owned by any person, and (iii) whether a person is an
Affiliate or Associate of another. A two-thirds (2/3) majority of the
Continuing Directors of the Corporation shall have the further power to
interpret all of the terms and provisions of this ARTICLE VIII.
G. The affirmative vote of not less than sixty-six and two-thirds percent
(66 2/3%) of the shares of Voting Stock which are not Beneficially Owned by any
Related Person or any Affiliate or Associate of a Related Person shall be
required to alter, amend or repeal, or adopt any provisions inconsistent with,
the provisions set forth in this ARTICLE VIII; provided, however, that if the
Continuing Directors shall have adopted, by not less than a two-thirds (2/3)
vote of such
16
<PAGE> 17
Continuing Directors, a resolution approving the amendment or repeal proposal
and have determined to recommend it for approval by the holders of stock
entitled to vote thereon, then the vote required shall be the affirmative vote
of the holders of at least a majority of the outstanding shares entitled to
vote thereon.
ARTICLE IX
Any action required or permitted to be taken by the stockholders of the
Corporation shall be effected at a duly called annual or special meeting of such
holders and shall not be effected by a consent in writing of such holders;
provided, however, that any action required to be taken by the stockholders of
the Corporation may be effected by a consent to such action signed by the
holders of the class of stock entitled to vote thereon if approved by not less
than a two-thirds (2/3) vote of the Continuing Directors (as defined in ARTICLE
VIII). All such consents shall be filed with the corporate records of the
Corporation. Except as otherwise required by law and subject to the rights of
the holders of the Preferred Stock, special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board, the Chief Executive
Officer or any two directors. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend, or adopt any provision inconsistent with or repeal this ARTICLE
IX; provided, however, that if the Continuing Directors shall have adopted, by
not less than a two-thirds (2/3) vote of such Continuing Directors, a resolution
approving the amendment or repeal proposal and have determined to recommend it
for approval by the holders of stock entitled to vote thereon, then the vote
required shall be the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote thereon.
ARTICLE X
The business and affairs of the Corporation shall be managed by the Board
of Directors.
ARTICLE XI
The Corporation is to have perpetual existence.
ARTICLE XII
Subject to the other terms of this Certificate of Incorporation, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute and this Certificate of Incorporation, and all rights
conferred on stockholders herein are granted subject to this reservation.
FIFTH: The amendments and the restatement herein certified have been duly
adopted by at least a majority of the directors who have been
elected and qualified in the manner and by the vote prescribed by
Section 241 and Section 245 of the General Corporation Law of the
State of Delaware.
17
<PAGE> 18
Signed on June 22, 1997
/s/ Robert E. Fowler III
----------------------------
/s/ Scott A. Lanphere
----------------------------
/s/ Jerzy Z. Swirski
----------------------------
at least a majority of the
directors, there being no officers
of the Corporation
18
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
@ ENTERTAINMENT, INC.
<PAGE> 2
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
ARTICLE I OFFICES....................................................... -1-
Section 1. REGISTERED OFFICE................................ -1-
Section 2. OTHER OFFICES.................................... -1-
ARTICLE II STOCKHOLDERS.................................................. -1-
Section 1. MEETINGS......................................... -2-
Section 2. NOTICE OF MEETINGS............................... -2-
Section 3. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..... -2-
Section 4. STOCKHOLDER LIST................................. -2-
Section 5. STOCKHOLDER ACTION............................... -2-
Section 6. QUORUM........................................... -3-
Section 7. NOTICE OF AGENDA MATTERS......................... -3-
Section 8. PROXIES.......................................... -4-
Section 9. VOTING........................................... -4-
Section 10. VOTING OF CERTAIN SHARES......................... -4-
Section 11. TREASURY STOCK................................... -4-
ARTICLE III DIRECTORS..................................................... -5-
Section 1. POWERS........................................... -5-
Section 2. ELECTION OF DIRECTORS............................ -5-
Section 3. DIVIDENDS AND RESERVES........................... -6-
Section 4. REGULAR MEETINGS................................. -6-
Section 5. SPECIAL MEETINGS................................. -6-
Section 6. QUORUM........................................... -6-
Section 7. WRITTEN ACTION................................... -7-
Section 8. WAIVER OF NOTICE................................. -7-
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE
TELEPHONE...................................... -7-
Section 10. COMMITTEES....................................... -7-
Section 11. FEES AND COMPENSATION OF DIRECTORS............... -8-
Section 12. RULES............................................ -8-
Section 13. INTERESTED DIRECTORS............................. -8-
ARTICLE IV OFFICERS...................................................... -8-
Section 1. OFFICES AND OFFICIAL POSITIONS................... -8-
Section 2. COMPENSATION..................................... -9-
Section 3. SUCCESSION....................................... -9-
Section 4. RESIGNATIONS..................................... -9-
Section 5. AUTHORITY AND DUTIES............................. -9-
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
PAGE
<TABLE>
<S> <C>
Section 6. Approval of Loans to Officers.................... -9-
ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS........................ -9-
Section 1. CONTRACTS AND OTHER INSTRUMENTS.................. -9-
Section 2. LOANS............................................ -10-
Section 3. CHECKS, DRAFTS, ETC. ............................ -10-
Section 4. DEPOSITS......................................... -10-
ARTICLE VI STOCKS....................................................... -10-
Section 1. CERTIFICATES..................................... -10-
Section 2. TRANSFER......................................... -10-
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES........... -10-
Section 4. RECORD DATE...................................... -11-
Section 5. REGISTERED OWNERS................................ -12-
ARTICLE VII INDEMNIFICATION AND INSURANCE................................ -12-
Section 1. INDEMNIFICATION.................................. -12-
Section 2. CONTRACT......................................... -13-
Section 3. NON-EXCLUSIVITY.................................. -13-
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS.......... -13-
Section 5. INSURANCE........................................ -13-
ARTICLE VIII GENERAL PROVISIONS........................................... -13-
Section 1. FISCAL YEAR...................................... -13-
Section 2. CORPORATE SEAL................................... -14-
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS......... -14-
Section 4. TIME PERIODS..................................... -14-
Section 5. DIVIDENDS........................................ -14-
Section 6. CONSTRUCTION AND DEFINITIONS..................... -14-
ARTICLE IX AMENDMENTS................................................... -14-
Section 1. AMENDMENTS....................................... -14-
</TABLE>
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<PAGE> 4
BYLAWS
OF
@ ENTERTAINMENT, INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of @ ENTERTAINMENT,
INC., a Delaware corporation (the "Corporation"), shall be located in the City
of Wilmington, County of New Castle, State of Delaware, and the name of its
registered agent is Corporation Service Company.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. MEETINGS.
a. TIME AND PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at such times and
places, either within or outside of the State of Delaware, as may be authorized
by the Board of Directors from time to time and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
b. ANNUAL MEETING. Annual meetings of stockholders shall be held on a
date and time as shall be designated from time to time by the Board of
Directors, at which meeting the stockholders shall elect by plurality vote the
directors to succeed those whose terms expire and shall transact such other
business as may properly be brought before the meeting.
c. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or any two (2) directors. Business transacted at any
special meeting of the stockholders shall be limited to the purposes stated in
the notice of such meeting.
<PAGE> 5
Section 2. NOTICE OF MEETINGS. Written notice of every meeting of the
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned to
another place, date or time, written notice need not be given of the adjourned
meeting if the place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, written notice of the place, date and time
of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. Notice of the time, place and purpose of
any meeting of the stockholders may be waived in writing either before or after
such meeting and will be waived by any stockholder by such stockholder's
attendance at the meeting in person or by proxy. Any stockholder so waiving
notice of such a meeting shall be bound by the proceedings of any such meeting
in all respects as if due notice thereof had been given.
At a special meeting, notice of which has been given in accordance with
this Section 2, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting, given in accordance with this Section 2 and with respect to any other
business as may properly come before the meeting.
Section 3. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice
of any meeting of stockholders, if mailed, is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation. An affidavit of the Secretary
or an assistant secretary or of the transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
Section 4. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order, and showing the address
of each such stockholder and the number of shares registered in the name of
each such stockholder. Such list shall be open to examination of any
stockholder of the Corporation during ordinary business hours, for any purpose
germane to the meeting, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of meeting during the entire time
thereof, and subject to the inspection for any purpose germane to the meeting
of any stockholder who may be present.
Section 5. STOCKHOLDER ACTION. Any action required or permitted to be
taken by the stockholders of the Corporation shall be effected at a duly called
annual or special meeting of such holders and shall not be effected by a
consent in writing by such holders; provided, however, that any
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<PAGE> 6
action required to be taken by the stockholders of the Corporation may be
effected by a consent to such action signed by the holders of the class of
stock entitled to vote thereon if approved by not less than a two-thirds (2/3)
vote of the Continuing Directors (as defined in the Certificate of
Incorporation). All such consents shall be filed with the corporate records of
the Corporation.
Section 6. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed.
Section 7. NOTICE OF AGENDA MATTERS. At any annual or special meeting of
stockholders, only such business shall be conducted as shall have been brought
before the meeting by or at the direction of the Board of Directors or by any
stockholder who complies with the procedures set forth in this Section 7. For
business properly to be brought before the annual meeting by a stockholder, the
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received by the Secretary of the Corporation not
less than one hundred twenty (120) days prior to the anniversary date of the
Corporation's notice of annual meeting provided with respect to the previous
year's annual meeting; provided, however, that in the event that less than
forty (40) days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. To be in properly written form, a
stockholder's notice to the Secretary shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 7.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 7; and if he should
so determine, then he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
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<PAGE> 7
Section 8. PROXIES. At every meeting of the stockholders, each
stockholder having the right to vote thereat shall be entitled to vote in
person or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three (3) years
prior to such meeting, unless such proxy provides for a longer period; and it
shall be filed with the Secretary of the Corporation before, or at the time of,
the meeting.
Section 9. VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 4
of Article VI of these Bylaws, subject to the provisions of Sections 217 and
218 of the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgors and joint owners of stock and to voting trusts and other
voting agreements).
Except as otherwise provided by statute or by the Certificate of
Incorporation, each stockholder shall be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing
in the name of such stockholder on the books of the Corporation on the record
date for the meeting and such votes may be cast either in person or by written
proxy. Every proxy must be executed in writing by the stockholder or his or
her duly authorized attorney. All elections of directors shall be by written
ballot, unless otherwise provided in the Certificate of Incorporation. When a
quorum is present at any meeting, the vote of the holders of a majority of the
stock which has voting power present in person or represented by proxy and
which has actually voted shall decide any question properly brought before such
meeting, unless the question is one upon which by express provision of law, the
Certificate of Incorporation or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 10. VOTING OF CERTAIN SHARES. Shares standing in the name of
another corporation, domestic or foreign, and entitled to vote may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe
or, in the absence of such provision, as the board of directors of such
corporation may determine. Shares standing in the name of a deceased person, a
minor or an incompetent and entitled to vote may be voted by his administrator,
executor, guardian or conservator, as the case may be, either in person or by
proxy. Shares standing in the name of a trustee, receiver or pledgee and
entitled to vote maybe voted by such trustee, receiver or pledgee either in
person or by proxy as provided by Delaware law.
Section 11. TREASURY STOCK. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by the
Corporation, shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this section shall be
construed to limit the right of the Corporation to vote shares of its own stock
held by it in a fiduciary capacity.
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<PAGE> 8
ARTICLE III.
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 2. ELECTION OF DIRECTORS.
a. NUMBER AND TERM OF OFFICE. The Board of Directors shall
consist of at least one (1) and not more than nine (9) directors. The
authorized number of directors of the Corporation shall be set initially at
five (5), and shall be subject to change as set from time to time pursuant to a
resolution duly adopted by a majority of the Board of Directors then in office.
The directors shall be classified, with respect to the time for which they
severally hold office, into three (3) classes, as nearly equal in number as
possible as determined from time to time pursuant to a resolution duly adopted
by a majority of the Board of Directors then in office. Upon the effective date
of the Corporation's initial public offering pursuant to the Securities Act of
1933, as amended, the first class shall initially consist of two (2)
directors, the second class shall initially consist of two (2) directors and the
third class shall initially consist of one (1) director. At each annual
election held after such classification, directors shall be chosen for a full
term to succeed those whose terms expire. Any decrease in the authorized number
of directors shall not be effective until the expiration of the term of the
directors then in office, unless, at the time of such decrease there shall be
vacancies on the Board of Directors which are being eliminated by such decrease.
b. RESIGNATIONS AND VACANCIES. Any director may resign at any
time by giving written notice to the Chairman of the Board of Directors, the
Chief Executive Officer or the Board of Directors. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. If, at any other
time than the annual meeting of the stockholders, any vacancy occurs in the
Board of Directors caused by resignation, death, retirement, disqualification or
removal from office of any director or otherwise, or any new directorship is
created by an increase in the authorized number of directors pursuant to Section
2(a) of Article III of these Bylaws, a majority of the directors then in office,
although less than a quorum, may choose a successor, or fill the newly created
directorship, and the director so chosen shall hold office for the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until his successor shall be duly elected and qualified, unless
sooner displaced.
c. NOTIFICATION OF NOMINATIONS. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon
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<PAGE> 9
liquidation, nominations for the election of directors may be made by the Board
of Directors or a proxy committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However,
any such stockholder may nominate one or more persons for election as directors
at a meeting only if such stockholder has given timely notice in proper written
form of his intent to make such nomination or nominations. To be timely, a
stockholder's notice must be delivered to or mailed and received by the
Secretary of the Corporation not later than one hundred twenty (120) days prior
to such meeting; provided, however, that in the event that less than forty (40)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth (10th) day following the date
on which such notice of the date of such meeting was mailed or such public
disclosure was made. To be in proper written form, a stockholder's notice to
the Secretary shall set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (iv) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 3. DIVIDENDS AND RESERVES. Dividends on stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, in shares of
stock or otherwise in the form, and to the extent, permitted by law. The Board
of Directors may set apart, out of any funds of the Corporation available for
dividends, a reserve or reserves for working capital or for any other lawful
purpose, and also may abolish any such reserve in the manner in which it was
created.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice immediately after the annual meeting of the
stockholders and at such other time and place as shall from time to time be
determined by the Board of Directors.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board of Directors, the Chief Executive
Officer or any two (2) directors.
Section 6. QUORUM. At all meetings of the Board of Directors, a majority
of the total number of directors then in office shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the
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act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time to another place, time or date,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 7. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board of Directors or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes or proceedings of the Board of Directors or Committee.
Section 8. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors or any committee, however called and noticed or wherever
held, shall be valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present signs a written waiver of notice, or a
consent to hold such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the Corporate records or
made a part of the minutes of the meeting.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board of Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors, or any such committee,
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 10. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation and each to have such lawfully delegable powers and duties as the
Board of Directors may confer. Each such committee shall serve at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Except as otherwise
provided by law, any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to approving, adopting or recommending to
the stockholders any action or matter expressly required by law to be submitted
to stockholders for approval, or adopting, amending or repealing these Bylaws
of the Corporation. Any committee or committees so designated by the Board of
Directors shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Unless otherwise prescribed
by the Board of Directors, a majority of the members of the committee shall
constitute a quorum for the transaction of business, and the act of a majority
of the members present at a meeting at which there is a quorum shall be the act
of such committee.
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Each committee shall prescribe its own rules for calling and holding
meetings and its method of procedure, subject to any rules prescribed by the
Board of Directors, and shall keep a written record of all actions taken by it.
Section 11. FEES AND COMPENSATION OF DIRECTORS. Each director may receive
such fees and other compensation, along with reimbursement of expenses incurred
on behalf of the Corporation or in connection with attendance at meetings, as
the Board of Directors may from time to time determine. No such payment of
fees or other compensation shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving fees and
compensation for such services.
Section 12. RULES. The Board of Directors may adopt such special rules
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law,
the Certificate of Incorporation or these Bylaws.
Section 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers is or are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the directors or officers are present
at or participate in the meeting of the Board of Directors or the committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if: (i) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or their relationship or interest and as to
the contract or transaction is specifically approved in good faith by vote of
the shareholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the Board
of Directors, a committee thereof, or the stockholders. Interested directors
may be counted in determining the presence of a quorum at a meeting of the
Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
Section 1. OFFICES AND OFFICIAL POSITIONS. The officers of the
Corporation shall be chosen by the Board of Directors and may include a
Chairman of the Board of Directors (who must be a director as chosen by the
Board of Directors) and shall include a Chief Executive Officer, one or more
Vice Presidents (if so elected by the Board of Directors), a Secretary and a
Chief Financial Officer. The Board of Directors also may appoint a Treasurer
and such Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers
and other officers as the Board of Directors
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shall determine. Any two or more offices may be held by the same person. With
the exception of the Chairman of the Board of Directors, none of the officers
need be a director, a stockholder of the Corporation or a resident of the State
of Delaware.
Section 2. COMPENSATION. The compensation of all officers and agents of
the Corporation who are also directors of the Corporation shall be fixed by the
Board of Directors. The Board of Directors may delegate the power to fix the
compensation of other officers and agents of the Corporation to a principal
officer of the Corporation or a committee of the Board of Directors.
Section 3. SUCCESSION. The officers of the Corporation shall hold office
until their successors are duly elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the Corporation may be filled by the Board of Directors.
Section 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors (or to a principal officer or a
committee of the Board of Directors if the Board of Directors has delegated to
such principal officer or committee the power to appoint and to remove such
officer). The resignation of any officer shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice;
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 5. AUTHORITY AND DUTIES. Each of the officers of the Corporation
shall have such authority and shall perform such duties incident to each of
their respective offices and such other duties as may be specified from time to
time by the Board of Directors in a resolution which is not inconsistent with
law, the Certificate of Incorporation or these Bylaws.
Section 6. APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or any
other employee of the Corporation or of its subsidiary, including any officer
or employee who is a director of the Corporation or its subsidiary, whenever,
in the judgment of the directors, such loan, guaranty or assistance may
reasonably be expected to benefit the Corporation. The loan, guaranty or other
assistance may be with or without interest and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the Corporation. Nothing contained
in this section shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the Corporation at common law or under any statute.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS AND OTHER INSTRUMENTS. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any
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instrument in the name of and on behalf of the Corporation, or of any division
thereof, and such authority may be general or confined to specific instances.
Section 2. LOANS. No loans in aggregate principal amount of ten million
dollars ($10,000,000.00) or more shall be contracted on behalf of the
Corporation, or any division thereof, and no evidence of indebtedness shall be
issued in the name of the Corporation or any division thereof, unless authorized
by a resolution of the Board of Directors. Loans with an aggregate principal
amount less than ten million dollars ($10,000,000.00) may be contracted on
behalf of the Corporation, or any division thereof, if signed by both the Chief
Executive Officer and the Chief Financial Officer.
Section 3. CHECKS, DRAFTS, ETC. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation, or any division thereof, shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall from time to time be authorized by the Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation, or any division
thereof, not otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other depositories
as the Board of Directors may select.
ARTICLE VI
STOCKS
Section 1. CERTIFICATES. Certificates representing shares of stock of the
Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and each
such certificate shall exhibit the respective holder's name and the number of
shares and shall be signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors or the Chief Executive Officer and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Corporation and shall bear the corporate seal. Where any such
certificate is countersigned by a transfer agent or a registrar other than the
Corporation or its employee, the signatures of any such officers of the
Corporation and the seal of the Corporation, if any, upon such certificates may
be facsimiles, engraved or printed.
Section 2. TRANSFER. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Chief Executive
Officer, the Secretary, or the Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact, satisfactory to the
Chief Executive Officer or the Secretary
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by the person claiming the certificate of stock to be lost, stolen or destroyed.
As a condition precedent to the issuance of a new certificate or certificates,
the Chief Executive Officer or the Secretary may require the owner of such lost,
stolen or destroyed certificate or certificates to give the Corporation a bond
in such sum and with such surety or sureties as the Chief Executive Officer or
the Secretary may direct as indemnity against any claims that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Subject to the provisions of Section 5 of Article II of these Bylaws, in
order that the Corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required
by this chapter, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, then the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date
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shall be not more than sixty (60) days prior to such action. If no record date
is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
Section 5. REGISTERED OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise required
by law.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 1. INDEMNIFICATION. The Corporation, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, including,
without limitation, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware (as that section may be amended
and supplemented from time to time), shall indemnify any director, officer or
trustee which it shall have power to indemnify under Section 145 against any
expenses, liabilities or other matters referred to in or covered by that
section. The indemnification provided for in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) shall continue as to a person
who has ceased to be a director, officer or trustee and (iii) shall inure to the
benefit of the heirs, executors and administrators of such person. The
Corporation's obligation to provide indemnification under this Article shall be
offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the Corporation or
any other person.
Expenses incurred by a director or officer of the Corporation in defending
a civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director or officer of the Corporation (or was serving at the
Corporation's request as a director or officer of another corporation) shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
relevant sections of the General Corporation Law of the State of Delaware.
To assure indemnification under this Article of all such persons who are
determined by the Corporation or otherwise to be or to have been "fiduciaries"
of any employee benefit plan of the Corporation which may exist from time to
time, such Section 145 shall, for the purposes of this Article, be interpreted
as follows: an "other enterprise" shall be deemed to include such employee
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benefit plan, including, without limitation, any plan of the Corporation which
is governed by the Act of Congress entitled the "Employee Retirement Income
Security Act of 1974," as amended from time to time; the Corporation shall be
deemed to have requested a person to serve as a fiduciary of an employee
benefit plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the Corporation.
Section 2. CONTRACT. The provisions of Section 1 of this Article VII
shall be deemed to be a contract between the Corporation and each director and
officer who serves in such capacity at any time while such Bylaw is in effect,
and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter based in whole or in part upon any such state of facts.
Section 3. NON-EXCLUSIVITY. The rights of indemnification provided by
this Article VII shall not be deemed exclusive of any other rights to which any
director or officer of the Corporation may be entitled apart from the
provisions of this Article VII.
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Board of
Directors in its discretion shall have the power on behalf of the Corporation
to indemnify any person, other than a director or officer, made a party to any
action, suit or proceeding by reason of the fact that such person, or such
person's testator or intestate, is or was an employee or agent of the
Corporation.
Section 5. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of the General
Corporation Law of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed from time to time by resolution of the Board of Directors.
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Section 2. CORPORATE SEAL. The Board of Directors may adopt a corporate
seal and use the same by causing it or a facsimile copy thereof to be impressed
or affixed or reproduced or otherwise.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of a committee designated by the Board of Directors, and each officer of
the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the records of the Corporation and upon
such information, opinions, reports or statements presented to the Corporation
by any of the Corporation's officers or employees, or committees of the Board
of Directors, or by any other person as to matters the director, committee
member or officer believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
Section 4. TIME PERIODS. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded and the day of the event shall be included.
Section 5. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to statute. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other purposes as
the directors shall think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
Section 6. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
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ARTICLE IX
AMENDMENTS
Section 1. AMENDMENTS. Subject to the provisions of the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed or new Bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting thereof duly called for that purpose if notice of such
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting. Subject to the laws of the State of Delaware,
the Certificate of Incorporation and these Bylaws, the Board of Directors may,
by majority vote of those present at any meeting at which a quorum is present,
amend these Bylaws, or enact such other bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the Corporation.
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Exhibit 3.3
_________________________________________________________
Shareholders' Agreement
among
ECO Holdings III Limited Partnership
and
Polish Investments Holding Limited Partnership,
Roger M. Freedman, Steele LLC,
The Cheryl Anne Chase Marital Trust,
The AESOP Fund, L.P.
and
@ Entertainment, Inc.
_________________________________________________________
<PAGE> 2
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into as
of the 22nd day of June, 1997 by and between ECO Holdings III Limited
Partnership, a Delaware limited partnership ("ECO"), The AESOP Fund, L.P., a
Delaware limited partnership ("AESOP"), Roger M. Freedman ("RMF"), Polish
Investments Holding L.P., a Delaware limited partnership ("PIHLP"), The Cheryl
Anne Chase Marital Trust, a Connecticut Trust ("CACMT"), Steele LLC, a
Connecticut limited liability company ("Steele"), and @ Entertainment, Inc., a
Delaware corporation (the "Company").
WITNESSETH
WHEREAS, there are 18,948,000 shares of Common Stock of the Company, par
value one cent ($.01) per share (the "Common Stock"), issued and outstanding;
WHEREAS, PIHLP owns 10,303,000 shares of Common Stock, RMF owns 1,221,000
shares of Common Stock, Steele owns 1,429,000 shares of Common Stock, ECO owns
4,662,000 shares of Common Stock, CACMT owns 733,000 shares of Common Stock and
AESOP owns 600,000 shares of Common Stock, and together they own one hundred
percent (100%) of the issued and outstanding shares of Common Stock;
WHEREAS, ECO owns 2,500 shares of Series B Preferred Stock, par value one
cent ($.01) per share, of the Company ("Series B Preferred"), which are all of
the outstanding shares of Series B Preferred;
WHEREAS, additional classes of preferred stock of the Company are
authorized but are not yet issued and outstanding.
NOW, THEREFORE, in consideration of the premises and in further
consideration of the mutual covenants, promises and agreements hereinafter
contained, it has been and IT IS HEREBY AGREED AS FOLLOWS;
1. DEFINITIONS
1.1. The term "Accession Agreement" means an agreement in the form attached
hereto as Exhibit A.
<PAGE> 3
1.2. The term "Advent" means Advent International Corporation, a Delaware
corporation.
1.3. The term "Affiliate" means a person that is any one or more of the
following: (a) in relation to any person or entity, another person or
entity that controls, is controlled by or is under common control with
such person or entity; (b) in relation to any partnership, any of its
partners who control 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, any Family Member (as
defined below); and (f) in respect of ECO, any company, partnership or
fund which is under the management of the Advent International network,
the headquarters of which are at 101 Federal Street, Boston,
Massachusetts 12110, USA or any Affiliate of any such company,
partnership or fund. For the purposes of this Agreement, the term
"control" (including with correlative meanings, the terms "controlling,"
"controlled by," and "under common control with"), as applied to any
person means the possession, directly or indirectly, of more than 50%
of the voting power (or in the case of a person which is not a
corporation, 50% or more of the ownership interest, beneficial or
otherwise) of such person or the power otherwise to direct or cause
the direction of the management and policies of that person, whether
through voting power, by control of that person's general partner (if
that person is a limited partnership), by contract or otherwise.
1.4. The term "Business Day" means a day (not being a Saturday, Sunday or
public holiday) on which banks are open for general business in the
City of New York.
1.5. The term "Chase Group" means RMF, PIHLP, CACMT and Steele and any
Affiliate of any such Shareholder (or trust for the benefit of such
Affiliate) to whom such Shareholder transfers shares pursuant to
Section 3.7(i) hereof.
1.6. The term "Chase Group Representative" means the one (1) person who
shall, at all times during the term of this Agreement, act as the
designated representative of the Chase Group. The initial Chase Group
Representative shall be David Chase. Any replacement of the Chase
Group Representative shall be determined by majority vote of the
Voting Power (as hereinafter defined) of the members of the Chase
Group, provided however that no change (whether by replacement as
provided in the first clause of this sentence or otherwise) in the
Chase Group Representative shall be effective until the ECO Group shall
have received (pursuant to the notice provisions of Section 13) a
notice signed by members of the Chase Group holding a majority of the
Voting Power of the Chase Group naming a new Chase Group
Representative. Every reference to the Chase Group Representative in
this Agreement shall be a reference to the Chase Group Representative
as changed pursuant to the foregoing sentence from time to time.
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1.7. The term "Chase Group Voting Agreement" means that certain voting
agreement, as amended or modified from time to time, by and among the
members of the Chase Group.
1.8. The term "ECO Group" means ECO, any limited partner to whom ECO
transfers Shares pursuant to Section 3.7(iii), and any Affiliate of any
such Shareholder (or trust for the benefit of such Affiliate) to whom
such Shareholder transfers shares pursuant to Section 3.7(i) hereof.
1.9. The term "ECO Group Representative" means the One (1) person who shall,
at all times during the term of this Agreement, act as the designated
representative of the ECO Group. The initial ECO Group Representative
shall be Scott Lanphere. Any replacement of the ECO Group Representative
shall be determined by majority vote of the Voting Power of the members
of the ECO Group, provided however that no change (whether by
replacement as provided in the first clause of this sentence or
otherwise) in the ECO Group Representative shall be effective until the
Chase Group shall have received (pursuant to the notice provisions of
Section 13) a notice signed by members of the Chase Group holding a
majority of the Voting Power of the Chase Group naming a new Chase Group
Representative. Every reference to the ECO Group Representative in this
Agreement shall be a reference to the ECO Group Representative as
changed pursuant to the foregoing sentence from time to time.
1.10. The term "Equity Subscriber Amount" means, with respect to any Polish
Cable Company, that number that is the product of (i) the number of
Subscribers (as that term is defined to the Stock Purchase Agreement),
and (ii) the fraction equal to the percentage of total shares of capital
stock of such Polish Cable Company held directly by the Company, Poland
Communications, Inc. ("PCI") or PCBV (as the case may be).
1.11. The term "Family Member" in relation to a Shareholder means the spouse,
brothers, sisters and parents of the Shareholder and the Shareholder's
children and grandchildren (including step and adopted children and
grandchildren), and the spouse of any brother or sister of such
Shareholder.
1.12. The term "Group" means either the Chase Group or the ECO Group, as the
case may be.
1.13. The terms "Initial Public Offering" means the closing of an underwritten
public offering of Shares of Common Stock to be listed on the New York
Stock Exchange or the American Stock Exchange, or to be quoted on the
National Association of Securities Dealers Automated Quotation System
or the National Market System of the National Association of Securities
Dealers pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale
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to the public of at least twenty percent (20%) of the Common Stock of
the Company outstanding immediately after such closing.
1.14. The term "Other Shareholders" means (i) AESOP, (ii) any person to whom
Shares are transferred in accordance with this Agreement other than an
Affiliate of or member of the same Group as the transferring
Shareholder, and (iii) Steele, if Steele elects to become such pursuant
to Section 3.5 hereof.
1.15. The term "PAR" means the State Agency for Radio Communications of
Poland.
1.16. The term "Parties" means the ECO Group, the Chase Group, AESOP and the
Company, collectively.
1.17. The term "PCBV" means Poland Cablevision (Netherlands) B.V., a
partially-owned subsidiary of PCI (as hereinafter defined).
1.18. The term "PCI" means Poland Communications, Inc., a New York
corporation, a wholly-owned subsidiary of the Company.
1.19. The term "person" means a natural person, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or other entity, or a governmental entity or
any department, agency or political subdivision thereof.
1.20. The term "Polish Cable Companies" means all Subsidiaries that, at the
date as of which such determination is made, are engaged in the business
of cable television including programming, telecommunications and
telephony in Poland. The term "Material Polish Cable Companies" means
those Polish Cable Companies about which at the date as of which such
determination is made, any of the following is true: (i) at least 50% of
the equity interests thereof are owned directly or indirectly by the
Company; (ii) it is (or is the successor of) Polska Telewizja
Kablowa-Ryntronik S.A., a Polish joint stock company, or ProCable Sp.
z o.o., a Polish limited liability company; or (iii) the Equity
Subscriber Amount of such Polish Cable Company is at least 5% of the
total Equity Subscriber Amount of all Polish Cable Companies in the
aggregate.
1.21. The term "Preferred Stock" means, collectively, all of the issued and
outstanding Shares of all classes of preferred stock of the Company as
of the date hereof or any date hereafter.
1.22. The term "Qualified Person" means any person (a) who does not engage in
any of the businesses of telephony, telecommunications, digital
satellite broadcasting programming, or cable television in or to any
city in Poland or the United Kingdom where the Company or any Subsidiary
engages in that line of business, and (b) whose
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ownership of capital stock of the Company (or rights related thereto)
would not be reasonably likely to result in (i) the loss of, or failure
to obtain, a license, permit, certificate or deed or other regulatory
approval or authorization of or for the Company or any Subsidiary
material to the operations of the Company or any such Subsidiary, or
(ii) the imposition of any condition, modification, or limitation on
such certificate, license, permit, approval, authorization or
reimbursement that would be materially adverse to the operations of the
Company or any Subsidiary, and (c) to whom the transfer of Shares of the
Company would not cause the Company to become a reporting company
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
1.23. The term "Shareholder" means the following persons:
(i) ECO, RMF, PIHLP, Steele, CACMT and AESOP; and
(ii) any person who becomes a Shareholder pursuant to Section 7.1
hereof.
1.24. The term "Shares" means shares of any class of the issued and
outstanding equity securities of the Company from time to time.
1.25. The term "Stake" for the purposes of Section 5 hereof shall mean all
Shares in the aggregate owned by the Shareholders comprising the Chase
Group or the ECO Group, as the case may be.
1.26. The term "Stock Purchase Agreement" shall mean that certain Stock
Purchase Agreement entered into among ECO, World Cable Communications,
Inc. and PIHLP on March 29, 1996.
1.27. The term "Subsidiary" shall mean each person, other than a natural
person, in which the Company, at the time as of which such
determination is being made, owns, directly or indirectly, any of the
outstanding voting securities or equity interests.
1.28. The term "U.S. GAAP" shall mean generally accepted accounting principles
as in effect from time to time in the United States of America.
1.29. The term "Voting Power" shall mean, with respect to the holder or
holders of any Shares entitled to voting rights pursuant to the
Certificate of Incorporation, the total number of votes represented
by such Shares.
1.30. Words indicating a gender include all genders.
1.31. The singular includes the plural and vice versa where the context
permits or requires.
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1.32. References to Sections, Paragraphs, Exhibits and Schedules are to
sections and paragraphs of, and exhibits and schedules to, this
Agreement, except where the context requires otherwise.
1.33. The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
1.34. References to any of the Shareholders (whether individually or
collectively) shall be deemed to exclude any of the Shareholders which
has transferred all of its Shares and no longer has any interest in any
Shares except that this shall not apply to Sections 10 and 11 hereof.
1.35. References to the Certificate of Incorporation shall be construed to
mean the Certificate of Incorporation of the Company as amended or
restated from time to time.
1.36. With respect to actions to be taken by the Chase Group hereunder, any
document signed, or action assented to, by the Chase Group
Representative shall be binding on all persons forming part of the Chase
Group. With respect to actions to be taken by the ECO Group hereunder,
any document signed, or action assented to, by the ECO Group
Representative shall be binding on all persons forming part of the ECO
Group.
2. THE BOARD OF DIRECTORS
2.1. Each of the Shareholders agrees to take all action necessary including,
without limitation, the voting of his Shares, the execution of written
consents, the calling of special meetings, the removal of directors, the
filling of vacancies of the Board of Directors, the waiving of notice
and the attending of meetings, so as to cause the number of members of
the Board of Directors of the Company to be five (5) and to cause the
Board of Directors to consist of the following:
(i) two (2) persons designated from time to time by the ECO Group;
(ii) two (2) persons designated from time to time by the Chase
Group; and
(iii) The Chief Executive Officer of the Company.
Each Shareholder also agrees to take all action necessary to remove
forthwith any director when (and only when) such removal is requested
for any reason with or without cause by the Group that designated such
director and in the case of death, resignation or other removal as
herein provided of such a director, to elect forthwith
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any director when (and only when) such removal is requested for any
reason with or without cause by the Group that designated such director
and in the case of death, resignation or other removal as herein
provided of such a director, to elect forthwith another director
designated by the same Group that designated the deceased, resigning or
removed director.
The Chairman of the Board of Directors shall be a director chosen by the
Chase Group, and shall initially be David T. Chase.
2.2. (i) The Chief Executive Officer of the Company shall initially be
Robert E. Fowler, III.
(ii) The Chief Executive Officer of the Company shall be removed only
by a vote of the Board of Directors in accordance with the
Restated Certification of Incorporation. In the event of the
resignation or removal of the Chief Executive Officer of the
Company, a replacement who shall be acceptable to the ECO Group
shall be designated by the Chase Group.
2.3. The provisions of Sections 2.1 and 2.2 of this Agreement shall terminate
and cease to be in effect if a conveyance of voting rights is deemed to
have occurred pursuant to Section 5.4 hereof, or if either Group holds
no Shares.
3. TRANSFER OR SALE OF SHARES
3.1. Prior to an Initial Public Offering, any Shareholder (other than Steele,
CACMT or RMF) who is a member of a Group may transfer twenty-one percent
(21%) and/or more of its Shares of Common Stock, and/or twenty-one
percent (21%) or more of its Shares of any class of Preferred Stock, to
a Qualified Person, but in accordance with the terms and conditions of
this Section 3.1:
(i) upon receipt of a bona fide third party offer ("Offer") from a
Qualified Person to purchase twenty-one (21%) or more of the
Shares of Common Stock owned by such Shareholder, and/or
twenty-one percent (21%) or more of its Shares of any class of
Preferred Stock owned by such Shareholder, the recipient of such
offer (the "Initiating Shareholder") shall, if it desires to
accept the offer, (a) procure an offer (to be included in the
Offer) from said third party to purchase all of the outstanding
Shares of Applicable Stock (as hereinafter defined) at the
Applicable Price per Share and on the same terms as contained in
the Offer, and (b) send a notice ("Initiating Notice") in
accordance with the provisions of Section 13 to the members of
the other Group (the "Responding Group") setting forth the price
and other terms of such Offer and naming the proposed purchaser;
and
(ii) on the 60th calendar day (the "Response Date") following receipt
of the Initiating Notice, the Responding Group shall have the
right to purchase all
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of the Shares of Applicable Stock owned by the Initiating
Shareholder at the Applicable Price per Share and on the terms
set forth in the Offer. If, on the Response Date, the Responding
Group does not purchase all the Shares of Applicable Stock owned
by the Initiating Shareholder or notify the Initiating
Shareholder on such date that the Responding Group will sell its
Shares of Applicable Stock to the person who made the Offer,
the Responding Group will be deemed to have consented to the
sale of the Initiating Shareholder's Shares of Applicable Stock,
and the Initiating Stockholder may thereupon sell such Shares to
the person who made the Offer on the terms and conditions
contained in the Offer. If the Responding Group notifies the
Initiating Shareholder of its intention to sell its Shares of
Applicable Stock, the person who made the Offer must, on or
before the 15th day after the Response Date, purchase all Shares
of Applicable Stock held by the Initiating Shareholder, all
members of the Responding Group, and any other Shareholder who
elects to sell.
(iii) For the purposes of this Section 3.1., the term "Applicable
Stock" shall mean:
(a) with respect to an offer for Common Stock and/or Series
B Preferred, the Common Stock and the Series B
Preferred, and
(b) with respect to an offer for any class of Preferred
Stock other than Series B Preferred, all of the issued
and outstanding Shares of all classes of Preferred
Stock other than Series B Preferred.
(iv) For the purposes of this Section 3.1., the term "Applicable
Price" shall mean the price per Share contained in the Offer,
except that for this purpose the Series B Preferred shall be
priced or valued as if it had been converted into Common Stock
as provided in the Certificate of Incorporation.
3.2. Prior to an Initial Public Offering:
(a) any Shareholder which is a member of a Group may transfer fewer
than twenty-one (21%) of its Shares of Common Stock, and/or
fewer than twenty-one percent (21%) of its Shares of any class
of Preferred Stock,
(b) Steele, if at the time of the proposed transfer Richard Steele
is not an employee of the Company or any Subsidiary, may
transfer all or any portion of its Shares, and
(c) RMF may transfer all or any portion of his Shares,
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to a Qualified Person, but in accordance with the terms and conditions of this
Section 3.2. If a Shareholder wishes to make a sale of the kind described in
subsection 3.2(a), 3.2(b) or 3.2(c) above (such Shareholder, regardless of
whether 3.2(a), 3.2(b) or 3.2(c) applies, being referred to hereinafter as the
"Minority Initiating Shareholder"):
(i) such Minority Initiating Shareholder shall send a notice ("Minority
Initiating Notice") to the other members of the Minority Initiating
Shareholder's Group announcing his intention to make such a sale and
specifying the amount and class of Shares that he intends to sell (the
"Shares For Sale"); and
(ii) after receipt of the Minority Initiating Notice, any one or more of the
other members of the Minority Initiating Shareholder's Group may make an
offer to purchase the Shares For Sale, and the Minority Initiating
Shareholder shall negotiate with such other members of its Group. If
the Minority Initiating Shareholder and one or more of such other
members of its Group are able to reach agreement on the price and other
terms of sale, the Minority Initiating Shareholder may sell the Shares
For Sale to the member or members of its Group with whom it reaches such
an agreement; and
(iii) if no sale of the Shares For Sale is consummated between the Minority
Initiating Shareholder and any other members of his Group within 60
calendar days after the date of the Minority Initiating Notice, such
Minority Initiating Shareholder shall send a notice ("Second Minority
Initiating Notice") to the members of the other Group repeating his
intention to make such a sale and repeating the amount and class of
Shares that he intends to sell; and
(iv) after receipt of the Second Minority Initiating Notice, any one or more
of the other members of the other Group may make an offer to purchase
the Shares For Sale, and the Minority Initiating Shareholder shall
negotiate with such other members of that Group. If the Minority
Initiating Shareholder and one or more of such other members of that
Group are able to reach agreement on the price and other terms of sale,
the Minority Initiating Shareholder may sell the Shares For Sale to the
member or members of that Group with whom it reaches such an agreement,
and
(v) if no sale of the Shares For Sale is consummated between the Minority
Initiating Shareholder and any members of the Group that is not his
Group within 60 calendar days after the date of the Second Minority
Initiating Notice, then the Minority Initiating Shareholder shall be
free, for a period of 150 days after the expiration of such sixty-day
period, to sell the Shares For Sale to any Qualified Person.
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For the avoidance of doubt, any Shareholder may elect to exercise its
transfer rights under this Section 3.2 more than once, but, with respect
to transfers described in Section 3.2(a), only to the extent that the
aggregate amount of Shares that it seeks to sell under one or more
transfers pursuant to this Section 3.2 does not exceed 50% of any class
of the Shares which it holds on the date hereof; and, no attempt by a
Shareholder to transfer any quantity of Shares that would bring the
aggregate number of Shares transferred by such Shareholder to an amount
equal to or greater than 50% of any class of the Shares which it holds
on the date hereof is permitted by this Section 3.2. Notwithstanding
anything in this Section 3.2 to the contrary, the Initiating Shareholder
may, at any time after initiating the process under this Section 3.2,
elect to terminate this process without proceeding further, and having
initiated such process shall not be precluded from transferring his
Shares to an Affiliate or to a member of such Initiating Shareholder's
Group pursuant to Section 3.7 hereof.
3.3 Prior to an Initial Public Offering, each of the Other Shareholders may
transfer any or all of its Shares to a Qualified Person in accordance
with the terms and conditions of this Section 3.3.
(i) if any of the Other Shareholders wishes to sell any or all of
its Shares, such Shareholder shall send a notice ("the Other
Shareholder Initiating Notice") to the members of the Chase
Group announcing his intention to make such a sale and
specifying the amount and class of Shares that such Other
Shareholder intends to sell (the "Other Shareholder Shares For
Sale"); and
(ii) after receipt of the Other Shareholder Initiating Notice, any
one or more of the other members of the Chase Group may make an
offer to purchase the Other Shareholder Shares For Sale, and the
Other Shareholder shall negotiate with such members of the Chase
Group. If the Other Shareholder and one or more of the members
of the Chase Group are able to reach agreement on the price and
other terms of sale, then the Other Shareholder may sell the
Other Shareholder Shares For Sale to the members of the Chase
Group with whom it reaches such an agreement; and
(iii) if no sale of the Other Shareholders Shares For Sale is
consummated between the Other Shareholder and any member of the
Chase Group within 60 calendar days after the date of the Other
Shareholder Initiating Notice, the Other Shareholder shall send
a notice ("the Other Shareholder Second Initiating Notice") to
the members of the ECO Group repeating its intention to make
such a sale and repeating the amount and class of Shares that
the Other Shareholder intends to sell; and
(iv) after receipt of the Other Shareholder Second Initiating Notice,
any one or more of the other members of the ECO Group may make
an offer to purchase
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the Other Shareholder Shares For Sale, and the Other Shareholder
shall negotiate with such other members of the ECO Group. If the
Other Shareholder and one or more of such other members of the
ECO Group are able to reach agreement on the price and other
terms of sale, the Other Shareholder may sell the Other
Shareholder Shares For Sale to the members of the ECO Group with
whom it reaches such an agreement; and
(v) if no sale of the Other Shareholder Shares For Sale is
consummated between the Other Shareholder and any members of the
ECO Group within 60 calendar days after the date of the Other
Shareholder Second Initiating Notice, then the Other Shareholder
shall be free, for a period of 150 days after the expiration of
such sixty-day period, to sell the Other Shareholder Shares For
Sales to any Qualified Person.
3.4. For the purposes of this Agreement, each Shareholder agrees that AESOP
shall not be deemed to be a member of either the Chase Group or the ECO
Group, except as specifically provided in Section 3.6.
3.5. Notwithstanding any other provision in this Agreement to the contrary,
prior to any Initial Public Offering, and as long as Richard Steele is
an employee of the Company or of any Subsidiary, Steele shall be a
member of the Chase Group but may not transfer its Shares pursuant to
Section 3.2 hereof. Within 120 days after the first to occur of (i) an
Initial Public Offering or (ii) the date that Richard Steele ceases to
be an employee of any of the Company or any Subsidiary, Steele may make
a one-time election to remain a member of the Chase Group, to be treated
as an Other Shareholder, or, if and only if ECO consents, to become a
member of the ECO Group. If Steele chooses to be treated as an Other
Shareholder, then from the moment of that election Steele shall have the
same rights, privileges and protections that the Other Shareholders
enjoy under this Agreement, but shall no longer have all the rights,
privileges and protection that members of the Chase Group enjoy under
this Agreement.
3.6. Any Shareholder shall have the right at any time to pledge, hypothecate
or encumber up to, but no more than, the Pledgeable Percentage (as
hereinafter defined) of its Shares in the aggregate, and to maintain any
pledge, hypothecation, or encumbrance subsisting on its Shares on the
date hereof, but in each case only in accordance with the provisions of
this Section 3.6.
(i) No pledge, hypothecation, or encumbrance of any Shares shall be
effected or maintained until each and every person receiving an
interest of any kind in such Shares shall have executed and
delivered to the Company and each of the Shareholders an
agreement in the form of the Accession Agreement; and
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(ii) No pledge, hypothecation, or encumbrance of any Shares shall be
effected or maintained except in a bona fide transaction; and
(iii) No pledge, hypothecation, or encumbrance of any Shares shall be effected
or maintained except under a written pledge agreement that provides that
before any right to foreclose, to sell in lieu of foreclosure, or to
exercise any similar or equivalent remedy may be exercised, the pledgee
shall:
(a) first obtain from a third party a commercially reasonable offer
for the sale of the Shares (the "Redemption Offer");
(b) notify the members of both Groups of the Redemption Offer;
(c) offer the pledgor's Group the opportunity to purchase the Shares
at the amount of the Redemption Offer within 30 days of receipt
of such offer;
(d) if the members of the pledgor's Group refuse the pledgee's
offer, then the pledgee shall offer the members of the other
Group the opportunity to purchase the Shares at the amount of
the Redemption Offer within 30 days of such offer; and
(e) only if the members of neither Group accept the pledgee's offer
shall the pledgee foreclose the pledge, sell the Shares in lieu
of foreclosure, or exercise any similar or equivalent remedy.
(iv) For the purposes of Section 3.6(iii) only, in the case of a pledge,
hypothecation, or encumbrance of any Other Stockholder's Shares only,
such Other Stockholder shall be deemed to be a member of the Chase
Group.
(v) The "Pledgeable Percentage" shall mean:
(a) with respect to ECO, 21%;
(b) with respect to PIHLP, 21%;
(c) with respect to Steele at any time when Richard Steele is an
employee of the Company or any Subsidiary, 21%; and
(d) with respect to all other Shareholders, and with respect to
Steele at any time when Richard Steele is not an employee of the
Company or any Subsidiary, 100%.
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(vi) Exempted from the requirements of this Section 3.6 are the
following three pledges (the "Existing Pledges"):
(a) the pledge of up to 3,983,000 Shares of Common Stock in
the aggregate, pursuant to the terms of that certain
Contribution Agreement that was entered into on or about
March 29, 1996, among PIHLP, RMF, AESOP and Steele;
(b) the pledge of all of the Shares of Steele, pursuant to
the terms of that certain Pledge Agreement dated
February 1, 1994, between The Steele Family
Partnership, a Connecticut general partnership,
and PIHLP; and
(c) the pledge of 652,000 Shares of Common Stock of PIHLP,
pursuant to the terms of that certain Pledge Agreement
dated April 15, 1991, between PIHLP and
David T. Chase, as from time to time amended and/or
restated.
3.7. Notwithstanding anything to the contrary contained in this Agreement,
but subject to the requirements of Section 7 hereof:
(i) any Shareholder shall have the right to transfer any Shares to
any Affiliate of such Shareholder or a trust set up entirely for
the benefit of an Affiliate, if such Shareholder is a member of
the Chase Group, such Affiliate shall enter into the Chase Group
Voting Agreement. If such transferring Shareholder is a member
of the ECO Group, such Affiliate shall enter into a voting
agreement or voting trust agreement pursuant to which such
Affiliate's voting rights in the Shares acquired from the
transferring Shareholder shall be held by Advent.
(ii) any Shareholder shall have the right at any time to transfer
its Shares to any other Shareholder within the same Group.
(iii) ECO shall have the right to transfer any or all of its Shares at
any time to any one or more of its limited partners, provided
that such limited partner enters into a voting agreement or
voting trust agreement pursuant to which such limited partner's
voting rights in the Shares acquired from such transferring
Shareholder shall be held by Advent.
(iv) no Shareholder shall transfer any Shares at any time if such
action would constitute a violation of any federal or state
securities or blue sky laws or a breach of the conditions to any
exemption from registration of any transfer of any Shares under
any such laws or a breach of any undertaking or agreement
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of such Shareholder entered into pursuant to such laws or in
connection with obtaining an exemption thereunder;
(v) Advent, as the sole general partner of ECO, shall not permit the
transfer of any partnership interests in ECO to any person other
than either a Qualified Person, a person controlled by a
Qualified Person, or a person that is a fund managed by Advent;
and
(vi) During the term of this Agreement, Advent shall at all times be
the sole general partner of ECO and at all times funds managed
by Advent shall own at least 51% of the partnership interests in
ECO;
(vii) any Shareholder may transfer Shares in connection with a
registration of such Shares undertaken pursuant to that certain
Registration Rights Agreement by and among the Shareholders.
4. SALE OF THE COMPANY.
In the event that either:
(a) an offeror makes an irrevocable offer open for acceptance for
not less than thirty days to acquire all of the Shares held by
the Shareholders, and the offer is accepted by Shareholders
holding sixty-five percent (65%) or more of the then issued and
outstanding Voting Power,
(b) an offeror makes an irrevocable offer open for acceptance for
not less than thirty days to acquire all or substantially all of
the assets of the Company, and the offer is accepted (subject to
Shareholder approval) by the Board of Directors of the Company
in accordance with the provisions of the Company's Certificate
of Incorporation,
then each Shareholder:
(i) in the case of (a) above, undertakes to accept the offer within
the thirty day period and to execute all such documents and to
do all such other acts or things which are necessary to transfer
his Shares to the offeror in accordance with the terms of the
offer;
(ii) in the case of (b) above, undertakes to take all steps necessary
or desirable to cause the Company to accept the offer and to
consummate the transactions proposed in the offer; and
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(iii) in either case, agrees that money damages would be an inadequate
remedy for its breach of its obligations under this Section 4,
and therefore consents to the entry of a decree of specific
performance to remedy any such breach.
5. BUY-SELL OPTION.
5.1. The Shareholders agree that the buy-sell provisions of this Section 5
shall be available in accordance with the provision of this Section 5.1
as follows:
(i) In the event that:
(a) a matter set forth in Exhibit D hereof is submitted to
the Board of Directors for approval and is not passed,
(b) within 30 days thereafter a director from the Group that
originally submitted the matter to the Board of
Directors re-submits it to the Board of Directors for
approval, and
(c) after re-submission that matter is once again not
passed,
the Group whose director re-submitted the matter shall have the
right to initiate the buy-sell option contained in this Section
5 during the thirty (30) day period following the second vote of
the Board of Directors.
(ii) If there shall not be a quorum at any two or more successive
Board of Directors meetings for which notice was given to all
directors in accordance with the By-Laws of the Company, the ECO
Group (if at least one director chosen by it attended each such
meeting) and/or the Chase Group (if at least two directors
chosen by it attended each such meeting) shall be entitled to
initiate the buy-sell option contained in this Section 5 for a
period of 30 days following the date of the second and each
subsequent meeting in the series.
(iii) The holder of any series of preferred stock which the Company
shall fail to redeem upon the Series B Redemption Date (as
defined in the Certificate of Incorporation) or upon any date
set by the Company for redemption pursuant to the optional
redemption provisions of Article IV of the Certificate of
Incorporation of the Company shall have the right to initiate
the buy-sell option contained in this Section 5.
(iv) If PCI shall refuse to accept, or shall waive its rights to
receive payment of amounts due and payable to it by PIHLP
pursuant to Article XVII of the Stock Purchase Agreement, or if
PCI shall waive any of ECO's rights and remedies
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under Article XVII of the Stock Purchase Agreement, then the ECO
Group shall have the right to initiate the buy-sell option
contained in this Section 5.
(v) If the Company shall fail to comply with its obligations in
Section 7.1 of the Stock Purchase Agreement and such failure
continues for a period of 30 days after written notice thereof
from ECO, then the ECO Group shall have the right to initiate
the buy-sell option contained in this Section 5.
(vi) If the ECO Group (or a director chosen by such Group) fails to
comply with Section 8.2, the Chase Group may initiate the
buy-sell option contained in this Section 5. If the Chase Group
fails to comply with Section 8.2, the ECO Group may initiate the
buy-sell option contained in this Section 5.
5.2. Upon the availability pursuant to any subsection of Section 5.1 to
either or both of the Groups of the buy-sell provisions of this Section
5, then the Group or Groups having the right to initiate such buy-sell
provisions shall have the right to make an offer (the "Buy-Sell Offer")
pursuant to this Section 5. If both Groups are entitled to make the
Buy-Sell Offer following the occurrence of one of the events specified
in Section 5.1., the first such Group making the Buy-Sell Offer is
referred to hereinafter as the "Offeror," and the other Group is
referred to hereinafter as the "Offeree." The Buy-Sell Offer shall
contain a valuation of all the outstanding capital stock of the Company
(the "Valuation Amount") based on which the Offeror is willing to
purchase the Offeree's Stake in the Company or, in the alternative and
at the election of the Offeree, to sell its Stake in the Company to the
Offeree. If the ECO Group shall be the Offeror, its offer must state
whether it will convert the Series B Preferred into Common Stock. If the
Chase Group shall be the Offeror, the ECO Group may at its option and in
its sole discretion convert its shares of Series B Preferred into Common
Stock prior to responding to such Buy-Sell Offer.
5.3. The Offeror shall initiate the Buy-Sell Offer by giving notice
("Buy-Sell Notice") to the Offeree. The Buy-Sell Notice shall state all
of the following:
(i) The Valuation Amount, together with a calculation of the
purchase price for the Offeree's Stake and for the Offeror's
Stake (with one calculation assuming that all of the then issued
and outstanding Series B Preferred is converted into Common
Stock, and one calculation assuming that none of the Series B
Preferred is so converted); and
(ii) The exact terms, other than the purchase price, on which the
Offeror is willing to purchase the Stake owned by the Offeree,
and on which the Offeror is willing to sell his Stake to the
Offeree. Such purchase terms and sale terms in the Buy-Sell
Notice shall be the exactly same terms.
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5.4. The Buy-Sell Offer contained in the Buy-Sell Notice shall be irrevocable
for a period of ninety (90) calendar days after delivery of the Buy-Sell
Notice. The Offeree shall, on or before the 90th calendar day after
receiving the Buy-Sell Notice, either accept the Buy-Sell Offer and
agree to sell its Stake to the Offeror (in which case the Offeree is the
"seller" and the Offeror is the "purchaser" for the purposes of the
remaining provisions of this Section 5), or elect to purchase the
Offeror's Stake (in which case the Offeree is the "purchaser" and the
Offeror is the "seller" for the remaining provisions of this Section
5), in either case upon the terms and conditions set forth in the
Buy-Sell Notice. The election shall be effective upon the Offeror's
receipt of a notice from the Offeree, pursuant to the terms of Section
13, specifying the Offeree's election. If the Offeree shall not have
made an effective election to purchase the Offeror's Stake on or
before the 90th day following the date of giving of the Buy-Sell
Offer, the Offeree shall be deemed to have elected on the 90th day to
become the seller of its Stake to the Offeror.
5.5. With respect to the Buy-Sell Offer, the price which the purchaser shall
pay the seller for the seller's Stake shall be computed by: (i)
subtracting from the Valuation Amount the Liquidation Preference (as
described in the certificate of incorporation) of all of the outstanding
Shares of Preferred Stock; (ii) multiplying the difference obtained in
subsection (i) by the percentage of the issued and outstanding Common
Stock owned by the seller; (iii) if the seller shall tender (or be
deemed to have tendered) pledged, hypothecated, or encumbered Shares,
subtracting the amount required to redeem or discharge any such pledge,
hypothecation or encumbrance (provided that, in the event that the
seller consists of more than one Shareholder, this distinction shall be
borne by that or those Shareholder(s) who tender, or are deemed to have
tendered, pledged, hypothecated, or encumbered Shares in proportion to
the amount required to clear title with respect to each such
Shareholder's Shares), and (iv) adding to the price an amount equal to
the Liquidation Preference of all Shares of Preferred Stock owned by the
seller. In calculating seller's Stake pursuant to this Section 5.5, the
ECO Group's election pursuant to Section 5.2 with respect to conversion
of Series B Preferred into Common shall be given effect.
5.6. The resulting sale and purchase of Shares shall take place upon the
terms and conditions set forth in the Buy-Sell Notice. If the Offeree
elects to become the buyer, the sale and purchase shall occur on or
before the 120th day following the effective date of the Offeree's
election; if the Offeree elects, or is deemed to have elected, to become
the seller, the sale and purchase shall occur on or before the 90th day
following the effective date (or deemed effective date) of the Offeree's
election. At the closing of the sale and purchase, the Shareholder(s)
selling his (their) Shares shall deliver to the purchasing
Shareholder(s) such duly executed documents and instruments as the
purchasing Shareholder(s) may reasonably request to vest in the
purchasing Shareholder(s) all right, title and interest to the Shares
being transferred free and clear of any liens and encumbrances.
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5.7. The Shareholders agree that, in addition to all of the other
requirements of this Section 5:
(i) Upon making the Buy-Sell Offer, the Offeror shall place into an
escrow account with an escrow agent reasonably acceptable to
Offeree an amount equal to 10% of the price which, if it became
the purchaser pursuant to Section 5.2, it would be required to
pay to the Offeree calculated in accordance with Section 5.5. If
the Offeree elects to become the purchaser pursuant to Section
5.2, the Offeror's cash shall immediately be released from
escrow and returned to the Offeror (together with any interest
accrued thereon), and the Offeree shall immediately place into
an escrow account with an escrow agent reasonably acceptable to
Offeror an amount equal to 10% of the price which it is required
to pay to the Offeror calculated in accordance with Section 5.5.
(ii) Furthermore, upon the making of the Buy-Sell Offer, each of the
Offeror and the Offeree shall immediately deposit the
certificates (other than pledged certificates not in its
possession) representing its respective Shares into escrow, with
an escrow agent reasonably acceptable to the other Party, on
such terms as will (a) permit the purchaser to obtain the
seller's Shares and certificates therefor upon closing of the
purchase and sale called for by Section 5.6. (b) permit the
purchaser to obtain its Shares immediately after the Offeree
makes or is deemed to make an effective election pursuant to
Section 5.4, and (c) permit both parties to obtain their
respective Shares if the purchase and sale is excused or is not
consummated.
(iii) In the event that the purchaser fails for any reason other than,
(A) Force Majeure (as hereinafter defined) or (B) subsection (v)
of this Section 5.7 to purchase the seller's Shares upon the
terms and conditions of the Buy-Sell Notice within the time
period set forth pursuant to Section 5.6, then (C) the escrowed
funds referred to in subsection (i) above shall immediately
become the property of the seller, and (D) the purchaser shall
be deemed to have irrevocably conveyed to the seller the
purchaser's voting rights with respect to all Shares owned by
the purchaser with respect to all matters relating to the
authorization of the sale of all or substantially all of the
capital stock or assets of the Company, including without
limitation the replacement of directors immediately upon receipt
by the Company of an offer meeting the requirements of Section
4(b) (all such matters being referred to herein collectively as
"Company Sale Matters"). In the event that an event of Force
Majeure prevents the purchaser from purchasing the seller's
Shares upon the terms and conditions of the Buy-Sell Notice
within the time period set forth pursuant to Section 5.6, then
any period of delay caused by such Force
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Majeure shall be added to the time period set forth pursuant to
Section 5.6.
(iv) In furtherance and not in limitation of the provisions of
subsection (iii) above, the Parties agree that if the purchaser
shall be deemed to have irrevocably conveyed its voting rights,
then the purchaser shall thereafter vote its shares on all
Company Sale Matters exclusively as directed by the Seller, and
the purchaser shall immediately execute and deliver to seller an
irrevocable proxy, coupled with an interest, entitled as such,
in favor of the seller, authorizing the seller to vote all of
the purchaser's Shares in all Company Sale Matters; the Parties
intend for this proxy to be irrevocable and votable for
a period of time longer than three years pursuant to the
provisions of Section 215(b) of the General Corporation Law of
the State of Delaware, and the proxy delivered pursuant to
this sub-section (iv) shall so state.
(v) Notwithstanding any provision in this Agreement to the contrary,
the purchaser shall be excused from its obligation to purchase
the seller's Shares under this Section 5 in the event that there
is a decrease of ten percent (10%) or more in the fair market
value of the Company between the date that the Buy-Sell Notice
is given and the date by which purchase and sale is due to occur
pursuant to Section 5.6, or in the event that, due to Force
Majeure, the purchase and sale is postponed 30 days or more
beyond the time set forth in Section 5.6., or in the event that
seller fails to comply with its obligations under the last
sentence of Section 5.6.
55.8. (i) For the purposes of this Section 5, members of the Chase Group
shall be deemed to be one entity, which entity shall act in
concert and under the direction of the Chase Group
Representative, including for the purpose of initiating,
responding to, and performing any Buy-Sell Offer. For the
purposes of this Section 5, members of the ECO Group shall be
deemed to be one entity, which entity shall act in concert and
under the direction of the ECO Group Representative, including
for the purpose of initiating, responding to, and performing any
Buy-Sell Offer.
(ii) In the event that the members of either Group do not elect
unanimously to perform any action or decision allowed or
required by this Section 5, each such member shall be bound by
the action of its Group representative, and the other Group is
entitled to rely upon the Group representative's action as
binding upon each member of the other Group;
(iii) Each Group agrees that money damages would be an inadequate
remedy for its breach of its obligations under this Section 5,
and therefore consents to the entry of a decree of specific
performance to remedy any such breach.
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5.9 For the purposes of this Section 5, "Force Majeure" means:
(i) any governmental prohibition against the purchase and sale or
any inability to secure or any failure of a governmental agency
to supply a necessary approval for the purchase and sale;
(ii) any closing of or extraordinary cessation or curtailment of
trading on the London Stock Exchange or the New York Stock
Exchange on a day when such exchange would otherwise ordinarily
be open for trading; and
(iii) any banking moratorium declared by the Federal Reserve Board.
6. AUCTION OF COMPANY
The Shareholders agree that on or about March 29, 2001, they shall cause
the Company to employ the services of an investment bank to evaluate
alternatives, including, without limitation, the sale, refinancing, or
public offering for maximizing the value of the Common Stock of the
Company and to report to the Board of Directors of the Company
thereupon. If the investment bank's report is not presented to the Board
of Directors by March 29, 2002, or if the Board of Directors
does not by a vote of at least four (4) directors adopt a plan for
maximizing the value of the Common Stock in response to such report by
March 29, 2002, then the Shareholders shall cause the Company to employ
the services of an investment bank to secure a purchaser for the
Company. The investment banks to be chosen to undertake the tasks
referred to in this Section 6 shall be selected from the following list:
(i) Goldman, Sachs & Co.; (ii) Morgan Stanley & Co.; (iii) Merrill Lynch
& Co., Inc.; (iv) CS First Boston Inc.; and (v) Donaldson, Lufkin and
Jenrette, Inc.
7. TRANSFERS/ACCESSION AGREEMENT
7.1 The Shareholders agree that no Shareholder shall transfer any Shares
except in accordance with Section 3, Section 4 or Section 5 of this
Agreement, and that in addition to any requirements elsewhere contained
in this Agreement no Shareholder shall transfer any of its Shares to any
person which is not a party to this Agreement unless the transferee is a
Qualified Person and shall prior to such transfer have entered into an
Accession Agreement, provided, however, that nothing in this sentence
shall be construed to prohibit the maintenance of the Existing Pledges.
On receipt of such Accession Agreement by the Company and upon
completion of the transfer the transferee shall be deemed for all
purposes of this Agreement to be a Shareholder and to have the benefits
and obligations of all covenants and undertakings of a Shareholder
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<PAGE> 22
contained herein; provided however, that such transferee shall not have
the benefits and obligations of the transferor Shareholder who is a
member of a Group unless that transferee is otherwise a member of such
Group. The term "transfer" as used in this Agreement shall include a
sale, gift, mortgage, pledge, exchange, assignment or other disposition,
including a disposition under judicial order, legal process, execution,
attachment or enforcement of an encumbrance.
7.2. The Shareholders agree that they shall cause the Company not to issue
any shares of capital stock, or options or warrants to acquire capital
stock, or securities convertible into capital stock, to a person who has
not executed and delivered an Accession Agreement and thereby agreed to
become a Shareholder for the purposes of this Agreement, provided,
however, that the Company may issue such Shares as may be required to
honor any options for Shares that are issued by the Company in exchange
for PCI common stock options that are outstanding on the date hereof.
7.3. Notwithstanding any provisions of Section 3 to the contrary no transfer
of any Shares pursuant to Section 3 shall take place from the date of
any Buy-Sell Notice through the date on which the sale and purchase of
Shares pursuant to that Buy-Sell Notice is consummated, or the date on
which such sale and purchase is excused, whichever first occurs.
8. DRAG-DOWN OF RIGHTS
8.1. Each of the Shareholders agrees to take all action necessary or
desirable, including without limitation the voting of its Shares, the
execution of written consents, the calling of special meetings, the
removal of directors, the filling of vacancies of the Board of
Directors, the waiving of notice and the attending of meetings, so as to
cause the Company to cause there to be only two directors of PCI (unless
such number of directors would cause PCI to breach the provisions of
that certain Indenture to the State Street Bank and Trust Company dated
as of October 31, 1996), one of whom shall be chosen by the ECO Group
and one of whom shall be chosen by the Chase Group, and two managing
directors ("direkteuren") of PCBV, one of whom shall be chosen by the
ECO Group and the other of whom shall be chosen by the Chase Group, and
to amend the constituent documents of PCI and PCBV, as the case may be,
to require that the signatures of both managing directors shall be
required in order to bind PCI or PCBV. The provisions of this Section 8
shall also apply mutatis mutandis to any companies or entities created
after the date of this Agreement.
8.2. Each of the Shareholders agrees to take all action necessary or
desirable, including without limitation the voting of its Shares, the
execution of written consents, the calling of special meetings, the
removal of directors, the filling of vacancies of the Board of
Directors, the waiving of notice and the attending of meetings, so as to
cause the Company, PCI and/or PCBV (as the context may require) to
exercise all of their rights with respect to each Polish Cable Company,
whether as direct or indirect equity holder or as a holder of debt, to
cause each such Polish Cable Company (i) to amend,
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within 90 days of the date of this Agreement, its Articles of
Association or Statutes (as the case may be), so that such Articles or
Statutes contain provisions substantially in the form set out in Exhibit
C; (ii) to ensure that initially Richard Steele, and at all times
thereafter the person then holding the position of Chief Executive
Officer of the Company, be appointed Chairman of each of the Polish
Cable Companies; (iii) to ensure that each of the Polish Cable Companies
shall, prior to taking any of the actions set forth in Exhibit B, give
notice of the proposed action, specifying reasonable details of the
proposed action, to each of its shareholders; and (iv) to amend, within
90 days of the date of this Agreement, its Articles of Association or
Statutes (as the case may be) so that they include provisions which
substantially provide that no Polish Cable Company shall be able to take
any of the actions listed on Exhibit B without the prior consent of its
shareholders. The Shareholders in the ECO Group and the Chase Group
agree that as soon as practicable they shall review the mechanisms
available to them to exercise their Shareholder rights in the Polish
Cable Companies. With respect to the amendments of the Articles of
Association and the Statutes called for by this Section 8.2, if any such
amendment shall present a conflict with an existing agreement of a
particular Polish Cable Company, that Polish Cable Company will seek a
waiver of the conflict, and if the waiver is not granted, the Polish
Cable Company shall not be required to make the amendment that presents
the conflict.
9. FUTURE COVENANTS
9.1. Each of the Shareholders shall use its reasonable efforts to cause the
Company to, and to cause PCBV to, cause the Material Polish Cable
Companies to:
(i) Unless it is not, under the exercise of prudent business
judgment, in the best interest of a particular Material Polish
Cable Company to do so, to obtain all licenses, permits,
certificates and renewals thereof which are necessary to conduct
the business of the Material Polish Cable Companies in
accordance with all applicable laws, including but not limited
to any such licenses, permits and certificates and renewals
thereof that have lapsed, expired or been refused for issuance
and any such licenses, permits and certificates granted by PAR.
In addition, unless it is not, under the exercise of prudent
business judgment, in the best interest of a particular Material
Polish Cable Company to do so, the Company shall cause the
Material Polish Cable Companies to file all applications for
such licenses, permits and certificates and renewals thereof
reasonably in advance of the date on which such applications are
required by law to be filed.
9.2. The Company shall furnish each of the following documents:
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(i) Within 60 days after the end of each of the first three fiscal
quarters in each fiscal year, (i) the Company's unaudited
consolidated financial statements, with consolidating schedules,
for such fiscal quarter, certified by its principal financial
officer, prepared in accordance with U.S. GAAP (except as
otherwise noted in the accompanying footnotes) and (ii) a report
listing the number of cable television subscribers and
subscribers to its digital satellite direct-to-home ("DTH")
service of all Subsidiaries engaged in the business of providing
DTH services and of the Material Polish Cable Companies as of
the end of such fiscal quarter, shall be furnished to all
Shareholders;
(ii) Within 45 days following the end of each month, management
reports for each Material Polish Cable Company and for each
Subsidiary engaged in the business of providing DTH services
shall be furnished to the ECO Group and the Chase Group; and
(iii) Within 120 days after the end of each fiscal year, (i) the
Company's audited consolidated financial statements, with
consolidating schedules, covering such fiscal year, certified by
a firm of independent auditors as having been prepared in
accordance with U.S. GAAP and (ii) a report listing the number
of cable television subscribers of the Material Polish Cable
Companies and the number of cable television subscribers and
subscribers to its digital satellite DTH service of all
Subsidiaries engaged in the business of providing DTH services
as of the end of such fiscal year, shall be furnished to all
Shareholders.
9.3. The ECO Group Representative or his duly authorized agents shall be
entitled during normal business hours, upon reasonable notice, to
inspect all records, documents and papers belonging to the Company or
any of the Subsidiaries or relating to the subject matter of this
Agreement. The Chase Group Representative or his duly authorized agents
shall be entitled during normal business hours, upon reasonable notice,
to inspect all records, documents and papers belonging to the Company or
any of the Subsidiaries or relating to the subject matter of this
Agreement.
9.4. Upon the occurrence of a change in the Polish regulations governing the
foreign ownership of applicable permits, each of the Shareholders shall
use its reasonable efforts to cause the Company to, and to cause PCI,
PCBV and the Polish Cable Companies to, convert all minority interests
in entities in which it or they own less than 50% into the maximum
percentage ownership allowable by law (subject to the contractual rights
of any other owners of such entities). To the extent that new entities
are formed for the purpose of conducting telephony, telecommunications,
cable television, or programming in Poland, and the Company, PCI, PCBV
and the Polish Cable Companies own, in the aggregate, more than zero and
less than 100% of any such subsidiary, the Shareholders shall use
reasonable efforts to cause the Company, PCI, PCBV or the Polish Cable
Companies, as the case may be, to convert their minority interest into
the maximum percentage ownership allowable by law (subject to the
contractual rights of any other owners of such entities) upon the
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occurrence of a change in the Polish regulations governing the foreign
ownership of PAR permits granted after July 7, 1995. However, the
Shareholders shall not be required to cause the Company, PCI, PCBV
and/or the Polish Cable Companies to convert any minority ownership
interest into a majority ownership interest if, under the exercise of
prudent business judgment, such conversion would lead to the revocation
of any PAR permits held by such entities.
10. COVENANT NOT TO COMPETE
10.1. Each Shareholder covenants to the Company and to each of the other
Shareholders not to, nor to permit or suffer any Covered Person (as
hereinafter defined) to, engage, directly or indirectly, as a
proprietor, stockholder, partner, employee, independent contractor or
otherwise in a Prohibited Competing Business (as hereinafter defined) at
all, and not to engage, directly or indirectly, as a proprietor,
stockholder, partner, employee, independent contractor or otherwise in a
Permissible Competing Business (as hereinafter defined), and Advent
covenants to all Shareholders and the Company not to permit or suffer
any Covered Person to directly manage any Prohibited or Permissible
Competing Business, all except as otherwise provided in Section 10.5.
10.2. (i) For the purposes of this Section 10 only, the term "Prohibited
Competing Business" means
(a) providing cable television services anywhere in Poland;
(b) providing programming in a city in Poland where a
Polish Cable Company provides programming; and
(c) providing local-loop telephony in a city in Poland
where a Polish Cable Company provides telephony.
provided, however, that any business otherwise falling within
the scope of subsections (b), (c), or (d) shall not be a
Prohibited Competing Business if a Shareholder or Covered Person
is already engaging in a Permissible Competing Business at the
time such business is first begun by a Polish Cable Company.
(ii) For the purposes of this Section 10 only, the term "Permissible
Competing Business" means
(a) providing programming in a city in Poland other than
one where a Polish Cable Company, at the time that the
applicable offer referred to in Section 10.5 is first
delivered, provides programming;
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(b) providing local-loop telephony in a city in Poland
other than one where a Polish Cable Company, at the time
that the applicable offer referred to in Section 10.5 is
first delivered, provides telephony; and
(c) with respect to Roger M. Freedman and his Affiliates
only the term "Permissible Competing Business" also
means RMF Cable Programming, as hereinafter defined.
10.3. The covenants not to compete in Section 10.1 shall terminate on the
first of the following to occur; (i) seven (7) years from the date
hereof, and (ii) upon the sale of substantially all of the capital stock
or assets of the Company to a third-party purchaser or purchasers.
10.4. Any Shareholder who ceases to own Shares shall be released from its
obligations under the covenants not to compete in Section 10.1 on the
earlier of (i) the date that is two years after that Shareholder ceases
to own Shares (provided that such Shareholder shall not during such
two-year period have acquired any Shares), and (ii) the date that the
covenants not to compete terminate in accordance with Section 10.3.
10.5. If a Covered Person wishes to engage in a Permissible Competing
Business, it may do so provided that the party shall have (i) negotiated
with any necessary third parties terms and conditions upon which such
party shall engage in a Permissible Competing Business, (ii) offered the
opportunity to engage in such Permissible Competing Business to the
Company on materially the same terms and conditions negotiated with the
various third parties and (iii) the Company shall have refused to engage
in such Permissible Competing Business. The Shareholders shall cause the
Company to hold a meeting of its Board of Directors within 30 days of
the offer being made to the Company. No director chosen by a Group whose
Covered Person wishes to engage in a Permissible Competing Business
shall be entitled to vote on such a matter.
10.6. For the purposes of this Section 10, the term "Covered Person" shall
have the meanings as given in this Section 10.6
(i) With respect to ECO, "Covered Person" means funds in which
Advent is the general partner (but, for the avoidance of doubt,
does not include the limited partners of such funds); and
(ii) With respect to any other Shareholder, "Covered Person" means
that Shareholder, that Shareholder's Affiliates, and officers
and directors of such Shareholder.
(iii) With respect to Advent, "Covered Person" means Advent and any
officer or director of Advent.
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10.7. Sections 10.1 and 10.5 shall not apply to conduct by RMF and RMF's
affiliates of the RMF Business and RMF Promotions and Programming, as
hereinafter defined, provided, however, that Sections 10.1 and 10.5 do
apply to RMF Cable Programming. The definitions referred to in Section
10.2(ii) and in this Section 10.7 are as follows:
(i) The term "RMF Business" means conducting the businesses of
researching, building, constructing, developing, owning,
manufacturing, distributing, operating or promoting (i) physical
fitness health centers and other recreational, athletic and
sports facilities of all types; (ii) family entertainment and
fun centers, nightclubs and other entertainment centers,
including without limitation, arcades, video games, bowling and
recreational activities of all types; and (iii) various hard
goods, dry goods and food products of all kinds, including
without limitation, health food, clothing products and fitness,
bowling and other sport and recreational equipment.
(ii) The term "RMF Promotions and Programming" means the production,
directing, distribution, publishing, and broadcasting by RMF in
all types of communications media of advertisements,
commercials, promotions and programming relating to the RMF
Business and the activities associated with the RMF Business.
(iii) The term "RMF Cable Programming" shall mean the transmission,
delivery, provision, or furnishing anywhere in or into Poland,
directly or indirectly, by any medium other than terrestrial
broadcast transmission, of television programming developed or
produced by RMF or any of RMF's Affiliates. For the avoidance of
doubt, the term "television programming" as used in the previous
sentence does not include video cassettes or short
advertisements, but does include the rebroadcast of such video
cassettes and does include infomercials.
10.8. Each party to this covenant not to compete acknowledges that the breach
of the obligations contained in this Section 10 would result in
substantial but indeterminable harm, that the restraints imposed are
reasonable, that there is no adequate remedy at law for a breach of such
obligations, and therefore, that injunctive relief, specific performance
or other equitable remedies are appropriate to enforce the obligations
undertaken in this Section 10. Nothing in this Section 10 shall operate
as a waiver of any party to seek monetary damages from the breaching
party to the extent that the same are quantifiable and recoverable.
11. CONFIDENTIALITY
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11.1. Each Shareholder undertakes to the others that, subject to Section
11.2, he will keep secret and confidential, and shall not disclose to
any person, any information obtained by him concerning the Company,
the Subsidiaries or the Shareholders which is of a confidential nature.
11.2. For the purpose of this Section 11, the following information shall be
deemed, without limitation, to be of a confidential nature:
(i) all financial information of the Company, any Subsidiary or
Shareholder, including, without limitation all information
provided pursuant to Section 9.2 hereof;
(ii) the marketing and sales strategy of the Company, any Subsidiary
or Shareholder;
(iii) the terms of any agreements entered into between the Company,
any Subsidiary or Shareholder and/or a third party which would
normally be regarded as confidential;
(iv) all unpublished technical information relating to the products
of the Company, any Subsidiary or Shareholder; and
(v) all other information relating to the Company, any Subsidiary
or Shareholder which would normally be regarded as confidential
to some or all of them; but no Shareholder shall be required to
treat as confidential any information which legally enters the
public domain, or is legally obtained by that Shareholder
otherwise than from another party.
11.3. Section 11 shall not prevent the disclosure of information:
(i) as otherwise expressly provided by this Agreement;
(ii) as ordered by a court of competent jurisdiction;
(iii) by any Shareholder in providing its own investors, potential
investors, pledgees, or potential pledgees with financial
information and periodic management statements, with attendant
management commentary regarding the performance of its
investments, provided, however, that such investor, potential
investor, pledgee, or potential pledgee has entered into
obligations of confidentiality, enforceable by the Company and
the other Shareholders, identical to those contained herein,
provided, however, that no Shareholder shall provide
information other than quarterly summary financial data and a
management letter to any of its investors who the Shareholder
knows is
27
<PAGE> 29
engaging, directly or indirectly, in a Permissible Competing
Business or a Prohibited Competing Business;
(iv) to any adviser to the Company, any of the Subsidiaries, or any
of the Shareholders;
(v) by any Shareholder to a Qualified Person who is a potential
purchaser of all or any of its Shares, which potential
purchaser has entered into obligations of confidentiality, to
be enforced by such Shareholder, identical to those contained
herein;
(vi) as required in connection with an Initial Public Offering; and
(vii) to any person in any circumstances approved by the Board of
Directors of the Company or the Shareholders in accordance
with Certificate of Incorporation and By-Laws of the Company.
12. LEGEND ON STOCK CERTIFICATE.
The certificates representing the Shares shall bear legends on their
face, or on the reverse thereof with a reference thereto on the face,
as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under any
state securities laws, and therefore cannot be sold, transferred,
pledged, hypothecated or assigned unless they are registered under the
Securities Act of 1933, as amended,and under all applicable state
securities laws, or unless an exemption therefrom is available.
The securities represented by this certificate may not be sold,
transferred, pledged, hypothecated, encumbered or assigned unless such
sale transfer, pledge, hypothecation, encumbrance or assignment complies
with the terms and conditions set forth in that certain Shareholders'
Agreement dated June __, 1997, (the "Shareholders' Agreement") a copy
of each which is on file with the Secretary of the Company and which
will be furnished by the Company to the holder hereof upon written
request and without charge.
The securities represented by this certificate are issued
pursuant to the provisions of the Shareholders' Agreement, which
provides that certain actions of the Board of Directors of the Company
shall require a supermajority vote of the members of the Board of
Directors of the
28
<PAGE> 30
Company, a copy of which Shareholders' Agreement is on file with the
Secretary of the Company and which will be furnished by the Company
to the holder hereof upon written request and without charge."
13. NOTICES
13.1. All notices required to be given under the terms of this Agreement or
which any of the Parties may desire to give hereunder (including without
limitation notices of directors meetings to such persons whose names
appear in this Section 13.1) shall be in writing and delivered
personally or sent by express delivery, or (except as to notice pursuant
to subsection (i) below) by facsimile, or by registered or certified
mail, with proof of receipt, postage and expenses prepaid, return
receipt requested, addressed as follows:
(i) As to the ECO Group, addressed to: ECO Holdings III Limited
Partnership, c/o Ms. Janet Hennessey, Advent International
Corp., 101 Federal Street, Boston, MA 02110, fax: (617)
951-0571; with a copy thereof addressed to Mr. Scott Lanphere,
ECO Holdings III Limited Partnership, c/o Advent International
Plc, 123 Buckingham Palace Road, London SW1W 9Sl, fax: (44-171)
333-0801; or to such other address or addresses and to the
attention of such other person or persons as the Chase Group may
from time to time designate in writing to the Chase Group, the
Company and AESOP.
(ii) As to the Cash Group, addressed to: @ Entertainment, Inc., One
Commercial Plaza, Hartford Connecticut 06103; facsimile: (860)
293-4297, Attention: Cheryl Chase; with a copy thereof to Steele
as provided below; or to such other address or addresses and to
the attention of such other person or persons as the Chase Group
may from time to time designate in writing to the ECO Group, the
Company and AESOP.
(iii) As to the Company, addressed to: @ Entertainment, Inc., One
Commercial Plaza, Hartford Connecticut 06103; facsimile: (860)
293-4297, Attention: Cheryl Chase; with a copy thereof addressed
to Baker & McKenzie, 815 Connecticut Avenue, N.W., Washington,
D.C. 20006-4078; facsimile: (202) 452-7074, Attention: Marc R.
Paul, Esq., or to such other address or addresses and to the
attention of such other person or persons as the Company may
from time to time designate in writing to the ECO Group, the
Chase Group and AESOP.
(iv) As to AESOP, addressed to: The AESOP Fund, L.P. c/o Capital
Investors, Inc., 1215 19th Street, N.W., Washington, D.C. 20036;
facsimile: (202) 467-4426, Attention: Harry Huge; with a copy
thereof addressed to The
29
<PAGE> 31
AESOP Fund, L.P., 1119 Financial Center Building, Seattle,
Washington 98161; facsimile: (206) 292-8075, Attention:
Duff Kennedy.
(v) As to Steele, addressed to: Steele LLC, 19 Warren Terrace,
Longmeadow, Massachusetts 01106; facsimile: (413) 567-5160,
Attention: Richard B. Steele, Managing Member, with a copy
thereof addressed to Bergman Horowitz & Reynolds, Connecticut
Financial Center, New Haven, Connecticut 06502-0426; facsimile
(860) 785-8127, Attention: James B. Brockway, Esq.
14. SEVERABILITY
The invalidity or unenforceability of any term of or any right arising
pursuant to this Agreement shall not in any way affect the remaining
terms or rights.
15. TERMINATION
Subject as provided herein, this Agreement shall enter into effect as
of the date hereof and shall remain in full force and effect until the
earliest of the following events:
(i) the date on which Shareholders holding in aggregate not less
than 65% of all the total Voting Power held by all Shareholders
in the aggregate agree to terminate this Agreement;
(ii) an Initial Public Offering; or
(iii) the date on which no Shareholder is the holder of any Shares.
Termination shall be without prejudice to any rights accrued prior to
the date of the termination, and shall not affect the obligations of
the Shareholders under Sections 10 and 11.
16. NO PARTNERSHIP
Nothing in this Agreement shall constitute or be deemed to constitute
a partnership between all or any of the Shareholders, and except as
otherwise expressly provided in this Agreement none of them shall have
authority to bind the other in any way.
17. WAIVER
No failure to exercise and no delay in exercising on the part of any
of the Shareholders of any right, power or privilege under this
Agreement shall operate as
30
<PAGE> 32
a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement are cumulative and not exclusive.
18. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of conflicts
of laws.
19. ENTIRE AGREEMENT; AMENDMENT
19.1. This Agreement and the other instruments and documents referred to
herein or delivered pursuant hereto, contains the entire agreement among
the parties with respect to the subject matter hereof and thereof and
supersedes all prior and oral or written agreements, commitments or
understandings with respect to such matter, provided however that
nothing in this Agreement shall be deemed to supersede or amend, or to
aid in the interpretation of, the Stock Purchase Agreement.
19.2. No amendment, modification or waiver of any provision of this Agreement
shall be valid or binding unless set forth in writing and duly executed
by Shareholder holding at least sixty-five percent (65%) of the then
issued and outstanding Voting Power, provided, however, that (i) any
amendment, modification or waiver of any provision of this Agreement
that increases the obligations hereunder of any Shareholder in any
material respect shall also be executed by such adversely affected
Shareholder, (ii) any amendment or modification of Section 3.3 or 3.6
shall also be executed by the Other Shareholders, and (iii) any
amendment, modification or waiver of Section 3.5 shall also be executed
by Steele.
19.3. Each party hereto who is or was a party to that certain Shareholders'
Agreement dated as of June 27, 1991 represents and warrants that, as to
such party, all the terms, conditions and provisions of such agreement
are hereby superseded and that no rights or obligations arising under
such agreements shall survive the execution of this Agreement.
20. CHOICE OF FORUM; VENUE; SERVICE OF PROCESS; ATTORNEY'S FEES
Any claim, suit, action, or proceeding among any or all of the parties
hereto relating to this Agreement, to any document, instrument, or
agreement delivered pursuant hereto, referred to herein, or contemplated
hereby, or in any other manner arising out of or relating to the
transactions contemplated by or referenced in this Agreement, shall be
commenced and maintained exclusively in the United States District Court
for
31
<PAGE> 33
the District of Delaware, or, if such Court lacks jurisdiction over the
subject matter, in a state court of competent subject-matter
jurisdiction sitting in the State of Delaware. The parties hereby submit
themselves unconditionally and irrevocably to the personal jurisdiction
of such courts. The parties further agree that, unless otherwise
required by law, venue shall be exclusively in [ ] County in
the State of New York. The parties irrevocably waive any objection to
such personal jurisdiction or venue including, but not limited to, the
objection that any suit, action, or proceeding brought in the State of
Delaware has been brought in an inconvenient forum. The parties
irrevocably agree that process issuing from such courts may be served on
them, either personally or by certified mail, return receipt requested,
at the addresses given in Section 13 hereof; and further irrevocably
waive any objection to service of process made in such manner and at
such addresses, including without limitation any objection that service
in such manner and at such addresses is not authorized by the local or
procedural laws of the State of Delaware. The parties agree that the
prevailing party's legal fees, costs and all expenses arising in
connection with any litigation under this Agreement, any document,
instrument, or agreement delivered pursuant hereto, referred to herein,
or contemplated hereby, or in any other manner arising out of or
relating to the transactions contemplated by or referenced in this
Agreement, shall be paid by the non-prevailing party.
21. EFFECTIVE AS TO LESS THAN ALL PARTIES
This Agreement shall be effective as to all parties other than AESOP as
soon as all such other parties have signed it, and with respect to
AESOP's rights and obligations it shall be effective as soon as all
parties including AESOP have signed it.
[Signatures on following page]
32
<PAGE> 34
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
By: /s/ Robert E. Fowler, III
---------------------------------
Name: Robert E. Fowler
Title: Chief Executive Officer
POLISH INVESTMENTS HOLDING L.P.,
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
MANAGING GENERAL PARTNER
By: /s/ Cheryl A. Chase
-----------------------------------
Name: Cheryl A. Chase
Title: Executive Vice President
ECO HOLDINGS III LIMITED PARTNERSHIP
By: Advent ECO III L.L.C., general partner
By: Global Private Equity II Limited
Partnership, member
By: Advent International Limited Partnership,
general partner
By: Advent International Corporation,
general partner
By: /s/ Janet L. Hennessy
------------------------------------
Janet L. Hennessy
Vice President
33
<PAGE> 35
THE AESOP FUND, L.P.,
a Delaware limited partnership
By: Capital Investors, G.P.
__________________________________
a General Partner
_______________________
MANAGING GENERAL PARTNER
By: /s/ Duff Kennedy
__________________________________
Name: Duff Kennedy
Title: Chairman
/s/ Roger M. Freedman
_________________________________________
Roger M. Freedman
STEELE LLC, a Connecticut limited liability company
By: /s/ Richard Steele
__________________________________
Name: Richard Steele
Title: Managing Member
THE CHERYL ANNE CHASE MARITAL TRUST, a
Connecticut trust
By: /s/ Cheryl A. Chase
__________________________________
Name: Cheryl A. Chase
Title: Trustee, and not individually or in any
other capacity
By: /s/ Kenneth Musen
__________________________________
Name: Kenneth Musen
Title: Trustee, and not individually or in any
other capacity
34
<PAGE> 36
EXHIBIT A
---------
ACCESSION AGREEMENT
-------------------
Date: _________________
This Accession Agreement made between [NAME OF ENTITY] (the "Acceding
Party"), a [FORM OF ENTITY] organized under the laws of [JURISDICTION], @
Entertainment, Inc. ("the Company"), a Delaware corporation, and the undersigned
Shareholders (as that term is defined in that certain Shareholders' Agreement
dated as of June 22, 1997, by and among the Company and the Shareholders (the
"Shareholders' Agreement"), a copy of which is attached hereto and initialed by
the Acceding Party),
WITNESSETH:
WHEREAS, the Acceding Party intends to become a shareholder of the
Company and intends to take on the benefits and obligations of a Shareholder as
and to the extent explicitly provided for in the Shareholder Agreement, a copy
of which is attached hereto and has been initialled by the Acceding Party;
NOW, THEREFORE, the Acceding Party, intending to be legally bound,
hereby agrees with the Company and each of the Shareholders to comply with and
to be bound by all of the provisions of the Shareholders' Agreement in all
respects as if the Acceding Party were a party to such Shareholders' Agreement
and were named therein as a Shareholder. Notice to the Acceding Party shall be
given to the following address and facsimile number: _________________________
______________________________________________________________________________.
IN WITNESS WHEREOF, the parties have caused this Accession Agreement to
be executed as of the day and year first above WRITTEN.
@ ENTERTAINMENT, INC.,
a Delaware corporation
BY: _________________________________
Name: ________________________
Title: ________________________
[Signature blocks for all Shareholders]
<PAGE> 37
EXHIBIT B
---------
A. Any action to effect a fundamental change in the business of the
Subsidiary. For the purposes of this Section, the term "business" shall mean
cable television, programming, telecommunications and telephony in the
geographic territories which as of March 1, 1996 were within the boundaries of
Poland;
B. [Intentionally Omitted.]
C. The expenditure during any fiscal year of the Subsidiary, whether by
purchase, lease or otherwise, for securities, other capital assets or in
connection with entering into any joint venture, partnership or consortium
arrangement, of an amount in excess of $500,000 in the aggregate for all such
expenditures;
D. A merger or other business combination or the sale, lease, transfer or
other disposition of all or any material portion of the assets of the
Subsidiary, whether by a single transaction or a series of related
transactions. For purposes of this subsection, any portion of the assets of the
Subsidiary accounting for 15% or more of the asset value of the Subsidiary
shall be deemed to be material;
E. The creation of an encumbrance on any asset of the Subsidiary or on any
of the capital stock of any Subsidiary which would exceed U.S. $100,000. For
the purpose of this subsection, the term "encumbrance" shall mean any interest
or equity of any person (including any right to acquire, option or right of
pre-emption), voting arrangement, mortgage, charge, pledge, bill of sale, lien,
deposit, hypothecation, assignment or any other encumbrance, priority or
security interest or arrangement or interest under any contract or trust or any
other third party interest of whatever nature over or in the relevant property;
F. [Intentionally omitted.]
G. The issuance by the Subsidiary of third party debt in the aggregate
exceeding U.S. $100,000;
H. The issuance by the Subsidiary of any capital stock;
I. The declaration of dividends or other distributions on outstanding
capital stock of the Subsidiary;
J. [Intentionally omitted.]
K. The dissolution or liquidation of the Subsidiary;
36
<PAGE> 38
L. Amending the Statutes or Articles of Association of the Subsidiary;
M. The giving of any guarantee or indemnity in an amount in excess of U.S.
$100,000 in the aggregate;
N. [Intentionally omitted.]
O. [Intentionally omitted.]
P. the changing of the auditors, the fiscal year end date or the
registered office of the Subsidiary;
Q. commencing, prosecuting, settling or compromising any claims, tax
matters, debts and/or legal actions involving more than U.S. $250,000 in the
aggregate per fiscal year;
R. [Intentionally omitted.]
S. the taking of any steps to have the Subsidiary wound up, or voluntarily
taking advantage of any provisions of any applicable bankruptcy or insolvency
laws.
37
<PAGE> 39
EXHIBIT C
---------
A. In Polish Cable Companies in which either the Company or a
Company-controlled entity has a majority of the capital stock, the
Company, PCI, or PCBV, the case may be, shall cause the statute to be
amended to provide that:
MANAGEMENT BOARD
----------------
1. Each Member of the Management Board shall serve for a two (2)
year term.
2. The authority to make statements and to sign on behalf of the
Company, is exercisable by the Chairman of the Management Board
acting individually or one member of the Management Board acting
together with the Chairman.
B. In Polish Cable Companies in which neither the Company nor any
Company-controlled entity has a majority of the capital stock, the
Company, PCI, or PCBV shall use its best efforts to cause the companies
to adopt the following clause with respect to the Management Board.
MANAGEMENT BOARD
----------------
1. The Management Board consists of three members appointed by the
Shareholders' Meeting. Each shareholder representing at least 33% of the
share capital shall have the right to designate one candidate for the
Management Board, whom the Shareholders' Meeting shall elect. If the
number of candidates is less than three then the remaining members of
the Management Board will be appointed by the Shareholders' Meeting.
2. Each member of the Management Board shall serve for a two (2)
year term.
3. The authority to make statements and to sign on behalf of the
Company requires unanimous action of all members of the
Management Board.
38
<PAGE> 40
EXHIBIT D
---------
ACTIONS REQUIRING SUPERMAJORITY VOTE
------------------------------------
The following actions shall require (i) the affirmative vote of at
least four directors, followed by the affirmative vote of the percentage of
issued and outstanding capital stock entitled to vote thereon at a meeting of
the shareholders as required under the Delaware General Corporation Law
("DGCL"), if such action shall be required to be submitted to the shareholders
under the DGCL, or (ii) if any such action is not approved by at least four
directors, then any such action shall require the affirmative vote of at least
sixty-one one-hundredths of the total number of shares of capital stock issued
and outstanding and entitled to vote thereon, provided however that if board
approval of such action is required under the DGCL, the action shall also
require the approval of the Board of Directors at a special meeting of the
Board of Directors for which (and for no purposes other than the approval of
actions taken pursuant to this subsection (ii)) two-fifths of the total number
of directors shall constitute a quorum.
A. any action to effect a fundamental change in the business of the
Corporation or any wholly owned or partially owned, direct or indirect
subsidiary (whether in the form of a corporation, partnership or
otherwise) of the Corporation that the Corporation controls through
voting rights, contractual arrangements or otherwise (hereinafter a
"Subsidiary"). For the purposes of this Section, the term "business"
shall mean cable television, programming, telecommunications and
telephony in the geographic territories which as of March 1, 1996 were
within the boundaries of Poland, the Czech Republic, Russia, Ukraine,
Slovakia, Hungary, Romania, Bulgaria, Albania, Latvia, Lithuania,
Estonia, Slovenia, Yugoslavia, Bosnia-Hercegovina, Croatia, and
Macedonia.
B. The adoption of, and approval of any modification of, the annual
budget of the Corporation (the "Budget") for each fiscal year, which
Budget shall at a minimum include (i) an income statement that will
show in reasonable detail the revenues and expenses projected for the
fiscal year, (ii) a cash flow statement that will show in reasonable
detail the receipts and disbursements projected for the fiscal year as
well as any anticipated cash surplus or deficiency, and (iii) any
contemplated borrowings for the fiscal year.
C. the expenditure during any fiscal year of the Corporation,
whether by purchase, lease or otherwise, for securities, other capital
assets or in connection with entering into any joint venture,
partnership or consortium arrangement, of an amount in excess of
$5,000,000, provided, however, that such restrictions shall not apply to
expenditures included in the Budget for such fiscal year approved by the
Board of Directors in accordance with Subsection B or for capital
expenditures which, in the aggregate, do not exceed by five percent (5%)
the amount contained in the Budget for capital expenditures;
39
<PAGE> 41
D. a merger or other business combination or the sale, lease,
transfer or other disposition of all or any material portion of the
assets of the Corporation, whether by a single transaction or a series
of related transactions. For purposes of this subsection, any portion of
the assets of the Corporation accounting for 10% or more of the gross
revenue or net asset value of the Corporation shall be deemed to be
material;
E. the creation of an encumbrance on any material portion of the
assets of the Corporation or on any of the capital stock of any
Subsidiary, other than (i) security interests arising in connection with
actions not requiring approval under Subsections G or M, below, (ii)
encumbrances not requiring the consent of the Corporation, and (iii) any
encumbrance in existence, or required under agreements in existence, as
of March 21, 1996. For purposes of this subsection, any portion of the
assets of the Corporation accounting for 10% or more of the gross
revenues or net asset value of the Corporation shall be deemed material.
For the purpose of this subsection, the term "encumbrance" shall mean
any interest or equity of any person (including any right to acquire,
option or right of pre-emption), voting arrangement, mortgage, charge,
pledge, bill of sale, lien, deposit, hypothecation, assignment or any
other encumbrance, priority or security interest or arrangement or
interest under any contract or trust or any other third party interest
of whatever nature over or in the relevant property;
F. transactions with (i) a shareholder of the Corporation or of any
Subsidiary, (ii) a member of the immediate family of any such
shareholder, or (iii) any entity controlled by, controlling or under
common control with any such shareholder (the persons and entities in
(i)-(iii) being referred to herein as "Related Parties") and any action
permitting any Subsidiary to enter into a transaction with any one or
more Related Parties;
G. the issuance by the Corporation of, third party debt if as a
result thereof, the aggregate principal balance of all third party debt
owed by the Corporation, not including trade credit extended to the
Corporation in the normal course of business, would exceed U.S.
$25,000,000;
H. the issuance by the Corporation of any capital stock other than
(i) in connection with the issuance of capital stock which underlies
convertible debt, which convertible debt was previously approved
pursuant to subsection G or did not require approval thereunder, (ii)
issuance of Common Stock pursuant to conversion of the Series B
Preferred Stock, (iii) in an initial public offering at an equity
valuation, including any shares of preferred stock then outstanding, in
excess of $225,000,000;
I. the declaration of the dividends or other distributions on
outstanding capital stock of the Corporation;
40
<PAGE> 42
J. the repurchase or redemption of any capital stock of the
Corporation or the taking of any action that would cause an adjustment
in the Conversion Ratio under Sections 4(D)(4), 4(D)(5) or 4(D)(6) of
Article IV, except for any mandatory redemptions referenced in Article
IV;
K. the dissolution or liquidation of the Corporation;
L. amending the Certificate of Incorporation or Bylaws other than
in connection with an issuance of capital stock permitted under
subsection H;
M. the giving of any guarantee or indemnity, other than (i) in
connection with indebtedness permitted under subsection G of this
Article VIII and (ii) in the normal course of business in relation to
the purchase or supply of goods or services;
N. the election or removal of the Chief Executive Officer or the
Chairman of the Board;
O. the entering into, varying the terms of or termination of any
contract of employment of any director of the Corporation or of any
executive whose aggregate salary exceeds $100,000 per annum;
P. the changing of the auditors, the fiscal year end date or the
registered office of the Corporation;
Q. settling or otherwise resolving any claim by or against the
Corporation with respect to income taxes or any other type of tax, for
which the amount in dispute is greater than $250,000;
R. the commencement, prosecution, or compromise by the Corporation
of any legal or arbitration proceedings, other than (i) routine debt
collection (ii) any claim the amount in dispute under which is less
than $250,000 (iii) actions by the Corporation against its
shareholders, (iv) counterclaims and cross-claims in actions brought
against the Corporation, and (v) any settlement involving expenditure
by the Corporation of less than $250,000; and
S. the taking of any steps to have the Corporation wound up, or
voluntarily taking advantage of any provisions of any applicable
bankruptcy laws.
41
<PAGE> 1
Exhibit 3.4
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT ("Termination Agreement"), entered into as of the
22nd day of June 1997, by and between Poland Communications, Inc., a New York
corporation (the "Company"), Polish Investments Holding L.P., a limited
partnership organized under the laws of Delaware ("PIHLP"); ECO Holdings III
Limited Partnership, a limited partnership organized under the laws of Delaware
("ECO"); Roger M. Freedman, an individual resident of the State of Connecticut
("RMF"), Steele, LLC, a Connecticut limited liability company
("Steele"), The AESOP Fund, L.P., a Delaware limited partnership ("AESOP"); The
Cheryl Ann Chase Marital Trust, a trust organized under the laws of Connecticut
("CACMT"); and La Ciesla International, Inc., a corporation organized under the
laws of Delaware ("LCII"). PIHLP, ECO, RMF, Steele, AESOP and CACMT and LCII
shall hereinafter be referred to as the Shareholders.
WHEREAS, the Shareholders have agreed that it would be in their
respective best interests to terminate that certain Shareholders' Agreement
dated March 29, 1996, as amended ("Shareholders' Amendment") by and between the
Shareholder and the Company;
WHEREAS, Section 15(i) of the Shareholders' Agreement provides that
shareholders holding not less than 65% of all of the total Voting Power (as
defined therein) may agree to terminate the Shareholders' Agreement; and
WHEREAS, the Shareholders collectively hold 100% of the Voting Power;
NOW THEREFORE, in consideration of the mutual agreements set forth
below and other valuable consideration, the Shareholders, intending to be bound
legally, hereby agree as follows:
1. The Shareholders' Agreement, without any further legal
action on behalf of or by the Shareholders, is hereby
terminated and ceases to have any legal effect as of the
date first written above.
IN WITNESS WHEREOF, the Shareholders have caused this Termination
Agreement to be duly executed by their authorized representatives as of the
date first written above.
POLISH INVESTMENTS HOLDING L.P.,
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
MANAGING GENERAL PARTNER
By: /s/ Cheryl A. Chase
-------------------
Name: Cheryl A. Chase
Title: Exec. Vice President
<PAGE> 2
ECO HOLDINGS III LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Advent ECO III L.L.C., general partner
By: Global Private Equity II Limited
Partnership, member
By: Advent International Limited
Partnership, general partner
By: Advent International Corporation,
general partner
By: /s/ Janet L. Hennessy
--------------------------------
Name: Janet L. Hennessy
Title:
/s/ Roger Freedman
---------------------------------
Roger M. Freedman
STEELE LLC, a Connecticut limited liability company
By: /s/ Richard Steele
-----------------------------
Name: Richard B. Steele
Title: Managing Member
THE CHERYL ANNE CHASE MARITAL
TRUST, a Connecticut trust
By: /s/ Cheryl A. Chase
-----------------------------
Name: Cheryl A. Chase
Title: Trustee, and not individually or in any
other capacity
By: /s/ Kenneth Musen
__________________________________
Name: Kenneth Musen
Title: Trustee, and not individually or in any
other capacity
2
<PAGE> 3
THE AESOP FUND, L.P., a Delaware limited partnership
By: Capitol Investors, G.P.
---------------------------------
a partnership
---------------------------------
MANAGING GENERAL PARTNER
By: /s/ Duff Kennedy
---------------------------------
Name: Duff Kennedy
Title: Chairman
L. CIESLA INTERNATIONAL, INC.
a Delaware corporation
By: /s/ John P. Redding
---------------------------------
Name: John P. Redding
Title: Executive Vice President
3
<PAGE> 1
Exhibit 3.5
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement"), dated as of the 22nd
day of June 1997 (the "Effective Date"), among @ Entertainment, Inc., a Delaware
corporation (the "Company"), Polish Investments Holding L.P., a Delaware limited
partnership ("PIHLP"), ECO Holdings III Limited Partnership, a Delaware limited
partnership ("ECO"), Roger M. Freedman, an individual resident of the State of
Connecticut ("RMF"), Steele LLC., a Connecticut limited liability company
("Steele"), THE AESOP Fund, L.P., a Delaware limited partnership ("AESOP"), and
The Cheryl Anne Chase Marital Trust, a Connecticut Trust ("CACMT"). PIHLP, ECO,
RMF, Steele, AESOP and CACMT shall hereinafter be referred to as the
"Shareholders."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Shareholders are on this date entering into a
Contribution Agreement to which this Agreement is an Exhibit, whereby the
Shareholders will exchange certain of their shares of capital stock of Poland
Communications, Inc. ("PCI") for capital stock of the Company in a tax-free
reorganization pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, the Shareholders constitute all of the shareholders of the
Company and on this date are entering into that certain Shareholders Agreement
(the "Shareholders Agreement"), whereby the parties will agree, among other
things, to the terms upon which the Company will conduct its activities and
upon which the relations between the shareholders of the Company will be
regulated; and
WHEREAS, in order to induce the Shareholders to enter into and perform the
Contribution Agreement and the Shareholders Agreement, the Company has agreed
to provide the Shareholders with certain rights in respect of the registration
of its common stock, par value one cent ($0.01) per share ("Common Stock").
<PAGE> 2
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NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Shareholders agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Demand Shareholder" means PIHLP or ECO or, if used in the plural form,
means PIHLP and ECO, and permitted assignees of same under Section 5(g).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Following Shareholder" means RMF, Steele, AESOP or CACMT or, if used in
the plural form, means RMF, Steele, AESOP and CACMT or any two of them.
"National Securities Exchange" means the New York Stock Exchange,
American Stock Exchange, National Association of Securities Dealers Automated
Quotation System, or National Market System of the National Association of
Securities Dealers, as selected by the Company, and reasonably acceptable to the
Demand Shareholder.
"Person" shall mean and include any individual, partnership, joint
venture, corporation, trust, unincorporated organization or association or any
other entity or association of any kind and any authority, federal, state, local
or foreign government, any political subdivision of any thereof and any court,
panel, judge, board, bureau, commission, agency or other entity or body
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government.
"Registrable Shares" means (i) shares of Common Stock held by any of the
Shareholders on the date hereof or acquired thereafter (including any shares of
Common Stock issuable upon conversion of Series B Preferred), and (ii) any
Common Stock issued in respect of such shares including, without limitation,
upon any stock split, stock dividend, recapitalization or as a distribution;
provided however, that Registrable Shares shall not include any shares of Common
Stock which have been sold pursuant to registration under the Securities Act.
<PAGE> 3
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"Requesting Shareholder" means either of the Demand Shareholders or any
of the Following Shareholders when the same shall have requested the Company to
register some or all of its/their Registerable Shares pursuant to this
Agreement, and permitted assignees of same under Section 5(g).
"Requesting Shareholder Registration Expenses" means with respect to any
Requesting Shareholder, (i) underwriting discounts and commissions relating to
the sale of such Requesting Shareholder's Registrable Shares, (ii) any transfer
taxes attributable to the sale of such Registrable Shares and (iii) the fees and
disbursements of counsel incurred by such Requesting Shareholder on its own
behalf.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" means PIHLP, ECO, RMF, Steele, AESOP and CACMT, and
permitted assignees of same under Section 5(g).
"Company Registration Expenses" means any and all expenses incident to
the Company's performance of its obligations under Section 2, other than
Requesting Shareholder Registration Expenses. Company Registration Expenses
shall include but not be limited to (i) registration and filing fees with the
SEC and a National Securities Exchange, (ii) fees and expenses of compliance
with state securities or "blue sky" laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of Registrable Shares), (iii) printing expenses, (iv) registrars
and transfer agents fees, (v) the fees and expenses incurred in connection with
the listing or quotation of Registrable Shares on any National Securities
Exchange, and (vi) fees and expenses of counsel for the Company and the
independent certified public accountants for the Company.
2. Registration Rights.
(a) Demand Registration. Each Demand Shareholder shall be entitled to
request that the Company effect a registration under the Securities Act
with respect to some or all of the Registrable Shares held by it upon the
following terms and conditions:
<PAGE> 4
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(i) Request for Registration of Registrable Shares. In the
event that the Company shall receive from a Demand Shareholder a
written request that the Company effect a registration under the
Securities Act with respect to all or any part of the Registrable
Shares held by such Demand Shareholder, the Company shall use its
best efforts to effect, at the earliest practicable date, such
registration, qualification and compliance (including, without
limitation, the execution of an undertaking to file post-effective
amendments, the execution and filing of a listing agreement with a
National Securities Exchange, appropriate qualification under
applicable blue sky or other state securities laws, and appropriate
compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the
sale and distribution of such Registrable Shares on such National
Securities Exchange as is specified in such request (or if the
Common Stock is then listed on a National Securities Exchange, such
National Securities Exchange); PROVIDED that the Company shall not
be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 2(a): (A) if
the Company has effected a previous registration for any Demand
Shareholder pursuant to this Section 2(a)(i) during the preceding
six-month period; (B) if such Demand Shareholder has previously
effected three such registrations pursuant to this Section 2(a),
which registrations have been declared or ordered effective by the
SEC; (C) during the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on
the date ninety (90) days immediately following the effective date
of, any registration statement pertaining to a public offering of
securities of the Company; or (D) prior to the third anniversary of
this Agreement.
Subject to the foregoing clauses (A) through (D) the Company
shall file a registration statement covering such Registrable
Shares so requested to be registered as soon as practicable after
receipt of the request of the Requesting Shareholder. Provided,
however, that the Company may upon giving notice to the Requesting
Shareholder postpone for a reasonable period, not to exceed 90
days, the filing or the effectiveness of such registration
statement, if there exists at the time material non-public
information which, in the reasonable opinion of the Company, if
disclosed would have a material adverse effect on its business.
During such period the
<PAGE> 5
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Company shall continue to use its best efforts to prepare such
registration statement and update such registration statement with
all information necessary to make such registration statement ready
for filing and effectiveness as soon as practicable after the end
of such period.
ECO shall not be required to convert its Series B Preferred
shares into Common Stock prior to exercising its demand
registration rights hereunder with respect to shares of Common
Stock which would result from such conversion.
At no time shall any Demand Shareholder demand that less than
twenty-five percent (25%) of the number of shares of Common Stock
held by such Demand Shareholder on the date of execution of this
Agreement be registered pursuant to this Section 2(a); provided,
however, that if at any time such Demand Shareholder holds less
than twenty-five percent (25%) of the number of shares of Common
Stock held by such Demand Shareholder on the date of execution of
this Agreement, such Demand Shareholder shall have the right to
demand registration of all its Registrable Shares pursuant to this
Section 2(a).
(ii) Underwriting. The right of the Requesting Shareholder
to registration pursuant to this Section 2(a) shall be conditioned
upon the Requesting Shareholder's participation in the underwriting
arrangements required by this Section 2 and the inclusion in the
underwriting of the Registrable Shares requested to be registered.
The Company and the Requesting Shareholder shall enter into an
underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company from the
following list: (A) Goldman, Sachs & Co.; (B) Morgan Stanley & Co.
Incorporated; (C) Merrill Lynch & Co., Inc.; (D) CS First Boston
Inc.; and (E) Donaldson, Lufkin and Jenrette Inc. The Company may
select a managing underwriter for such underwriting not on the
aforementioned list, so long as such managing underwriter is
acceptable to the Requesting Shareholder. Notwithstanding any
other provision of this Section 2(a), if the managing underwriter
determines, in good faith, that marketing factors require a
<PAGE> 6
- 6 -
limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of Registrable Shares to
be included in the registration and underwriting to the extent such
managing underwriter deems necessary. The Company shall so advise
the Requesting Shareholder, and the number of Registrable Shares
that may be included in the registration and underwriting shall be
limited accordingly.
(iii) Other Holders of Common Stock. Other holders of Common
Stock (including, without limitation, the other Demand Shareholder
and the Following Shareholders) to whom the Company has granted
registration rights may include their respective securities for
their own accounts in such registration if the managing underwriter
so agrees. If the managing underwriter determines, in good faith,
that marketing factors require a limitation of the number of shares
to be underwritten, the managing underwriter may limit the number
of Registrable Shares to be included by all holders of Common Stock
requesting registration hereunder (including the Demand Shareholder
exercising its demand rights under this Section 2(a)) based on the
ratio of the number of shares requested to be registered by each
such holder to the total number of shares requested to be
registered by all such holders.
(iv) Expenses of Requested Registration. The Company shall
pay all Company Registration Expenses incurred in connection with
each registration, qualification or compliance pursuant to Section
2(a), and the Requesting Shareholder will pay its Requesting
Shareholder Registration Expenses.
(b) Piggy-Back Registration.
(i) Registration Initiated by the Company. If the Company
at any time proposes to register an offering of its securities
under the Securities Act other than registrations in connection
with employee stock ownership plans, offerings of debt securities
and shelf registrations made pursuant to Section 2(c), either for
its own account or for the account of a security holder or holders,
and the registration form to be used may be used for the
registration of Registrable Shares, the Company will:
<PAGE> 7
- 7 -
(A) give written notice thereof to the Demand
Shareholders and the Following Shareholders (which shall
include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws) within 10
days of its receipt of a request from a security holder or
holders to register securities or from its decision to effect
a registration of securities for its own account; and
(B) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all
the Registrable Shares specified in a written request by any
Demand Shareholder or Following Shareholder made within 30
days after receipt of such written notice from the Company,
except as set forth in Sections 2(b)(ii) and 2(b)(iii) below;
PROVIDED, that if at any time after giving written notice to
the Demand Shareholders and the Following Shareholders of its
intention to register the Company securities under the
Securities Act (x) the Company in good faith shall determine
not to register such securities, the Company may, at its
election, give written notice of such determination to the
Demand Shareholders and the Following Shareholders and,
thereupon, shall be relieved of its obligation to register
such Registrable Shares pursuant to this Section 2(b) in
connection with such registration, without prejudice,
however, to any rights of either Demand Shareholder to
request that such registration be effected as a registration
under Section 2(a), or (y) the Company shall determine to
delay the registration of such securities, the Company shall
be permitted to delay the registration of such Registrable
Shares for the same period as the delay in registering the
securities to be registered by the Company for its own
account or for others.
(ii) Amount to be Included. In the event that Registrable
Shares are requested to be included in any registration initiated
pursuant to Section 2(b)(i) that contemplates an underwritten
public offering, and if, in the good faith judgment of the managing
underwriting of such public offering, the inclusion of all of the
Registrable Shares covered by such request for
<PAGE> 8
- 8 -
registration, together with the number or amount of securities
that were intended to be offered by the Company or other security
holders who hold registration rights, would interfere with the
successful marketing of such securities, then, such managing
underwriter may limit the number or amount of securities to be
included in the registration such that (A) the Company shall
include in such registration the securities it intended to offer
and (B) with respect to any additional securities which may be
included in such registration (after inclusion of the securities
referred to in clause (A)), all holders of securities (including
the holders of Registrable Shares) who hold registration rights and
who have requested registration (collectively, "Security Holders")
shall participate in the underwritten public offering pro rata
based upon the ratio of the number of shares requested to be
registered by each such Security Holder to the total number of
shares requested to be registered by all such Security Holders.
(iii) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Demand Shareholders
and the Following Shareholders as a part of the written notice
given pursuant to Section 2(b)(i)(A). In such event, the right of
each Requesting Shareholder to registration pursuant to this
Section 2(b) shall be conditioned upon its participation in such
underwriting and the inclusion of the Registrable Shares in the
underwriting to the extent provided herein. The Requesting
Shareholder shall (together with the Company and the other holders
(if any) distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the
Company from the following list: (A) Goldman, Sachs & Co.,; (B)
Morgan Stanley & Co. Incorporated; (C) Merrill Lynch & Co.; (D) CS
First Boston; and (E) Donaldson, Lufkin & Jenrette Inc. The
Company may select a managing underwriter for such underwriting not
on the aforementioned list, so long as such managing underwriter is
acceptable to the Demand Shareholders participating in such
offering. If the Requesting Shareholder disapproves of the terms
of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
Shares
<PAGE> 9
- 9 -
excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(iv) Expenses of Registration. The Company shall bear all
Company Registration Expenses incurred in connection with each
registration, qualification or compliance pursuant to Section 2(b),
and each Requesting Shareholder shall pay its own Requesting
Shareholder Registration Expenses.
(c) Shelf Registration.
(i) Registration following March 29, 2001. In the event that
the Company shall receive from a Demand Shareholder a written
request that the Company effect a registration under the Securities
Act with respect to all of the Registrable Shares pursuant to this
Section 2(c). The Company will use its best efforts to effect, at
the earliest practicable date, a shelf registration statement on an
appropriate form pursuant to Rule 415 (or any successor provision
then in force) under the Securities Act with respect to such
Registrable Shares; PROVIDED, HOWEVER, that the Company shall not be
obligated to take any such action to effect any such registration
pursuant to this SECTION 2(c): (A) if the Company has effected a
previous registration for such Demand Shareholder pursuant to this
Section 2(c); (B) if registration pursuant to Rule 415 (or any
successor provision then in force) is not available for such
offering by the Demand Shareholder; or (C) prior to March 29, 2001.
The Company shall use its best efforts to keep such registration
statement continuously effective until all of the Registrable Shares
covered by such registration are sold, and shall seek such
qualification and compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under blue sky or other state securities
laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be requested by the Requesting
Shareholder.
(ii) Expenses of Shelf Registration. The Company shall bear
all Company Registration Expenses incurred in connection with each
registration, qualification or compliance pursuant to Section 2(c),
and the
<PAGE> 10
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Requesting Shareholder will pay its Requesting Shareholder
Registration Expenses.
(d) Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Section 2 pursuant to which Registrable Shares are included therein, the
Company will keep each Requesting Shareholder advised in writing as to
the initiation of such registration, qualification and compliance and as
to the completion thereof, at its expense, the Company shall:
(i) prepare and file with the SEC any amendments (including
post-effective amendments) and supplements as may be necessary to
keep such registration, qualification or compliance current and
effective and to comply with the provisions of the Securities Act
and the rules and regulations promulgated thereunder, and the rules
and regulations of any applicable securities exchange, with respect
to the distribution of the Registrable Shares covered by such
registration, qualification and compliance for a period of (x) in
the case of a registration, qualification and compliance pursuant
to Sections 2(a) or 2(b) hereof at least 180 days or until the
Requesting Shareholder has completed the distribution described in
the registration statement relating thereto, which ever first
occurs or (y) in the case of a registration, qualification and
compliance pursuant to Section 2(c) until all of the Registrable
Shares have been sold;
(ii) immediately notify each Requesting Shareholder and the
underwriter, if any, and confirm such notification in writing (w)
when such registration statement becomes effective, (x) when the
filing of any post-effective amendment to such registration
statement or supplement to the prospectus is required, when the
same is filed and, in the case of a post-effective amendment, when
the same becomes effective, (y) of any request by the SEC for any
amendment of or supplement to such registration statement or the
prospectus or for additional information, and (z) of the entry of
any stop order suspending the effectiveness of such registration
statement or of the initiation of any proceedings for that purpose,
and, if such stop order shall be entered, the Company shall use its
best efforts promptly to obtain the lifting thereof;
<PAGE> 11
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(iii) furnish to each Requesting Shareholder and any
underwriter acting on behalf of such Requesting Shareholder (x) at
a reasonable time prior to the filing thereof with the SEC a copy
of the registration statement in the form in which the Company
proposes to file the same, and not later than one day prior to the
filing thereof, a copy of any amendment (including any
post-effective amendment) to such registration statement, and
promptly following the effectiveness thereof, a conformed copy of
the registration statement as declared effective by the SEC and of
each post-effective amendment thereto, including financial
statements and all exhibits and reports incorporated therein by
reference, and (y) such number of copies of the preliminary, any
amended preliminary, and final prospectus and of each
post-effective amendment or supplement thereto, as may reasonably
be required in order to facilitate the disposition of the
Registrable Shares covered by such registration statement in
conformity with the requirements of the Securities Act and the
rules and regulations promulgated thereunder, but only while the
Company is required under the provisions hereof to cause the
registration statement to remain effective; and
(iv) list such Registrable Shares on each securities exchange
(if any) or qualify the Registrable Shares for trading on any over
the counter market (if any) on which the Common Stock is then
listed or traded, so long as such Registrable Shares are eligible
for such listing or qualification.
In connection with the registration of the Registrable Shares pursuant to
this Section 2, each Requesting Shareholder, for the purpose of Section 2(b)
only hereby agrees as follows:
(v) the Requesting Shareholder shall cooperate with the
Company in connection with the preparation of the registration
statement, and for so long as the Company is obligated to file and
keep effective the registration statement, shall provide to the
Company, in writing, for use in the registration statement, all
such information regarding the Requesting Shareholder and its plan
of distribution of the Registrable Shares as may be necessary to
enable the Company to prepare the registration statement and
prospectus covering the Registrable Shares, to maintain the
currency and
<PAGE> 12
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effectiveness thereof and otherwise to comply with all
applicable requirements of law in connection therewith;
(vi) during such time as the Requesting Shareholder may be
engaged in a distribution of Registrable Shares, the Requesting
Shareholder shall comply with Rules 10b-2, 10b-6 and 10b-7
promulgated under the Exchange Act, to the extent applicable, and
pursuant thereto it shall, among other things: (w) not engage in
any stabilization activity in connection with the securities in
contravention of such Rules; (x) distribute the Registrable Shares
solely in the manner described in the registration statement; (y)
cause to be furnished to each broker through whom the Registrable
Shares may be offered, if any, or to the offeree if an offer is not
made through a broker, such copies of the prospectus and any
amendment or supplement thereto and documents incorporated by
reference therein as may be required by law; and not bid for or
purchase any securities of the Company or attempt to induce any
person to purchase any securities of the Company other than as
permitted under the Exchange Act;
(vii) upon receipt of a notice pursuant to Section
2(d)(ii)(x), (y) or (z), discontinue any distribution of
Registrable Shares if such discontinuance is required under the
Securities Act; and
(viii) at least five (5) days prior to any distribution of the
Registrable Shares other than in an underwritten offering, the
Requesting Shareholder will advise the Company in writing of the
dates on which the distribution is intended to commence and
terminate, the number of the Registrable Shares to be sold and the
terms and the manner of sale; such person also shall inform the
Company and any broker/dealers through whom sales of the
Registrable Shares may be made when each distribution of such
shares is completed.
(e) Indemnification.
(i) If registrable shares held by a Demand Shareholder or a
Following Shareholder are included in the securities as to which
any registration, qualification or compliance is being effected,
the Company will
<PAGE> 13
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indemnify each such Demand Shareholder and each such Following
Shareholder, each of its general and limited partners, each of the
officers and directors of it or any of its general or limited
partners and any person which controls, within the meaning of
Section 15 of the Securities Act, any of the foregoing, each
underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (and actions in respect
thereof) ("Loss") arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident
to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act, or of any other
federal, state or common law applicable to the Company and relating
to any action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will
reimburse each such Demand Shareholder and each such Following
Shareholder, general or limited partners, or such officers or
directors of it or any of its general or limited partners, any
person which controls any of the foregoing and each such
underwriter and each person which controls such underwriter, for
any legal and any other expenses reasonably incurred in connection
with investigating or defending any such Loss; PROVIDED, that the
Company will not be liable to so indemnify or reimburse in any such
case to the extent that any such Loss arises out of or is based on
any untrue statement or omission resulting from written information
furnished to the Company by or on behalf of such Demand Shareholder
or such Following Shareholder or such underwriter for use therein.
(ii) The Requesting Shareholder will, if Registrable Shares
held by the Requesting Shareholder are included in the securities
as to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors and
officers, each other Security Holder, each other Requesting
Shareholder, the independent accountants and legal counsel of the
Company, each underwriter, if any, of the Company's
<PAGE> 14
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securities covered by such a registration statement, and each
person who controls any of the foregoing within the meaning of
Section 15 of the Securities Act, against all Loss arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any violation by the Requesting Shareholder of any
rule or regulation promulgated under the Securities Act, or of any
other federal, state or common law applicable to the Requesting
Shareholder and relating to any action or inaction required by the
Requesting Shareholder in connection with any such registration,
qualification or compliance, and will reimburse the Company, such
directors, officers, accountants, counsel, Security Holders, the
other Requesting Shareholders, underwriters, officers, directors
and controlling persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending
any such Loss in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Requesting Shareholder for
use therein; PROVIDED, HOWEVER, that (i) such obligations of such
Requesting Shareholder hereunder shall be limited to an amount
equal to the aggregate public offering price of the Registrable
Shares of such Requesting Shareholder sold as contemplated herein,
unless such liability arises out of or is based upon willful
misconduct by such Requesting Shareholder and (ii) the indemnity
for untrue statements or omissions described above, and the
reimbursements obligation relating thereto, shall not apply if such
Requesting Shareholder provides the Company with such additional
written information prior to the effectiveness of the registration
statement as is required to make the previously supplied written
information true and complete, together with a description in
reasonable detail of the information previously supplied which was
untrue or incomplete.
(iii) Each person entitled to indemnification under this
Section 2(e) (the "Indemnified Party") shall give notice to the
party required to provide
<PAGE> 15
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indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom; PROVIDED, that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may
participate in such defense at such Indemnified Party's expense,
and PROVIDED FURTHER that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Section 2(e). After notice
from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such claim or litigation, the
Indemnifying Party will not be liable to such Indemnified Party for
any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation, unless the Indemnifying Party
abandons the defense of such claim or litigation. No Indemnifying
Party in the defense of any such claim or litigation, shall, except
with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(f) CONTRIBUTION. If the indemnification provided for in
subsections (i) or (ii) of Section 2(e) is unavailable to or insufficient
to hold the Indemnified Party harmless in respect of any Loss referred to
therein for any reason other than as specified therein, then the
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Loss in such proportion as
appropriate to reflect the relative fault of the Indemnifying Party, on
the one hand, and such Indemnified Party, on the other, in connection
with the statements or omissions which resulted in such Loss, as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by (or
omitted to be supplied by) the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information
and opportunity
<PAGE> 16
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to correct or prevent such statement or omission. The amount paid
or payable by an Indemnified Party as a result of Loss referred to in
this subsection (f) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(g) Information Furnished by the Requesting Shareholders. Each
Requesting Shareholder shall furnish to the Company such information
regarding itself, each of its general or limited partners, and each of
its directors and officers, and any person controlling any of the
foregoing, and the distribution proposed by such Requesting Shareholder,
as the Company may reasonably request in writing and as shall be required
in connection with any registration, qualification or compliance referred
to in this Section 2.
3. Holdback Agreements. If any registration of Registrable Shares or
other securities of the Company pursuant to Section 2(a) or Section 2(b) herein
shall be in connection with an underwritten public offering, each Requesting
Shareholder agrees not to effect any public sale or distribution, including any
sale under Rule 144 (or any successor provision then in effect) under the
Securities Act, of any Registrable Shares or of any shares of Common Stock or
any security convertible into or exchangeable or exercisable for any shares of
Common Stock (in each case, other than as part of such underwritten public
offering) during the seven (7) days prior to, and during the 180-day period (or
such shorter period as may be provided for in the applicable underwriting
agreement) beginning on, the effective date of the related registration
statement.
4. Termination.
(a) Notwithstanding any other provision of this Agreement, the
respective covenants, agreements and obligations contained in Section 2 of
this Agreement shall continue until the latter of: (i) such date as all of
the Demand Shareholders and all of the Following Shareholders cease to own
any Registrable Shares; or (ii) March 29, 2004; PROVIDED that (x) such
covenants, agreements and obligations shall continue with respect to any
request for registration of Registrable Shares made hereunder March 29,
2004
<PAGE> 17
- 17 -
of the date of this Agreement, and (y) the indemnification
obligations contained in Section 2(e) and the contribution obligations
contained in Section 2(f) shall survive for the period of the statute of
limitations with respect thereto.
5. Miscellaneous.
(a) Each of the parties acknowledges and agrees that irreparable
damage would occur in the event any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof
having jurisdiction, in addition to any other remedy to which they may be
entitled at law or equity.
(b) All notices and other communications hereunder shall be in
writing and shall be deemed given (i) when delivered personally, (ii)
when received if sent by registered or certified mail, return receipt
requested, or by air courier or (iii) when received by facsimile
transmission with electronic verification, in each case to the parties at
the following addresses (or at such other address as a party may specify
by like notice):
(A) If to the Company, addressed to: @ Entertainment, Inc.,
One Commercial Plaza, Hartford, Connecticut 06103; facsimile: (860)
293-4297, Attention: Cheryl Anne Chase; with a copy thereof
addressed to Baker & McKenzie, 815 Connecticut Avenue, N.W.,
Washington, D.C. 20006-4078; facsimile: (202) 452-7074,
Attention: Marc R. Paul, Esq.;
(B) If to PIHLP, addressed to: Chase Polish Enterprises, Inc.,
One Commercial Plaza, Hartford, Connecticut 06103; facsimile: (860)
293-4297, Attention: Cheryl Chase Freedman;
(C) If to ECO, addressed to: ECO Holdings III Limited
Partnership, c/o Advent International Corporation, 101 Federal
Street, Boston, Massachusetts 02110; facsimile: (617) 951-0571,
Attention: Ms. Janet Hennessy; with a copy thereof addressed to
Advent International Plc, 123
<PAGE> 18
- 18 -
Buckingham Palace Road, London SW1W 9SL; facsimile: 44 (171)
333-0801, Attention: Mr. Scott Lanphere;
(D) If to RMF, addressed to: Roger M. Freedman, 67 Prospect
Avenue, West Hartford, Connecticut 06106; facsimile: (860)
231-0551, with a copy thereof addressed to Robinson & Cole, One
Commercial Plaza, Hartford, Connecticut 06103; facsimile: (860)
231-0551, Attention: Richard G. Schectman;
(E) As to Steele, addressed to: Steele LLC, 19 Warren
Terrace, Longmeadow, Massachusetts 01106; facsimile: (413)
567-5160, Attention: Richard B. Steele, Managing Member; with a
copy thereof addressed to Bergman Horowitz, Connecticut Financial
Center, New Haven, Connecticut; facsimile: (860) 785-8127,
Attention: Jim Brockway, Esq.;
(F) If to CACMT, addressed to: Chase Polish Enterprises, Inc.,
One Commercial Plaza, Hartford, Connecticut 06103; facsimile: (860)
293-4297, Attention: Cheryl Chase Freedman; and
(G) As to AESOP, addressed to: The AESOP Fund, L.P. c/o
Capital Investors, Inc., 1215 19th Street, N.W., Washington, D.C.
20036; facsimile: (202) 467-4426, Attention: Harry Huge; with a
copy thereof addressed to The AESOP Fund, L.P., 1119 Financial
Center Building, Seattle, Washington 98161; facsimile: (206)
292-8075, Attention: Duff Kennedy.
(c) This Agreement supersedes all prior agreements between the
parties (written or oral) relating to registration of the Registrable
Shares under the Securities Act and is intended as a complete and
exclusive statement of the terms of the agreement between the parties
with respect to such matters.
(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware and shall be construed and
enforced in accordance with the laws of such state without regard to
principles of conflicts of laws thereof.
<PAGE> 19
- 19 -
(e) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Any term or provision of this Agreement may be waived at any
time by an instrument in writing signed by the party which is entitled to
the benefits thereof and this Agreement may be amended or supplemented at
any time by an instrument in writing signed by all parties hereto.
(g) Except as otherwise provided herein, the Company shall not
assign this Agreement or any part hereof or any rights or obligations
hereunder without the prior written consent of all other parties hereto.
Each Shareholder shall be entitled, without the consent of any other
party hereto, to assign and transfer any or all of its rights hereunder
to any transferee of its Registrable Shares to which it is permitted to
transfer such Registrable Shares under the provisions of the Shareholders
Agreement; provided, however, that a Demand Shareholder may only assign
and transfer any of its demand registration rights under Section 2(a) to
a permitted transferee holding at least twenty-five (25%) of the Common
Stock held by such Demand Shareholder at the date of execution of this
Agreement, and any exercise of such demand registration rights by such
transferee shall be counted as a demand registration effected on behalf
of such Demand Shareholder for the purposes of Section 2(a)(i)(B). No
assignment shall release any party of any of its obligations under this
Agreement. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(h) If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination
that any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties
as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
<PAGE> 20
- 20 -
(i) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same agreement.
(j) The number of Registrable Shares and any references herein as to
specific number of shares shall be appropriately adjusted in the event of
any stock split, reverse split, stock dividend or other reclassification
or reorganization affecting the capital stock of the Company which occurs
after the date hereof.
(k) Any claim, suit, action, or proceeding among any or all of the
parties hereto relating to this Agreement, to any document, instrument, or
agreement delivered pursuant hereto, referred to herein, or contemplated
hereby, or in any other manner arising out of or relating to the
transactions contemplated by or referenced in this Agreement, shall be
commenced and maintained exclusively in the United States District Court
for the District of Delaware, or, if such Court lacks jurisdiction over
the subject matter, in a state court of competent subject-matter
jurisdiction sitting in the State of Delaware. The parties hereby submit
themselves unconditionally and irrevocably to the personal jurisdiction of
such courts. The parties further agree that venue shall be exclusively in
New Castle County in the State of Delaware. The parties irrevocably waive
any objection to such personal jurisdiction or venue including, but not
limited to, the objection that any suit, action, or proceeding brought in
the State of Delaware has been brought in an inconvenient forum. The
parties irrevocably agree that process issuing from such courts may be
served on them, either personally or by certified mail, return receipt
requested, at the addresses given in Section 5(b) hereof; and further
irrevocably waive any objection to service of process made in such manner
and at such addresses, including without limitation any objection that
service in such manner and at such addresses is not authorized by the
local or procedural laws of the State of Delaware.
(l) In any suit or proceeding brought or instituted by any of the
parties to enforce or interpret any of the provisions of this Agreement
or on account of any damages claimed to be sustained by such instituting
party by reason of another party's violation of any of the terms or
provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and court costs.
<PAGE> 21
- 21 -
(m) This Agreement shall be effective as to all parties other than
AESOP as soon as all such other parties have signed it, and with respect
to AESOP's rights and obligations it shall be effective as soon as all
parties including AESOP have signed it.
IN WITNESS WHEREOF, the Company, PIHLP, ECO, RMF, Steele, AESOP and CACMT
have caused this Agreement to be duly executed by their respective officers,
each of whom is duly authorized, all as of the day and year first above
written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
/s/ ROBERT E. FOWLER, III
BY: -------------------------------
Name: ________________________
Title: ________________________
POLISH INVESTMENTS HOLDING L.P.,
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
MANAGING GENERAL PARTNER
/s/ CHERYL A. CHASE
By: -------------------------------
Name: Cheryl A. Chase
Title: Executive Vice President
ECO HOLDINGS III LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Advent ECO III L.L.C., General Partner
By: Global Private Equity II Limited
Partnership, Member
<PAGE> 22
- 22 -
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation, General
Partner
/s/ JANET L. HENNESSY
By: -------------------------------
Name: Janet L. Hennessy
Title: Vice President
THE AESOP FUND, L.P.,
a Delaware limited partnership
CAPITOL INVESTORS, INC.
By: -------------------------------
a General Partner
MANAGING GENERAL PARTNER
/s/ DUFF KENNEDY
By: -------------------------------
Name: Duff Kennedy
Title: Chairman
/s/ ROGER M. FREEDMAN
-------------------------------
Roger M. Freedman
STEELE LLC,
a Connecticut limited liability company
/s/ RICHARD STEELE
By: -------------------------------
Name: Richard Steele
Title: Managing Member
<PAGE> 23
- 23 -
THE CHERYL ANNE CHASE MARITAL TRUST,
a Connecticut Trust
/s/ CHERYL A. CHASE
By: -------------------------------
Name: Cheryl A. Chase
Title: Trustee, and not individually
or in any other capacity
/s/ KENNETH MUSEN
By: -------------------------------
Name: Kenneth Musen
Title: Trustee, and not individually
or in any other capacity
<PAGE> 1
Exhibit 3.6
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This Amendment ("Amendment") to the Registration Rights Agreement
(the "Registration Rights Agreement"), dated as of June 22, 1997 among ECO
Holdings III Limited Partnership, Polish Investments Holdings L.P., Roger
M. Freedman, The Cheryl Anne Chase Marital Trust, Steele LLC, the AESOP Fund,
L.P. and @Entertainment, Inc. is made this 9th day of July, 1997.
WITNESSETH:
WHEREAS, Section 5(f) the Registration Rights Agreement permits this
Amendment to be made in a writing signed by all of the parties to the
Registration Rights Agreement;
WHEREAS, the undersigned are all of the parties to the Registration Rights
Agreement; and
WHEREAS, the undersigned agree that the Registration Rights Agreement
should be amended as set forth herein.
THEREFORE, in consideration of the foregoing recitals, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agree as follows:
1. Section 2(a)(i)(D) of the Registration Rights Agreement is amended by
deleting the phrase "prior to the third anniversary of this Agreement" and
substituting therefor the phrase "prior to March 29, 1999."
2. Except as amended by paragraph 1 of this Amendment, all the terms and
provisions of the Registration Rights Agreement in effect on the date hereof are
hereby ratified and confirmed.
<PAGE> 2
3. This Amendment may be executed in counterparts so that upon execution of
counterparts by all of the parties to the Registration Rights Agreement this
Amendment shall be in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first above written.
@ENTERTAINMENT, INC.,
a Delaware corporation
/s/ Robert E. Fowler, III
By: -------------------------------
Name: Robert E. Fowler, III
Title: Chief Executive Officer
POLISH INVESTMENTS HOLDING L.P.,
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
MANAGING GENERAL PARTNER
/s/ Cheryl A. Chase
By: -------------------------------
Name: Cheryl A. Chase
Title: Executive Vice President
ECO HOLDINGS III LIMITED PARTNERSHIP,
a Delaware limited partnership
By: ADVENT ECO III L.L.C., GENERAL PARTNER
By: GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP, MEMBER
By: ADVENT INTERNATIONAL LIMITED PARTNERSHIP,
GENERAL PARTNER
2
<PAGE> 3
By: Advent International Corporation, general
partner
/s/ Janet L. Hennessy
By: -------------------------------
Name: Janet L. Hennessy
Title: Vice President
THE AESOP FUND, L.P.,
a Delaware limited partnership
BY: CAPITOL INVESTORS G.P.
a _________ ____________ partnership
MANAGING GENERAL PARTNER
/s/ Duff Kennedy
By: -------------------------------
Name: Duff Kennedy
Title: Chairman
/s/ Roger M. Freedman
-------------------------------------
Roger M. Freedman
STEELE LLC, a Connecticut limited liability
company
By: /s/ Richard B. Steele
------------------------------------
Name: Richard B. Steele
Title: Managing Member
THE CHERYL ANNE CHASE MARITAL
TRUST, a Connecticut trust
By: /s/ Cheryl A. Chase
------------------------------------
Name: Cheryl A. Chase
Title: Trustee, and not individually or
in any other capacity.
By: /s/ Kenneth Musen
------------------------------------
Name: Kenneth Musen
Title: Trustee, and not individually or
in any other capacity.
3
<PAGE> 1
Exhibit 5
[Letterhead of Baker & McKenzie]
June 23, 1997
@ Entertainment, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Re: Securities and Exchange Commission -
Registration Statement on Form S-1
------------------------------------
Ladies and Gentlemen:
As counsel to @ Entertainment, Inc., a Delaware corporation (the
"Company"), we have assisted in the preparation of the Company's Registration
Statement on Form S-1, covering shares of Common Stock, $.01 par value (the
"Common Stock") to be sold to the Underwriters named in the Registration
Statement pursuant to the Underwriting Agreements filed as Exhibits to the
Registration Statement (the "Underwriting Agreement").
In this connection, we have examined and considered the original or
copies, certified or otherwise identified to our satisfaction, of the Company's
Certificate of Incorporation, as amended to date, its By-laws, resolutions of
its Board of Directors, officers' certificates and such other documents and
corporate records relating to the Company and the issuance and sale of the
Common Stock, as we have deemed appropriate for purposes of rendering this
opinion.
In all examinations of documents, instruments and other papers, we have
assumed the genuineness of all signatures on original and certified documents
and the conformity to original and certified documents of all copies submitted
to us as conformed, photostat or other copies. As to matters of fact which
have not been independently established, we have relied upon representations
of officers of the Company.
Based upon the foregoing examination, and the information thus supplied,
it is our opinion that the shares of Common Stock, when sold as contemplated by
the Registration Statement, will be legally issued, fully paid and
non-assessable.
<PAGE> 2
@ Entertainment, Inc.
June 23, 1997
Page 2
We hereby expressly consent to the reference to our Firm in the
Registration Statement (including any related Registration Statement file
pursuant to Rule 462(b)) under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement
(including any related Registration Statement file pursuant to Rule 462(b)),
and to the filing of this opinion with any other appropriate government agency.
Very truly yours,
/s/ Baker & McKenzie
------------------------------
Baker & McKenzie
JFF/MIR/MRP
<PAGE> 1
Exhibit 8
July 14, 1997
@Entertainment, Inc.
One Commercial Plaza
Hartford, CT 06103-3585
Dear Sirs:
We have acted as special United States federal income tax counsel to
@Entertainment, Inc. (the "Company") in connection with the issuance (the
"Offerings") by the Company of 9,500,000 Shares of Common Stock (par value $0.01
per share) pursuant to the Prospectus dated July 14, 1997 (the "Prospectus").
As special United States federal income tax counsel to the Company we
have examined the Prospectus and such other documents and records as we deemed
necessary and relevant for rendering our opinion as to the material United
States federal income tax consequences of the purchase, ownership and
disposition of shares of Common Stock to be issued pursuant to the Offerings.
On the basis of the foregoing, and assuming that all relevant documents
have been, or will be, validly authorized, executed and delivered by all the
relevant parties, we are of the opinion that, under present United States
federal income tax laws, the material United States federal income tax
consequences to prospective holders of shares issued in the Offerings are as
described on pages in the Prospectus under the heading "U.S. Federal Income Tax
Consequences," subject to the limitations and qualifications set forth therein.
The foregoing is based on the United States Internal Revenue Code of
1986, as amended, regulations thereunder, and administrative pronouncements and
judicial decisions relating thereto, all as of the date hereof. Subsequent
developments could have a material effect on this opinion.
Very truly yours,
/s/ Baker & McKenzie
------------------------------
BAKER & McKENZIE
TOD/JOD
<PAGE> 1
Exhibit 9.1
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") dated as of June, __ 1997, is
being entered into by and among Polish Investments Holding Limited Partnership
("PIHLP"), Roger M. Freedman ("RMF"), Steele LLC ("Steele") and The Cheryl Anne
Chase Marital Trust, ("CACMT," and together with PIHLP, RMF and Steele the
"Shareholders") and David Chase, as the Chase Group Representative.
WITNESSETH
WHEREAS, the Shareholders are parties to that certain Shareholders'
Agreement dated the date hereof (the "Shareholders Agreement") which provides,
among other things, for the appointment of a Chase Group Representative to act
as the designated representative of the Shareholders; and
WHEREAS, the Shareholders, pursuant to the terms of the Shareholders'
Agreement, desire to appoint David Chase as the initial Chase Group
Representative and to confer on him certain powers and duties as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this agreement, the parties hereto hereby agree as follows:
1. Effective Date of Agreement: Definitions
1.1 Effective Date of Agreement. This Agreement shall become effective
(the "Effective Date") upon execution of the Shareholders' Agreement.
1.2 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
(a) "Chase Group Representative" shall mean David Chase and any
person who becomes a successor Chase Group Representative pursuant to Section
5.1 hereof.
(b) "Company" shall mean @ Entertainment, Inc., a Delaware
corporation.
(c) "Non-Voting Shares" shall mean shares of the Company's Series C
Preferred Stock, par value $.01 per share, as constituted at the date of the
Shareholders'
<PAGE> 2
Agreement, plus all securities hereafter attributable to such shares or
received or receivable in respect thereof by way of stock splits or stock
dividends, recapitalization or liquidation of the Company or merger or
consolidation of the Company with any other corporation or organization.
(d) "Shareholders" shall have the meaning set forth in the first
paragraph of this Agreement and shall include any transferee of the Shareholders
permitted by this Agreement. PIHLP, RMF, Steele and CACMT and any permitted
transferee of the same shall be individually referred to herein as a
"Shareholder."
(e) "Shareholders' Agreement" shall mean that certain Shareholders'
Agreement by and among the Shareholders, the Company, ECO Holdings III Limited
Partnership ("ECO"), and the AESOP Fund, L.P. ("AESOP").
(f) "Shares" shall mean all Voting Shares and all Non Voting Shares
held by any Shareholder.
(g) "Voting Shares" shall mean shares of the Company's Common
Stock, par value $.01 per share, held at any time by any Shareholder, plus all
voting securities hereinafter attributable to such shares or received or
receivable in respect thereof by way of stock splits or stock dividends,
recapitalization or liquidation of the Company or merger or consolidation of the
Company with any other corporation or organization.
2. Term of Agreement
This Agreement shall become effective upon the Effective Date specified
in Section 1.1 hereof and shall terminate upon the first to occur of the
following events: (a) the written consent of all Shareholders, (b) the
termination of the Shareholders' Agreement in accordance with its terms, or (c)
the failure of the Shareholders to appoint a successor Chase Group
Representative in accordance with Section 5.1(a) hereof within sixty (60) days
of the date on which the previous Chase Group Representative ceases, for
whatever reason, to act as the Chase Group Representative. This Agreement shall
terminate as to any Shareholder if such Shareholder ceases to be a "Shareholder"
for purposes of Section 1.28 of the Shareholders' Agreement or ceases to be a
member of the "Chase Group" pursuant to the Shareholders' Agreement.
3. Voting Provisions
3.1 Grant of Proxy. Each Shareholder grants to the Chase Group
Representative an irrevocable proxy, pursuant to the provisions of Section 212
of the Delaware General Corporation Law, coupled with an interest, to vote such
Shareholder's
2
<PAGE> 3
Voting Shares as the Chase Group Representative shall in his sole discretion
determine, for the election of directors and on all other matters which may be
presented at any meeting or require the consent of stockholders of the Company.
The Chase Group Representative agrees to notify each Shareholder (if such
Shareholder is not an officer of the Company or otherwise present at the
meeting) of any exercise of such voting right (including copies of the
applicable resolutions) on behalf of such Shareholder within a reasonable
period of time after such vote is taken. Notwithstanding the foregoing, upon
the transfer of any Voting Shares (other than a transfer described in Section
4.2 hereof), such proxy shall terminate and be of no further force and effect
with respect to the Voting Shares so transferred.
3.2 Rights under Shareholders' Agreement. Each Shareholder hereby
makes, constitutes and appoints the Chase Group Representative as its
attorney-in-fact for the limited purpose performing all acts and executing all
documents, instruments, agreements, notices or certificates the Chase Group
Representative may deem necessary or desirable in all matters relating to the
rights and obligations of each Shareholder under the Shareholders' Agreement.
4. Transfer of Shares
4.1 Transfer of Shares Generally. During the term of this Agreement, no
Shareholder shall make any transfer of any Shares except for transfers
permitted by the Shareholders' Agreement.
4.2 Condition on Transfer. Any proposed transfer by any Shareholder
pursuant to Section 3.7(i) of the Shareholders' Agreement shall be conditioned
on such transferee executing and delivering to the Chase Group Representative
an agreement in form and substance satisfactory to the Chase Group
Representative pursuant to which the transferee agrees to be bound by the terms
of this Agreement.
5. The Chase Group Representative
5.1 The Chase Group Representative. David Chase hereby accepts and
agrees to act as the initial Chase Group Representative in accordance with the
terms of this Agreement.
5.2 Successor Chase Group Representative.
(a) The Chase Group Representative may at any time resign by
delivering to each Shareholder a written resignation, to take effect thirty (30)
days thereafter. Upon the resignation of the Chase Group Representative or upon
the failure of the Chase Group Representative to serve as Chase Group
Representative because of death or incapacity
3
<PAGE> 4
of the Chase Group Representative, or otherwise, the Shareholders shall, by
written consent of Shareholders holding more than fifty percent (50%) of the
Voting Shares held by the Shareholders, appoint a successor Chase Group
Representative.
(b) The Shareholders may at any time, by written consent of
Shareholders holding more than fifty percent (50%) of the Voting Shares held by
the Shareholders, remove the then-current Chase Group Representative and appoint
a successor Chase Group Representative.
(c) Any successor Chase Group Representative appointed pursuant to
the terms and conditions of this Agreement shall have all the rights granted to
the Chase Group Representative named herein and all references herein to the
Chase Group Representative shall include not only the Chase Group Representative
named herein, but also any successor Chase Group Representative.
5.3. Compensation. The Chase Group Representative shall serve at all
times without compensation.
5.4 Indemnification. The Shareholders, jointly and severally, hereby
agree to assume liability for and do hereby indemnify, protect, save and keep
harmless the Chase Group Representative, and its successors, assigns, agents and
servants from and against any and all liabilities, obligations, losses, damages,
penalties, taxes, claims, actions, suits, costs, expenses, or disbursements
(including legal fees and expenses) of any kind and nature whatsoever
(collectively, "Claims") which may be imposed upon, incurred by or asserted
against the Chase Group Representative in connection with this Agreement;
provided however, that the Chase Group Representative shall not be entitled to
indemnification under this Section 5.4 with respect to Claims which are the
result of gross negligence or willful misconduct of the Chase Group
Representative. The indemnities contained in this Section 5.4. shall survive
the termination of this Agreement.
6. Legends on Shares: Filing of Agreement
6.1. Legend on Shares. All certificates representing Shares shall bear
the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A VOTING AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION."
6.2 Filing of Agreement. Copies of this Agreement, and of each
amendment, modification, supplement or addendum hereto, shall be filed in the
principal office of the Company.
4
<PAGE> 5
7. Miscellaneous
7.1 Notice Provisions. All notices or communications required to be
given by any person pursuant to this Agreement shall be effected in writing
either by personal delivery or by registered or certified mail, postage prepaid
with return receipt requested to address indicated under such party's signature
hereto. Any person may designate a different address to which notices or other
communications must thereafter be addressed by giving written notice of the
different address to each Shareholder and the Chase Group Representative.
7.2 Amendment of Agreement. The provision of this Agreement may be
amended only by written consent of all Shareholders and, if his obligations or
rights hereunder would be affected thereby, the Chase Group Representative.
7.3 Interpretation of Agreement. This Agreement shall be construed in
its entirety, with no emphasis or meaning being given to the headings or
captions utilized in this Agreement or the placement of the various provisions.
7.4 Entire Agreement. This Agreement and the Shareholders' Agreement
supersede any and all other agreement, either oral or in writing, between the
parties with respect to the subject matter of this Agreement and the
Shareholder's Agreement.
7.5 Severability of Provisions. Each provision of this Agreement is
intended to be severable. lf any term or provision is declared to be illegal or
invalid for any reason, such illegality or invalidity shall not effect the
validity or enforceability or any other provision of Agreement.
7.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware
7.7 Execution in Counterparts. This Agreement and any amendments hereto
may be executed in any number of counterparts with the same effect as if all of
the parties had signed the same document.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Voting Agreement as
of the date first above written.
POLISH INVESTMENTS HOLDING L.P.
By: Chase Polish Enterprises, Inc.,
its general partner
By: /s/ Cheryl A. Chase
-----------------------
Cheryl A. Chase
Its: Exec. Vice President
Address
c/o Chase Polish Enterprises, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl Chase
/s/ Roger M. Freedman
------------------------------
ROGER M. FREEDMAN
Address
67 Prospect Avenue
West Hartford, Connecticut 06106
Fax: 860/231-0551
STEELE LLC
By: /s/ Richard B. Steele
--------------------------
Richard B. Steele
Managing Member
Address
c/o Steele LLC
19 Warren Terrace
Longmeadow, Massachusetts 01106
Fax: 413/567-5160
Attn: Richard B. Steele,
Managing Member
6
<PAGE> 7
/s/ David Chase
---------------------------------------
DAVID CHASE, CHASE GROUP REPRESENTATIVE
Address
c/o Chase Polish Enterprises, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl A. Chase
The Cheryl Anne Chase Marital Trust
By: /s/ Cheryl A. Chase
--------------------------------
Its: Trustee, and not individually or
in any other capacity.
By: /s/ Kenneth Musen
--------------------------------
Its: Trustee, and not individually or
in any other capacity.
Address
c/o Chase Polish Enterprises, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl A. Chase
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<PAGE> 1
Exhibit 9.2
June 22, 1997
Steele LLC
c/o Richard B. Steele
19 Warren Terrace
Longmeadow, Massachusetts
Gentlemen:
Reference is hereby made to that certain Shareholders' Agreement, dated
as of June 22, 1997 (the "Shareholders' Agreement"), by and among ECO Holdings
III Limited Partnership, a Delaware limited partnership ("ECO"), Polish
Investments Holding Limited Partnership, a Delaware limited partnership
("PIHLP"), Steele LLC, a Connecticut limited liability company ("Steele"),
Roger M. Freedman, The Cheryl Anne Chase Marital Trust, a Connecticut trust
("CACMT") and @ Entertainment, Inc., a Delaware corporation (the "Company").
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Shareholders' Agreement.
This letter agreement (the "Agreement") is being entered into by PIHLP
for the benefit of Steele in connection with its execution and delivery of the
Shareholders' Agreement, the Voting Agreement between PIHLP, Steele, CACMT and
Roger M. Freedman, and by ECO for the benefit of Steele in connection with its
execution and delivery of the Shareholders' Agreement. Except as otherwise
permitted in Paragraph 2 of this Letter Agreement, each Principal Shareholder
hereby agrees that any transfer by such Principal Shareholder of Common Stock
or Series B Preferred Stock of the Company, (collectively, "Restricted Stock")
is subject to the following provisions of this Letter Agreement;
1. Tag Along Rights. Each of the Principal Shareholders covenants
to Steele that in the event it sells Common Stock and/or Series B Preferred
pursuant to Section 3.1 of the Shareholders Agreement, it shall procure that
any Covered Shareholder
<PAGE> 2
Steele LLC
June 22, 1997
Page 2
be given the opportunity to sell its Shares of Common Stock to the Group or
third party buying the Principal Shareholder's Shares on the same terms and
conditions and at the Applicable Price Per Share. Each of the Principal
Shareholders sending any of the notices referred to in Section 3.1 shall
simultaneously send a copy of that notice to each Covered Shareholder. The
Principal Shareholders further covenant that, from and after the date of
termination of the Shareholder Agreement through the date this Letter Agreement
terminates, in the event of any sale of Shares by either of them that would
have been governed by Section 3.1 of the Shareholders Agreement if the
Shareholders Agreement had then been in effect, each Covered Shareholder (and,
for the avoidance of doubt, only the Covered Shareholders) shall have the same
rights to have its Shares bought by a third party purchaser and to receive
notices as are set forth in the previous sentences, as though the Shareholders
Agreement had for this one purpose not been terminated; provided, however that
for avoidance of doubt the restrictions on transfer, including rights of first
refusal, contained in Section 3.1 shall not apply to any such sale of Shares by
the Principal Shareholders.
2. Inapplicable Transfers. Notwithstanding anything contained
herein to the contrary, the provisions of this Letter Agreement shall not apply
with respect to the Principal Shareholders to (i) any transfer as a result of
the exercise of the buy-sell provisions of Section 5 of the Shareholders'
Agreement, (ii) any transfers in accordance with clause (i) or (iii) of Section
3.7 of the Shareholders' Agreement or (iii) any pledge, hypothecation or
encumbrance of Restricted Stock pursuant to Section 3.6 of the Shareholders'
Agreement.
3. Definitions; Interpretation.
a. "Principal Shareholder" shall mean ECO, PIHLP and any
transferee who acquires their shares pursuant to Section 3.7(i) or (iii) of the
Shareholders' Agreement.
b. "Covered Shareholder" shall mean Steele and any
transferee who acquires Steele's Shares in accordance with the Shareholders'
Agreement.
4. Term. This Letter Agreement shall terminate upon the first to
occur of (a) the written consent of all parties, or (b) an Initial Public
Offering.
<PAGE> 3
Steele LLC
June 22, 1997
Page 3
This Letter Agreement and the covenants and agreements set forth herein
shall be binding upon and inure solely to the benefit of the signatory parties
hereto (and with respect to Steele, any other Covered Shareholder who executes a
counterpart of this Letter Agreement), and (ii) with respect to ECO and PIHLP,
any transferee who is a Principal Shareholder).
[Signatures on following page]
<PAGE> 4
Steele LLC
June 22, 1997
Page 4
Please acknowledge your understanding of and agreement with the
foregoing by signing this Letter Agreement in the spaces provided below.
ECO HOLDINGS III LIMITED PARTNERSHIP
By: Advent ECO III L.L.C., general partner
By: Global Private Equity II Limited
Partnership, member
By: Advent International Limited Partnership,
general partner
By: Advent International Corporation, general
partner
By: /s/ Janet L. Hennessy
-----------------------------------
Janet L. Hennessy
Vice President
<PAGE> 5
Steele LLC
June 22, 1997
Page 5
POLISH INVESTMENTS HOLDING L.P.
a Delaware limited partnership
By: CHASE POLISH ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Arnold Chase
---------------------------------------
Its: President
---------------------------------------
STEELE LLC
By: /s/ Richard Steele
---------------------------------
Its: Managing Member
---------------------------------
<PAGE> 1
EXHIBIT 10.2
MANAGEMENT AGREEMENT
Entered into as of ________________ in C between:
A with an office in Hartford, this Agreement as A represented by:
B , referred to in this Agreement as B , represented by:
Article 1
B is a Polish economic entity conducting activities in the territory of the
Republic of Poland and outside its borders.
Article 2
A is a United States of America economic entity.
Article 3
A will provide to B organizational and consulting services pertaining to
the realization of B's objectives according to Article 5 of B's Deed of
Association.
Article 4
Obligations outlined in Article 3 of this Agreement relate, in particular, to
the construction and exploitation of a cable television system in the region of
C (the " C System").
Article 5
The parties agree that A will receive from B a consulting management fee as
compensation for services provided pursuant to Article 3 and 4 of this
Agreement.
Article 6
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The services and expenses for which the consulting management fee described in
Article 5 is due include:
1. Organization consulting on behalf of B .
2. Organization activity directed to the fulfillment of
Article of B Deed of Association.
Article 7
The parties agree that for the fiscal year and for each year thereafter
the consulting management fee defined in Article 5 of this Agreement will be
equal to an equivalent of USD $ (Dollars 00/100) for the System.
Accrued management fees will become payable when and to the extent that B net
income exceeds zero.
Article 8
The amount determined in Article 7 was based on the feasibility study which
served as a basis for the issuance of the permit .
Article 9
The agreement shall continue until and shall be automatically
renewed for successive one (1) year periods unless terminated in writing by
either party at least thirty (30) days prior to the then existing term.
Article 10
This Agreement shall be binding on and inure to the parties' successors and
assigns. This Agreement relates to the operation of the C System. A hereby
acknowledges and agrees the B may assign all or a portion of rights granted
to it herein to any entity(ies) continuing to operate the C System without
the prior consent of A . Any such entity(ies) shall consent to be bound by
the obligations of B to A hereunder. A may assign its rights and
obligations hereunder to an affiliated entity capable of performing the
services hereunder without the prior consent of B .
Article 11
Matters unregulated by this Agreement will be governed by the Civil Code.
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Article 12
Potential disputes will be resolved by courts headquartered in the United
States.
Article 13
This Agreement was prepared in two counterparts, one for each party.
A
By:
------------------------------
B
By:
------------------------------
3
<PAGE> 1
EXHIBIT 10.3
FORM OF SERVICE AGREEMENT
dated as of
among
[ PTK Company ] - Owner
A
and
B , As Agent
<PAGE> 2
Service Agreement ("Agreement") effective as of among [PTK Company]
("Owner"), A and B ("Agent"), as agent of A .
WHEREAS, Owner is currently engaged in the construction, development,
operation and management of a cable communications system (the "System") within
the city of C and the surrounding area in the Republic of Poland;
WHEREAS, A , through Agent, and otherwise, has available and has access
to financial, administrative, technical, managerial, supervisory, architectural,
operational, programming, marketing, sales and promotional, personnel, computer
analysts, and other professional and experienced personnel knowledgeable in the
construction, development, operation and management of cable facilities,
including cable communications systems;
WHEREAS, Owner has experienced logistical and economic constraints in
obtaining and maintaining the necessary supply of qualified personnel, materials
and other services and products required to achieve its business goals without
the assistance of an intermediary outside the Republic of Poland, and desires to
engage the services of A , and Agent on a non-exclusive basis to more
efficiently and economically conduct its business;
WHEREAS, Owner desires to engage A to perform, or cause to be
performed, certain services on a non-exclusive basis, and A desires to perform,
or will cause to be performed, said services, in accordance with the terms of
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual premises
and covenants hereinafter set forth, the parties agree with each other as
follows:
ARTICLE 1
THE PARTIES
Section 1.1 Description of the Parties.
(a) Owner is a
(b) A is a
(c) Agent is a
ARTICLE 2
THE SYSTEM
Section 2.1 The-Business of the Owner.
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The existing business of the Owner is to acquire, construct, own and
operate cable television systems to service the city of C and surrounding areas
in the Republic of Poland. The business of the Owner includes the construction
and development and promotion of the System in the Republic of Poland, the
purchase of equipment, supplies, and other goods and materials for the System,
the evaluation and acquisition of cable television systems, the operation and
maintenance of the Systems and managing personnel needed to carry out its
business goals and objectives and all other functions relating to the successful
operation of a cable television system. The activities as described in this
Section are referred to below as the "Business of the Owner".
ARTICLE 3
SERVICES/FEES/EXPENSES
Section 3.1 Agency Services/Fees/Expenses.
(a) Agency Services: A shall (or may cause its Agent or affiliates, in
its sole discretion, to) provide services to and at the request of Owner
relating to technical, managerial, supervisory, purchasing, operational,
financial and administrative functions ("Agency Services"), as follows:
(i) A shall engage (or cause to be engaged) personnel for the
benefit of and on behalf of Owner as A shall deem necessary and as requested by
Owner to perform the Agency Services. Such personnel, whether located in Poland,
the United States, or elsewhere, shall be engaged substantially full-time in
providing such services. All reasonable out-of-pocket costs and expenses
incurred by A (or Agent or affiliates) relating to these personnel (including,
without limitation, salaries, social security, insurance and other benefits,
housing allowances, travel and entertainment expenses and any other related and
sundry costs) (collectively "Personnel Costs") shall be reimbursed by Owner
pursuant to this Section;
(ii) With the consent of Owner, A shall purchase (or may cause
to be purchased) from unaffiliated third parties, as A shall deem necessary, any
equipment, supplies or other goods or materials to be used or useful for the
Business of Owner. Upon receipt of consideration for such purchases from Owner,
title to the foregoing shall be in Owner. All reasonable out-of-pocket costs and
expenses of unaffiliated third parties incurred by A or Agent or affiliates)
relating to these purchases (including without limitation, any and all
transportation, freight, shipping, import taxes, other taxes, fees, insurance
and brokerage fees) (collectively "Purchasing Costs") shall be reimbursed by
Owner pursuant to this Section;
(iii) A shall, at Owner's request, supervise the
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<PAGE> 4
payment of, or at A 's election pay, any operating expenses relating to the
Business of the Owner ("Operating Expenses"). Expenses incurred by A or Agent in
accordance with this Subsection shall be reimbursed in full (with interest, if
applicable) by Owner pursuant to this Section;
(iv) A shall be entitled to reimbursement for all reasonable
out-of-pocket costs and expenses charged by unaffiliated third parties and
incurred by A or Agent or any of its affiliates on behalf of Owner in connection
with providing the Agency Services in accordance with this Agreement, including
without limitation, travel, lodging, entertainment, postage, or telephone costs
and expenses.
(v) All reimbursements by Owner shall be in the same currency
as payments, costs and expenses were made or incurred, unless otherwise agreed
to by the parties.
(b) A shall submit to Owner, within 30 days after each calendar
quarter, a statement indicating all payments, costs and expenses made or
incurred by A or Agent or affiliate during such calendar quarter and for which A
seeks to be reimbursed by Owner (each statement being referred to herein
individually as a "Statement" and collectively as "Statements"). Such amounts
shall be reimbursed within thirty (30) days of the date such Statement is
rendered unless otherwise agreed to by the parties. In no event shall any delay
or failure to list any cost or expense on a Statement waive any of A 's rights
to reimbursement upon submission of a Statement by A or its Agent setting forth
such cost or expense.
(c) Owner shall be deemed to have conclusively and irrevocably approved
any and all payments, costs and expenses made or incurred by A or Agent in
accordance with this Agreement (except for any payments, costs and expenses made
or incurred resulting from willful misconduct or gross negligence on the part of
A or Agent as described in Section 6.2 as it relates to Owner's indemnification
obligations set forth in Section 6.2) unless, as to each Statement , written
objection is given, as to each payment, cost or expense objected to, within
thirty (30) days of Owner's receipt of such Statement, specifying either that
(i) Owner notified A or Agent of its disapproval of such payment, cost or
expense prior to its having been made or incurred by WCCI29 A or Agent and
setting forth the specific facts regarding such disapproval, or (ii) A or Agent
was acting with gross negligence or willful misconduct in making or incurring
such payment, cost or expense. If Owner and A or Agent are in disagreement as to
right to reimbursement of a particular payment, cost or expense, the provisions
of Section 8.2 shall apply.
(d) Notwithstanding anything herein to the contrary, neither A nor
Agent nor any of their affiliates shall have any obligation
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<PAGE> 5
to advance any payments to third parties on behalf of Owner, or make or incur
any fees, costs or expenses required to be paid directly by A , Agent or
affiliates, and such decision shall be within the sole discretion of A or Agent,
and upon making or incurring any such costs and expenses, A (or Agent or
affiliates, if applicable) shall be entitled to reimbursement. This Section
3.1(d) shall not apply to the General Services provided below in Section 3.2(a),
so long as Owner is not in default under Section 3.2(b) or otherwise in material
default under this Agreement. Further, Owner shall continue to have all rights
and powers to make, incur and/or pay directly to any creditor any fees, costs or
expenses related to its Business or otherwise on its own behalf, including,
without limitation, payments and reimbursements made directly to employees of A
or its Agent.
(e) In providing the Services hereunder, A and Agent shall make
reasonable efforts to comply with legal requirements actually known to A , or
Agent, which are applicable to the System and the conduct of the Business of the
Owner. In providing the Services hereunder, A and Agent shall make reasonable
efforts to comply with the requirements actually known to A of the insurance
companies with which insurance covering the System is carried.
Section 3.2 General Services/Fees/Expenses.
(a) General Services: At Owner's request, A or Agent or any of its
affiliates shall provide, on a non-exclusive basis, general administrative
services (other than as described in Section 3.3) to Owner, relating to the use
of A 's and its affiliates phone system(s), office machine(s), office space,
office supplies, computer services, receptionist and other general office
services;
(b) (i) In consideration for the General Services provided under this
Agreement, Owner shall pay A a fee of per calendar quarter, payable in arrears
in legal tender of the United States of America, on or before the last day of
each March, June, September and December, commencing .
(ii) Notwithstanding the provision of Section 3.2 (b)(i) above, if
Owner is obligated to pay management fees to A pursuant to any applicable
management agreement, the fees set forth in Section 3.2(b)(i) are waived for the
period such management agreement is in effect.
Section 3.3 Specific Services/Fees/Expenses.
(a) Specific Services: A shall provide or cause to be provided to
Owner, at Owner's request, legal, financial and other professional services, at
commercially reasonable rates, for specified activities, which services may be
performed by personnel of A or Agent or their affiliates, or by third parties
engaged by
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A or Agent on behalf of Owner at A 's or Agent's sole discretion ("Specific
Services").
(b) All fees, costs and expenses for Specific Services made, rendered,
or incurred by A , Agent or any of their affiliates from time to time in
accordance with Section 3.3(a), including reasonable out-of-pocket expenses,
shall be separately billed and shall be paid or reimbursed by Owner within
thirty (30) days of receipt of the bill.
(c) The provisions of Section 3.1(d) shall apply to this Section.
Section 3.4 Advances/Interest.
A , Agent or any of their affiliates, may, in accordance with this
Agreement but in no event shall A or its Agent have any obligation to, advance
funds to or on behalf of Owner or make or incur costs or expenses on behalf of
Owner. Any such funds advanced to or on behalf of Owner, or any such costs or
expenses or incurred by A , Agent or any of their affiliates on behalf of Owner
(individually "Advance", collectively "Advances"), shall bear interest at the
Market Interest Rate, as defined hereafter, accruing from and after the date
advanced, made or incurred, as applicable, until paid or reimbursed in full. The
Market Interest Rate shall be the rate of ten percent (10%) per annum for U.S.
dollar denominated advances.
Section 3.5 Documentation.
A and Agent shall promptly supply to Owner on request all supporting
documentation with respect to any payments or reimbursements asserted to be due
from Owner hereunder.
ARTICLE 4
THE ENGAGEMENT
Section 4.1 Engagement of A and Agent.
Owner engages A and Agent, on an non-exclusive basis, to perform the
various Services described in Article 3 of the Systems for the term of this
Agreement. A and Agent each accepts the engagement and agrees to perform the
Services in accordance with this Agreement. The parties acknowledge that, for
the purposes of this Agreement, Agent is acting solely on behalf of and as the
agent for A in carrying out A 's obligations under the terms of this Agreement
and its liability in all respects shall be limited to that status and as
otherwise set forth in Article 6 herein.
Section 4.2 Term of Agreement.
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(a) The term of this Agreement shall commence as of the date of this
Agreement and terminate on .
(b) The term of this Agreement shall be extended automatically for
successive periods of one calendar year unless a party notifies the others on or
before January 31 of any calendar year (after the year ) of its desire that the
term of this Agreement shall end on December 31 of the same calendar year, and,
in that event, this Agreement shall terminate on the December 31 of that
calendar year.
Section 4.3 Control and Compliance.
(a) It is the intention of the parties that the management and
operation of the System and the Business of the Owner be in compliance with the
pertinent rules, regulations and policies of Polish law. Nothing in this
Agreement shall serve, or shall be construed to serve, to prevent or hinder the
Owner from retaining and exercising full and complete control over the System
and the Business of the Owner, including but not limited to its assets, its
policies and practices, its personnel and the advertising and broadcast on the
System. In the event that the Polish government indicates to Owner, by formal or
informal means, that any term or provision of this Agreement is objectionable
under Polish law, the parties shall promptly make reasonable efforts to modify
this Agreement to the extent necessary to remove the objection of the Polish
government.
(b) No payments shall be made under this Agreement which require the
permission of the National Bank of Poland without the receipt of such
permission.
ARTICLE 5
AUTHORITY OF A AND AGENT
Section 5.1 Grant of Authority.
A (together with its Agent or any affiliates acting on its behalf
pursuant to this Agreement) is an independent contractor respect to the Agency
Services provided in Section 3.1.
ARTICLE 6
RELEASE/INDEMNIFICATION/LIABILITY
Section 6.1 Release.
Owner releases A , Agent, their affiliates, officers, directors,
stockholders, employees, partners, joint ventures, successors and assigns, from
any loss, liability or damage which may arise as a result of or in connection
with:
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(a) any occurrence to the extent which such loss, liability or damage
is covered by fire insurance or any of the perils covered by extended coverage
or difference of condition endorsements; and/or
(b) act or omission of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners or joint
venturers,successors and assigns other than willful misconduct or gross
negligence in the conduct of its duties unless such action shall have been in
good faith reliance on the opinion of counsel.
Section 6.2 Indemnification and Liability.
(a) Owner hereby indemnifies and holds harmless A , Agent, their
successors and assigns, their affiliates, officers, directors, stockholders,
employees, partners or joint venturers (jointly and severally, "Indemnitee")
from and against all claims and liabilities, whether they proceed to judgment or
are settled, and from and against all out-of-pocket expenses incurred by the
Indemnitee which are payable to any unaffiliated third party in defense of such
claims and liabilities, including reasonable attorney's fees, to which the
Indemnitee may become subject by reason of providing the Agency Services,
General Services, or Specific Services in accordance with this Agreement,
including, without limitation: (1) the choice, manner or extent of any Services
provided; (2) the entering into contractual relationships of any sort, whether
in the name of Indemnitee or Owner, on behalf of the Owner; and (3) the filing
or failure to file reports, notices, certificates or accounting required by any
law, rule, regulation or agreement of any country, state or other governmental
authority; provided, however, that the Indemnitee shall not be indemnified or
reimbursed in relation to any matter with respect to which it shall be
determined in a final judgment by a court of competent jurisdiction that
Indemnitee's action constituted gross negligence or willful misconduct in the
conduct of its duties unless such action shall have been determined to be in
good faith reliance on the opinion of counsel.
(b) The rights accruing to the Indemnitee hereunder shall not exclude
any other right to which it may be or come to be lawfully entitled, nor shall
anything contained herein restrict the right of the Owner to reimburse any
Indemnitee, in any lawful cause, even though not specifically provided for
herein.
(c) A and Agent shall not be liable in any respect for any act or
omission on the part of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners, or joint venturers,
unless a final judgment is rendered by a court of competent jurisdiction that
such act or failure to act constitutes willful misconduct or gross negligence in
the conduct of A 's (or Agent's) duties hereunder unless such action
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<PAGE> 9
shall have been in good faith reliance on the opinion of counsel. In no event
shall the officers, directors, stockholders, or employees of A or Agent have any
individual liability in any respect for any act or failure to act under the
terms of this Agreement.
ARTICLE 7
ASSIGNMENT AND SUBORDINATION
Section 7.1 Assignment.
A or Agent may assign its rights under this Agreement to a parent,
affiliate or subsidiary of A or Agent, or as collateral security to any lending
institution providing credit to A or Agent.
Section 7.2 Assignment by Owner.
Owner may assign its rights and interest under this Agreement to any
lending or financial institution providing financing to Owner or to a new owner
of the System.
Section 7.3 Conditions to Assignment.
The following shall apply if any party assigns its interest, by law or
agreement. No assignment, other than to a lender as collateral security, shall
be effective unless and until the assignee assumes in writing or by law (i.e.,
merger or otherwise) all of the obligations of the assignor under this
Agreement. Such assignment shall not relieve the assignor of its obligations
under this Agreement.
ARTICLE 8
DEFAULTS AND DISPUTES
Section 8.1 Termination for Cause.
Owner or A or its Agent on its behalf may terminate this Agreement for
cause upon delivery of a written notice to the other parties.
(a) Owner shall have cause for termination if A or Agent shall default
in the performance of any material covenant, agreement, term or provision of
this Agreement, and the default shall continue for a period of sixty days after
written notice to A or Agent from Owner setting forth the specific default,
provided however, that if A or Agent commences to cure a default within the 60
day period but is unable to complete the cure within the 60 days despite the
exercise of reasonable diligence, A or Agent shall have the right to cure as
long as A or its Agent diligently
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prosecutes the cure thereafter.
(b) A or Agent may terminate this Agreement for cause:
(i) If the Owner shall default in the performance of any
material covenant, agreement, term or provision of this Agreement (other than as
contemplated in clause (v) below) and the default shall continue for a period of
60 days after written notice to Owner from A or Agent stating the specific
default.
(ii) If the System shall be damaged by fire or other casualty
and if the Owner fails to commence repairing, restoring, rebuilding or replacing
the portion of the System damaged or destroyed within 60 days after the fire or
other casualty, or shall fail to complete the work within a reasonable period of
time; or
(iii) If the license of or franchise for of the System cannot
be obtained or renewed, or is at any time suspended, terminated, or revoked; or
(iv) If, in the sole discretion of A or its Agent, a material
adverse change occurs or exists at any time in the Business, the System, and/or
the financial condition of Owner; or
(v) If Owner shall fail to make any material payment due
hereunder to A or Agent within 30 days after receiving written notice from A or
Agent of such failure.
In the event this Agreement is terminated for cause under one or more
of the terms of this section, all fees and payments due to A or its Agent
pursuant to this Agreement will remain payable and will be paid by Owner in
full.
Section 8.2 Disputes.
Any dispute arising under this Agreement which Owner, on the one hand,
and A or Agent, on the other hand, cannot resolve within a reasonable time shall
be resolved by arbitration by a board of three arbitrators in the United States,
one to be designated by Owner, one to be designated by A or Agent, and the third
to be designated by the first two arbitrators. The board of arbitrators shall
adopt procedures for the arbitration and, for this purpose, may adopt some or
all of the rules and regulations of the American Arbitration Association. The
cost of any arbitration shall be borne as determined by the board of
arbitrators. The decision of the board shall be in writing and shall be final
and unappealable.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Notice.
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Notices given under this Agreement shall be valid only if in writing
and properly mailed. A notice shall be properly mailed only if delivered by
overnight courier, with signature required, or if mailed by certified or
registered mail, if postage is prepaid, and if the notice if properly addressed.
A notice to a party shall be properly addressed only if addressed to the address
of the party set forth under Section 1 or to any other address the party may
designate by giving notice to the other party.
Section 9.2 Interpretation.
Captions and headings used in this Agreement are for reference only and
shall not be considered in connection with the interpretation of any provision
of this Agreement.
A male or female person may be referred to in this Agreement by a
neuter pronoun. A provision of this Agreement which requires a party to perform
an action shall be construed so as to require the party to perform the action or
to cause the action to be performed. The word "include" and variations of the
word such as "includes" and "including" shall not be construed as to limit the
generality of the statements they follow or precede and the phrase "shall not be
limited to" shall be deemed to follow every reference to the word "include" and
its variations. The singular includes the plural, and the plural includes the
singular. "Any" means "any and all".
"Notices" includes notices, consents, "approvals" and other
communications. This Agreement may not be changed or cancelled orally. No person
shall be regarded as a third party beneficiary of this Agreement.
Section 9.3 Status Reports.
Recognizing that each party may find it necessary, from time to time,
to establish to third parties, such as accountants, banks, mortgagees,
shareholders or the like, the financial status of its interest in this
Agreement, Owner and A agree to furnish, as promptly as practicable upon written
request of the other party a written statement as to the status of any matter
pertaining to this Agreement and the rights and obligations created by this
Agreement.
Section 9.4 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. The submission of an
unexecuted copy of this Agreement shall not constitute an offer to be legally
bound by the provisions of the copy submitted; and no party shall be bound by
this Agreement until it is executed by all of the parties. This Agreement may be
executed in counterparts, and each counterpart constitutes an original document.
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Section 9.5 Governing Law.
This Agreement shall be governed and construed in accordance with the
laws of the State of Connecticut.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by duly authorized representatives.
[PTK Company]
By:
------------------------------
Its:
By:
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By:
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By:
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Its:
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<PAGE> 1
EXHIBIT 10.13
POLAND COMMUNICATIONS, INC.
One Commercial Plaza
Hartford, Connecticut
06103-3585 U.S.A.
STRICTLY PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF JANUARY 1, 1997
Mr. Marek Sowa
Dzika 19/23 m. 38
00-172 Warszawa, Poland
This contract sets forth the understanding between you and Poland
Communications, Inc. (hereinafter, together with its Polish subsidiaries and
affiliates, collectively referred to as the "Company") with respect to your
employment with the Company.
1. TITLE/SALARY EMPLOYMENT INFORMATION
A. Your employment with the Company will be for a 3 year period commencing
January 1, 1997. During that period you may be expected to continue your current
employment with one of the Company's affiliates, and/or enter into additional
employment agreements with one or more of the Company's affiliates.
B. You shall hold the position of Director of Corporate Development with
respect to the cable systems constructed, acquired and operated by the Company
and its affiliates.
C. Your base gross remuneration shall amount to 64,200 U.S. Dollars
annually (hereinafter referred to as the "Base Salary"), paid either directly by
Poland Communications Inc. and/or one or more of its affiliates. The Base Salary
shall be paid in 12 equal monthly installments of 5,350 U.S. Dollars each on the
last working day of each calendar month.
If part of your Base Salary is paid in Polish Zloty, that part shall be
calculated in accordance with the average rate of exchange of U.S. Dollars
announced by the National Bank of Poland in the daily Rzeczpospolita on the last
working day immediately preceding the relevant salary payment.
The amount of your Base Salary will be subject to annual performance
evaluation in January of each year.
D. In addition to your salary, you shall be eligible to receive an annual
bonus of up to 50% (fifty per cent) of the Base Salary ("Bonus"). The criteria
to receive a Bonus or a portion thereof shall be determined by the Chief
Executive Officer of the Company.
The Bonus shall be paid out until the end of April of the following year
after drawing up the balance sheet of the Company. In the event the contract is
not renewed, your Bonus for the last period applicable shall be paid out within
one month from the last day of your employment with the Company.
You shall not be eligible for any Bonus is you leave voluntarily or are
terminated for cause, as defined in Section II(B) herein, prior to the end of
the period for which the Bonus is applicable.
E. In addition to your Base salary and Bonus, you shall be eligible for
participation in a stock option plan for the Company's executives, contingent
upon implementation of such a plan by the Company.
F. You will be provided with an automobile for your business and personal
use. Commencing January of 1997 the Company will provide you with an Opel Vectra
2.0 (with A/C) or similar vehicle.
G. Your professional development is important to the Company. It is
expected that you will be required to travel outside Poland in connection with
your duties and that you will have the opportunity to attend at least one
industry/business event outside Poland each year of your contract.
<PAGE> 2
H. You shall accrue vacation pursuant to the laws of the country of Poland.
I. The location of your office shall be in Warsaw.
II. TERM AND TERMINATION OF EMPLOYMENT
A. The term of this contract shall be for three (3) years commencing as of
January 1, 1997. However, and except as set forth in Section II(B) below, the
Company may terminate your employment upon four (4) month's written notice at
any time during the term.
B. Notwithstanding Section II(A) above, the Company may terminate your
employment at any time, without further obligation of any kind or nature, in the
event that:
(i) The Company determines in its reasonable judgment that you are
engaging or have engaged in conduct or activities injurious to the
reputation and/or affairs of the Company; and/or
(ii) That you are convicted for activity of a criminal or illegal
nature under the laws of the Country of Poland; and/or
(iii) The Company determines that you have violated any substantive
policies and procedures of the Company, or any substantive personnel,
financial or other policies and procedures established by the Company;
and/or
(iv) You have violated the Conflict of Interest policy of the Company
as referenced in Section V of this contract.
Subsections (i) through (iv) above shall be considered "termination
for cause".
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION; NON-COMPETITION.
During the term of your employment, you will acquire knowledge of
confidential and proprietary information regarding, among other things, the
Company's present and future operations, its customers and suppliers, pricing
and bidding strategies, and the methods used by the Company and its employees.
Therefore, you hereby agree to the following:
A. During your employment and after your employment ends with the Company
you will hold in a fiduciary capacity for the benefit of the Company, and shall
not directly or indirectly use or disclose any Trade Secret, as defined
hereinafter, that you may acquire during the term of your employment by the
Company for so long as such information remains a Trade Secret. The term "TRADE
SECRET" as used in this contract shall mean information including, but not
limited to, technical or non-technical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans or a list of actual or potential
customers or suppliers which:
(1) derives economic value, actual or potential from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of reasonable efforts by the Company to maintain
its confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two (2) years
after your termination/separation from the Company, you will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, any Confidential or Proprietary information, as defined
hereinafter, that you may have acquired (whether or not developed or compiled by
you and whether or not you were authorized to have access to such Information)
during the term of, in the course of or as a result of your employment by the
Company. The term "Confidential or Proprietary Information" as used in this
contract means any secret, confidential or proprietary information of the
Company not otherwise included in the definition of "TRADE SECRET" above. The
term "Confidential and Proprietary Information" does not include information
that has become generally available to the public by the act of one who has the
right to disclose such information without violating any right of the client to
which such information pertains.
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<PAGE> 3
C. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not hire or attempt to hire
for any purpose whatsoever (whether as an employee, consultant, adviser,
independent contractor or otherwise) any employee of the Company or any
affiliate thereof or any person who was an employee of the Company or any
affiliate thereof at any time during the one year period prior to the
termination of your employment.
D. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not, directly or indirectly,
for any purpose whatsoever (whether as employee, consultant, advisor,
independent contractor or otherwise) engage in or solicit the same or
substantially similar business conducted by the Company i.e. the establishment
(including the installation and marketing) of cable television or in any area in
the country of Poland where the Company and its affiliates have established or
are in the process of establishing cable television construction or operations
as of the date of your termination. As compensation for potential income lost as
a result of this provision, within one month from termination/separation of your
employment you will receive a one-time payment from the Company in the amount
that will equal the value of Company automobile in your use at the time of
termination/separation.
You agree and acknowledge that, if a violation of any covenant contained in
this Section III occurs or is threatened, such violation or threatened violation
will cause irreparable injury to the Company, that the remedy at law for any
such violation or threatened violation will be inadequate and that the Company
shall be entitled to appropriate equitable relief.
The covenants contained in this Section shall inure to the benefit of the
Company, any successor of it and every subsidiary and affiliate.
IV. REASONABLE RESTRICTIONS.
You agree and acknowledge that, to the extent required by law, the
covenants specified in Section III contain reasonable limitations as to time,
geographical area and scope of activities to be restricted and that such
covenants do not impose a greater restraint on you than is necessary to protect
the good will, confidential information and other legitimate business interests
of the Company.
V. COMPANY POLICIES: CONFLICT OF INTEREST.
You agree to execute and abide by the Company's Conflict of Interest and
Integrity Policy attached to this contract as Schedule A and made a part of this
contract.
VI. RIGHTS TO MATERIALS.
All records, files, memorandum, reports, drawings, documents, and the like
(together with all copies thereof) relating to the business of the Company,
which you will use or prepare or come into contact within the course of, or as a
result of, your employment shall, as between the parties hereto, remain the sole
property of the Company. Upon your termination/separation from the Company you
shall return all such materials to the Company and agree that you shall not
thereafter cause removal of such materials from the premises of the Company.
VII. COMPLETE AGREEMENT; RELEASE.
A. This contract contains the entire understanding of the parties with
respect to the subject matter contained herein and replaces any prior
understandings, whether written or oral, subject to execution of payments by the
Company as specified in Section VII(C) herein. This contract may not be modified
or amended in any way unless in writing and signed by you and the Chief
Executive Officer of the Company.
B. This contract is in settlement of any and all prior claims you may have
arising out of your employment with the Company or its predecessors up to the
Effective Date. In consideration for this contract, you agree to unconditionally
release the Company, its subsidiaries, divisions, affiliates and their
shareholders, director, officers, employees and agents, from any and all claims,
demands or causes of action of any kind or nature that may have arisen up
through the date you sign acceptance of this letter, including, but not limited
to any claims
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<PAGE> 4
for wages, incentives or benefits of any kind or nature; claims under local,
state or country law, statutes, regulations or ordinances; any other claims
based on any other local state or country law, statute or regulation in Poland;
any claim based on contract, express or implied; or any claim based in tort. You
acknowledge that all prior bonus or other amounts in excess of your base salary
that you have received satisfy any past claims for bonus or other compensation.
C. Based on prior employment agreements and understandings between you and
the Company, you shall receive the following amounts as compensation for
services rendered:
Ten thousand (10,000) U.S. Dollars as your 1996 annual bonus, to be
paid out by the end of April 1997.
Ten thousand (10,000) U.S. Dollars as compensation for your role in
the successful completion of the offering of senior notes by the Company,
to be paid out by the end of February 1997.
Two thousand and four hundred (2,400) U.S. Dollars as deferred portion
of your 1995 annual bonus, to be paid out by the end of March 1997.
VIII. MISCELLANEOUS PROVISIONS
A. You and the Company agree that this contract and the terms and
conditions of your employment shall be governed by the laws of the State of New
York. You and the Company agree to submit to the exclusive jurisdiction of the
courts of the State of New York for any disputes arising out of your employment
of termination of this contract.
B. If any portion of this contract is deemed invalid or unenforceable, such
determination shall not effect the validity or enforceability of the remaining
provisions of the Agreement.
C. This contract shall be terminated automatically upon the coincidentally
with your death, except for the rights and obligations of either party accrued
up to your death.
If you are in agreement with the provisions of this contract, please sign
in the space provided below. Please retain one fully executed copy for your
records.
Poland Communications, Inc.
By: /s/ ROBERT E. FOWLER III
------------------------------------
Robert E. Fowler III
Chief Executive Officer
Date: February 20, 1997
I, Marek Sowa, acknowledge that I have received this contract and I agree
to the terms and information contained herein.
By: /s/ MAREK SOWA
------------------------------------
Date: February 20, 1997
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<PAGE> 5
SCHEDULE A
CONFLICT OF INTEREST AND INTEGRITY POLICY
A. All employees of the Company must conduct their business and personal
affairs with such ethics and integrity that no conflict of interest with the
Company's business, real or implied, can be construed. A conflict of interest
shall be deemed to exist if an employee or an Affiliate (as defined in (F)
below) of the employee has any interest (including, but not limited to equity
ownership, interest arrangement, commission, gift, etc.) direct or indirect, in
a client, supplier, contractor, or other principal dealing with the Company or
its affiliates, and that interest is of such extent or nature that it might
reasonably be perceived by management to affect or tend to affect the employee's
judgment or decisions exercised on behalf of the Company.
B. An employee or any Affiliate of the employee shall not personally or on
behalf of the Company receive or be involved with any kickbacks, bribes,
gratuities, reciprocal arrangements or other improper or illegal arrangements,
or benefit personally from any rebates or discounts, with any other
organizations and personnel conducting or soliciting, currently or
prospectively, the business with the Company and its affiliates.
C. It is the Company's policy to comply with the Foreign Corrupt Practices
Act or any other similar law or regulation affecting the Company's business
which prohibits bribes, kickbacks, or any other type of illegal and unethical
business dealings. An employee of the Company shall abide by and shall not
violate any such laws or regulations and agree to conduct him/herself in
accordance with such laws. More specifically, an employee or any Affiliate of an
employee shall not permit or be involved in any direct or indirect pay, award,
commission, or other compensation to any person or organization for purposes of
improperly or illegally inducing action of any kind whatsoever.
D. Where any questionable outside business activity is contemplated, an
employee must obtain prior Company approval.
E. Any violation of this policy shall subject an employee to immediate
termination for cause.
F. For purposes of this policy, Affiliate shall include, but not be limited
to, any relative by blood or by marriage or any entity in which the employee or
any such relative may have any financial, voting, controlling and/or management
interest.
ACKNOWLEDGEMENT & REPRESENTATION OF EMPLOYEE
As an employee of the Company, I acknowledge that I have read and
understand the Company Conflict of Interest Policy, and represent that I will
abide by the terms of this Policy.
By: /s/ Marek Sowa February 20, 1997
- ----------------------------- --------------------
Marek Sowa Date
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<PAGE> 1
Exhibit 10.14
POLAND COMMUNICATIONS, INC.
One Commercial Plaza
Hartford, Connecticut
06103-3585 U.S.A.
STRICTLY PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF APRIL 7, 1997
Mr. David Warner
Millbank House
Cranbrook Road
Tenterden
Kent
TN30 8UN
This contract sets forth the understanding between you and Poland
Communications, Inc. (hereinafter, together with its Polish subsidiaries and
affiliates collectively referred to as the "Company") with respect to your
employment with the Company.
I. TITLE/SALARY EMPLOYMENT INFORMATION.
A. Your employment with the Company will be for a 5 year period commencing
April 7, 1997.
B. You shall hold the position of Chief Operating Officer with respect to
Direct-to-Home ("DTH") broadcasting.
C. Your base gross remuneration shall amount to ninety five thousand
(95,000) U.K. Pounds annually (hereinafter referred to as the "Base
Salary"), paid either directly by Poland Communications Inc. and/or one
or more of its affiliates. The Base Salary shall be paid in 12 equal
monthly installments, on the last working day of each calendar month.
The amount of your Base Salary will be subject to annual performance
evaluation in January of each year.
D. In addition to your salary, you shall be eligible to receive an annual
bonus in the amount of 45,000 U.K. Pounds ("Bonus"). The criteria to
receive the Bonus or a portion thereof shall be determined by the Chief
Executive Officer of the Company.
The Bonus shall be paid out until the end of April of the following year
after drawing up the balance sheet of the Company. In the event the
contract is not renewed, your Bonus for the last period applicable shall
be paid out within one month from the last day of your employment with
the Company.
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<PAGE> 2
You shall not be eligible for any Bonus if you leave voluntarily or are
terminated for cause, as defined in Section II (B) herein, prior to the
end of the period for which the Bonus is applicable.
E. In addition to your Base Salary and Bonus, you shall be eligible for an
additional bonus in the amount of one hundred fifty five (155,000) U.K.
Pounds upon successful completion of an initial Public Offering of common
stock of the Company or its holding company.
F. You shall receive medical and life Insurance coverage, as well as a
contribution to pension plan. The detailed terms thereof are set forth in
Schedule B hereto.
G. You shall accrue vacation pursuant to the laws of the United Kingdom.
H. The location of your office shall be in London. You shall travel for
business purposes as required.
I. Unless specifically stated otherwise, and unless you will become an
employee of a Company's UK subsidiary or affiliate, all amounts paid to
you by the Company shall be paid gross without deduction or withholding
of income taxes, social contributions or other taxes unless required by
the laws of the United States, and thereafter the Company shall have no
further liability with respect to such amounts. You shall be fully and
exclusively responsible for arranging your tax affairs with all relevant
authorities in all jurisdictions which may be applicable to you,
including (i) all tax fillings, registrations and similar declarations
required of you, and (ii) payment of all and any taxes, duties or similar
charges payable by you. The Company will attempt, wherever practicable at
no additional cost to the Company, to provide you with assistance with
regard to tax matters in the form of access to outside tax advisers or
accountants.
II. TERM AND TERMINATION OF EMPLOYMENT.
A. The term of this contract shall be for five (5) years commencing as of
April 7, 1997. However, and except as set forth in Section II (B) below,
you or the Company may terminate your employment upon six (6) month's
written notice at any time during the term.
B. Notwithstanding Section II (A) above, the Company may terminate your
employment at any time, without further obligation of any kind or nature,
in the event that:
(i) The Company determines in its reasonable judgment that you are engaging
or have engaged in conduct or activities injurious to the reputation
and/or affairs of the Company; or
(ii) That you are convicted for activity of a criminal or illegal nature under
the laws of the Country of Poland; and/or
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<PAGE> 3
(iii) The Company determines that you have violated any substantive policies
and procedures of the Company, or any substantive personnel, financial or
other policies and procedures established by the Company; and/or
(iv) You have violated the Conflict of interest policy of the Company as
referenced in Section V of this contract.
Subsections (i) through (iv) above shall be considered "termination for
cause".
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION: NON-COMPETITION.
During the term of your employment, you will acquire knowledge of
confidential and proprietary information regarding, among other things,
the Company's present and future operations, its customers and suppliers,
pricing and bidding strategies, and the methods used by the Company and
its employees. Therefore, you hereby agree to the following:
A. During your employment and after your employment ends with the Company
you will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose any Trade Secret, as
defined hereinafter, that you may acquire during the term of your
employment by the Company for so long as such information remains a Trade
Secret. The term "TRADE SECRET" as used in this contract shall mean
information including, but not limited to, technical or non-technical
date, a formula, a pattern, a compilation, a program, a device, a method,
a technique, a drawing, a process, financial data, financial plans,
product plans or a list of actual or potential customers or suppliers
which:
(1) derives economic value, actual or potential from not being generally
known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or
use; and
(2) is the subject of reasonable efforts by the Company to maintain its
confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two (2)
years after your termination/separation from the Company, you will hold
in a fiduciary capacity for the benefit of the Company, and shall not
directly or indirectly use or disclose, any Confidential or Proprietary
Information, as defined hereinafter, that you may have acquired (whether
or not developed or compiled by you and whether or not you were
authorized to have access to such information) during the term of, in the
course of or as a result of your employment by the Company. The term
"Confidential or Proprietary Information" as used in this contract means
any secret, confidential or proprietary information of the Company not
otherwise included in the definition of "TRADE SECRET" above. The term
"Confidential and Proprietary Information" does not include information
that has become generally available to
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the public by the act of one who has the right to disclose such
information without violating any right of the client to which such
information pertains.
C. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not hire or attempt to
hire for any purpose whatsoever (whether as an employee, consultant,
adviser, independent contractor or otherwise) any employee of the Company
or any affiliate thereof or any person who was an employee of the Company
or any affiliate thereof at any time during the one year period prior to
the termination of your employment.
D. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not, directly or
indirectly, for any purpose whatsoever (whether as employee, consultant,
advisor, independent contractor or otherwise) engage in or solicit the
same or substantially similar business conducted by the Company i.e.
cable television, direct-to-home television and/or television
programming, in each case related to the country of Poland. As
compensation for potential income lost as a result of this provision,
within one month from termination/separation of your employment you will
receive a one-time payment from the Company in the amount of ten thousand
(10,000) UK Pounds.
E. You agree and acknowledge that, if a violation of any covenant contained
in this Section III occurs is threatened, such violation or threatened
violation will cause irreparable injury to the Company, that the remedy
at law for any such violation or threatened violation will be inadequate
and that the Company shall be entitled to appropriate equitable relief.
F. The covenants contained in this Section shall inure to the benefit of the
Company, any successor of it and every subsidiary and affiliate.
IV. REASONABLE RESTRICTIONS.
You agree and acknowledge that, to the extent required by law, the
covenants specified in Section III contain reasonable limitations as to
time, geographical area and scope of activities to be restricted and that
such covenants do not impose a greater restraint on you than is necessary
to protect the good will, confidential information and other legitimate
business interests of the Company.
V. COMPANY POLICIES: CONFLICT OF INTEREST.
You agree to execute and abide by the Company's Conflict of Interest and
Integrity Policy attached to this contract as Schedule A and made a part
of this contract.
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VI. RIGHTS TO MATERIALS.
All records, files, memorandum, reports, drawings, documents, and the
like (together with all copies thereof) relating to the business of the
Company, which you will use or prepare or come into contact within the
course of, or as a result of, your employment shall, as between the
parties hereto, remain the sole property of the Company. Upon your
termination/separation from the Company you shall return all such
materials to the Company and agree that you shall not thereafter cause
removal of such materials from the premises of the Company.
VII. COMPLETE AGREEMENT.
This contract contains the entire understanding of the parties with
respect to the subject matter contained herein and replaces any prior
understandings, whether written or oral. This contract may not be
modified or amended in any way unless in writing and signed by you and
the Chief Executive Officer of the Company.
VIII. MISCELLANEOUS PROVISIONS.
A. You and the Company agree that this contract and the terms and conditions
of your employment shall be governed by the laws of England. You and the
Company agree to submit to the exclusive jurisdiction of the courts of
England for any disputes arising out of your employment or termination of
this contract.
B. If any portion of this contract is deemed invalid or unenforceable, such
determination shall not effect the validity or enforceability of the
remaining provisions of the Agreement.
C. This contract shall be terminated automatically upon and coincidentally
with your death, except for the rights and obligations of either party
accrued up to your death.
If you are in agreement with the provisions of this contract, please sign
in the space provided below. Please retain one fully executed copy for
your records.
Poland Communications, Inc.
By: ____________________________ Date: ____________________________
Robert E. Fowler III
Chief Executive Officer
I, David Warner, acknowledge that I have received this contract and I agree to
the terms and information contained herein.
By: ____________________________ Date: ____________________________
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SCHEDULE A
CONFLICT OF INTEREST AND INTEGRITY POLICY
A. All employees of the Company must conduct their business and personal
affairs with such ethics and integrity that no conflict of interest with
the Company's business, real or implied, can be construed. A conflict of
interest shall be deemed to exist if an employee or an Affiliate
(as defined in (F) below) of the employee has any interest (including,
but not limited to equity ownership, interest arrangement, commission,
gift, etc.) direct or indirect, in a client, supplier, contractor,
or other principal dealing with the Company or its affiliates, and that
interest is of such extent or nature that it might reasonably be
perceived by management to affect or tend to affect the employee's
judgment or decisions exercised on behalf of the Company.
B. An employee or any Affiliate of the employee shall not personally or on
behalf of the Company receive or be involved with any kickbacks, bribes,
gratuities, reciprocal arrangements or other improper or illegal
arrangements, or benefit personally from any rebates or discounts, with
any other organizations and personnel conducting or soliciting, currently
or prospectively, the business with the Company and its affiliates.
C. It is the Company's policy to comply with the Foreign Corrupt Practices
Act or any other similar law or regulation affecting the Company's
business which prohibits bribes, kickbacks, or any other type of illegal
and unethical business dealings. An employee of the Company shall abide
by and shall not violate any such laws or regulations and agree to
conduct him/herself in accordance with such laws. More specifically, an
employee or any Affiliate of an employee shall not permit or be involved
in any direct or indirect pay, award, commission, or other compensation
to any person or organization for purposes of improperly or illegally
inducing action of any kind whatsoever.
D. Where any questionable outside business activity is contemplated, an
employee must obtain prior Company approval.
E. Any violation of this policy shall subject an employee to immediate
termination for cause.
F. For purposes of this policy, Affiliate shall include, but not be limited
to, any relative by blood or by marriage or any entity in which the
employee or any such relative may have any financial, voting, controlling
and/or management interest.
ACKNOWLEDGMENT & REPRESENTATION OF EMPLOYEE
As an employee of the Company, I acknowledge that I have read and understand the
Company Conflict of Interest Policy, and represent that I will abide by the
terms of the Policy.
By: _______________________ ________________________
David Warner Date
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Exhibit 10.15
STOCK OPTION AGREEMENT BETWEEN
DAVID WARNER
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made effective as
of June 23, 1997 (the "Effective Date"), by and between David Warner ("Warner")
and @ Entertainment, Inc., a Delaware corporation (the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Warner an option (the "Option") to
purchase one hundred thirty one thousand (131,000) shares (the "Shares") of
the Company's common stock (the "Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be fifteen
dollars and twenty-four cents (U.S. $15.24) per share.
b. The option to purchase twenty-six thousand two hundred (26,200)
of these Shares will vest each year on the anniversary date of the Effective
Date beginning with the first anniversary of the Effective Date, provided,
however, that no portion of such option shall vest after the date (the "Cut-Off
Date") that is the earlier of (i) the date that the Employment Agreement (as
described in Section 16 of this Agreement) is terminated, and (ii) the date on
which the Company send Warner a notice referred to in Section II of the
Employment Agreement.
c. If Warner's employment with the Company is terminated for any
reason, Warner shall have only sixty (60) days after the Cut-Off Date to
exercise that portion of the Option that has vested as of the Cut-Off Date, and
Warner shall have no right to exercise any portion of the Option that has not
then vested.
d. Notwithstanding any other provision of this Option Agreement,
the Option shall expire and be of no further force or effect with respect to
any Shares on the earlier to occur of (i) the tenth anniversary of the
Effective Date or (ii) sixty days after the date that Warner ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Warner's death, disability, voluntary termination or involuntary termination).
e. Each exercise of the Option shall reduce, by an equal number
the total number of shares of Company Common Stock that may thereafter be
purchased by Warner under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
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3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by gifts in
trust to family members, will or by the laws of descent and distribution during
the option period described in Section 1). This Option is not assignable by
operation of law or subject to execution, attachment or similar process. During
Warner's lifetime, the Option can only be exercised by Warner. Any attempted
sale, pledge, assignment, hypothecation or other transfer of the Option or any
interest therein contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon the Option or any interest
therein shall be null and void and without force or effect. No transfer of the
Option by gift in trust to a family member, by will or by the laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished written notice thereof executed by the trustee(s) of a
trust established for a family member or the personal representative of the
estate of Warner which shall be accompanied by an authenticated copy of the
documents appointing such trustee(s) or of the letters testamentary appointing
such personal representative, or such other evidence as the Company may deem
reasonably necessary to establish the validity of the transfer, and also
evidence as the Company may deem reasonably necessary to establish the
acceptance by the transferee or transferees of the terms and conditions of the
Option. The terms of the Option transferred by will or by the laws of descent
and distribution shall be binding upon the executors, administrators, heirs and
successors of Warner. The terms of the Option transferred in trust shall be
binding upon the trustee(s) of such trust.
4. Adjustment to the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The reasonable
determination of the Company regarding any adjustment will be final and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of the Shares.
5. Restrictions on Transfer of the Shares.
a. For as long as Warner is an employee of the Company or
any Associated Company (as that term is used in the Employment Agreement that
is described in Section 16 of this Option Agreement;), Warner shall not
transfer any Shares to any person or entity other than the Company, unless such
shares shall have been registered pursuant to a Public Offering.
b. After Warner is no longer an employee of the Company
or any Associated Company and provided further that such shares shall not have
been registered pursuant to a Public Offering, Warner shall not sell, encumber,
pledge, transfer, hypothecate, assign or otherwise dispose of any of the Shares
until Warner shall have first offered to sell such Shares to the Company (the
"Offer") in accordance with the following provisions.
c. The Offer made pursuant to Subsection (b) above shall
be in writing, and shall state that Warner offers to sell to the Company a
specified number of the Shares owned by Warner. For every Offer of the
shares pursuant to Subsection (b) above, the Company shall have a period of
fifteen (15) days from the time of receiving the Offer to accept it; such
acceptance shall be in writing and shall be sent to Warner.
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<PAGE> 3
d. The purchase price of any of the Shares sold pursuant to the
provisions of Subsection (b) above shall be equal to the price offered to
Warner for such shares by a bona fide third party purchaser, as evidenced by a
written offer to purchase executed by such third party. The purchase price
shall be paid to Warner in cash within fifteen (15) days of the Company's
acceptance of the Offer. If any of the Shares which are offered for purchase
pursuant to the provisions of Subsection (c) above are not accepted for
purchase by the Company within the time limitations described in Subsection
(c), Warner may transfer such shares to such bona fide third party purchaser in
accordance with the terms of such purchaser's offer to purchase referred to in
this Subsection (d).
e. As a condition to the transfer of any of the shares issued
pursuant to this Option Agreement, the Company may require an opinion of
Counsel, reasonably satisfactory to the Company, to the effect that such
transfer will not be in violation of the Securities Act of 1933, as amended
(such Act, or any similar Federal statute then in effect, being hereinafter
referred to as the "Act"), or any other applicable securities laws, rules or
regulations, or that such transfer has been registered under Federal and all
other applicable securities laws.
f. Unless and until the Company shall have received a legal
opinion described in subparagraph (e) hereof, all certificates evidencing any
of the Shares, whether upon initial issuance or any transfer thereof, shall
bear the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER
SECURITIES LAWS, AND THEREFORE CANNOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED UNLESS THEY ARE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND UNDER ALL OTHER APPLICABLE SECURITIES LAWS,
OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF THAT CERTAIN STOCK OPTION AGREEMENT, EFFECTIVE AS OF JUNE
23, 1997, BETWEEN DAVID WARNER AND @ ENTERTAINMENT, INC., A COPY OF
WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF @ ENTERTAINMENT, INC.
6. No Stock Rights.
Warner shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have
any of the rights of a stockholder of the Company with respect to any Shares,
unless and until Warner has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve and
keep available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
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<PAGE> 4
b. The Company covenants that all Shares will, upon issuance in
accordance with the terms of this Agreement, be duly authorized, fully paid and
non-assessable.
8. Lock-Up Agreement.
a. Agreement. During the term of this Option Agreement, Warner, if
requested by the Company and the lead underwriter of any public offering of the
Common Stock or other securities of the Company (the "Lead Underwriter"),
hereby irrevocably agrees not to sell, contract to sell, grant any option to
purchase, transfer the economic risk of ownership in, make any short sale of,
pledge or otherwise transfer or dispose of any interest in any Common Stock or
any securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (except Common Stock included in
such public offering or acquired on the public market after such offering)
during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act of 1933, as amended, or
such shorter period of time as the Lead Underwriter shall specify. Warner
further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock or such other
securities subject until the end of such period. The Company and Warner
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period
thereafter, is an intended beneficiary of this Section 8.
9. Registration Rights.
a. Incidental Rights. If the Company at any time proposes to file
with the Securities and Exchange Commission (the "Commission") on its behalf
and/or on behalf of any of its security holders (the "demanding security
holders") a Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act") on any form (other than a Registration Statement on Form
S-4 or S-8 or any successor form for securities to be offered in a transaction
of the type referred to in Rule 145 under the Securities Act or to employees of
the Company pursuant to any employee benefit plan , respectively) for the
general registration of securities to be sold for cash with respect to its
Common Stock or any other class of equity securities (as defined in Section
3(a)(11) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of the Company, it will give written notice to Warner at least sixty
(60) days before the initial filing with the Commission of such Registration
Statement, which notice shall set forth the intended method of disposition of
the securities proposed to be registered by the Company and the intended price
range if known. The notice shall offer to include in such filing the aggregate
number of Shares as Warner may request.
Warner shall advise the Company in writing within thirty (30) days
after the date of receipt of such offer from the Company, setting forth the
amount of such Shares for which registration is requested. The Company shall
thereupon include in such filing the number of Shares for which registration is
so requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such Shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that,
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<PAGE> 5
in its opinion, the distribution of the Shares requested to be included in the
registration concurrently with the securities being registered by the Company
or such demanding security holder would materially and adversely affect the
distribution of such securities by the Company or such demanding security
holder, then Warner shall reduce the amount of securities he intended to
distribute through such offering on a pro rata basis with all other
shareholders requesting registration of a specified number of their shares
(other than any demanding security holder who initially requested such
registration) based on the number of shares Warner requested to be registered
divided by the total number of shares requested to be registered which are
subject to decrease pursuant to this sentence, multiplied by the total number
of such shares as the managing underwriter approves to be registered. Except as
otherwise provided in Section 9(c), all expenses of such registration shall be
borne by the Company.
b. Registration Procedures. If the Company is required by the
provisions of this Section 9 to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause
such Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by Warner, but not to exceed
one hundred eighty (180) days.
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by such Registration
Statement until the earlier of such time as all of such securities have been
disposed of in a public offering or the expiration of one hundred eighty (180)
days.
(iii) furnish to Warner such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as Warner may reasonably request; and
(iv) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions within the United States and Puerto Rico as Warner
shall reasonably request (provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any jurisdiction in which it is not then qualified or to file any general
consent to service of process), and do such other reasonable acts and things as
may be required of it to enable Warner to consummate the disposition in such
jurisdiction of the securities covered by such Registration Statement.
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<PAGE> 6
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 9 in respect of the securities which
are to be registered at the request of Warner that Warner shall furnish to the
Company such information regarding the securities held by Warner and the
intended method of disposition thereof as the Company shall reasonably request
and as shall be required in connection with the action taken by the Company.
c. Expenses. All expenses incurred in complying with Section 9,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdiction pursuant to this Section 9,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Warner; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Warner in connection with any registration.
d. Indemnification and Contribution.
(i) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Section 9, the Company shall indemnify and
hold harmless Warner, against any losses, claims, damages or liabilities, joint
or several, to which Warner may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (1)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (2)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse Warner for any legal or any other expenses reasonably incurred by
Warner in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or
alleged omission made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement; in reliance upon and in conformity with
written information regarding Warner or his stock furnished to the Company by
Warner specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Warner, and shall survive the
transfer of such securities by Warner.
(ii) Warner by acceptance hereof, agrees to indemnify and hold
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law,
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<PAGE> 7
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information regarding Warner or his
stock in writing provided to the Company by Warner specifically for use in the
following documents and contained, on the effective date thereof, in any
Registration Statement under which securities were registered under the
Securities Act at the request of Warner, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto.
(iii) If the indemnification provided for in this Section 9
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, labilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by such
indemnifying party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
included any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
(iv) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10. Representations and Warranties of Warner. In order to induce the
Company to accept this Option Agreement, Warner hereby represents and warrants
to the Company as follows:
a. Warner has received no solicitation or general advertisement
concerning the Company, but rather has become knowledgeable regarding the
business of the Company through personal interaction with the Company.
b. Warner confirms that no representations or warranties have been
made to Warner regarding the Company and that Warner has not relied upon any
representation or warranty in making or confirming this Option Agreement.
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<PAGE> 8
c. Warner has the ability to bear the economic investment, and can
afford a complete loss of his investment, with respect to the Option and to
the Shares.
d. Warner, either by himself or together with his purchase
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. Warner is accepting the Option, and will be purchasing the
Shares, for investment purposes, for Warner's own account and not with a view
to, or for sale in connection with, the distribution thereof.
f. Warner is familiar with the nature of, and the risks attending,
investments in securities such as the Option and the Shares, and he has
determined that the acceptance of the Option and the purchase of the Shares is
and will be consistent with his investment objectives.
g. Warner has been advised and understands that an investment in
the Option and in the Shares is speculative and involves a high degree of risk.
h. Warner has no reason to anticipate any change in his personal
circumstances, financial or otherwise, which may cause or require sale or
distribution by him of all or any part of the Option or the Shares.
i. Warner confirms that he has been given an opportunity to make
any inquiries of the Company and its representatives that he desires to make.
j. Warner is at least twenty-one (21) years of age.
k. Warner is aware of and understands the following:
(i) The business of the Company and the risks inherent in that
business;
(ii) That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the Option
or in the Shards or any recommendation or endorsement of the Option or of the
Shares;
(iii) That the Option and the Shares have not been registered
for sale under the Securities Act of 1933, as amended, or under any state "Blue
Sky Law"; and
(iv) That there are substantial restrictions on the
transferability of the Option and of the Shares; there is no public market, and
there will not necessarily be any public market, for the Option or the Shares
in the United States; Warner will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act of 1933, as amended, unless all of the conditions of Rule
144 are met, and accordingly, Warner may have to hold the Option and the Shares
nand bear the economic risk of this investment for an indefinite period.
(l). If in the future Warner desires to offer or dispose of the
Option or any of the Shares or any interest therein, he will do so only in
compliance with applicable securities laws and this Option Agreement.
m. Warner understands and agrees that the Company has no
obligation to complete any public or private offering and sale of its Common
Stock to other investors, and
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<PAGE> 9
that the Company shall have no liability to Warner if it cannot complete any
such offering and sale upon terms which, in the Company's sole discretion, are
favorable to the Company.
n. Warner acknowledges that there may be restrictions
under the securities laws of the jurisdiction(s) in which he resides on the
sale of the Shares he obtains on exercise of the Option, and that he should
seek legal assistance before proceeding with the purchase or sale of said
Shares.
o. Warner agrees that the representations and warranties
of Warner set forth in this Section 10 shall survive the exercise of the Option
and the termination or expiration of this Option Agreement for a period of six
months.
11. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
12. Benefit.
This Option Agreement shall be binding upon the Company, Warner, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Warner in furtherance thereof may execute a will directing
Warner's executor to perform this Option Agreement and to execute all documents
necessary to effectuate the purposes of the Option Agreement, but the failure
to execute such a will shall not affect the rights of the Company or the
obligations of Warner's estate as provided in this Option Agreement. Nothing in
this Option Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto, any rights or remedies under or by
reason of this Option Agreement.
13. Specific Performance.
a. The parties to this Option Agreement hereby agree that
an award of damages alone is inadequate to remedy a breach of terms of this
Option Agreement and that specific performance, injunctive relief or other
equitable remedy is the only way by which the intent of this Option Agreement
may be adequately realized upon breach by one or more of the parties. Such
remedy shall, however, be cumulative and not exclusive, and shall be in addition
to any other remedy which the parties may have.
b. In furtherance of and not in limitation of the
foregoing, should any dispute arise concerning a sale, purchase, encumbrance,
pledge, transfer, hypothecation, assignment or other disposition of the Option
or any of the Shares which is alleged to contravene the provisions of this
Option Agreement, an injunction may be issued restraining any such transaction
pending the determination of such controversy.
14. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
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<PAGE> 10
15. Notice.
a. All notices required to be given under the terms of
this Agreement or which any of the Parties may desire to give hereunder shall
be in writing and delivered personally or sent by express delivery, by
facsimile, or by registered or certified mail with proof of receipt, postage
and expenses prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Cheryl A. Chase
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U.S.A.
Facsimile: (202) 452-7074
If to Warner:
David Warner:
[
U.S.A.
Facsimile: ()]
b. Notice given in accordance with this Section 15 shall
be deemed to have been given when delivered personally, or when received if
sent via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
16. Entire Agreement. This Option Agreement is subject to that
certain Employment Agreement between Warner and Poland Communications, Inc.,
which was assigned to the Company as of June 23, 1997, and in the event of a
conflict between them, the provisions of the Employment Agreement shall
prevail. Except as provided in the foregoing sentence, this Option Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by writing executed by all of the
parties.
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17. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
18. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions
hereof.
19. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
/s/ Robert E. Fowler, III
By: _______________________________
Robert E. Fowler, III
Its: Chief Executive Officer
__________________________________
David Warner
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<PAGE> 1
Exhibit 10.16
@ ENTERTAINMENT, INC.
1997 STOCK OPTION PLAN
1. PURPOSE.
The purpose of the @ ENTERTAINMENT, INC. 1997 Stock Option
Plan (the "Plan") is to advance the interests of the Corporation and its
shareholders by providing a means by which the Corporation and its Subsidiaries
shall be able to attract and retain qualified employees and consultants.
2. DEFINITIONS.
(a) "Affiliate" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain,
owns at least 50% of the total voting power of one of the other corporations.
(b) "Board" shall mean the Board of Directors of the
Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee appointed by the
Board to administer the Plan, or if no such committee is appointed, the Board.
(e) "Common Stock" shall mean the voting common stock of
the Corporation.
(f) "Consultant" shall mean any person who, or any employee
of any firm which, is engaged by the Company or any Affiliate to render
consulting services.
(g) "Corporation" shall mean @ ENTERTAINMENT, INC., a
Delaware corporation.
(h) "Effective Date" shall mean June 22, 1997.
(i) "Employee" shall mean any individual who is treated as
an employee on the applicable payroll/employment records of the Corporation or
Affiliate at the relevant time. For purposes of the Plan and only for purposes
of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive
Stock Options, a Consultant of the Corporation or any Affiliate shall be deemed
to be an Employee, and service as a Consultant with the Corporation or any
Affiliate shall be deemed to be employment, but no Incentive Stock Option shall
be granted to a Consultant who is not an employee of the Corporation or any
Affiliate within the meaning of Section 3401 of the Code and the regulations
thereunder. In the case of a Consultant, the provisions governing
<PAGE> 2
when a termination of employment has occurred for purposes of the Plan shall be
set forth in the written stock option agreement between the Optionee and the
corporation, or, if not so set forth, the Committee shall have the discretion to
determine when a termination of "employment" has occurred for purposes of the
Plan.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(k) "Exercise Price" shall mean the price per Share at which an
Option may be exercised, as determined by the Committee and as specified in
the Optionee's stock option agreement.
(l) "Fair Market Value" shall mean the value of one Share of Common
Stock, determined as follows: (i) if the Shares are traded on an exchange or on
the Nasdaq National Market System, the reported "closing price" on the date of
valuation or if no trading occurred on such date, the next preceding day on
which trading occurred; (ii) if the Shares are traded over-the-counter on the
NASDAQ System (other than on the NASDAQ National Market System), the mean
between the bid and the ask prices on said System at the close of business on
the date of valuation; or if no trading occurred on such date, the next
preceding day on which trading occurred; and (iii) if neither (i) nor (ii)
applies, the fair market value as determined by the Committee in good faith.
Such determination shall be conclusive and binding on all persons.
(m) "Incentive Stock Option" shall mean an Option of the type
described in Section 422(b) of the Code.
(n) "Nonstatutory Stock Option" shall mean an Option of the type
not described in Section 422(b) or 423(b) of the Code.
(o) "Option" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(p) "Optionee" shall mean any person who holds an Option pursuant
to the Plan.
(q) "Plan" shall mean this stock option plan as it may be amended
from time to time.
(r) "Purchase Price" shall mean at any particular time the Exercise
Price times the number of Shares for which an Option is being exercised.
(s) "Share" shall mean one share of authorized Common Stock.
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<PAGE> 3
3. ADMINISTRATION.
(a) The Committee.
The Plan shall be administered by a Committee appointed by the
Board. To the extent the Board deems it desirable for the Option to constitute
performance based compensation pursuant to Code Section_162(m), the Committee
shall consist on not less than two numbers, each of whom is an "outside
director" as defined in Code Section_162(m). To the extent the Board deems it
desirable for the Committee to satisfy the requirements for disinterested
administration under Rule_16b-3 under the Exchange Act, the Committee shall
consist of not less than two members, each of whom is a "nonemployee director"
as defined in Rule_16b-3.
(b) Powers of the Committee.
Subject to the provisions of the Plan, the Committee shall have
the authority, in its discretion and on behalf of the Corporation:
(i) to grant Options;
(ii) to determine the Exercise Price per Share of
Options to be granted;
(iii) to determine Employee status and the Employees to
whom, and the time or times at which, Options shall be granted and the number
of Shares for which an Option will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and
regulations relating to the Plan;
(vi) to determine the terms and provisions of each
Option granted and, with the consent of the holder thereof, modify or amend
each Option;
(vii) to accelerate or defer, with the consent of the
Optionee, the exercise date of any Option;
(viii) to authorize any person to execute on behalf of
the Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;
(ix) with the consent of the Optionee, to reprice,
cancel and regrant, or otherwise adjust the Exercise Price of an Option
previously granted by the Committee; and
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(x) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
(c) Committee's Interpretation of the Plan.
The interpretation and construction by the Committee of
any provision of the Plan or of any Option granted hereunder, as well as any
determination made by the Committee pursuant to Section_3(b), shall be final
and binding on all parties claiming an interest in an Option granted under the
Plan. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option.
(d) Delegation by Committee
Subject to the provisions of the Plan, the Committee
shall have the authority, in its discretion and on behalf of the Corporation,
to delegate the following powers to any individual or individuals with respect
to the granting of Options to those Employees who are not subject to the
short-swing profit rules of Section 16 of the Exchange Act;
(i) The power to grant Options;
(ii) The power to determine Employee status and the
Employees to whom and the time or times at which Options shall be granted and
the number of Shares for which an Option will be exercisable; and
(iii) The power to determine the Exercise Price per
Share of Options to be granted.
In delegating its powers hereunder, the Committee may place any restrictions it
deems appropriate on the delegatee(s). Any delegation of power under this
Section shall be valid until it expires by its own terms, until revoked by the
Committee, or until revoked by the Board, whichever first occurs.
4. PARTICIPATION.
(a) Eligibility.
The Optionees shall be such persons as the Committee
may select from among the Employees, provided that Consultants are not eligible
to receive Incentive Stock Options.
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(b) Ten Percent Shareholders.
Any Employee who owns Stock possessing more than 10% of
the total combined voting power of all classes of outstanding stock of the
Corporation or any Affiliate shall not be eligible to receive an Incentive Stock
Option unless:
(i) the Exercise Price of the Shares subject to such
Option when granted is at least 110% of the Fair Market Value of such Shares,
and
(ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant.
(c) Stock Ownership.
For purposes of Paragraph 4(b), in determining stock
ownership, an Employee shall be considered as owning the stock owned, directly
or indirectly, by or for his or her brothers and sisters, spouse, ancestors, and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust shall be considered as being owned
proportionately by or for its shareholders, partners, or beneficiaries,
respectively. Stock with respect to which such Employee or any other person
holds an option shall be disregarded.
(d) Outstanding Stock.
For purposes of Section 4(b), the term "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant of the Option to the Optionee but shall not include any share for
which an Option is exercisable by any person.
5. STOCK
(a) Shares Subject to This Plan.
The aggregate number of Shares which may be issued upon
exercise of Options under the Plan shall not exceed 2,436,000 shares, subject to
adjustment pursuant to Section 9 hereof.
(b) Options Not to Exceed Shares Available.
The number of Shares for which an Option is exercisable
at any time shall not exceed the number of Shares remaining available for
issuance under the Plan. If any Option expires or is terminated, the number of
Shares for which such Option was exercisable may be made exercisable pursuant
to other Options under the Plan. The limitations established by this
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Section 4(b) shall be subject to adjustment in the manner provided in Section 9
hereof upon the occurrence of an event specified therein.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreements.
Options shall be evidenced by written stock option
agreements between the Optionee and the Corporation in such form as the
Committee shall from time to time determine. No Option or purported Option
shall be a valid and binding obligation of the Corporation unless so evidenced
in writing.
(b) Number of Shares.
Each stock option agreement shall state the number of
Shares for which the Option is exercisable and shall provide for the adjustment
thereof in accordance with Section 9 hereof. The maximum number of shares with
respect to which options may be granted to any one Optionee, in the aggregate
in any calendar year, shall not exceed 1,500,000 Shares.
(c) Vesting.
An Optionee may not exercise his or her Option for any
shares until the Option, in regard to such Shares, has vested. Each stock
option agreement shall include a vesting schedule which shall show when the
Option becomes exercisable. The besting schedule shall not impose upon the
Corporation or any Affiliate any obligation to retain the Optionee in its
employ or under contract for any period or otherwise change the
employment-at-will status of an Optionee who is an employee of the Corporation
or any Affiliate.
(d) Lapse of Options.
Each stock option agreement shall state the time or
times when the Option covered thereby lapses and becomes unexercisable in part
or in full. An Option shall lapse on the earliest of the following events
(unless otherwise determined by the Committee and reflected in an option
agreement):
(i) The tenth anniversary of the date of granting
the Option;
(ii) The first anniversary of the Optionee's death;
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(iii) The first anniversary of the date the Optionee ceases
to be an Employee due to total and permanent disability, within the meaning of
Section 22(e)(3) of the Code;
(iv) On the date provided in Section 6(h)(i), unless with
respect to a Nonstatutory Stock Option, the Committee otherwise extends such
period before the applicable expiration date;
(v) On the date provided in Section 9 for a transaction
described in such Section;
(vi) The date the Optionee files or has filed against him or
her a petition in bankruptcy; or
(vii) The expiration date specified in an Optionee's stock
option agreement.
(e) Exercise Price.
Each stock option agreement shall state the Exercise Price for
the Shares for which the Option is exercisable. Subject to Section 4(b), the
Exercise Price of an Incentive Stock Option and a Nonstatutory Stock Option
shall, when granted, be not less than 100% and 85% of the Fair Market Value of
the Shares for which the Option is exercisable, respectively, and not less than
the par value of the Shares.
(f) Medium and Time of Payment.
The Purchase Price shall be payable in full in cash upon the
exercise of an Option but the Committee, in its sole discretion, may allow the
Optionee to pay the Purchase Price:
(i) by surrendering Shares in good form for transfer, owned
by the Optionee and having a Fair Market Value on the date of exercise equal to
the Purchase Price;
(ii) by delivery of a full recourse promissory note ("Note")
made by the Optionee in the amount of the Purchase Price, bearing interest,
compounded semiannually, at a rate not less than the rate determined under
Section 7872 of the Code to insure that no "foregone interest" as defined in
such section, will accrue, together with the delivery of a duly executed
standard form security agreement securing the Note by a pledge of the Shares
purchased; or
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(iii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law Code as long as the sum of the cash so paid, the
Fair Market Value of the Shares so surrendered, and the amount of any Note
equals the Purchase Price.
The Committee or a stock option agreement may prescribe
requirements with respect to the exercise of Options, including the submission
by the Optionee of such forms and documents as the Committee may require and,
the delivery by the Optionee of cash sufficient to satisfy applicable
withholding requirements. The Committee may vary the exercise requirements and
procedures from time to time to facilitate, for example, the broker-assisted
exercise of Options.
(g) Nontransferability of Options.
During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee or the Optionee's conservator or legal
representative and shall not be assignable or transferable except as defined by
the Code. In the event of the Optionee's death, the Option shall not be
transferable by the Optionee other than by will or the laws of descent and
distribution.
(h) Termination of Employment Other than by Death or Disability.
(i) If an Optionee ceases to be an Employee for any reason
other than his or her death or disability, the Optionee shall have the right,
subject to the provisions of this Section 6, to exercise any Option held by the
Optionee at any time within ninety (90) days after his or her termination of
employment, but not beyond the otherwise applicable term of the Option and only
to the extent that on such date of termination of employment the Optionee's
right to exercise such Option had vested.
(ii) For purposes of this Section 6(h), the employment
relationship shall be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the
case of an Incentive Stock Option, employment shall be deemed to terminate on
the date the Optionee's reemployment rights are guaranteed by applicable law or
contract.
(i) Death of Optionee.
If an Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised an Option
under Section 6(h), any
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Option granted to the Optionee may be exercised, to the extent it had vested at
the time of death and subject to the Plan, at any time within 12 months after
the Optionee's death, by the executors or administrators of his or her estate
or by any person or persons who acquire the Option by will or the laws of
descent and distribution, but not beyond the otherwise applicable term of the
Option.
(j) Disability of Optionee.
If an Optionee ceases to be an Employee due to becoming totally
and permanently disabled within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee or its delegate in its sole discretion, any Option
granted to the Optionee may be exercised to the extent it had vested at the
time of cessation and, subject to the Plan, at any time within 12 months after
the Optionee's termination of employment, but not beyond the otherwise
applicable term of the Option.
(k) Rights as a Shareholder.
An Optionee, or a transferee of an Optionee, shall have no
rights as a shareholder of the Corporation with respect to any Shares for which
his or her Option is exercisable until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends,
ordinary or extraordinary or whether in currency, securities, or other
property, distributions, or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 9
hereof.
(l) Modification, Extension, and Renewal of Options.
Within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options or accept the cancellation of outstanding
Options for the granting of new Options in substitution thereof.
Notwithstanding the preceding sentence, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option previously granted.
(m) Options for Nonresident Aliens and Certain Employees Employed
Outside the United States.
The Committee shall be free to adopt sub-plans or to modify the
terms and conditions of Options relating to nonresident alien Employers or
Employees employed outside the United States or by Affiliates not incorporated
in the United States. Such sub-plans or modification shall contain such terms
and conditions as the Committee in its discretion deems necessary or desirable
to facilitate compliance with local laws or to achieve favorable tax or legal
results.
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(n) Other Provisions.
The stock option agreements authorized under the Plan may
contain such other provisions which are not inconsistent with the terms of the
Plan, including, without limitation, restrictions upon the exercise of the
Option, as the Committee shall deem advisable.
7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs.
To the extent that the Fair Market Value of Shares (determined for each
Share as of the date of grant of the Option covering such Share) subject to
Options granted under this Plan (or any other plan of the Corporation or any
Affiliate) which are designated as Incentive Stock Options and which become
exercisable by an Optionee for the first time during a single calendar year
exceeds $100,000, the Option(s) (or portion thereof) covering such Shares shall
be recharacterized (to the extent of such excess over $100,000) as a
Nonstatutory Stock Option. In determining which Option(s) shall be treated as
Nonstatutory Stock Options under the preceding sentence, the Options shall be
taken into account in the order granted, with the result that a later granted
Option shall be recharacterized as a Nonstatutory Stock Option prior to such
recharacterization of a previously granted Option.
8. TERM OF PLAN.
Options may be granted pursuant to the Plan until ten years following
the Effective Date, and all Options which are outstanding on such date shall
remain in effect until they are exercised or expire by their terms. The Plan
shall expire for all purposes on the date 20 years following the Effective
Date.
9. RECAPITALIZATION, TAKEOVERS AND LIQUIDATIONS.
(a) Reorganizations.
The number of Shares covered by the Plan, as provided in
Section 5 hereof, and the number of Shares for which each Option is exercisable
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from the payment of a Common Stock dividend, a stock
split, a reverse stock split or any other event which results in an increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation, and the Exercise Price shall be
proportionately increased in the event the number of Shares subject to such
Option are decreased and shall be proportionately decreased in the event the
number of Shares subject to such Option are increased. For the purposes of this
paragraph, conversion of any convertible securities of the Corporation shall
not be deemed to have been "effected without receipt of consideration."
Adjustments shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided
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herein, no issuance by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Liquidation.
In the event of the dissolution or liquidation of the
Corporation, each Option shall terminate immediately prior to the consummation
of such action. The Committee shall notify the Optionee not less than fifteen
(15) days prior to the proposed consummation of a pending dissolution or
liquidation, and the Option shall be exercisable as to all Shares which are
vested prior to expiration until immediately prior to the consummation of such
action.
(c) Merger.
In the event of (i) a proposed merger of the
Corporation with or into another corporation, as a result of which the
Corporation is not the surviving corporation and (ii) the Option is not assumed
or an equivalent option substituted by the successor corporation or a parent or
subsidiary of the successor corporation, then in such case each Option shall
terminate immediately prior to the consummation of such transaction. The
Committee shall notify the Optionee not less than fifteen (15) days prior to
the proposed consummation of such transaction, and the Option shall be
exercisable as to all Shares which are vested prior to expiration and until
immediately prior to the consummation of such transaction.
(d) Determination by Committee.
All adjustments described in this Section 9 shall be
made by the Committee, whose determination shall be conclusive and binding on
all persons.
(e) Limitation on Rights of Optionee.
Except as expressly provided in this Section 9, no
Optionee shall have any rights by reason of any payment of any stock dividend,
stock split or reverse stock split or any other increase or decrease in the
number of shares of stock of any class, or by reason of any reorganization,
consolidation, dissolution, liquidation, merger, exchange, split-up or reverse
split-up, or spin-off of assets or stock of another corporation. Any issuance
by the Corporation of Shares, Options or securities convertible into Shares or
Options shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of the Shares for which an Option
is exercisable. Notwithstanding the foregoing, if the Corporation shall enter
into a transaction affecting the Corporation's capital stock or distributions
to the holders of its capital stock for which a revision in the terms of each
Option is not required pursuant to this Section 9, the Committee shall have the
right, but not the obligation, to revise the terms of each
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Option in a manner the Committee, in its sole discretion, deems fair and
reasonable given the transaction involved. If necessary or appropriate in
connection with such transaction, the Committee may declare that any Option
shall terminate as of a date fixed by the Committee and give each Optionee the
right to exercise his Option in whole or in part, including exercise as to
Shares to which the Option would not otherwise be exercisable.
(f) No Restriction on Rights of Corporation.
The grant of the Option shall not affect or restrict in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve, liquidate, sell, or
transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
(a) Registration.
The Corporation shall not be under any obligation to
issue any Shares upon the exercise of any Option unless and until the
Corporation has determined that: (i) it and the Optionee have taken all actions
required to register the Shares under the Securities Act of 1933, or to
perfect an exemption from the registration requirements thereof; (ii) any
applicable listing requirement of any stock exchange on which the Common Stock
is listed has been satisfied; and (iii) all other applicable provisions of
state, Federal and foreign law have been satisfied.
(b) Market Standoff Agreement.
By acceptance of an Option, each Optionee agrees that
if so requested by the Corporation or any representative of the underwriters in
connection with any registration of any securities of the Corporation under the
Act, Optionee shall not sell or otherwise transfer any of the Shares or other
securities of the Corporation during the period requested by the Corporation or
the representative of the underwriters, as the case may be. Each Optionee
agrees that the Corporation may impose stop-transfer instructions with respect
to the securities subject to the foregoing restrictions.
11. EXERCISE OF INVESTED OPTIONS.
The Committee may grant any Optionee the right to exercise any
Option prior to the complete vesting of such Option. Without limiting the
generality of the foregoing, the Committee may provide that if an Option is
exercised prior to having completely vested, the Shares issued upon such
exercise shall remain subject to vesting at the same rate as under the Option so
exercised and shall be subject to a right, but not an obligation, of repurchase
by the
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Corporation with respect to all invested Shares if the Optionee ceases to be an
Employee for any reason. For the purposes of facilitating the enforcement of
any such right of repurchase, at the request of the Committee, the Optionee
shall enter into the Joint Escrow Instructions with the Corporation and deliver
every certificate for his or her unvested Shares with a stock power executed in
blank by the Optionee and by the Optionee's spouse, if required for transfer.
12. AMENDMENT OF THE PLAN.
The Board or the Committee may, from time to time, terminate, suspend
or discontinue the Plan, in whole or in part, or revise or amend it in any
respect whatsoever including, but not limited to, the adoption of any
amendment(s) deemed necessary or advisable to qualify the Options under rules
and regulations promulgated by the Securities and Exchange Commission with
respect to Employees who are subject to the provisions of Section 16 of the
Securities Exchange Act of 1934, as amended, or to correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any Option
granted thereunder, without approval of the shareholders of the Corporation,
but without the approval of the Corporation's shareholders, no such revision or
amendment shall:
(i) Increase the number of Shares subject to the Plan,
other than any increase pursuant to Section 9;
(ii) Materially modify the requirements as to eligibility
for receipt of an Incentive Stock Option;
(iii) Materially increase the benefits accruing to Optionees
receiving Incentive Stock Options under the Plan;
(iv) Extend the term of the Plan; or
(v) Amend this Section to defeat its purpose.
13. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general corporate
purposes.
14. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of all classes of the outstanding shares present and
entitled to vote at the first meeting of shareholders of the Corporation
following the adoption of the Plan or by written consent, and in no event later
than one (1) year following the Effective Date. Prior to such approval. Options
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may be granted but shall not be exercisable. Any amendment described in Section
12 (i) to (iv) shall also be subject to approval by the Corporation's
shareholders.
15. WITHHOLDING OF TAXES.
In the event the Corporation or a Affiliate determines that it is
required to withhold Federal, state, foreign or local taxes in connection with
the exercise of an Optionee or the disposition of Shares issued pursuant to the
exercise of an Option, the Options or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required
to make arrangements satisfactory to the Corporation or the Affiliate to enable
it to satisfy such withholding requirements.
16. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall be
construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or any
Affiliate to terminate such individual's employment at any time with or without
cause. The grant of an Option shall not entitle the Optionee to, or disqualify
the Optionee from, participation in the grant of any other Option under the
Plan or participation in any other benefit plan maintained by the Corporation
or any Affiliate.
17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED
RIGHTS.
In adopting and maintaining this Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertaking with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees,
Optionees, or beneficiaries of any obligations on the part of the Corporation,
any Affiliate or the Committee, except as expressly provided herein.
18. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Optionee's Option, and any
other documents and records which an Optionee is entitled by law to inspect
shall be open to inspection by the Optionee and his or her duly authorized
representative at the office of the Committee at any reasonable business hour.
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19. INFORMATION TO OPTIONEES.
Each Optionee shall be provided with such information regarding the
Corporation as the Committee from time to time deems necessary or appropriate;
provided however, that each Optionee shall at all times be provided with such
information as is required to be provided from time to time pursuant to
applicable regulatory requirements, including, but not limited to, any
applicable requirements of the Securities and Exchange Commission, the
California Department of Corporations and other state securities agencies.
20. DELAWARE LAW TO GOVERN.
All questions pertaining to the construction, interpretation,
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of Delaware.
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[FORM IF OPTIONS ARE NOT REGISTERED]
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
NONSTATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ___ day of
_________, 1997, pursuant to the @ ENTERTAINMENT, INC. 1997 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected ______________
("the Optionee") to receive the following grant of a nonstatutory stock option
("Stock Option") to purchase shares of the common stock of @ ENTERTAINMENT,
INC. (the "Corporation"), on the terms and conditions set forth below to which
Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option ______________________________
Date of Grant ________________________________________________
Vesting Commencement Date ____________________________________
Exercise Price Per Share _____________________________________
Expiration Date ______________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase
the number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan. This Stock Option is intended by the Corporation and the
Optionee to be a Nonstatutory Stock Option and does not qualify for any special
tax benefits to the Optionee and is not subject to Section 7 of the Plan.
3. The Stock Option shall be exercisable in all respects in
accordance with the terms of the Plan which are incorporated herein by this
reference. Optionee acknowledges having received and read a copy of the Plan.
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4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in
part at any time prior to the end of the first 4 full calendar quarters
following the Vesting Commencement Date.
(b) Optionee may exercise the Stock Option as to one
fourth of the Shares at the end of the 4th full calendar quarter following the
Vesting Commencement Date.
(c) Optionee may exercise the Stock Option as to an
additional 1/16th of the Shares at the end of each of the full calendar
quarter commencing with the 5th full calendar quarter following the Vesting
Commencement Date.
(d) The right to exercise the Stock Option shall be
cumulative. Optionee may buy all, or from time to time any part, of the maximum
number of shares which are exercisable under the Stock Option, but in no case
may Optionee exercise the Stock Option with regard to a fraction of a share, or
for any share for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and
regulations applicable to the grant and exercise of the Stock Option and the
sale or other disposition of the common stock of the Corporation received
pursuant to the exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until
the shares exercisable under the Stock Option have been qualified under the
California Corporate Securities Law of 1968, pursuant to a permit application
filed with the California Department of Corporations or unless the exercise is
otherwise exempt from the qualification requirements of such law. The Stock
Option is conditioned upon the Optionee's representation, which Optionee hereby
confirms as of the date hereof and which Optionee must confirm as of the date
of any exercise of all or any part of the Stock Option, that:
(a) Optionee understands that both this Stock Option and
any shares purchased upon its exercise are securities, the issuance of which
require compliance with state and Federal securities laws;
(b) Optionee understands that the securities have not been
registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
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investment intention in acquiring these securities, that Optionee's intention
is to hold these securities for Optionee's own benefit for an indefinite
period; that Optionee has no present intention of selling or transferring any
part thereof (recognizing that the Stock Option is not transferable) and that
certain restrictions may exist on transfer of the shares issued upon exercise
of the Stock Option;
(c) Optionee understands that the shares issued upon exercise of this
Stock Option, in addition to other restrictions on transfer, must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that Rule 701 and Rule 144, two
exemptions from registration which may be available, are only available after
the satisfaction of certain conditions and require the presence of a U.S.
public market for such shares; that no certainty exists that a U.S. public
market for the shares will exist, and that otherwise Optionee may have to sell
the shares pursuant to another exemption from registration which exemption may
be difficult to satisfy; and
(d) The Corporation shall not be under any obligation to issue any shares
upon the exercise of this Stock Option unless and until the Corporation has
determined that:
(i) it and Optionee have taken all actions required to register
such shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which such shares are listed has been satisfied; and
(iii) all other applicable provisions of state and Federal law have
been satisfied.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized
officer, as of the date and year written above.
OPTIONEE @ ENTERTAINMENT, INC.
_____________________________ By: ____________________________
(signature) (signature)
_____________________________ Its: ___________________________
(Type or Print Name)
Address: ____________________
____________________
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[FORM IF OPTIONS ARE NOT REGISTERED]
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ____ day of
__________, 1997, pursuant to the @ ENTERTAINMENT, INC. 1997 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected _______________
("the Optionee") to receive the following grant of an incentive stock option
("Stock Option") to purchase shares of the common stock of @ ENTERTAINMENT, INC.
(the "Corporation"), on the terms and conditions set forth below to which
Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option _________________________________
Date of Grant ___________________________________________________
Vesting Commencement Date _______________________________________
Exercise Price Per Share ________________________________________
Expiration Date _________________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire, and
all rights to exercise it shall terminate on the Expiration Date, except that
the Stock Options may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
20
<PAGE> 21
(a) The Stock Option may not be exercised in whole or in part
at any time prior to the end of the first 4 full calendar quarters following the
Vesting Commencement Date.
(b) Optionee may exercise the Stock Option as to one fourth of
the Shares at the end of the 4th full calendar quarter following the Vesting
Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional
1/15th of the Shares at the end of each of the full calendar quarter commencing
with the 5th full calendar quarter following the Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may
Optionee exercise the Stock Option with regard to a fraction of a share, or for
any share for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until the
shares exercisable under the Stock Option have been qualified under the
California Corporate Securities Law of 1968 pursuant to a permit application
filed with the California Department of Corporations or unless the exercise is
otherwise exempt from the qualification requirements of such law. The Stock
Option is conditioned upon the Optionee's representation, which Optionee hereby
confirms as of the date hereof and which Optionee must confirm as of the date
of any exercise of all or any part of the Stock Option that:
(a) Optionee understands that both this Stock Option and any
shares purchased upon its exercise are securities, the issuance of which
require compliance with state and Federal securities laws;
(b) Optionee understands that the securities have not been
registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
investment intention in acquiring these securities; that Optionee's intention
is to hold these securities for Optionee's own benefit for an indefinite
period; that Optionee has no present intention of selling or transferring any
part thereof
21
<PAGE> 22
(recognizing that the Stock Option is not transferable) and that certain
restrictions may exist on transfer of the shares issued upon exercise of the
Stock Option;
(c) Optionee understands that the shares issued upon exercise
of this Stock Option, in addition to other restrictions on transfer, must be
held indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that Rule 701 and Rule 144, two
exemptions from registration which may be available, are only available after
the satisfaction of certain conditions and require the presence of a U.S.
public market for such shares; that no certainty exists that a U.S. public
market for the shares will exist, and that otherwise Optionee may have to sell
the shares pursuant to another exemption from registration which exemption may
be difficult to satisfy; and
(d) The Corporation shall not be under any obligation to issue
any shares upon the exercise of this Stock Option unless and until the
Corporation has determined that:
(i) it and Optionee have taken all actions required to
register such shares under the Securities Act, or to perfect an exemption from
the registration requirements thereof;
(ii) any applicable listing requirement of any stock
exchange on which such shares are listed has been satisfied; and
(iii) all other applicable provisions of state and
Federal law have been satisfied.
22
<PAGE> 23
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized
officer, as of the date and year written above.
OPTIONEE @ ENTERTAINMENT, INC.
_________________________________ By:______________________________
(signature) (signature)
_________________________________ Its:_____________________________
(Type or Print Name)
Address:_________________________
23
<PAGE> 24
[FORM IF OPTIONS ARE REGISTERED]
NONSTATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ___ day of
____________, 1997, pursuant to the @ ENTERTAINMENT, INC. 1997 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected
___________________ (the "Optionee") to receive the following grant of a
nonstatutory stock option ("Stock Option") to purchase shares of the common
stock of @ ENTERTAINMENT, INC. (the "Corporation"), on the terms and conditions
set forth below to which Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option ________________________
Date of Grant __________________________________________
Vesting Commencement Date ______________________________
Exercise Price Per Share _______________________________
Expiration Date ________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase
the number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan. This Stock Option is intended by the Corporation and the
Optionee to be a Nonstatutory Stock Option and does not qualify for any special
tax benefits to the Optionee and is not subject to Section 7 of the Plan.
3. The Stock Option shall be exercisable in all respects in
accordance with the terms of the Plan which are incorporated herein by this
reference. Optionee acknowledges having received and read a copy of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in
part at any time prior to the end of the first 4 full calendar quarters
following the Vesting Commencement Date.
24
<PAGE> 25
(b) Optionee may exercise the Stock Option as to one fourth
of the Shares at the end of the 4th full calendar quarter following the Vesting
Commencement Date.
(c) Optionee may exercise the Stock Option as to an
additional 1/15th of the Shares at the end of each of the full calendar quarter
commencing with the 5th full calendar quarter following the Vesting
Commencement Date.
(d) The right to exercise the Stock Option shall be
cumulative. Optionee may buy all, or from time to time any part, of the maximum
number of shares which are exercisable under the Stock Option, but in no case
may Optionee exercise the Stock Option with regard to a fraction of a share, or
for any share for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and
regulations applicable to the grant and exercise of the Stock Option and the
sale or other disposition of the common stock of the Corporation received
pursuant to the exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until
the Corporation has determined that:
(a) it and Optionee have taken all actions required to
register such shares under the Securities Act, or to perfect an exemption from
the registration requirements thereof;
(b) any applicable listing requirement of any stock
exchange on which such shares are listed has been satisfied; and
(c) all other applicable provisions of state, Federal and
foreign law have been satisfied.
25
<PAGE> 26
IN WITNESS WHEREOF, each of the parties has executed this Stock Option
Agreement, in the case of the Corporation by its duly authorized officer, as of
the date and year written above.
OPTIONEE @ ENTERTAINMENT, INC.
____________________________ By: ________________________________
(signature) (signature)
___________________________ Its: _______________________________
(Type or Print Name)
Address: ________________________
26
<PAGE> 27
[FORM IF OPTIONS ARE REGISTERED]
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this ___ day of
____________, 1997, pursuant to the @ ENTERTAINMENT, INC. 1997 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected
___________________ (the "Optionee") to receive the following grant of an
incentive stock option ("Stock Option") to purchase shares of the common
stock of @ ENTERTAINMENT, INC. (the "Corporation"), on the terms and conditions
set forth below to which Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option ________________________
Date of Grant __________________________________________
Vesting Commencement Date ______________________________
Exercise Price Per Share _______________________________
Expiration Date ________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase
the number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan.
3. The Stock Option shall be exercisable in all respects in
accordance with the terms of the Plan which are incorporated herein by this
reference. Optionee acknowledges having received and read a copy of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in
part at any time prior to the end of the first 4 full calendar quarters
following the Vesting Commencement Date.
(b) Optionee may exercise the Stock Option as to one fourth
of the Shares at the end of the 4th full calendar quarter following the
Vesting Commencement Date.
27
<PAGE> 28
(c) Optionee may exercise the Stock Option as to an
additional 1/16th of the Shares at the end of each of the full calendar quarter
commencing with the 5th full calendar quarter following the Vesting
Commencement Date.
(d) The right to exercise the Stock Option shall be
cumulative. Optionee may buy all, or from time to time any part, of the maximum
number of shares which are exercisable under the Stock Option, but in no case
may Optionee exercise the Stock Option with regard to a fraction of a share, or
for any share for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and
regulations applicable to the grant and exercise of the Stock Option and the
sale or other disposition of the common stock of the Corporation received
pursuant to the exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until
the Corporation has determined that:
(a) it and Optionee have taken all actions required to
register such shares under the Securities Act, or to perfect an exemption from
the registration requirements thereof;
(b) any applicable listing requirement of any stock
exchange on which such shares are listed has been satisfied; and
(c) all other applicable provisions of state, Federal and
foreign law have been satisfied.
28
<PAGE> 29
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE @ ENTERTAINMENT, INC.
____________________________ By: ________________________________
(signature) (signature)
___________________________ Its: _______________________________
(Type or Print Name)
Address: ________________________
________________________
29
<PAGE> 1
Exhibit 10.19
CONFIDENTIAL
-----------------
AGREEMENT
-----------------
for digital transmission on the ASTRA system
between
SOCIETE EUROPEENNE DES SATELLITES S.A.
and
PCI PROGRAMMING INC.
<PAGE> 2
CONFIDENTIAL
<TABLE>
<S> <C> <C>
1. Interpretation ...................................................... 4
2. Agreement ........................................................... 6
3. Term ................................................................ 6
4. Charges ............................................................. 6
5. Spare TWTA .......................................................... 7
6. Unavailability ...................................................... 7
7. Excluding Circumstances ............................................. 8
8. Interruption. Testing and Monitoring ................................ 8
9. Pre-emption ......................................................... 9
10. Use of Transponder and Encryption ................................... 9
11. Service Information ................................................. 10
12. Compliance with Law ................................................. 10
13. SES' Authority ...................................................... 10
14. Assignment .......................................................... 10
15. Termination ......................................................... 11
16. Effect of Termination ............................................... 11
17. Force Majeure ....................................................... 12
18. Limitation of Liability - Exclusivity of Remedies ................... 12
19. Indemnities ......................................................... 12
20. Confidentiality ..................................................... 13
21. Trademark - Logo and Press Releases ................................. 13
22. Notices ............................................................. 13
23. Severability ........................................................ 14
24. Waiver .............................................................. 14
25. Entire Agreement .................................................... 14
26. Amendment ........................................................... 14
</TABLE>
2
<PAGE> 3
CONFIDENTIAL
<TABLE>
<S> <C> <C>
27. Proper Law and Jurisdiction.................................... 14
28. Legal Opinion.................................................. 14
29. Condition Precedent............................................ 15
30. Marketing Cooperation.......................................... 15
SCHEDULE I: Satellite and Transponder Description and
Performance Specifications............................. 16
SCHEDULE II: Customer Signals, Customer Uplink Signals
and Uplink Facilities.................................. 18
SCHEDULE III: Service(s)............................................. 20
SCHEDULE IV: Monitoring............................................. 21
SCHEDULE V: Conditional Access System.............................. 23
SCHEDULE VI: Charges................................................ 24
SCHEDULE VII: Priority and Pre-emption............................... 26
SCHEDULE VIII: ASTRA Access Agreement................................. 29
SCHEDULE IX: ASIUS.................................................. 30
</TABLE>
3
<PAGE> 4
AGREEMENT
DATED 26 MARCH 1997
BETWEEN:
(1) SOCIETE EUROPEENNE DES SATELLITES S.A.
L-6815 Chateau de Betzdorf, Grand Duchy of Luxembourg ("SES"); and
(2) PCI PROGRAMMING INC.
c/o Poland Communications Inc.
1 Commercial Plaza
Hartford, CT 06033, USA (the "Customer")
PREAMBLE:
(A) SES is the operator of the ASTRA satellite system which comprises several
satellites co-located at 19.2 degrees East for the retransmission of
television and radio services;
(B) The satellite, described in Schedule I-A hereto, is part of this satellite
system;
(C) The Customer wishes to use transponder capacity on a transponder of
said satellite to transmit the digital services described herein on the
terms and conditions set out below;
IT IS HEREBY AGREED AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement, the following words and expressions shall have
the meanings ascribed to them below:
"Cahier des Charges" : the ministerial enactment (arrete
ministeriel) of the Luxembourg government setting out the duties to
be observed by SES in performance of the Concession;
"Concession" : the concession contract ("Contrat de Concession")
entered into by the government of Luxembourg and SES to enable SES
to operate the Satellite System and any amendment thereof;
"Customer Downlink Signals" : downlink RF(1)-QPSK(2) modulated time
division
__________________________
1 Radio frequency
2 Quadrature phase shift kaying
4
<PAGE> 5
CONFIDENTIAL
multiplexed carried carrying the Service(s) from the Customer's
Transponder;
"Customer Signals" : the bit stream, carrying the Service(s),
produced by the Customer and transmitted to the Uplink Facilities
for onward transmission via the Customer's Transponder and
conforming to SCHEDULE II;
"Customer Start Date" or "CSD" : the date on which the Customer has
agreed to commence the transmission of the Service(s) on the
Customer's Transponder, being the date upon which the Board of SES
and the Government of Luxembourg have given their approval even if
the Government's approval is just a preliminary one for test
transmissions;
"Customer Uplink Signals" : the RF-QPSK modulated time division
multiplexed carrier, carrying the Service(s), transmitted from the
Uplink Facilities to the Customer's Transponder and conforming to
SCHEDULE II;
"Customer's Transponder" : the transponder capacity on the Satellite
as described in Schedule I-B, or any alternative transponder
capacity subsequently allocated to the Customer pursuant hereto, and
via which the Customer transmits the Service(s);
"Expiry Date" : the last day of the Term;
"LIBOR" : the one month London inter bank offered rate, applying to
the currency of this Agreement, as quoted by Banque et Caisse
d'Epargne de l'Etat in Luxembourg on the due date for payment;
"Minimum Transponder Performance" : as defined in SCHEDULE I-D;
"Operational Service Dates" or "OSD" : the date on which SES
declared the Satellite operational, being 1 June 1996;
"Payment Period" : a period of the Term in respect of which payments
are payable or have been paid pursuant to SCHEDULE VI;
"Pre-emption" : the deliberate interruption and/or cessation of the
availability of a transponder by SES in accordance with the rules
set out in SCHEDULE VII and "Pre-empt" shall be construed
accordingly;
"Received Signal Power" : as defined in SCHEDULE I-D;
"Satellite" : the ASTRA IF satellite as described in SCHEDULE I-A;
"Service(s)" : the Customer's services described in SCHEDULE III;
"SES' Associates" : SES' officers, employees, consultants, agents,
contractors or sub-contractors however it is understood that CLT/DTS
performing the play-out for the Customer, are not considered as SES
Associate;
"Spare TWTA" : a spare travelling wave tube amplifier which can be
switched to recover traffic on the Satellite;
"Target Market" : as defined in SCHEDULE III;
5
<PAGE> 6
CONFIDENTIAL
"Term": the duration of this Agreement as specified in CLAUSE 3;
"transponder": a part of the Satellite which receives, amplifies
and frequency-translates the uplink signals and retransmits them as
downlink signals;
"Unavailable", "Unavailability": as defined in CLAUSE 6;
"Uplink Facilities": all equipment and ancillary facilities used
to transmit the Customer Uplink Signals to the Satellite conforming
to SCHEDULE II;
"VAT": Value added tax or any similar tax or charge.
1.2 In case of conflict between this Agreement and the Schedules
hereto, this Agreement shall prevail.
2. AGREEMENT
With effect from CSD SES will perform the transmission of the Customer
Uplink Signals carrying the Service(s) by exclusively providing the
Customer's Transponder for the purpose and monitor the digital transmission
of the Customer Uplink Signals on the terms set out herein. This Agreement
does not include multiplexing and uplinking. SES will make available, at
SES facilities in Betzdorf, encoding, multiplexing and uplinking.
3. TERM
3.1 This Agreement shall begin on the date hereof and expire on the
tenth (10th) anniversary of CSD.
3.2 Either party may terminate this Agreement upon 6 months written
notice if the Customer does not tarket the Polish DTH market prior
to 1 January 1999. "Tarket the Polish DTH market" means that (i)
the Customer shall have a licence or permit (if necessary) for its
activity and (ii) actively markets and promotes DTH reception by
ensuring availability in the market of decoder boxes (integrated
receiver devices ("IRD's").
4. CHARGES
4.1 The Customer shall pay the charges set out in SCHEDULE VI as and on
the dates set out therein.
4.2 Sums overdue shall be subject to a late payment interest charge at
2% over LIBOR from the due date. The interest shall accrue on a
daily basis.
4.3 All sums payable by the Customer under SCHEDULE VI are quoted
exclusive of any
6
<PAGE> 7
CONFIDENTIAL
Vat or other tax or duties. The Customer undertakes to pay any
applicable VAT, other tax or duties upon receipt of an appropriate
invoice from SES.
4.4 All sums due under this Agreement shall be paid in full without
set-off, counter-claim or other deduction.
4.5 Any sums owned by SES to the Customer for Unavailability pursuant to
CLAUSE 6 shall be calculated by SES within 15 days from the date on
which such an event occurred and shall be paid to the Customer
within thirty (30) days thereafter. If the Customer disagrees with
the amount so calculated and notified by SES, the Customer shall so
notify SES in writing and the parties shall seek in good faith to
resolve the disagreement. Payments for Unavailability after the due
date for payment determined hereunder shall accrue interest at the
rate set out in CLAUSE 4.2, unless such payments are in dispute.
4.6 In the circumstance set out in CLAUSE 7.2, the Customer shall not be
relieved of its obligation to pay the charges payable hereunder.
5. SPARE TWTA
If the Customer's Transponder becomes Unavailable and if a Spare TWTA is
available, then, subject to the priority rules set out in SCHEDULE VII, SES
shall provide its use to the Customer as soon as reasonably possible.
6. UNAVAILABILITY
6.1 The Customer's Transponder shall be regarded as Unavailable if:
6.1.1 the Received Signal Power falls below the Minimum
Transponder Performance by more than 1 dB;
6.1.2 the interruption of the Service(s) pursuant to Clause 8.1
exceeds thirty (30) minutes in any calendar quarter;
6.1.3 any failure of the Satellite or any part thereof causes an
interruption of transmissions of the Service(s); or
6.1.4 the 27.5 MS/s QPSK digital carrier at the centre frequency of
the Customer's Transponder, complying fully with SCHEDULE II,
which saturates the Customer's Transponder as indicated by
the satellite DLA input power telemetry as specified by SES
and has a 3/4 rate FEC, exhibits a Bit Error Rate worse than
10(-9) when received on a typical 60 cm antenna with no
pointing error, with a G/T of no worse than 13.5 db/K located
in Betzdorf, Luxembourg, under clear sky conditions. It is
understood that SES shall have no obligation to monitor the
bit error rate.
6.2 During any period of Unavailability the Customer may obtain (at its
cost) temporary bridging services from an alternative service
provider. The Customer's payment obligations hereunder shall be
suspended from the start of the period of Unavailability to the end
of such period or, if later, the date the Customer's
7
<PAGE> 8
CONFIDENTIAL
arrangements for bridging services in respect of such period of
Unavailability come to an end, however such date shall not be later
than 30 days after the end of any period of Unavailability. In this
regard, SES shall refund to the Customer the pro rata temporis
portion of the charges paid by the Customer for the period of
Unavailability and/or the Customer shall not be liable to pay SES
the pro rata temporis portion of the charges payable (but not yet
paid) in respect of such period of Unavailability (as applicable).
6.3 If the Customer's Transponder becomes Unavailable for a period of
thirty (30) or more consecutive days, then the Customer may
terminate the Agreement by written notice to SES (provided that such
notice is sent while the Customer's Transponder is Unavailable) and
CLAUSE 16.1 shall apply.
6.4 CLAUSES 5, 6.2 and 6.3 shall be the Customer's sole remedies in the
event of an Unavailability and SES shall have no other obligation.
7. EXCLUDING CIRCUMSTANCES
CLAUSES 6.2 and 6.3 shall not apply:
7.1 to an Unavailability caused by an act or omission of the Customer or
of the Customer's Associates;
7.2 where the Customer Signals, the Customer Uplink Signals or the
Uplink Facilities do not comply with SCHEDULE II or where the
Customer Signals are not received by the Uplink Facilities or the
Customer Uplink Signals are not received by the Customer's
Transponder due to no fault of SES or any SES Associate.
8. INTERRUPTION, TESTING AND MONITORING
8.1 SES shall be entitled to interrupt the Service(s) and to require the
Customer to cease transmission of the Customer Uplink Signals where
necessary (i) to provide the use of a Spare TWTA, and (ii) for
operational testing, maintenance, monitoring, preventive or curative
repair or adjustment to be carried out either with respect to the
Satellite as a whole or part thereof, or one or more of its
transponders where necessary, in SES' reasonable opinion, to
preserve the integrity of the Satellite or the overall quality of
the satellite transmissions in the short, medium or long term. SES
shall give the Customer as much notice thereof as is practicable in
the circumstances and shall agree with the Customer upon the date
and time of interruption wherever possible.
8.2 SES shall be entitled to interrupt the Service(s) or to require the
Customer to cease transmission of the Customer Uplink Signals if the
Customer is in breach of its obligations hereunder ALWAYS PROVIDED
THAT if such breach is due to a technical issue, SES shall not
interrupt the Service(s) without allowing the Customer reasonable
period of time to correct it, unless the technical issue either (i)
is interfering with another customer of SES, (ii) could cause
potentially damage or degradation to the Satellite or to its proper
functioning or (iii) could affect the quality of the transmissions
provided by the Satellite. Nothing in this CLAUSE 8.2 shall permit
SES to interrupt the Services in circumstances where there is a bona
fide
8
<PAGE> 9
CONFIDENTIAL
dispute between the parties as to any fees due to be paid under this
Agreement. Any such dispute, if not resolved by negotiation, shall
be dealt with as provided for in CLAUSE 27.
8.3 SES shall monitor the Customer Uplink Signals and the performance of
the Customer's Transponder in accordance with the provisions of
SCHEDULE TV and supply an analysis of the results when so requested
by the Customer. Such data shall be limited to information which SES
can reasonably be expected to obtain and which it can reveal without
liability or breach of any duty to any third party. Such information
shall be kept confidential.
8.4 The Customer shall procure that the operator of the Uplink
Facilities shall assist SES in making any tests to ensure that such
Facilities and the Customer Uplink Signals comply with Clause 10.3.
8.5 All Service(s) using the Customer's Transponder shall be uplinked
from the same uplink antenna.
9. PRE-EMPTION
Intentionally deleted
10. USE OF TRANSPONDER AND ENCRYPTION
10.1 The frequencies for the Customer Uplink Signals and the Customer
Downlink Signals initially allocated by SES shall be those stated in
SCHEDULE I-B or notified to the Customer before CSD.
10.2 The Customer shall, on CSD, commence transmitting the Service(s)
and thereafter maintain full transmission of the majority of the
Service(s) as described in SCHEDULE III. For the avoidance of doubt
this Clause 10.2 is not designed to interfere with the Customer's
plans for the roll out of the Service(s) and SES accepts that such
plans do not envisage the transmission of a full complement of
Service(s) for the first year of this Agreement and may also mean
that the Customer does not have any Service(s) ready to commence
transmission on CSD.
10.3 The Customer shall procure that the Customer Signals and Customer
Uplink Signals and Uplink Facilities comply with SCHEDULE II and do
not interfere with or damage the Satellite or any of its
transponders.
10.4 The Customer may, if so provided in SCHEDULE V, encrypt the Customer
Signals provided that the Customer, at its costs, provides SES with
ten operational decoders authorised for reception and any other
equipment needed to receive the Customer Downlink Signals.
10.5 SES shall have the right, at any time, to replace the transponder
carrying the Service(s) on the Satellite by another transponder on
any other ASTRA satellite at the same orbital position provided that
the replacement transponder has the same polarization, bandwidth and
the same uplink and downlink signal frequency as the transponder
used by the Customer prior to such replacement and provides Minimum
Transponder Performance. Unless SES uplinks the Service(s), SES will
endeavour
9
<PAGE> 10
CONFIDENTIAL
to provide to the Customer advance notice of 24 hours to perform the
necessary operations to uplink the Service(s) to the other ASTRA
satellite. To avoid a Service interruption, the Customer shall take
all necessary arrangements with the operator of the Uplink
Facilities to accommodate such a transponder replacement and SES
will either (i) move the Customer's Transponder in tandem with any
other customer's transponder on the Satellite or (ii) relax the
technical requirements of the Access Agreement to require only two
(2) uplinks for the three (3) allocated customer's transponders with
frequencies in the E and F bands.
10.6 The Customer shall not use the Customer's Transponder in any way not
specified in this Agreement.
11. SERVICE INFORMATION
The Customer shall provide to SES the Service(s) information in compliance
with Schedule III.
12. COMPLIANCE WITH LAW
12.1 The Customer shall comply to all material extent with all laws,
regulations or provisions relevant for the performance of this
Agreement, shall, where necessary, at all times have and comply with
a broadcasting license or authorization for the Service(s) and shall
promptly inform SES of any material change thereof. If the
Service(s) is not subject to the laws of a member of the European
Union it hall, nevertheless, comply with the provisions of the
"Television Without Frontiers" directive of 3 October 1989, as may
be amended, as transposed into the laws of Luxembourg being
currently Article 6 and Chapter IV of the Luxembourg Electronic
Media Law of 27 July 1991.
12.2 SES shall not exercise its right to terminate this Agreement under
CLAUSE 15.1 by reason of non-compliance by the Customer pursuant to
CLAUSE 12.1 except where such non-compliance has been determined by
a court or other authority with competent jurisdiction or where
otherwise requested by the Government of the Grand Duchy of
Luxembourg. Moreover if compliance with Clause 12.1 would result in
the contravention of any future law or regulation in the Target
Market, its non-compliance with CLAUSE 12.1 shall constitute an
event of force majeure.
13. SES' AUTHORITY
This Agreement is subject to the continuing right of SES to provide the
Customer's Transponder pursuant to the Concession and the Cahier des
Charges. If this right is withdrawn, then this Agreement shall terminate
automatically unless the Government of Luxembourg wishes to undertake SES'
rights and obligations hereunder. In either case, SES shall be discharged
of all liability and obligation to the Customer subject to CLAUSE 16.
14. ASSIGNMENT
14.1 Subject to the remainder of this CLAUSE 14 the Customer shall not
assign, transfer, sub-let, or otherwise allow any third party to
directly or indirectly exercise its rights, in whole or in part,
under this Agreement. For the purpose hereof, an assignment shall
also include a change in the control of the Customer or of a
substantial part of its assets or business.
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14.2 SES hereby authorises the Customer at any time to assign its rights
under this Agreement to (a) any affiliate or (b) Procable Sp Z 0. 0.
("Procable") provided that the Customer retains not less than a 33%
shareholding in Procable, and in any such event on conditions that
the Customer agrees to continue to be bound by all its obligations
and liabilities hereunder and to hold SES harmless from any breach
of this Agreement by its Assignee. For the purposes of this CLAUSE
14.2, a company will be regarded as an affiliate of the Customer if
the Customer holds not less than a 50% interest in the shares or
equivalent of that company or if the company holds at least 50%
interest in the Customer or a company being under common control
with the Customer.
14.3 Upon SES' and the Luxembourg Government prior written consent, which
shall not be unreasonably withheld or delayed, the Customer may
sub-contract the benefit of this Agreement to any third party
provided that (i) no such sub-contract shall relieve the Customer of
its obligations and liabilities under this Agreement and the
Customer shall be responsible for the acts, default and omissions of
the sub-contractor, its employees and agents as fully as if they
were acts, default, omissions of the Customer itself and (ii) the
Customer will share revenues exceeding the charge payable in the
relevant calendar year with SES on a 50/50 basis.
15. TERMINATION
In addition to the termination rights provided herein including without
limitation the Customer's right to terminate as specified in CLAUSE 6.3, a
party may terminate this Agreement forthwith by written notice if the other
party:
15.1 commits a material breach of its obligations hereunder and fails to
remedy such breach (if capable of remedy) within thirty (30) days of
written notice from the party requiring such breach to be remedied
(for the avoidance of doubt, circumstances giving rise to the right
to terminate under CLAUSE 3.2 or CLAUSE 6.3 do not constitute a
material breach);
15.2 is unable to pay its debts as they mature; becomes insolvent; is
subject to bankruptcy, reorganisation, moratorium, insolvency or
similar proceedings for the relief of financially distressed
debtors; is subject to winding up, dissolution or liquidation
(judicial or non-judicial) proceedings; voluntarily or involuntarily
suspends or discontinues its business; liquidates or sells a
substantial part of its assets; makes an assignment for the benefit
of its creditors; or is subject to the appointment of a receiver,
liquidator or other third party over its assets or business; or
15.3 has been prevented by an event of force majeure from materially
performance its obligations hereunder for sixty (60) days or more.
SES will waive its right to terminate the Agreement if and for such
period of time the Customer continues to pay the charge hereunder.
16. EFFECT OF TERMINATION
16.1 Where the Agreement is terminated (i) by the Customer, pursuant to
Clauses 6.3, 15.1 or 15.2, (ii) by either party, pursuant to CLAUSE
15.3, or (iii) automatically
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pursuant to CLAUSE 13, then SES shall refund to the Customer the pro
rata temporis portion of the advance payments made by the Customer
pursuant to SCHEDULE VI relating to the unexpired portion of the
Payment Period in progress on the date of termination. SES may
deduct from such amount all payments, taxes and duties payable to
governments or other entities for which the Customer is liable
hereunder and all sums owed to SES at that time.
16.2 Where SES terminates this Agreement pursuant to CLAUSES 15.1 or
15.2, the Customer shall forthwith pay to SES any sum owed by the
Customer to SES at that time and shall continue to be liable for and
to pay the charge provided in Schedule VI (as if the Agreement had
not been terminated) until such time as SES allocates the Customer's
Transponder to another customer. SES shall have no obligation to
market the Customer's Transponder in priority to unused transponder
capacity on SES' satellites and for a price inferior to that payable
by the Customer to SES (unless the Customer makes up for the
difference); however, SES shall use its reasonable efforts to
mitigate its losses. If the Customer's Transponder is allocated to
another customer, SES shall refund to the Customer the pro rata
temporis portion of the advance payments made by the Customer
pursuant to SCHEDULE VI relating to the unexpired portion of the
Payment Period in progress on the date at which the other customer
starts transmitting.
17. FORCE MAJEURE
Neither party shall be considered to be in breach or be liable for any
damage suffered by the other party or its Associates, by reason of any
failure to perform any obligation hereunder if and for so long as such
failure is the result of an event of force majeure. Subject to Clause 15.3,
the respective obligations of both parties shall be suspended for such time
as such an event prevents either party from performing its obligations.
18. LIMITATION OF LIABILITY - EXCLUSIVITY OF REMEDIES
18.1 Without prejudice to CLAUSES 5, 6 AND 16, SES shall not be liable to
the Customer or to the Customer's Associates in any way whatsoever,
except for its gross negligence ("faute lourde") or wilful
misconduct ("dol").
18.2 The remedies expressly provided in this agreement are the sole
remedies available to the parties and the parties waive any other
rights that they may have.
19. INDEMNITIES
19.1 The Customer shall totally indemnify SES and SES' Associates and
customers against all claims, losses, damages, expenses arising
from:
19.1.1 damages caused to third parties as a result of a breach by
the Customer of this Agreement or a civil duty;
19.1.2 infringement of copyright, defamation, libel or invasion of
privacy (or any allegation thereof) arising in the course of
the use of the Customer's Transponder;
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19.1.3 claims in any way connected with the quality or contents of
any programme or display transmitted as part of the
Service(s), or with any failure, however caused, to perform
an obligation owed to any person to transmit any such
programme or display;
19.1.4 infringement by the Customer by virtue of exercising its
rights under this Agreement of any other third party right;
19.1.5 damage caused to the Satellite by the Customer or the
operator of the Uplink Facilities save where SES is said
operator.
19.2 A party (the "First Party") shall indemnify the other party against
all claims, losses, damages or expenses arising from an infringement
of patent caused by the use of any apparatus or system provided by
the First Party to the other.
19.3 Neither party shall admit any liability or make any concession in
respect of any claim brought against it for which it may seek an
indemnity under this CLAUSE 19 without the prior written consent of
the indemnifying party and the indemnifying party shall have the
right to control any such proceedings at its own costs and expenses.
20. CONFIDENTIALITY
Each party shall, and shall procure that its Associates shall, both
throughout the Term and thereafter, keep confidential the provisions of
this Agreement together with all other information disclosed on a
confidential basis by the other party hereunder and shall not disclose the
same to any person except when acting under a court order. Unless otherwise
specified in writing, all information regarding the performance of the
Satellite or the Customer's Transponder or the business affairs of the
parties shall be regarded as confidential. Where necessary to secure its
financing or otherwise in the legitimate course of its business, each party
shall have the right to disclose this Agreement to its professional
advisors, financial institutions and stock exchanges authorities.
21. TRADEMARK - LOGO AND PRESS RELEASES
21.1 Each party agrees to allow the other to use its trademark and logo,
free of charge, throughout the Term, solely for the purpose of
indicating in any document, advertising or communication made or
commissioned by such party that the Service(s) is transmitted via
the ASTRA satellite system.
21.2 The parties shall agree on a press release to announce this
Agreement.
22. NOTICES
Any notice shall be in writing and shall be sent to the address of the
party to be served as above written or to such other address previously
notified to the other party. All notices shall be delivered by hand,
registered, or certified post or facsimile. Notices shall be deemed to have
been received: (i) if delivered by hand, upon such delivery, (ii) if sent
by post, (seventy-two) 72 hours after the envelope containing such notice
was posted, or (iii) if sent
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by facsimile, when the transmission of the facsimile is complete. Notices
sent by facsimile shall be confirmed by letter. The initial facsimile
number of the parties are: (i) SES: (352) 710 725 291, (ii) the Customer:
(48) 22 43 56 31 or (48) 22 43 65 31.
23. SEVERABILITY
In the event that a provision of this Agreement is held to be invalid,
inapplicable or unenforceable such provision shall be replaced by one which
comes closest to the intention of the parties and the remaining provisions
of this Agreement shall be unimpaired.
24. WAIVER
No relaxation, delay or indulgence by either party in enforcing any right
under this Agreement shall operate as a waiver thereof.
25. ENTIRE AGREEMENT
This Agreement, with the Schedules, is the entire agreement between the
parties in connection with the subject matter hereof and there are no other
agreements, written or oral. This Agreement supersedes all prior
understandings, representations or communications between the parties and
each party declares that it has not relied on any representation except as
expressly set out herein.
26. AMENDMENT
No provision of this Agreement may be amended, waived or terminated, nor
may any breach thereof be waived otherwise than (in each case) by the
express written agreement of the parties hereto. The Agreement will, where
necessary, be amended to reflect the reasonable changes made by the
Luxembourg Government to the Concession or the Cahier des Charges or the
Luxembourg Laws.
27. PROPER LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of the Grand Duchy of Luxembourg and the parties hereby submit to the
exclusive jurisdiction of the Luxembourg courts.
28. LEGAL OPINION
The Customer shall, at SES' request and cost, procure a legal opinion
issued by the Customer's external counsel in favour of SES' lending
institutions, in a form reasonably satisfactory to SES and its lending
institutions.
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29. CONDITION PRECEDENT
This Agreement is subject to the approval of the Board of SES, the Board of
the Customer and of the Government of Luxembourg. The parties shall each
use their reasonable efforts to obtain the approvals required as soon as
practicable after contract signature but in any event before 30 April 1997.
30. MARKETING COOPERATION
Taking into account the Customer's plan to introduce into the market an
aggregate amount of 500,000 IRD's during the start phase of DTH SES and the
Customer shall cooperate jointly in the marketing activities for rolling
out the Customer's digital services. Such cooperation shall be mutually
agreed from time to time.
IN WITNESS WHEREOF the duly authorised representatives of the parties hereto
have executed this agreement in two originals on the date first before written.
PCI PROGRAMMING INC. SOCIETE EUROPEENNE DES SATELLITES S.A.
/s/ Robert E. Fowler, III /s/ Romain Bausch
- ------------------------- ----------------------------
By: Romain Bausch
Title: Director General
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SCHEDULE I: SATELLITE AND TRANSPONDER DESCRIPTION AND PERFORMANCE SPECIFICATIONS
A. ASTRA 1F SATELLITE DESCRIPTION
1. Satellite Manufacturer : Hughes Communications Int. Inc.
2. Expected Fuel Lifetime (from OSD) : 15 years
3. Satellite Station-keeping accuracy : Longitude +/- 0.10 degrees
Inclination +/- 0.10 degrees
4. Stabilisation System : 3 axis
5. Designed Channel Capacity :
A maximum of 22 transponders at start of life reducing to 20 transponders
at end of life can be operated simultaneously. All transponders are eclipse
protected and may be selected from the following configurations:
40 transponders in the 17300 - 18100 MHz uplink and 11700 - 12500 MHz
downlink frequency bank, 16 transponders in the 14250 - 14500 MHz uplink
and 11200 - 11450 MHz downlink frequency bann (ASTRA-1A backup).
6. Polarization : Dual Linear
7. Cross-polarization isolation (for areas
within the 50 dBW e.i.r.p. contour) on
vertical and horizontal transponders : Typical 30 dB
For the avoidance of doubt, the specifications set out in Parts B and C below
shall constitute part of the terms and conditions of this Agreement but the
description of the Satellite in this Part A is for the Customer's information
only and shall not constitute any term or condition of this Agreement.
B. SPECIFIC DESCRIPTION OF TRANSPONDER USE
1. Initial transponder number on the Satellite : 95
2. Customer Uplink Signal frequency : 17904.50 MHz
3. Customer Downlink Signal frequency : 12304.50 MHz
4. Capacity provided : 27.5 MS/s QPSK
5. Hours of transmission : 24 hours per day.
6. Pre-emptibility status : See SCHEDULE VII-A
7. Polarisation : Horizontal
C. ORBITAL POSITION AND TRANSPONDER BANDWIDTH
1. Orbital position : 19.2 degrees East
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2. Usable Transponder bandwidth : 33 MHz (in the band 12.10 to 12.50
GHz)
D. TRANSPONDER PERFORMANCE
1. "MINIMUM TRANSPONDER PERFORMANCE" is defined as a satellite single carrier
saturation e.i.r.p. measured under clear sky conditions by a measurement
test set-up according to standard engineering practice as described in
Schedule I-E of (all figures in dBW):
<TABLE>
<CAPTION>
City F-Band F-band on
on ASTRA 1F ASTRA 1G
---- ----------- ---------
<S> <C> <C>
Bialystok 50 50
Gdansk 52.5 50.5
Kielce 52 51.5
Krakow 52 52
Lublin 50 51
Olsztyn 52 50.5
Radom 51.5 51.5
Warsaw 51.5 51
Wroclaw 52.5 52
Betzdorf 51 51
</TABLE>
It is understood that SES shall have no obligation to monitor or measure
the Minimum Transponder Performance in any sites listed above save for
Betzdorf.
2. "RECEIVED SIGNAL POWER" is defined as signal power in dBW on the ground in
Luxembourg measured by a measurement test set-up according to standard
engineering practice as described in Schedule I-E. If the measurement is
not performed under clear sky conditions, the measured value shall be
corrected to account for the effect of weather and propagation conditions.
3. The Minimum Transponder Performance and Received Signal Power shall be
those measured or otherwise ascertained where the Customer is complying or
procuring compliance with SCHEDULE II.
E. MEASUREMENT TEST SET-UP AND STANDARD ENGINEERING PRACTICE
The saturated transponder e.i.r.p. and Received Signal Power is measured
under all weather conditions at the SES Satellite Control Facility in
Betzdorf, Luxembourg. The measured e.i.r.p. for the Customer's Transponder
is kept on record.
In order to accurately determine each transponder e.i.r.p., a measurement
set-up consisting of a calibrated fluxmeter and radiometer is used. The
fluxmeter measures the power flux density of earth surface created by each
individual satellite transponder.
The radiometer measures atmospheric attenuation along the satellite path,
assuming the atmosphere to be an absorbing homogeneous medium at a constant
temperature. Atmospheric attenuation is measured at the beginning of each
e.i.r.p. measurement cycle.
The fluxmeter uses a calibrated antenna, with a calibrated RF measurement
subsystem comprising, among others, a LNA, a down converter and a true RMS
power sensor. A 33 MHz selectivity bandpass filter is used to reduce errors
due to adjacent channel interference during e.i.r.p. measurements.
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SCHEDULE II: CUSTOMER SIGNALS, CUSTOMER UPLINK SIGNALS AND UPLINK FACILITIES
A. SPECIFICATIONS OF CUSTOMER SIGNALS AND CUSTOMER UPLINK SIGNALS
To ensure consistent and uniform reception of high quality video, audio and
data services by the users of ASTRA transmitted services, and to allow full
inter-operability between different manufacturer's equipment, SES requires
each Customer Signal and Customer Uplink Signal to meet the applicable
provisions of the following specifications:
ISO/IEC 13818-1/-2/-3
Generic coding of moving pictures and associated audio (Part 1: Systems;
Part 2: Video and Part 3: Audio).
ETS 300 421
Digital broadcasting systems for television, sound and data services:
framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETS 300 468
Digital broadcasting systems for television, sound and data services;
specification for Service Information (SI) in Digital Video Broadcasting
(DVB) Systems.
ETR 154
Implementation guidelines for the use of MPEG-2 Systems, video and audio in
satellite and cable broadcasting applications.
ETR 211
Guidelines on implementation and usage of service information.
The Customer agrees to transmit the ASTRA Network Information Table
("NIT") as described in SCHEDULE IX. More specifically, the Customer
Uplink Signals shall automatically update its transmitted NIT to reflect
any changes of the ASTRA NIT. However, the Customer may modify the parts of
the NIT describing the Customer Uplink Signals (e.g. addition of service
list descriptor).
B. CUSTOMER SIGNALS
1. Video source coding shall be as specified in MPEG-2 main profile/main
level.
2. Audio source coding shall be as specified in ISO/IEC 13818-3 and as defined
in ETR 154.
C. CUSTOMER UPLINK SIGNAL AND UPLINK FACILITIES
The Customer shall comply with the specifications and parameters set-out in
the ASTRA Access Agreement, a copy of which has been separately provided to
the Customer, which may be amended by SES, as necessary, provided that such
amendment also applies to other customers on the Satellite.
More specifically, the Customer Uplink Signals and the Uplink Facilities
having access to
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the ASTRA satellite shall meet the performance requirements established in
the ASTRA Access Agreement. SES will provide a reasonable prior notice for
any amendment requiring a change of hardware.
The following parameters shall also be met:
1. EARTH STATION EIRP
For access to the Satellite, the Uplink Facilities must be able to produce a
minimum earth station e.i.r.p. of to be notified by SES to the Customer once
the Customer has informed SES of the uplink site dBW per RF channel for
transmissions originated from to be notified by the Customer to SES before
OSD.
However, given that the Service(s) can be transferred to another ASTRA
satellite, pursuant to Clause 10.5, such transfer may require a separate
earth station and the Customer should note that for such satellite the
Uplink Facilities must be able to produce a minimum earth station e.i.r.p.
to be determined by SES, which may differ from that of the earth station
which accesses the Satellite.
2. TRANSMISSION STANDARD
The transmission standard used for the video, audio, and data services
shall be in accordance with the specifications given in Section A above.
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SCHEDULE III: SERVICE(S) (CLAUSE 10)
The Customer's Transponder shall be used exclusively for the transmission of the
following packages of television services, and related audio, and other services
as specified below all of them targeting at the general public located within
the Target Market. The expression "Target Market" means any or all of the
following countries: Poland, Czech Republic, Slovakia, Hungary, Romania,
Moldova, Bulgaria, Belarus, Russia, Ukraine, Estonia, Latvia, Lithuania,
Slovenia, Croatia, Bosnia Herzegovina, Yugoslavia, Macedonia and Albania. It is
understood that those countries are only to such extent part of the Target
Market as they are covered by the Satellite footprint.
A. PAY-PER-VIEW SERVICES, being television services for which the viewer pays
on the basis of the actual consumption.
B. PAY TV SERVICES, being encrypted television services available upon
subscription.
C. UNENCRYPTED SERVICES, being television services available without any
special decoding equipment.
D. OTHER SERVICES: [TBD]
For each service considered, the Customer shall provide SES with the name of the
service, the types of service (pay-per-view, pay TV, unencrypted), the nature of
the programming and the language(s) of the service.
The above information, for any given Service, shall be provided at least 30 days
before the proposed start date for the Service and shall be subject to SES'
consent which shall not be unreasonably withheld or delayed and, where required,
to the approval of the Government of Luxembourg. Any change of service shall be
subject to the prior written consent of SES which shall not be unreasonably
withheld or delayed.
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SCHEDULE IV: MONITORING (CLAUSE 8)
In addition to performing the activities related to controlling the Satellite,
SES will also monitor all the transmissions through all its transponders as
described below.
SES will maintain a Network Operations Centre (NOC) capable of monitoring the
Received Signal Power of the Customer's Transponder on a continual basis
in order to produce a computerized record of the RF characteristics of the
Customer's Transponder.
As part of these activities, SES conducts a quarterly test using its In Orbit
Test System (IOTS) of the performance of each transponder on the ASTRA
satellite system. This test will necessitate that the Customer's Uplink Signal
be switched off during selected periods of time in accordance with Clause 8.1
for not more than thirty (30) minutes at a time.
If a problem is detected, the NOC Operators will initiate and co-ordinate
corrective measures in co-operation with the Uplink Facility which is
transmitting the Customer Uplink Signals.
The NOC's specific functions and responsibilities will include:
- -- Receiving and handling reports of Unavailability from customers.
- -- Co-ordinating the remedy of the reported difficulty and initiating any
necessary procedures required to restore lost or impaired service in the
most expedient manner
- -- Maintaining a complete and accurate record of all reported and observed
service failures, impairments, and customer contacts
- -- Co-ordinating the overall line-up, pre-service tests, and actual provisions
of service
- -- Arranging the routine monitoring of the Customer's Transponder as described
above
- -- Ensuring that any potential events that may affect the operation of the
Satellite as a whole or of the Customer's Transponder (sun transit, routine
testing, etc.) are notified to the Customer as soon as practicable and in
advance if possible
The reporting points for operational purposes shall be:
At the Customer: c/o Baker McKenzie
ul. Dluga 26/28
00-238 Warsaw
Tel: (48) 22 635 3521
(48) 22 635 4111
Fax: (48) 22 635 9447
(48) 39 121 1213
At SES: Network Operations Centre
Satellite Control Facility
L-6815 Chateau de Betzdorf
Luxembourg
Tel: for urgent problems only:
(352) 710 152
Tel: for normal operating and general use:
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Tel: (352) 710 725-344
Fax: (352) 710 725-227
(352) 710 725-213
Attn: Head Network Operations Centre
The above telephone and facsimile numbers are subject to change by SES or the
Customer.
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SCHEDULE V: CONDITIONAL ACCESS SYSTEM
The Customer may encrypt the Customer Signals using such system as it shall
reasonably select, in conjunction with SES, SES' approval not to be unreasonably
withheld or delayed. The conditional access system selected shall be DVB
compliant (based upon the DVB common scrambling algorithm and mechanisms). A
conditional access system cannot be applied to the Customer Signals during the
time period where SES provides, in its ground station in Betzdorf, encoding and
multiplexing of the Customer Signals.
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SCHEDULE VI: CHARGES (CLAUSE 4)
A. The charge payable by the Customer to SES in each year of this Agreement
(being a year which commences on CSD or any anniversary of that date) shall
be the sum of the fees to be determined in accordance with paragraphs (i)
and (ii), subject always to paragraph (iii):
[@Entertainment has requested confidential treatment for trade secrets and
commercial or financial information denoted by "*" and located in (i) and
(ii), below]
(i) At the Customer's election (the Customer to notify SES of its
election not less than thirty (30) days prior to the commencement of
each year of this Agreement) either:
- an annual fixed fee of *,***,*** USD or
- a monthly fixed fee of ***.*** USD.
The annual fixed fee (when payable) shall be paid on the first day
of the relevant year of this Agreement. The monthly fixed fee
(when payable) shall be payable on the first day of each month of
the relevant year of this Agreement. The Customer hereby elects to
pay the monthly fixed fee in the first year of this Agreement, the
first payment of which shall be on CSD.
(ii) A variable fee of *.** USD for each qualifying digital household up
to ***,*** such households and *.** USD for each qualifying digital
household exceeding ***,*** such households ALWAYS PROVIDED that on
or from 31 March 1999 until the Expiry Date, there shall be deemed
to be not less than ***,*** qualifying digital households
irrespective of the actual number of such households. The
expression "qualifying digital household" means any household
located in which the occupant has a current contract with the
Customer or one of its affiliates or authorized agents or
distributors which gives him the right to receive any services of
the Customer and/or any affiliates of the Customer that are
transmitted using the Customer's Transponder by means of direct
pick-up by the occupant (via direct-to-home) of the digital signal
on an IRD available in the Target Market.
Following determination of the number of qualifying digital
households at the end of the calendar year ending in the relevant
year of this Agreement, the variable payment will be payable on the
average number of houses of the said calendar year (2 point
average) thirty (30) days after notification. For the calendar
year ending in the first year of this Agreement, the 2 point
average will start at zero. Consequently the number of qualifying
digital households for the first year of this Agreement will be
half of the number calculated at the end of that calendar year.
In the first and last year of this Agreement, the variable payment
will be the number of qualifying digital households multiplied by
the appropriate rate(s) adjusted to the number of months in the
relevant calendar year since CSD or until the Expiry Date (as
applicable).
Any calculation of the number of qualifying digital households
shall be verified by an independent auditor to be agreed upon by
the parties.
(iii) The aggregate charges payable by the Customer to SES in any year
shall not exceed 6,750,000 USD.
B. The Customer shall effect payment of all charges to the bank account
identified by SES in the corresponding invoice.
C. The daily rate of charge to be applied for the purposes of calculating any
refund to be made pursuant to CLAUSE 6 of the Agreement shall be the
aggregate charges payable for the Payment Period in the course of which an
Unavailability occurred divided by the number of
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days contained in said Payment Period
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SCHEDULE VII: PRIORITY AND PRE-EMPTION
A - CUSTOMER STATUS
The Customer shall have the status of: Non-pre-emptible Customer as defined in
PART B below.
B - CATEGORIES OF USE
SES' customers using the ASTRA satellite system shall be accorded (for each
transponder used) priority status as: Protected, Non-Pre-emptible or
Pre-emptible.
1. Protected Customers:
a. will not be subject to pre-emption by other customers;
b. will be entitled to be provided with the use of a back-up transponder
(this will require the pre-emption of Pre-emptible Customer); and
c. shall have the benefit of Spare TWTAs, in preference to certain other
customers, as set out in PART C below.
2. Non-Pre-emptible Customers:
a. will not be subject to pre-emption themselves;
b. will have no rights of pre-emption themselves; and
c. shall have the benefit of Spare TWTAs as set out in PART C below.
3. Pre-emptible Customers:
a. have not rights of pre-emption themselves;
b. may have their transponder pre-empted, as set out in PART D below, in
order to provide a back-up transponder to a Protected Customer; and
c. shall have the benefit of Spare TWTAs, but subject to the rights of
other customers in this Schedule, as set out in PART C below.
C. PRIORITY RULES FOR SPARE TWTAs
As a general rule, Spare TWTAs on the Satellite will be provided on a first
failed/first served basis.
However, in the event of simultaneous transponder failures (or where the
sequences of failures cannot be determined) on the Satellite, and if the number
of failures exceeds the number of available Spare TWTAs, then the following
rules shall apply:
1. Protected Customers have priority over Non-Pre-emptible Customers who, in
turn, have priority over Pre-emptible Customers.
2. Where, pursuant to this Schedule, conflicting rights to Spare TWTAs arise
between customers with the same priority status, priority shall be given in
accordance with the following rules:
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a. customers whose service starts on the Operational Service Date ("OSD
CUSTOMER") shall have priority over those whose service starts at a
date after such Operational Service Date;
b. between OSD Customers, priority shall be determined by reference to
the expiry dates of their contracts so that the customers with the
later dates of expiry have priority over customers with earlier expiry
dates;
c. between OSD Customers whose contracts expire on the same date,
priority shall be determined by reference to the dates on which they
signed contracts for the use of a transponder, so that the customers
who signed earlier have priority over those who signed later;
d. between customers whose services start after the Operational Service
Date ("POST OSD CUSTOMERS"), priority shall be determined by
reference to the customer start dates, so that the customers with
earlier customer start dates shall have priority over customers with
later customer start dates;
e. between Post OSD Customers who have the same customer start dates,
priority shall be determined in the same manner as applicable for OSD
Customers under PARAGRAPH 2(b) and (c) above; and
f. between customers originating from different satellites (i.e.
customers whose initial transponder was located on an ASTRA satellite
other than the Satellite), priority shall be determined by reference
to their respective start date on their respective initial satellite,
so that the customers with earlier customer start dates shall have
priority over customers with later customer start dates.
3. For the purpose of the above rules, (i) the expiry date of a contract
shall, in case of extension of the contract, refer to the extended expiry
date, and (ii) the customer start date refers to the start date of a
customer's initial service and is not affected by any subsequent change of
the service transmitted under a given customer contract.
D. PRE-EMPTION RULES
1. If PART A above provides that the Customer has the status of Pre-emptible
Customer, then the Customer's Transponder shall be pre-emptible on the
terms set out below.
2. a. SES shall have the right to pre-empt the Customer's Transponder to
provide back-up capacity to restore the service of a Protected
Transponder in respect of which SES is contractually bound to provide
back-up capacity at the time pre-emption occurs and if there is no
Spare TWTA that can be used to restore the Protected Transponder's
service.
b. As used herein, "PROTECTED TRANSPONDER" means the transponder of a
Protected Customer on another ASTRA satellite, to be nominated by SES
and notified by SES to the Customer at any time, the protection of
which directly or indirectly requires the pre-emption of the
Customer's Transponder. There may be several Protected Transponders
nominated by SES, provided that each is on a different ASTRA
satellite. SES may increase or reduce the number of Protected
Transponders at any time by giving prior written notice to the
Customer.
3. To Pre-empt the Customer's Transponder:
a. SES will give the Customer at least 24 hours advance warning (by fax
or phone) of
27
<PAGE> 28
CONFIDENTIAL
such pre-emption save in the event of consecutive failures of a
Protected Transponder, in which case such pre-emption warning may be
shorter, it being understood that SES will keep the Customer informed
of the status of the Protected Transponders affected by such
consecutive failures; and
b. at the expiry of the aforementioned advance warning, SES shall have
the right to forthwith interrupt the transmission of all video and
audio services using the Customer's Transponder and the Customer shall
therefore forthwith, upon SES' request, interrupt the transmission of
the Customer Uplink Signal. SES shall in addition have the right to
interrupt the reception of the Customer Uplink Signals by the
Customer's Transponder.
4. The Customer shall comply diligently with SES' instructions for the purpose
of implementing the pre-emption and shall require the operator of the
Uplink Facilities to do the same.
5. a. If SES pre-empts the Customer's Transponder, then, at that time, SES'
obligation to provide the use of the Customer's Transponder, and the
Customer's obligation to pay the corresponding charge, shall be
suspended. The Agreement shall terminate 30 days after the pre-emption
date unless SES, within this period, restores the Protected
Transponder in respect of which pre-emption was implemented. If such
restoration occurs after this 30 days period, then SES shall offer the
Customer's Transponder back to the Customer on the terms set out in
this Agreement for the outstanding period of Term. The Customer shall
have fifteen (15) days to accept SES' offer.
b. Upon termination of the Agreement pursuant hereto, as the case may be,
i. SES shall refund to the Customer the pro rata temporis portion of
the advance payments made by the Customer pursuant to Schedule VI
and relating to the unexpired portion of the period (in respect
of which the Customer has paid in advance) in progress on the
date of pre-emption; or
ii. the Customer shall pay to SES all outstanding sums owed to SES at
the time of termination.
6. a. The Customer shall fully cooperate with SES for the exercise, by SES,
of its right of pre-emption provided herein and shall not raise any
objection, initiate any legal proceedings against SES or the Protected
Customer benefiting from the pre-emption, or take other steps, to
prevent, delay or obstruct the exercise of this right and the Customer
shall be liable for all damages suffered by SES or such Protected
Customer in connection therewith.
b. The Customer shall not make any claim against SES or the Protected
Customer benefiting from the pre-emption in connection with the
exercise, by SES, of its right of pre-emption and shall indemnify SES
against any related third party claim.
28
<PAGE> 29
CONFIDENTIAL
SCHEDULE VIII. ASTRA ACCESS AGREEMENT
29
<PAGE> 30
CONFIDENTIAL
SCHEDULE IX: ASIUS
30
<PAGE> 31
ASTRA LOGO
ASTRA ACCESS AGREEMENT
PERFORMANCE CHARACTERISTICS OF
EARTH STATIONS HAVING ACCESS TO
ASTRA SATELLITES
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<PAGE> 32
CONTENTS
<TABLE>
<S> <C>
1. INTRODUCTION .......................................................... 1
2. ANTENNA SYSTEM ........................................................ 2
2.1. General ......................................................... 2
2.2. Frequency Range ................................................. 2
2.3. Off-axis Antenna Gain Pattern ................................... 4
2.4. Polarisation .................................................... 4
2.5. Motorisation, Antenna Pointing and Tracking ..................... 4
3. RF EQUIPMENT .......................................................... 5
3.1. Frequency Range and Agility ..................................... 5
3.2. E.i.r.p. Capability ............................................. 5
3.3. Transmitter Inhibit ............................................. 5
3.4. Out-of-Band e.i.r.p. Emission ................................... 6
3.5. Off-axis e.i.r.p. Density ....................................... 6
3.6. Frequency Stability ............................................. 6
4. AMPLITUDE AND GROUP DELAY DISTORTIONS ................................. 7
4.1. FM TV transmission in FSS and BSS bands ......................... 7
4.2. Digital transmission in FSS and BSS bands ....................... 8
4.3. Group Delay Equalisation ........................................ 9
5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION ............................ 10
5.1. General ......................................................... 10
5.2. PAL Transmission Standard ....................................... 10
5.2.1. Video Signal ............................................. 10
5.2.1.1. Frequency Deviation ............................. 10
5.2.1.2. Energy Dispersal ................................ 10
5.2.1.3. Pre-emphasis .................................... 11
5.2.2. On-line Testing .......................................... 11
5.2.3. Audio Signals ............................................ 11
5.2.3.1. Audio Channel Modes ............................. 11
5.2.3.2. Subcarrier Frequency ............................ 15
5.2.3.3. Subcarrier Bandwidth ............................ 16
5.2.3.4. Subcarrier Modulation Index ..................... 16
5.2.3.5. Analogue Audio .................................. 16
5.2.3.5.1. Analogue Audio Deviation ............. 16
5.2.3.5.2. Analogue Audio Bandwidth ............. 16
5.2.3.5.3. Pre-emphasis ......................... 16
5.2.3.6. Digital Audio ................................... 17
5.2.3.6.1. Sampling Method ...................... 17
5.2.3.6.2. Modulation Method .................... 17
5.2.3.6.3. Auxiliary Data ....................... 17
5.2.3.7. Network Control Carrier ......................... 17
5.2.4. Teletext ................................................. 17
</TABLE>
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<PAGE> 33
CONTENTS
<TABLE>
<S> <C>
6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE
CODING FOR DIGITAL SERVICES ........................................... 18
6.1. General ......................................................... 18
6.2. Modulation ...................................................... 18
6.2.1. BSS bands ................................................ 18
6.2.2. FSS bands ................................................ 18
6.2.3. Earth Station Degradation ................................ 18
6.3. Channel coding .................................................. 18
6.4. Power Spectrum Density Mask ..................................... 19
6.4.1. BSS Bands ................................................ 19
6.4.2. FSS Bands ................................................ 19
6.5. Multiplexing .................................................... 20
6.5.1. General .................................................. 20
6.5.2. Transport Stream ......................................... 20
6.5.3. Service Information ...................................... 20
6.6. Source Coding ................................................... 21
7. ASTRA SATELLITE INFORMATION ........................................... 22
7.1. ASTRA 1 series .................................................. 22
7.1.1. ASTRA 1 Transponder Frequency Plan ....................... 22
7.2. ASTRA 2 series .................................................. 31
7.2.1. ASTRA 2 Transponder Frequency Plan ....................... 31
8. ORBITAL POSITION/STATION KEEPING ...................................... 35
9. BEACON INFORMATION .................................................... 35
9.1. ASTRA 1A and ASTRA 1B Beacon Details ............................ 36
9.2. ASTRA 1C, 1D, 1E, 1F, 1G and 1H Beacon Details .................. 36
9.3. ASTRA 2A Beacon Details ......................................... 36
9.4. ASTRA 2B Beacon Details ......................................... 37
Annex 1 ..................................................................... 38
MULTIPLEX DIAGNOSTIC TABLE (MDT) ...................................... 38
</TABLE>
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<PAGE> 34
1. INTRODUCTION
In order to access an ASTRA satellite, approval must first be obtained from
Societe Europeenne des Satellites - SES. The purpose of this approval is to
control the technical parameters of the Uplink Facilities and Customer's Uplink
Signal, to ensure that the following objectives are met:
- -- The desired signal quality and availability are achieved;
- -- Harmful interference is not produced in the other transmissions carried by
any ASTRA spacecraft;
- -- The interference produced in other satellite systems will not exceed the
coordinated levels.
This document outlines the specifications established by SES in order to
achieve those objectives. Access to a specific ASTRA satellite will only be
granted after compliance to the specifications has been demonstrated to the
satisfaction of SES.
In case of contradiction between the ASTRA Access Agreement and the Customer's
Transponder Agreement, the latter shall prevail.
The following definitions are utilised in this document:
OPERATOR -- Person, firm, corporation or other legal entity using an ASTRA
transponder.
SATELLITE CONTROL FACILITY (SCF) -- SES earth station complex located at
Betzdorf, Grand Duchy of Luxembourg.
DIGITAL TRANSMISSION FACILITY (DTF) -- Part of the SES earth station complex,
located at Betzdorf, Grand Duchy of Luxembourg, in which digital services are
handled.
ANALOGUE NETWORK OPERATIONS CENTRE (NOC) -- The monitor and control centre for
all analogue ASTRA services, located at the SCF. This provides a 24 hour
monitor and control network reporting point for service quality monitoring and
problem resolution for the ASTRA analogue satellites.
DIGITAL NETWORK OPERATIONS CENTRE (DINO) -- The monitor and control centre for
all ASTRA digital services, located at the DTF. This provides a 24 hour monitor
and control network reporting point for service quality monitoring and problem
resolution for the ASTRA digital satellites.
REFERENCE STANDARD EARTH STATION (RSES) -- These stations are highly maintained
up- and downlinks to be used in developing baseline performance standards for
transmission carried by the ASTRA satellites.
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<PAGE> 35
<TABLE>
<CAPTION>
REFERENCE STANDARD
SATELLITE EARTH STATION
--------- ------------------
<S> <C>
ASTRA 1A..................BTZ #2
ASTRA 1B..................BTZ #3
ASTRA 1C..................BTZ #4
ASTRA 1D..................BTZ #5
ASTRA 1E..................BTZ #6
ASTRA 1F..................BTZ #10
ASTRA 1G..................BTZ #12
ASTRA 1H..................BTZ #14
ASTRA 2A..................BTZ #13
ASTRA 2B..................BTZ #15
</TABLE>
Table 1. ASTRA Reference Standard Earth Stations
2. ANTENNA SYSTEM
2.1. GENERAL
A dedicated antenna system shall be used for access to any ASTRA satellite.
Simultaneous access to two or more ASTRA satellites by a single antenna system
is not permitted, but it is permitted for one antenna to access a single
spacecraft in both the FSS and BSS bands. By using a dedicated antenna system
as specified herein for a given ASTRA satellite, link performance in terms of
uplink and downlink Carrier/Thermal Noise (C/N) and Carrier/Cross Polar
Interference (C/X) can be maintained.
2.2. FREQUENCY RANGE
The antenna system is required to meet all the specifications set in the next
items operating in the appropriate FSS or BSS frequency range.
The uplink frequency ranges for the different ASTRA satellites (primary and
back-up bands) are shown in the following Table 2.
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<PAGE> 36
<TABLE>
<CAPTION>
FSS BSS
---------------------------------------------- ----------------
Satellite 12.75-13.25 13.75-14.00 14.00-14.50 17.30-18.10
- --------- ---------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASTRA 1A..... A-Band
ASTRA 1B..... B-Band
ASTRA 1C..... C-Band A-Band
ASTRA 1D.....D-Band C-Band B-Band E-Band
ASTRA 1E.....D-Band C-Band B-Band E-Band
ASTRA 1F..... A-Band E-Band F-Band
ASTRA 1G..... G-Band E-Band F-Band
ASTRA 1H..... G-Band E-Band F-Band
ASTRA 2A..... G-Band E-Band F-Band
ASTRA 2B..... G-Band B-Band E-Band F-Band
</TABLE>
TABLE 2. ASTRA UPLINK FREQUENCY BANDS
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<PAGE> 37
2.3 OFF-AXIS ANTENNA GAIN PATTERN
The gain, (expressed in dBi), relative to an isotropic antenna, at any off-axis
angle (-) (expressed in degrees) shall comply with the following:
<TABLE>
<CAPTION>
FREQUENCY RANGE (GHz) GAIN (dBI) ANGULAR RANGE
- --------------------- ---------- -------------
<S> <C> <C>
14.00 - 14.50....... G</- 29 - 25 log (-) 1 degree < (-) </- 20 degrees
G</- 32 - 25 log (-) 20 degrees < (-) </- 48 degrees
G</- -10 48 degrees < (-) </- 180 degrees
12.75 - 13.25....... G</- 29 - 25 log (-) 0.5 degree < (-) </- 36.3 degrees
13.75 - 14.00....... G</- -10 36.3 degrees < (-) </- 180 degrees
17.30 - 18.10....... G</- 29 - 25 log (-) 1 degree < (-) </- 36.3 degrees
G</- -10 36.3 degrees < (-) </- 180 degrees
</TABLE>
2.4. POLARISATION
The ASTRA satellites employ dual linear orthogonal polarisation. The antenna
polarisation angle will be set with SES during service line-up, following the
appropriate procedure established by the NOC and the DINO. The cross-polarised
signal component transmitted by the antenna shall be as specified below:
FSS band: 30 dB
BSS band: 35 db
2.5. MOTORISATION, ANTENNA POINTING AND TRACKING
Permanent uplink antennas shall be motorised in both azimuth and elevation to
enable rapid repointing in case of necessity, and to facilitate accurate antenna
pattern measurements.
Further, the utilisation of a suitable tracking system is recommended in order
to meet the e.i.r.p. stability requirement specified in the following section
3.2. The tracking system design shall be based on the ASTRA satellite station
keeping and beacon frequency parameters, which are presented in sections 8 and 9
respectively. It shall guarantee the clear sky polarisation value specified in
the previous section 2.4.
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<PAGE> 38
3. RF EQUIPMENT
The RF equipment, including any redundant equipment, is required to meet all
the specifications set out in the following sections 3.1 to 3.6.
3.1. FREQUENCY RANGE AND AGILITY
It shall be possible to set the carrier centre frequency to within +/- 125 kHz.
3.2. E.I.R.P. CAPABILITY
The e.i.r.p. will be established by SES based on the utilised channel and on
the uplink geographical location.
It is expected that SES may request changes in the earth station e.i.r.p.
during the course of the contract, to account for changes in the transponder
performance over its lifetime, utilisation of redundant units or utilisation of
a different transponder.
The uplink e.i.r.p. stability shall be equal to or better than +/- 0.5 dB
including antenna pointing and tracking errors.
Means shall be provided to allow adjustment of the carrier level to within 0.5
dB of the specified value.
3.3. TRANSMITTER INHIBIT
Operators accessing ASTRA satellites may be required by the NOC or the DINO to
shut down a transmission in the case where it is producing harmful interference
into other transmissions. Shut down of a transmission may also be required to
allow the switching into operation of redundant units in the satellite.
In order to comply with this requirement, the Operator shall provide continuous
manning of the uplink site or a remote control system to another location which
will be manned continuously.
The transmitter shall utilise a system which automatically inhibits the
transmission of a chain upon the detection of failure conditions such as loss of
phase lock on an upconverter or excessive HPA transmit power. This system may
also be designed to, alternatively, switch the transmission to a stand-by chain.
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<PAGE> 39
3.4. OUT-OF-BAND e.i.r.p. EMISSION
Earth station out-of-band emissions are additional sources of interference for
other carriers utilising ASTRA transponders. The two contributions to
out-of-band e.i.r.p. emission are spurious output and intermodulation products.
Note that the specification applies across all ASTRA uplink bands (both FSS and
BSS) for all stations. The specified limits for these two contributions are
the following:
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, and 17.30 - 18.10 GHz bands, resulting from spurious output, must not
exceed 4.0 dBW/4 kHz;
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, and 17.30 - 18.10 GHz bands, resulting from intermodulation
products, must not exceed 12.0 dBW/4 kHz.
3.5. OFF-AXIS e.i.r.p. DENSITY
This parameter has a direct impact on the interference produced in other
satellite systems. In order to keep this interference within acceptable levels,
the earth station must comply with the following e.i.r.p. limits. The off-axis
angle, (-), is referred to the main lobe axis, in degrees.
For the frequency range 14.00-14.50 GHz, based on ITU-R Report 1001:
35 - 25log (-) dBW/40 kHz for 2.5 degrees </- (-) </- 48 degrees
-7 dBW/40 kHz for 48 degrees < (-) </- 180 degrees
For the frequency range 12.75 - 13.25 GHz based on the ITU Appendix 30B planned
limits (averaged over the necessary bandwidth of 26 MHz):
-25 - 25log (-) dBw/Hz for 0.5 degrees </- (-) </- 36.3 degrees
-64 dBW/Hz for 36.3 degrees < (-) </- 180 degrees
For the frequency range 13.75 - 14.00 GHz, the antenna must fully comply with
the antenna specification (section 2.3).
For the frequency range 17.30 - 18.10 GHz, the input power to the antenna
shall not exceed 30 dBW in a single transponder, and the antenna must conform
fully with the antenna specification (section 2.3).
3.6. FREQUENCY STABILITY
The RF frequency tolerance of the transmitted carrier shall be equal to or
better than +/- 150 kHz, long and short term stability.
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4. AMPLITUDE AND GROUP DELAY DISTORTIONS
4.1. FM TV TRANSMISSION IN FSS AND BSS BANDS
The earth station IF uplink filter shall be provided in the uplink chain and
shall conform to the amplitude limits shown in Figure 4.1.1.
The group delay produced by transmit earth station IF and RF equipment -
including the up-converter, IF filter, HPA, RF filter combiners, feed and
transmission lines - shall be equalised to the limits given in Figure 4.1.2.
[FIGURE 146A]
<TABLE>
<CAPTION>
FREQUENCY (MHz) AMPLITUDE (dB)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A B C D a b c d
- -------------------------------------------------------------------
20.2 25.2 28.9 40.0 0.2 2.2 8.3 25.0
- -------------------------------------------------------------------
</TABLE>
Figure 4.1.1. IF UPLINK FILTER AMPLITUDE RESPONSE
[FIGURE 146B]
<TABLE>
<CAPTION>
FREQUENCY (MHz) GROUP DELAY (ns)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A/3 A H f g h
- -------------------------------------------------------------------
6.7 20.2 24.6 2.0 3.0 12.0
- -------------------------------------------------------------------
</TABLE>
Figure 4.1.2. IF UPLINK GROUP DELAY RESPONSE
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<PAGE> 41
4.2. DIGITAL TRANSMISSION IN FSS AND BSS BANDS
For the FSS or BSS transmit channel from upconverter input to antenna output,
the total amplitude and group delay distortions shall not exceed the values
specified in Table 4.2.1.
<TABLE>
<CAPTION>
FSS BSS
----------------- -----------------
<S> <C> <C> <C> <C>
Frequency (MHz)................. 26 30 33 39
Amplitude variation (dBpp)...... 0.5 0.7 0.5 0.7
Group delay variation (nspp).... 6.0 8.0 6.0 8.0
</TABLE>
Table 4.2.1 AMPLITUDE AND GROUP DELAY DISTORTIONS
In the case where an RF channel filter network is used, the amplitude and group
delay masks specified in Figure 4.2.1 and 4.2.2 shall be met from the HPA
output to the antenna output.
(FIGURE 47)
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) AMPLITUDE (dB)
- ---- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
A B C a b c
---- ---- ----- ---- ---- ----
FSS 26 30 114 0.25 0.35 35
BSS 33 39 123
</TABLE>
Figure 4.2.1. RF CHANNEL FILTER AMPLITUDE RESPONSE
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<PAGE> 42
[FIGURE 46]
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) GROUP DELAY (ns)
--------------- ----------------
A B a b
------- ------ ------ ------
<S> <C> <C> <C> <C>
FSS 26 30
3.5 5.0
BSS 33 39
</TABLE>
Figure 4.2.2. RF CHANNEL GROUP DELAY MASK
4.3. GROUP DELAY EQUALISATION
Equalisation capability shall be provided at the earth station for intrinsic
group delay in the earth station transmit equipment and for group delay in the
satellite transponder.
The maximum range of satellite group delay to be equalised at the earth
station is given below:
- -- Linear : +/-1.0 ns/MHz
- -- Parabolic : 0.5 ns/MHz(2)
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5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION
5.1. GENERAL
In general the baseband television signal parameters defined shall be designed
in accordance with the relevant definitions and standards for that system and as
authorised by SES.
5.2. PAL TRANSMISSION STANDARD
5.2.1. VIDEO SIGNAL
The transmitted video signal shall correspond to that of ITU-R Report 624-4 and
Recommendation 472-3, using PAL values with a maximum video signal bandwidth of
5 MHz.
A lowpass filter at the video input to the modulator shall reject any signal
above 6 MHz by at least 40 dB. Up to 5 MHz this filter shall have a group delay
ripple of less than +/-20 ns.
The following items present information concerning the basis modulation
parameters.
5.2.1.1. FREQUENCY DEVIATION
The utilised peak-to-peak frequency deviation for the video signal shall be 16
MHz/V, assuming the difference between white and black levels to be 0.7 V.
5.2.1.2. ENERGY DISPERSAL
The earth station shall be equipped to add to the TV signal a fixed amplitude
symmetrical triangular waveform, phase locked to the video frame rate, capable
of producing the specified peak-to-peak deviation of the television carrier.
The utilised frequency of that waveform shall be 25 Hz.
The energy dispersal waveform shall be applied automatically and produce the
following peak-to-peak deviation of the TV carrier:
-- In the presence of a modulating signal: 2.0 MHz
-- In the absence of a modulating signal: 4.0 MHz
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<PAGE> 44
5.2.1.3. PRE-EMPHASIS
The utilised pre-emphasis network shall be that defined in the ITU-R
Recommendation 405-1 (625 lines).
5.2.2. ON-LINE TESTING
In order to enable service performance monitoring while on-line transmission is
present, vertical interval test signals (VITS) shall be inserted on the
transmitted baseband video signal. These signals are based on ITU-R
Recommendation 473-5, as depicted in Figures 5.2.2.1 - 5.2.2.3 and shall
utilise one of the following VITS line modes:
<TABLE>
<CAPTION>
TEST SIGNAL LINE LINE LINE
----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CCIR 17.............. 17 18 19
CCIR 18.............. 18 or 19 or 20
CCIR 330............. 330 331 332
CCIR 331............. 331 332 333
</TABLE>
In addition line 22 shall always be used as a "quiet" line to allow the
measurement of end-to-end signal/noise ratio or for other purposes specified by
SES.
5.2.3. AUDIO SIGNALS
5.2.3.1. AUDIO CHANNEL MODES
The TV carrier shall (normally) be supplemented by a number of audio channels.
The following sections describe the various subcarrier configurations that may
be used for the transmission of audio channels for both TV-related and non
TV-related applications.
Only those subcarriers specified in the Customer's Transponder Agreement shall
be utilised and only subcarrier modulation equipment approved by SES shall be
employed.
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<PAGE> 45
<TABLE>
<CAPTION>
CHARACTERISTICS MEASURED WAVEFORM USED LINE NUMBER
------------------------ ------------- -----------
<S> <C> <C> <C>
Linear distortions
Insertion gain........B(2) Bar 17 and 330
Amplitude/frequency
response............C(2) and C(1) Multiburst 18
Line-time waveform
distortion..........B(2) Bar 17 and 330
Short-time waveform
distortion:
step response.....B(2) Bar 17 and 330
pulse response....B(1) 2T 17 and 330
Chrominance-luminance
gain inequality.....B(2) and G(1), or G(2) Bar & Subcarr. 17 and 330, 331
B(2) and F Bar & 20T 17
Chrominance-luminance
delay inequality....F 20T 17
Non-linear distortions
Luminance line-time
non-linearity.......D(1) Staircase 17
Chrominance
non-linearity.......G(2) 3Step Subcarr. 331
Luminance-Chrominance
intermodulation:
-- differential
gain...........D(2) Modulated 330
-- differential
phase..........D(2) and E Staircase 330, 331
Chrominance-luminance
intermodulation.....B(2) and G(1) or G(2) Bar & Subcarr. 17, 331
</TABLE>
Table from CCITT-Rec N. 67
Figure 5.2.2.1 VERTICAL INTERVAL TEST SIGNALS
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[FIGURE 52A]
[FIGURE 52B]
Figure 5.2.2.2. VERTICAL INTERVAL TEST SIGNALS
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[FIGURE 53A]
[FIGURE 53B]
Figure 5.2.2.3. VERTICAL INTERVAL TEST SIGNALS
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5.2.3.2. SUBCARRIER FREQUENCY
The audio subcarriers shall utilise only the frequencies presented in Table
5.2.3.2.1. and shall only be used in the manner indicated in the column "Type",
and in accordance with Section 5.2.3.1.
<TABLE>
<CAPTION>
Type Frequency (MHz)
---- ---------------
<S> <C>
Digital Only........................6.12@
Digital Only........................6.30@
Digital Only........................6.48@
Digital Only........................6.66@
Digital Only........................6.84@
TV sound (A:L/M)........................7.02
TV sound (A:R/M)........................7.20
D or A (L/M)..........................7.38
D or A (R/M)..........................7.58
D or A (L/M)..........................7.74
D or A (R/M) ........................7.92
Digital Only........................8.10*
Digital Only........................8.28*
Digital Only........................8.46#
Low Speed Data for network control...........8.595#
</TABLE>
Table 5.2.3.2.1. SUBCARRIERS FREQUENCIES
A = analogue companded system with Panda(R)-I parameters.
D = digital stereo 192 kbit/s QPSK signal using ISO 11172-3 Layer II parameters.
L = left stereo R = right stereo M = mono
* - Frequency tolerance of +/-0.005 MHz for all subcarriers
@ - As an option, these five subcarriers may be replaced by a single
non-companded analogue subcarrier at 6.50 MHz used for mono TV sound.
+ - These subcarriers may only be used if subcarriers 7.74 and 7.92 MHz are
digital.
# - In some applications the use of this subcarrier may be restricted to
prevent degradation of the picture quality.
(R) - Panda is a registered trademark of WEGENER Communications Inc.
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5.2.3.3. SUBCARRIER BANDWIDTH
A 130 kHz nominal bandwidth shall be utilised for all the analogue companded or
digital audio subcarriers. In the case of the non-companded mono subcarrier,
the nominal bandwidth of the modulated signal shall be 200 kHz.
5.2.3.4. SUBCARRIER MODULATION INDEX
The modulation index of the subcarrier, BETAscx, is given by the following
expression:
BETAsc = DELTAsc/Fsc
Where BETAscx is the peak deviation produced by the subcarrier in the TV carrier
and Fsc is the frequency of the subcarrier, both DELTAsc and Fsc being given in
MHz.
For the analogue companded subcarriers, a modulation index of 0.15 shall be
utilised. For the digital audio subcarriers, a modulation index of 0.12 shall
be utilised. For the network control subcarrier (8.595 MHz) a modulation index
of 0.10 shall be utilised. In the case of the non-companded mono subcarrier a
modulation index of 0.26 shall be utilised.
5.2.3.5. ANALOGUE AUDIO
5.2.3.5.1. ANALOGUE AUDIO DEVIATION
The peak frequency deviation produced by a 9 dBm0 test tone on the analogue
companded subcarriers shall be +/- 50 kHz. In the case of the non-companded mono
subcarrier, a 9 dBm0 test tone shall produce a peak frequency deviation of
+/- 85 kHz.
5.2.3.5.2. ANALOGUE AUDIO BANDWIDTH
All the analogue audio channels shall provide an audio baseband ranging from
20 Hz to 15 kHz.
5.2.3.5.3. PRE-EMPHASIS
The analogue companded subcarriers shall utilise 75 mu's together with an
adaptive pre-emphasis compatible with the WEGENER Communications Panda(R)-I
system. The pre-emphasis time constant of the non-companded audio subcarrier
shall be 50 mu's.
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5.2.3.6. DIGITAL AUDIO
The digital audio subcarriers shall utilise ISO 11172-3 Layer II coding system
to achieve a CD quality stereo channel and shall conform with the SES document
"ASTRA DIGITAL RADIO (ADR)".
5.2.3.6.1. SAMPLING METHOD
The analogue stereo signal input shall be sampled at a rate of 48 ksamples/s.
Compression based on the ISO 11172-3 Layer II algorithm shall then be performed
to generate a 192 kbit/s digital stereo signal.
5.2.3.6.2. MODULATION METHOD
The digital audio signals shall be modulated using the differential QPSK method,
with a convolutional code of rate 3/4, with constraint length 7, CCITT V.35
scrambling shall be employed. An appropriate filter mask shall be applied in the
modulator to limit the bandwidth to the same value as for an analogue companded
subcarrier.
5.2.3.6.3. AUXILIARY DATA
The format of any auxiliary data in the ISO 11172-3 Layer II data stream shall
be agreed by SES in writing.
5.2.3.7. NETWORK CONTROL CARRIER
The maximum data rate shall be 14.4 kbits/s using asynchronous FSK modulation.
The modulation index shall be 0.10.
5.2.4. Teletext
The Teletext signal shall conform to the specifications for Teletext System B as
defined in ITU-R Recommendation 653, for the case of a 625/50 television system.
THE VBI (VERTICAL BLANKING INTERVAL) SHALL NOT BE USED FOR TRANSMISSION OF ANY
OTHER TYPE OF INFORMATION OR SIGNAL WITHOUT PREVIOUS AUTHORISATION IN WRITING
FROM SES.
Teletext signals shall only be inserted between lines 7 and 21 inclusive (and
the corresponding lines in the second field) other than on those lines used for
VITS test signals as specified in paragraph 5.2.2 unless specifically approved
in writing by SES.
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6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE CODING FOR DIGITAL
SERVICES
6.1 GENERAL
Channel coding and modulation equipment shall conform to the following
specifications:
ETS 300 421
Digital broadcasting systems for television, sound and data services;
Framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
The transmitted RF carrier spectrum shall not be inverted with respect to the
modulator output spectrum. The phase accuracy at the modulator output shall be
+/-2 degrees. The amplitude accuracy at the modulator output shall be +/-0.2 dB.
6.2. MODULATION
6.2.1. BSS BANDS
The modulation shall be QPSK at a transmission bit rate of 55.0 Mbit/s, in order
to operate with a single carrier at a fixed symbol rate of 27.5 Msym/s.
6.2.2. FSS BANDS
The modulation shall be QPSK at a transmission bit rate of 44.0 Mbit/s, in order
to operate with a single carrier at a fixed symbol rate of 22.0 Msym/s.
6.2.3. EARTH STATION DEGRADATION
The E6/No degradation (for the case of FEC 3/4 and BER = 10(7) caused by the
earth station equipment shall be less than 0.5 dB. This value shall be verified
in a station loop including baseband, IF and RF equipment of the uplink and
downlink chain.
6.3. CHANNEL CODING
Forward Error Correction (FEC) shall conform to the specifications given in
section 6.1 and shall permit the use of one or more of the following FEC ratios:
1/2, 2/3, 3/4 or (in the case of FSS 26 MHz bandwidth) 5/6.
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6.4. POWER SPECTRUM DENSITY MASK
6.4.1. BSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.1. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
Frequency Offset (+/-) Amplitude
(MHz) (dB)
- ---------------------- ---------
<S> <C>
0 - 19.50 0.0 (FIGURE 58A)
19.50 - 29.25 -25.0
>/- 40.00 -40.0
</TABLE>
Figure 6.4.1. BSS POWER SPECTRUM MASK
6.4.2. FSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.2. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
Frequency Offset (+/-) Amplitude
(MHz) (dB)
- ---------------------- ---------
<S> <C>
0 - 14.75 0.0 (FIGURE 58B)
14.75 - 22.50 -25.0
>/- 30.00 -40.0
</TABLE>
Figure 6.4.2. BSS POWER SPECTRUM MASK
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6.5. MULTIPLEXING
6.5.1. GENERAL
Multiplexing of video, audio, and data signals shall conform to the following
specifications:
ISO/IEC 13818-1
Generic coding of moving pictures and associated audio (Part 1: Systems).
ETR 154
Digital broadcasting systems for television; implementation guidelines
for the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
6.5.2. Transport Stream
The Transport Stream (excluding error correcting code overhead) shall operate
at one of the following bit rates, dependent on the FEC to be used:
<TABLE>
<CAPTION>
TRANSPORT STREAM BIT RATE
FEC RATIO (MBIT/S)
--------- -------------------------
BSS FSS
--------- ---------
<S> <C> <C>
1/2 .......... 25.34 20.27
2/3 .......... 33.79 27.03
3/4 .......... 38.01 30.41
5/6 .......... n.a. 33.79
</TABLE>
6.5.3. SERVICE INFORMATION
Service Information shall conform to the following specifications:
ETS 300 458
Digital broadcasting systems for television, sound and data
services: Specification for Service Information (SI) in Digital Video
Broadcasting (DVB) systems.
ETR 211
Digital broadcasting systems for television; implementation guidelines
for the use of MPEG-2 systems; Guidelines on implementation and usage
of service information.
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It is further required to receive the original ASTRA NETWORK
INFORMATION TABLE (NIT) uplinked from Betzdorf and to re-transmit this
table in intervals of at least 10 seconds on each locally uplinked
ASTRA transponder.
The last version of the original NIT should be kept in memory. This
ensures an uninterrupted availability of the NIT in case the original
NIT cannot be received.
By means of the local Service information editing station, the
transponder specific parts of the NIT can be modified/updated at any time.
A MULTIPLEX DIAGNOSTIC TABLE (MDT) has been defined to provide a
mechanism for conveying diagnostic information about the consistency
of all multiplexes to the central Network Operations Centre at Betzdorf.
The local uplinks should generate such MDT in the case a service
failure occurs for longer than 10 seconds, i.e. if a service
component (video, audio, subtitle or accompanied data) or a Service
information component (NIT, SDT, EIT or TDT) is missing.
This involves that the local encoders signal corresponding failure
information to the local multiplex controller that shall generate the
MDT. After the failure has been eliminated, the local uplink stops
transmitting the MDT.
Details on the Multiplex Diagnostic Table concept can be found in
Annex 1.
In addition it is recommended that a transmitted Service Description
Table (SDT) includes the service information about all services on
the respective transponder on which it is transmitted, and that an
Event Information Table (EIT) includes the event information about
all present and following events for all services on the respective
transponder.
6.6 SOURCE CODING
Source coding of video and audio signals shall conform to the
following specifications:
ISO/IEC 13818-2/-3
Generic coding of moving pictures and associated audio (Part 2:
Video and Part 3: Audio).
ETR 154
Digital broadcasting systems for television; Implementation
guidelines for the use of MPEG-2 systems; Video and audio in
satellite and cable broadcasting applications.
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7. ASTRA SATELLITE INFORMATION
7.1. ASTRA 1 SERIES
Presently, there are six ASTRA satellites (ASTRA 1A to 1F) at the orbital
position of 19.2 degrees East. In the middle of 1997, ASTRA 1G will be added to
fill the available frequency spectrum at 19.2 degrees East. ASTRA 1G is SES'
seventh satellite to be co-positioned at 19.2 degrees East. Adding 16
transponders, the spacecraft will increase the digital transmission capacity on
that position to 120 transponders.
The eight satellite at the 19.2 degrees East orbital position, ASTRA 1H will be
launched to provide backup capability for the other satellites at that position.
7.1.1. ASTRA 1 TRANSPONDER FREQUENCY PLAN
Figures 7.1.a. to 7.1.g. present the ASTRA 1 satellite system frequency plans.
All transponders are linearly polarised, utilising the polarisation scheme
presented in Table 7.1. The two polarisations are orthogonal to each other and
the horizontal polarisation has a counter-clockwise rotation of 7.5 degrees
relative to the orbit plane, as viewed from the satellite.
TRANSPONDER UPLINK DOWNLINK
- ----------- ---------- ----------
Odd................. Vertical Horizontal
Even................ Horizontal Vertical
- --------------------------------------------------------------------------------
Table 7.1. -- ASTRA 1 TRANSPONDER POLARISATION SCHEME
All the ASTRA 1 satellites provide four different downlink coverage modes, as
detailed in Tables 7.1.a. to 7.1.b. These four modes provide different coverage,
concentrating more downlink power in different regions of Europe.
SATELLITE ASTRA 1A ASTRA 1B ASTRA 1C ASTRA 1D
--------- -------- -------- -------- ---------
MODE TRANSPONDER
---- -----------
Horizontal 1.. 1, 5, 9, 13 17, 21, 25, 29 33, 37, 41, 45 49, 53, 57, 61
Horizontal 2.. 3, 7, 11, 15 19, 23, 27, 31 35, 39, 43, 47, 63 51, 55, 59, 63
Vertical 1.... 4, 8, 12, 16 20, 24, 28, 32 36, 40, 44, 48, 64 52, 56, 60, 64
Vertical 2.... 2, 6, 10, 14 18, 22, 26, 30 34, 38, 42, 46 50, 54, 58, 62
Table 7.1.a. -- ASTRA 1A to 1D DOWNLINK
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<TABLE>
<CAPTION>
SATELLITE ASTRA 1E ASTRA 1F ASTRA 1G
- --------- -------- -------- --------
MODE TRANSPONDER
---- -----------
<S> <C> <C> <C>
Horizontal+..... 65, 69, 73, 77, 81 85, 89, 93, 97, 101 105, 109, 113, 117
Horizontal-..... 67, 71, 75, 79 83, 87, 91, 95, 99, 103 107, 111, 115, 119
Vertical-....... 68, 72, 76, 80 84, 88, 92, 96, 100, 104 108, 112, 116, 120
Vertical+....... 66, 70, 74, 78, 82 86, 90, 94, 98, 102 106, 110, 114, 118
</TABLE>
Table 7.1.b. - ASTRA 1E to 1G DOWNLINK
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(FIGURE 63)
Figure 7.1 a A-BAND FREQUENCY PLAN
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(FIGURE 64)
Figure 7.1 b B-BAND FREQUENCY PLAN
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(FIGURE 65)
Figure 7.1 c C-BAND FREQUENCY PLAN
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(FIGURE 66)
Figure 7.1 d D-BAND FREQUENCY PLAN
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(FIGURE 67)
Figure 7.1 e E-BAND FREQUENCY PLAN
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(FIGURE 68)
FIGURE 7.1 l F-BAND FREQUENCY PLAN
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(FIGURE 69)
FIGURE 7.1 g G-BAND FREQUENCY PLAN
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7.2. ASTRA 2 SERIES
As of autumn 1997, a second orbital position at 28.2 degrees East will be
activated with the deployment of ASTRA 2A. A second satellite, ASTRA 2B, will
be co-located at 28.2 degrees East in late 1998.
ASTRA 2A will have 28 active Ku-band transponders (32 for the first five years)
operating in the Broadcast Satellite Services frequency band (11.70 - 12.50
GHz), powered by 100 Watt travelling-wave tube amplifiers.
ASTRA 2B will provide up to 28 highpower Ku-band transponders (30 for the first
five years) with an output of 108 Watt each. All transponders can operate over
Europe and a steerable antenna offers the capability for up to 16 transponders
in the 12.50 - 12.75 GHz frequency range to be activated within any area of the
earth visible from 28.2 degrees East.
Co-located at 28.2 degrees East, the two spacecraft will provide SES with a
total of 56 transponders in the frequency range 11.70 - 12.75 GHz for digital
broadcasts at the second ASTRA orbital position.
7.2.1. ASTRA 2 TRANSPONDER FREQUENCY PLAN
Figures 7.2.a. and 7.2.b. present the ASTRA 2 satellite frequency plans. All
transponders are linearly polarised, utilising the polarisation scheme presented
in Table 7.2. The two polarisations are orthogonal to each other and the
horizontal polarisation has a counter-clockwise rotation of 7.5 degrees relative
to the orbit plane, as viewed from the satellite.
<TABLE>
<CAPTION>
TRANSPONDER UPLINK DOWNLINK
- ----------- ---------- ----------
<S> <C> <C>
Odd................. Vertical Horizontal
Even................ Horizontal Vertical
</TABLE>
Table 7.2. -- ASTRA 2 TRANSPONDER POLARISATION SCHEME
All the ASTRA 2 satellites provide four different downlink coverage modes, as
detailed in Table 7.2.a. These four modes provide different coverage,
concentrating more downlink power in different regions of Europe.
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<TABLE>
<CAPTION>
SATELLITE ASTRA 2A ASTRA 2B
----------------------------- ---------------------------- --------------------------
TRANSPONDER
----------------------------------------------------------
POL. BEAM E-BAND F-BAND F-BAND G-BAND
--------- ------ ------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Horizontal .......... South 1, 5, 9, 13, 17 21, 25 29, 33, 37 41, 45, 49, 53
Horizontal .......... North 3, 7, 11, 15 19, 23, 27 31, 35, 39 43, 47, 51, 55
Vertical ............ South 2, 6, 10, 14, 18 22, 26 30, 34, 38 42, 46, 50, 54
Vertical ............ North 4, 8, 12, 16 20, 24, 28 32, 36, 40 44, 48, 52, 56
</TABLE>
TABLE 7.2.a. - ASTRA 2A and 2B DOWNLINK
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(FIGURE 72)
FIGURE 7.2a ASTRA 2A FREQUENCY PLAN
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(FIGURE 73)
FIGURE 7.2b ASTRA 2B FREQUENCY PLAN
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8. ORBITAL POSITION / STATION KEEPING
The nominal orbital position of the ASTRA 1 satellites is 19.2 degrees East. The
orbital position of the ASTRA 2 satellites is 28.2 degrees East.
Under normal operating conditions SES will maintain the ASTRA satellites within
the following station-keeping box:
+/-0.10 degrees North/South
+/-0.10 degrees East/West.
9. BEACON INFORMATION
The following table shows the beacon frequencies (MHz) for the different
spacecraft:
Vertical Horizontal
-------- ----------
ASTRA 1A........... 11203.0 11446.5
ASTRA 1B........... 11453.5 11696.5
ASTRA 1C........... 11451.0 11448.5
ASTRA 1D........... 11454.0 11447.5
ASTRA 1E........... 11202.0 11948.5
ASTRA 1F........... 11201.0 10946.5
ASTRA 1G........... 11701.0 11669.0
ASTRA 1H........... 11707.0 11693.5
ASTRA 2A........... 11706.0 11694.5
ASTRA 2B........... 11708.0
11710.0
TABLE 9.1 BEACON FREQUENCIES (MHz)
At least one beacon will always be operational per spacecraft.
The beacon frequency stability is 1 ppm per day. Under normal operating
conditions the minimum beacon e.i.r.p. on any spacecraft shall be 16 dBW. For
the design of suitable tracking antenna systems, the following information
regarding the appropriate ASTRA ranging and telemetry characteristics shall be
used as a baseline.
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9.1. ASTRA 1A AND ASTRA 1B BEACON DETAILS
The following characteristics apply to both ASTRA 1A and ASTRA 1B.
PCM Telemetry : Phase modulation of beacon carrier by PCM (Biphase L)
telemetry to a peak deviation of 1.0+/-0.1 radians. Data rate
is 1 kbit/s.
Analog Telemetry : Phase modulation of beacon carrier by frequency modulated
14.5 kHz subcarrier to a peak deviation of 1.0+/-0.1 radians.
Ranging : Phase modulation of beacon carrier by ranging signals
at 19 kHz or 27.777 kHz to a peak deviation of
1.0+/-0.1 radians.
Ranging + PCM
Telemetry : Phase modulation of beacon carrier by composite
ranging signals at 19 kHZ or 27.777 kHz together with PCM
telemetry data signal to a peak deviation of 1.0+/-0.1
radians. In absence of ranging signals, the deviation of PCM
data alone is 0.5+/-0.05 radians.
There are four ranging tones. The first three ranging tones at 35.43 Hz,
283.45 Hz and 3968.25 Hz serially frequency modulate the 19 kHz subcarrier.
The fourth ranging tone is at 27.777 kHz.
9.2. ASTRA 1C, 1D, 1E, 1F, 1G, 1H AND 2A BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 1C, 1D, 1E, 1F, 1G,
1H and 2A.
During PCM-mode, the beacon is phase modulated (PM) by a telemetry subcarrier
with a subcarrier frequency of 32 kHz and a modulation index of 1.25+/-0.15
radians. The subcarrier is biphase modulated by telemetry data.
During ranging mode, the 32 kHz subcarrier is switched off and the beacon is
phase modulated by sequences of 4 ranging tones with a modulation index of
1.00+/-0.15 radians.
9.4. ASTRA 2B BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 2B.
During PCM mode, the beacon is phase modulated (PM) by a telemetry subcarrier
with a subcarrier frequency of 32 kHz and a peak modulation index of 1.5
radians. The subcarrier is coherent PSK modulated by telemetry data.
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During ranging mode, the 32 kHz subcarrier is switched off and the beacon is
phase modulated by a ranging tone, which itself is modulated by an ambiguity
resolution code. The peak modulation index during ranging is 0.7 radians.
During simultaneous PCM and ranging on the TM downlink signal, the PCM-modulated
32 kHz subcarrier and ranging tone are combined into one baseband signal, which
modulates the main carrier with max, effective modulation indices of 1.4 radians
for the PCM-signal and 0.4 radians for the ranging tone.
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<PAGE> 71
ANNEX 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and a Service Information tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined. This system will serve
for conveying diagnostic information about the consistency of all DVB/MPEG-2
multiplexes on ASTRA to the central Digital Network Operations Centre (DINO) of
Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) of Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment modules and should generate an MDT in the case a service failure
occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams can
be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle will be applied e.g. by the special monitor IRDs of the DINO
which can not only receive and extract incoming MDTs from the multiplexes but
also can generate MDTs in the case e.g. Service Information components are
missing. All MDTs are being fed via the ASTRA Service Information Update System
(ASIUS) into the Service Availability System (SAS) of the Digital Network
Operations Centre. Upon reception of an MDT an alert is initiated by the DINO
computer system which then enables the operator to act appropriately based on
detailed transponder specific diagnostic information provided together with the
alert message.
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3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in transport stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite Network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
<TABLE>
<S> <C> <C>
multiplex diagnostic section()[
table id................................. 8 uimsbf
section syntax indicator................. 1 bslbf
SES reserved............................. 1 bslbf
ISO reserved............................. 2 bslbf
section length........................... 12 uimsbf
transport stream id...................... 16 uimsbf
original network id...................... 16 uimsbf
MDT version number....................... 4 uimsbf
Fault source............................. 12 uimsbf
Fault type............................... 16 uimsbf
for (l=0;i<N;i++)[
Fault major....................... 16 uimsbf
Fault minor....................... 16 uimsbf
]
</TABLE>
TABLE ID = 0xB0
SECTION SYNTAX INDICATOR = 0
SES RESERVED = 1
SECTION LENGTH: This is a 12 bit field, the first two bits of which shall be
"00". It specifies the number of bytes of the section, starting immediately
following the section length field. The section length shall not exceed 181
bytes so that the entire section has a maximum length of 184 bytes.
TRANSPORT STREAM ID: This is a 16 bit field which serves as a label to identify
the transport stream where the error or warning has occurred.
- -------------------------------------------------------------------------------
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ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
network id of the originating delivery system of the transport stream where the
error or warning has occurred.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with the transport stream id and
the original network id, identifies the origin of the failure. Fault source
values can be defined by the operator of the transport stream within the ranges
defined in Table 1.
FAULT TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type, the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these codes.
In case of missing components of a service (Fault type = 0x0100) the Fault major
code is equal to the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as
described in Table 3. In that case the service id of the service comprising the
missing component is defined in the Fault major field and the missing component
is defined in the Fault minor field.
- -------------------------------------------------------------------------------
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TABLE 1: FAULT SOURCE
<TABLE>
<CAPTION>
FAULT SOURCE RANGE DESCRIPTION
0x0000 UNDEFINED
------------------ -----------
<S> <C>
0x0001,...,0x0064 SI-editing & controller
0x0065,...,0x01F4 Audio encoder
0x01F5,...,0x0226 Video encoder
0x0227,...,0x03B6 Data inserter
0x03B7,...,0x03E8 CA system
0x03E9,...,0x041A Multiplexer
0x041B,...,0x044C Re-multiplexer
0x044D,...,0x047E Modulator
0x047F,...,0x060E Decoder
0x060F,...,0x064O Network termination
0x0641,...,0x0A00 ASTRA reserved
0x0A01,...,0x0FFF User defined
</TABLE>
TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
FAULT TYPE DESCRIPTION
0x0000 UNDEFINED
---------- -----------
<S> <C>
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0100 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
- -------------------------------------------------------------------------------
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TABLE 3: FAULT MINOR CODES FOR FAULT TYPE VALUE = 0x0100 (COMPONENT MISSING)
(FAULT MAJOR SPECIFIES THE SERVICE ID OF THE SERVICE WITH MISSING COMPONENTS.)
FAULT MINOR
IF FAULT TYPE = 0x0100 DESCRIPTION
---------------------- -----------
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
TABLE 4: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0002 (SDT MISSING)
FAULT MAJOR
IF FAULT TYPE = 0x0002 (SDT MISSING) DESCRIPTION
- ------------------------------------ -----------
0x0001 DVB-SI SDT missing
Other values ASTRA reserved
TABLE 5: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0004 (EIT MISSING)
FAULT MAJOR
IF FAULT TYPE = 0x0004 (EIT MISSING) DESCRIPTION
- ------------------------------------ -----------
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
- --------------------------------------------------------------------------------
ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
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ASTRA LOGO
SOCIETE EUROPEENNE DES SATELLITES S.A.
L - 6815 CHATEAU DE BETZDORF, LUXEMBOURG
TEL: (352) 710725-1
FAX: (352) 710725-548
ASTRA is a trademark of Societe Europeenne des Satellites.
The information and data contained herein are subject to change.
<PAGE> 77
[ASTRA LOGO]
ASTRA SERVICE INFORMATION
UPDATE SYSTEM
(ASIUS)
TECHNICAL DESCRIPTION
SES-ASIUS
SYE-045/12-96
06 DECEMBER 1996 CONFIDENTIAL
<PAGE> 78
TABLE OF CONTENTS
1 INTRODUCTION............................................................ 2
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM.................. 2
3 FUNCTIONAL FEATURES OF ASIUS............................................ 5
3.1 SI Data Structures considered by ASIUS............................. 5
3.1.1 Network Information Table (NIT)............................. 5
3.1.2 Service Description Table (SDT)............................. 5
3.1.3 Multiplex Diagnostic Table (MDT)............................ 9
3.2 SI Data Acquisition................................................ 9
3.3 SI Data Processing................................................. 10
3.4 SI Data Distribution............................................... 10
4 GLOSSARY................................................................ 12
5 REFERENCES.............................................................. 13
ANNEX 1................................................................. 14
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1 INTRODUCTION
Service Information (SI) systems for Digital Video Broadcast are considered by
broadcasters and also by network operators as one of the crucial elements in
digital transmission of video, audio and data signals. With the plethora of
services being available in the digital age, an effective means of guiding
consumers around the various services on offer is an essential pre-requisite of
any consumer oriented digital transmission and reception system. Beyond
informing about the available services, there is also a need to allow for the
quick acquisition of any service that can be received.
Based on the DVB SI specification Societe Europeenne des Satellites (SES) has
developed the ASTRA Service Information Update System (ASIUS) for providing
tuning information and also for informing the digital IRDs about all services on
the ASTRA network. In addition ASIUS monitors the Service Information on all
transponders, checks the presence and the correctness of this data and provides
also diagnostics information on the consistency of the multiplexes.
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM
The ASTRA Service Information Update System (ASIUS) is an application of the DVB
Service Information specification as standardised in ETS 3000468/1/ and may
serve the Digital Satellite IRD to quickly tune to the receivable services on
ASTRA. It also enables the presentation of services and broadcasters in a
convenient way to the consumer.
This is achieved by compiling and transmitting an ASTRA Network Information
Table (ASTRA NIT) providing tuning information as well as an ASTRA Service
Description Table (ASTRA SDT) containing information about all services on all
transponders on the ASTRA network. Thus the IRD is enabled to present the names
of all services on ASTRA, the names of all corresponding broadcasters (service
providers) and the service_types such as TV, Radio, Teletext or data services,
without having to tune to each transponder.
The concept for the ASIUS involves the transmission of the ASTRA NIT on each
transponder. This NIT conveys information about the physical parameters of all
multiplexes on ASTRA (frequency, symbol rate, etc.) as well as the information
about the network itself (ID, name, satellite position).
Furthermore, the concept involves the transmission of the ASTRA SDT on two ASTRA
Service Information channels (Barker Channels), one with horizontal and one with
vertical polarization.
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As it is the objective to provide up-to-date network information and service
description data about all transponders on ASTRA, a concept for an automatic
updating of the ASTRA NIT/SDT has been developed, considering all updates from
the Betzdorf earth station as well as the remote uplinks.
The ASTRA NIT is mainly under the administration of SES (network operator)
except for parts as e.g. the Forward Error Correction (FEC) scheme which may be
adjusted by the remote uplink operators.
The multiplex specific SDTs are under the administration of the broadcasters.
ASIUS receives the SDTs transmitted on all transponders, extracts those parts
directly related to each respective transponder and compiles and ASTRA SDT with
service description information (e.g. service names, service providers,
service types) about all services on ASTRA.
FIGURE 86
Figure 1: Transmission and updating of ASTRA NIT and SDT tables
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The process of updating the ASTRA NIT and ASTRA SDT is illustrated in Figure 1.
The process involves the following steps:
1. The ASTRA NIT can be received at all remote uplink stations outside Betzdorf
and can then be inserted into the remotely uplinked multiplexes. The ASTRA
SDT is transmitted on two transponders (one with horizontal, one with
vertical polarization) from Betzdorf and therefore does not have to be
received/inserted at the remote uplinks.
2. Any remote uplink operator can at any time update the information in the NIT
related to his remote uplink (i.e. change the FEC scheme of his transponder
and/or add a service list descriptor) and/or the corresponding service
description data in the SDT and insert the data into the remote multiplex.
3. At Betzdorf, the NIT/SDT processing system performs the following tasks:
a) receive all Transport Streams of ASTRA,
b) extract those parts of the NITs and SDTs which have been altered by the
remote uplinks,
c) compile this update information to generate new versions of the ASTRA NIT
and SDT,
d) insert the updated ASTRA NIT into all multiplexes uplinked from Betzdorf,
e) insert the updated ASTRA SDT into the multiplexes carrying the ASTRA
Service Information channels.
4. The remote uplinks again can receive this updated ASTRA NIT and insert the
data into the remotely uplinked multiplexes.
After step 3, a complete update process of the ASTRA NIT and ASTRA SDT is
performed. The update process is continuously repeated. Thus, all remotely
mastered updates are almost immediately available in the ASTRA NIT/SDT.
The update process for the ASTRA NIT/SDT is stable since for each part of the
data there is only one master uplink assigned which is allowed to edit updates.
Other uplinks are slaves concerning the data mastered by a specific up-link
operator and therefore only insert the received updated data into their own
remote up-link.
The interconnection between ASIUS and other equipment of the Digital Network
Operations Centre (DINO) at Betzdorf is illustrated in Figure 2.
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3 FUNCTIONAL FEATURES OF ASIUS
3.1 SI DATA STRUCTURES CONSIDERED BY ASIUS
Regarding the various tables defined by MPEG-2 and by the DVB project, there are
only a few relevant for the ASIUS. These are the Network Information Table, the
Service Description Table, the Event Information Table (EIT), and the Time and
Date Table (TDT).
3.1.1 NETWORK INFORMATION TABLE (NIT)
The structure of the Network Information Table is presented in Figure 3. The
ASTRA NIT is divided in sections according to the MPEG-2 syntax. Each section
includes a loop over network related descriptors which is used for conveying the
network name descriptor and the linkage descriptors to the ASTRA Service
Information channel.
For each transport stream the NIT contains a loop over transport stream related
descriptors including the satellite delivery system descriptor with information
such as frequency, polarisation, modulation, symbol rate and FEC scheme.
Conveying an optional service list descriptor in that loop of the NIT is not
considered by ASIUS.
3.1.2 ASTRA SERVICE DESCRIPTION TABLE (SDT)
The structure of the Service Description Table is illustrated in Figure 4. The
ASTRA SDT is also divided into sections according to the MPEG-2 syntax. For each
Transport Stream at least one section with service description data is
transmitted. All SDT sections include a loop over all services on the
corresponding Transport Stream. For each service a loop of descriptors including
service descriptor and country availability descriptor is conveyed.
NVOD reference descriptor and time shifted service descriptor are also
considered by ASIUS. In order to identify the actual Transport Stream on which
Service Information is received and thus to identify the relevant SI parts that
have been updated at a remote uplink, the corresponding transports stream id can
be found in each header of a service description section for the actual
Transport Stream /1/.
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FIGURE 89
Figure 2: Interconnection between ASIUS and the Digital NOC
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<TABLE>
<CAPTION>
NETWORK INFORMATION TABLE (NIT)
ACTUAL NETWORK OTHER NETWORK
--------------------------------------------- -------------
SECTION 1 SECTION 2 SECTION 3
--------- --------- ---------
<S> <C> <C> <C>
network id
section number
FOR 1=0 ... N NETWORK DESCRIPTORS
network name descriptor
linkage descriptor
FOR 1 =0 ... N TRANSPORT STREAMS
transport stream id
original network id
FOR 1=0 ... N TRANSPORT DESCRIPTORS
delivery system descriptor
</TABLE>
Figure 3: Structure of the Network Information Table
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<PAGE> 85
<TABLE>
<CAPTION>
SERVICE DESCRIPTION TABLE (SDT)
ACTUAL TRANSPORT STREAM
---------------------------------------------------------
OTHER
TRANSPORT TRANSPORT
TRANSPORT STREAM 1 STREAM 2 STREAM
------------------------------- ----------- ---------
SECTION 1 SECTION 2 SECTION 3
<S> <C> <C> <C>
transport stream id
section number
original network id
for 1=0 ... N services
service id
scrambling yes/no
for 1=0 ... N descriptors
service descriptor
country availability descriptor
NVOD reference descriptor
time shifted service descriptor
</TABLE>
Figure 4: Structure of the Service Description Table
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3.1.3 MULTIPLEX DIAGNOSTIC TABLE (MDT)
In a digital broadcast environment with a multitude of services there is a
need for highly automated means to monitor and subsequently to provide
information (e.g. failure messages) about the availability of services as well
as of service components such as video, audio and subtitling and of Service
Information tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined by SES. This system is
serving for conveying diagnostic information about the consistency of all
DVB/MPEG-2 multiplexes on ASTRA to the central DINO in Betzdorf.
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment modules and should generate an MDT in the case a service failure
occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams can
be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which can
not only receive and extract incoming MDTs from the multiplexes but also can
generate MDTs in the case e.g. Service Information components are missing. All
MDTs are being fed via the ASIUS into the Service Availability System (SAS) of
the Digital Network Operations Centre. Upon reception of an MDT an alert is
initiated by the DINO computer system which then enables the operator to act
appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
Details about the MDT concept can be found in Annex 1.
3.2 SI DATA ACQUISITION
The ASTRA Service Information Update System in Betzdorf includes the reception
of all Transport Streams of the ASTRA Satellite System. From these Transport
Streams the relevant SI is extracted and passed over to the ASIUS processing
station. This includes the NIT for the actual network (ASTRA) and the SDT for
the actual Transport Stream. If a MDT has been received (which occurs only in
case of a failure), it will also be transferred
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<PAGE> 87
to ASIUS.
The following processing steps have been implemented in ASIUS for the SI data
acquisition:
1. Reception of the DVB/MPEG-2 Transport Streams from all ASTRA transponders.
2. Extraction of all transponders SI data (NIT, MDT, SDT, EIT, TDT). By means
of the version number mechanism provided in each section syntax, the IRD
considers only the updated parts of this data.
3. Transmission of all the updates from the IRDs to ASIUS. The IRDs
furthermore monitor the availability of the NIT, SDT, EIT and TDT (Time and
Date Table) in each Transport Stream and shall generate a Multiplex
Diagnostic Table and transmit it to the ASIUS processor, if a failure is
detected.
3.3 SI DATA PROCESSING AND MONITORING
After having received an update the ASIUS compiles a new version of the ASTRA
NIT and ASTRA SDT. Since the system has immediate access to all SI data on the
ASTRA network it monitors the presence, correctness, and also the consistency
of the SI data. In case of an erroneous situation an alarm is triggered and the
operators in the DINO are informed.
3.4 SI DATA DISTRIBUTION
After the compilation of the received SI data by the ASIUS processor, the
updated ASTRA NIT is transmitted on all transponder uplinked from Betzdorf. The
ASTRA SDT is inserted into the two transponders which contain the ASTRA Service
information channel. In addition a linkage descriptor is inserted in the ASTRA
NIT, which is available on all transponders. This descriptor points to
transport stream ids and service ids of the ASTRA Service Information channels.
If the consumer wants to have access to the ASTRA SDT the IRD will read the
linkage descriptor and tune to one of the corresponding transponders. After the
reading of the ASTRA SDT all services available on the ASTRA Satellite System
could be displayed. It is however assumed that certain filter mechanisms would
be applied to the data before displaying the information in a consumer friendly
way. More details on the functionality of the ASTRA Service Information channel
are described in SES' Technical Recommendations for Digital IRDs' /2/. A flow
chart of the access functionality for the ASTRA SDT is depicted in Figure 5.
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(FIGURE 94)
Figure 5: Example of the access functionality for the ASTRA SDT
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4 GLOSSARY
ASIUS ASTRA Service Information Update System
DNO Digital Network Operation Centre
DVB Digital Video Broadcasting
DTH Direct-to-Home satellite transmission
FEC Forward Error Correction
IRD Integrated Receiver Decoder
MDT Multiplex Diagnostic Table
NIT Network Information Table
NOC Network Operation Centre
NVOD Near-Video-On-Demand
SDT Service Description Table
SES Societe Europeenne des Satellites
SI Service Information
SMATV Satellite Master Antenna Television
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5 REFERENCES
/1/ ETS 300 458 "Digital broadcasting systems for television, sound and data
services; specification for Service Information (SI) in Digital Video
Broadcasting (DVB) Systems"
/2/ "Technical Recommendations for Digital Integrated Receiver Decoders", SES
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<PAGE> 91
Annex 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of
service components such as video, audio and subtitling and of Service
Information tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport
mechanism, the Multiplex Diagnostic Table (MDT) has been defined. This system
is serving for conveying diagnostic information about the consistency of all
DVB/MPEG-2 multiplexes on ASTRA to the central Digital Network Operations
Centre (DINO) of Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service
Information components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the
underlying concept of the MDT system is to detect and signal failures at the
point where they are generated, the system supervisor of the DVB/MPEG-2
encoding, multiplexing and modulation equipment should monitor the correct
functioning of all equipment modules and should generate an MDT in the case a
service failure occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams
can be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which
can not only receive and extract incoming MDTs from the multiplexes but also
can generate MDTs in the case e.g. Service Information components are missing.
All MDTs are being fed via the ASTRA Service Information Update System (ASIUS)
into the Service Availability System (SAS) of the Digital Network Operations
Centre. Upon reception of an MDT an alert is initiated by the DINO computer
system which then enables the operator to act
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appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in Transport Stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite Network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
<TABLE>
<CAPTION>
multiplex diagnostic section()[
<S> <C>
table id.................................................. 8 uimsbf
section syntax indicator.................................. 1 bslbf
SES reserved.............................................. 1 bslbf
ISO reserved.............................................. 2 bslbf
section length............................................ 12 uimsbf
transport stream id....................................... 16 uimsbf
original network id....................................... 16 uimsbf
MDT version number........................................ 4 uimsbf
Fault source.............................................. 12 uimsbf
Fault type................................................ 16 uimsbf
for (I=O;i<N:i++)[
Fault major............................................. 16 uimsbf
Fault minor............................................. 16 uimsbf
]
</TABLE>
TABLE ID = 0xB0
SECTION SYNTAX INDICATOR = 0
SES RESERVED = 1
Section length: This is a 12 bit field, the first two bits of which shall be
"00". It specifies the number of bytes of the section, starting immediately
following the section length field. The section length shall not exceed 181
bytes so that the entire section has a maximum length of 184 bytes.
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TRANSPORT STREAM ID: This is a 16 bit field which serves as a label to identify
the Transport Stream where the error or warning has occurred.
ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
network id of the originating delivery system of the Transport Stream where the
error or warning has occurred.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with the transport stream id and
the original network id, identifies the origin of the failure. Fault source
values can be defined by the operator of the Transport Stream within the ranges
defined in Table 1.
FAULT TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type, the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these
codes. In case of missing components of a service (Fault type = 0x0100) the
Fault major code is equal to the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as
described in Table 3. In that case the service id of the service comprising the
missing component is defined in the Fault major field and the missing component
is defined in the Fault minor field.
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TABLE 1: FAULT_SOURCE
<TABLE>
<CAPTION>
FAULT SOURCE RANGE DESCRIPTION
- ------------------ -----------
<S> <C>
0x0000 Undefined
0x0001,...,0x0064 SI-editing & controller
0x0065,...,0x01F4 Audio encoder
0x01F5,...,0x0226 Video encoder
0x0227,...,0x03B6 Data inserter
0x03B7,...,0x03E8 CA system
0x03E9,...,0x041A Multiplexer
0x041B,...,0x044C Re-multiplexer
0x044D,...,0x047E Modulator
0x047F,...,0x060E Decoder
0x060F,...,0x0640 Network termination
0x0641,...,0x0A00 ASTRA reserved
0x0A01,...,0x0FFF User defined
</TABLE>
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TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
FAULT TYPE DESCRIPTION
---------- -----------
<S> <C>
0x0000 Undefined
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0100 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
TABLE 3: FAULT MINOR CODES FOR FAULT TYPE VALUE = 0x0100 (COMPONENT MISSING)
(Fault major specifies the service id of the service with missing components.)
<TABLE>
<CAPTION>
FAULT MINOR
IF FAULT TYPE = 0x0100 DESCRIPTION
---------------------- -----------
<S> <C>
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
</TABLE>
SES-ASIUS CONFIDENTIAL
SYS-240/12
15 December 1995
18
<PAGE> 96
TABLE 4: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0X0002 (SDT MISSING)
<TABLE>
<CAPTION>
FAULT MAJOR
IF FAULT TYPE = 0x0002 (SDT MISSING) DESCRIPTION
------------------------------------ -----------
<S> <C>
0x0001 DVB-SI SDT missing
Other values ASTRA reserved
</TABLE>
TABLE 5: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0X0004 (EIT MISSING)
<TABLE>
<CAPTION>
FAULT MAJOR
IF FAULT TYPE = 0X0004 (SDT MISSING) DESCRIPTION
------------------------------------ -----------
<S> <C>
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
</TABLE>
The information and data contained herein are subject to change.
Societe Europeenne des Satellites S.A.
L-6815 Chateau de Betzdorf, Luxembourg
Tel.: (352) 71 07 25-1, Fax: (352) 71 07 25-548
SES-ASIUS CONFIDENTIAL
SYS-240/12-95
15 December 1995
19
<PAGE> 1
Exhibit 10.20
CONFIDENTIAL
-------------------
AGREEMENT
-------------------
for digital transmission on the ASTRA system
between
SOCIETE EUROPEENNE DES SATELLITES S.A.
PCI PROGRAMMING INC.
<PAGE> 2
CONFIDENTIAL
<TABLE>
<C> <S> <C>
1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . 4
2. Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Charges . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Spare TWTA . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Unavailability . . . . . . . . . . . . . . . . . . . . . . . 7
7. Excluding Circumstances . . . . . . . . . . . . . . . . . . 8
8. Interruption Testing and Monitoring . . . . . . . . . . . . 8
9. Pre-emption . . . . . . . . . . . . . . . . . . . . . . . . 9
10. Use of Transponder and Encryption . . . . . . . . . . . . . 9
11. Service Information . . . . . . . . . . . . . . . . . . . . 9
12. Compliance with Law . . . . . . . . . . . . . . . . . . . . 10
13. SES' Authority . . . . . . . . . . . . . . . . . . . . . . . 10
14. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 10
15. Termination . . . . . . . . . . . . . . . . . . . . . . . . 11
16. Effect of Termination . . . . . . . . . . . . . . . . . . . 11
17. Force Maieure . . . . . . . . . . . . . . . . . . . . . . . 12
18. Limitation of Liability - Exclusivity of Remedies . . . . . 12
19. Indemnities . . . . . . . . . . . . . . . . . . . . . . . . 12
20. Confidentiality . . . . . . . . . . . . . . . . . . . . . . 13
21. Trademark - Logo and Press Releases . . . . . . . . . . . . 13
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 13
23. Severability . . . . . . . . . . . . . . . . . . . . . . . . 13
24. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
25. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 14
26. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 14
27. Proper Law and Jurisdiction . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 3
CONFIDENTIAL
<TABLE>
<C> <S> <C>
28. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . 14
29. Condition Precedent . . . . . . . . . . . . . . . . . . . . 14
30. Marketing Cooperation . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<TABLE>
<C> <S> <C>
SCHEDULE I: Satellite and Transponder Description and
Performance Specifications . . . . . . . . . . . . . 16
SCHEDULE II: Customer Signals, Customer Uplink Signals and
Uplink Facilities . . . . . . . . . . . . . . . . . 18
SCHEDULE III: Service(s) . . . . . . . . . . . . . . . . . . . . . 20
SCHEDULE IV: Monitoring . . . . . . . . . . . . . . . . . . . . . 21
SCHEDULE V: Conditional Access system . . . . . . . . . . . . . 23
SCHEDULE VI: Charges . . . . . . . . . . . . . . . . . . . . . . 24
SCHEDULE VII: Priority and Pre-emption . . . . . . . . . . . . . . 26
SCHEDULE VIII: ASTRA Access Agreement . . . . . . . . . . . . . . . 29
SCHEDULE IX: ASIUS . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
3
<PAGE> 4
CONFIDENTIAL
AGREEMENT
DATED 26 MARCH 1997
BETWEEN:
(1) Societe Europeenne des Satellites S.A. L-6815 Chateau de Betzdorf, Grand
Duchy of Luxembourg ("SES"); and
(2) PCI Programming Inc.
c/o Poland Communications Inc.
1 Commercial Plaza
Hartford, CT 06033, USA (the "Customer")
PREAMBLE:
(A) SES is the operator of the ASTRA satellite system which comprises several
satellites co-located at 19.2 degrees East for the retransmission of
television and radio services;
(B) The satellite, described in Schedule I-A hereto, is part of this
satellite system;
(C) The Customer wishes to use transponder capacity on a transponder of said
satellite to transmit the digital services described herein on the terms
and conditions set out below;
IT IS HEREBY AGREED AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement, the following words and expressions shall have
the meanings ascribed to them below:
"Cahier des Charges" : the ministerial enactment (arrete
ministeriel) of the Luxembourg government setting out the duties to
be observed by SES in performance of the Concession;
"Concession" : the concession contract ("Contrat de Concession")
entered into by the government of Luxembourg and SES to enable SES
to operate the Satellite System and any amendment thereof;
"Customer Downlink Signals" : downlink RF(1)-QPSK(2) modulated time
division multiplexed carrier carrying the Service(s) from the
Customer's Transponder;
- --------------------------
1. Radio frequency
2. Quadrature phase shift keying
4
<PAGE> 5
"Customer Signals": the bit stream, carrying the Service(s),
produced by the Customer and transmitted to the Uplink Facilities
for onward transmission via the Customer's Transponder and
conforming to SCHEDULE II;
"Customer Start Date" or "CSD": the date on which the Customer has
agreed to commence the transmission of the Service(s) on the
Customer's Transponder, being the date upon which the Board of SES
and the Government of Luxembourg have given their approval even if
the Government's approval and operational service date of ASTRA 1G
has occurred;
"Customer Uplink Signals": the RF-QPSK modulated time division
multiplexed carrier, carrying the Service(s), transmitted from the
Uplink Facilities to the Customer's Transponder and conforming to
SCHEDULE II;
"Customer's Transponder": the transponder capacity on the Satellite
as described in SCHEDULE I-B, or any alternative transponder
capacity subsequently allocated to the Customer pursuant hereto, and
via which the Customer transmits the Service(s);
"Expiry Date": the last day of the Term;
"LIBOR": the one month London inter bank offered rate, applying to
the currency of this Agreement, as quoted by Banque et Caisse
d'Epargne de l'Etat in Luxembourg on the due date for payment;
"Minimum Transponder Performance": as defined in SCHEDULE I-D;
"Operational Service Dates" or "OSD": the date on which SES declared
the Satellite operational, being 1 June 1996;
"Payment Period": a period of the Term in respect of which payments
are payable or have been paid pursuant to SCHEDULE VI;
"Pre-emption": the deliberate interruption and/or cessation of the
availability of a transponder by SES in accordance with the rules
set out in SCHEDULE VII and "Pre-empt" shall be construed
accordingly;
"Received Signal Power": as defined in SCHEDULE I-D;
"Satellite": the ASTRA 1F satellite as described in SCHEDULE I-A;
"Service(s)": the Customer's services described in SCHEDULE III;
"SES' Associates": SES' officers, employees, consultants, agents,
contractors or subcontractors however it is understood that CLT/DTS
performing the play-out for the Customer, are not considered as SES
Associate;
"Spare TWTA": a spare travelling wave tube amplifier which can be
switched to recover traffic on the Satellite;
"Target Market": as defined in SCHEDULE III;
"Term": the duration of this Agreement as specified in CLAUSE 3;
"transponder": a part of the Satellite which receives, amplifies and
frequency.
5
<PAGE> 6
CONFIDENTIAL
translates the uplink signals and retransmits them as downlink
signals;
"UNAVAILABLE", "UNAVAILABILITY": as defined in CLAUSE 6;
"UPLINK FACILITIES": all equipment and ancillary facilities used to
transmit the Customer Uplink Signals to the Satellite conforming to
SCHEDULE II;
"VAT": Value added tax or any similar tax or charge.
1.2 In case of conflict between this Agreement and the Schedules hereto,
this Agreement shall prevail.
2. AGREEMENT
With effect from CSD SES will perform the transmission of the Customer
Uplink Signals carrying the Service(s) by exclusively providing the
Customer's Transponder for the purpose and monitor the digital transmission
of the Customer Uplink Signals on the terms set out herein. This Agreement
does not include multiplexing and uplinking.
3. TERM
3.1 This Agreement shall begin on the date hereof and expire on the
tenth (10th) anniversary of CSD.
3.2 Either party may terminate this Agreement upon 6 months written
notice if the Customer does not target the Polish DTH market prior
to 1 January 1999. "Target the Polish DTH market" means that (i)
the Customer shall have a licence or permit (if necessary) for its
activity and (ii) actively markets and promotes DTH reception by
ensuring availability in the market of decoder boxes (integrated
receiver devices ("IRD's").
3.3 Notwithstanding any other term of this Agreement:
(i) SES may terminate this Agreement immediately by notice in
writing to the Customer if an event of free majeure prevents
the Satellite from becoming operational;
(ii) The Customer may terminate this Agreement by not less than
thirty (30) days prior written notice to SES at any time prior
to 31 December 1998.
In either case, each party shall be discharged of all liability and
obligation to the other.
4. CHARGES
4.1 The Customer shall pay the charges set out in SCHEDULE VI as and on
the dates set out therein.
4.2 Sums overdue shall be subject to a late payment interest charge at
2% over LIBOR from the due date. The interest shall accrue on a
daily basis.
4.3 All sums payable by the Customer under SCHEDULE VI are quoted
exclusive of any VAT or other tax or duties. The Customer
undertakes to pay any applicable VAT, other tax or duties upon
receipt of an appropriate invoice from SES.
4.4 All sums due under this Agreement shall be paid in full without
set-off, counter-claim or other deduction.
4.5 Any sums owed by SES to the Customer for Unavailability pursuant to
CLAUSE 6 shall be calculated by SES within 15 days from the date on
which such an event occurred and shall be paid to the Customer
within thirty (30) days thereafter. If the Customer disagrees with
the amount so calculated and notified by SES, the Customer shall so
notify SES in writing and the parties shall seek in good faith to
resolve the disagreement. Payments for Unavailability after the due
date for
6
<PAGE> 7
payment determined hereunder shall accrue interest at the rate set
out in CLAUSE 4.2, unless such payments are in dispute.
4.6 In the circumstances set out in CLAUSE 7.2, the Customer shall not
be relieved of its obligation to pay the charges payable hereunder.
5. SPARE TWTA
If the Customer's Transponder becomes Unavailable and if a spare TWTA is
available, then, subject to the priority rules set out in SCHEDULE VII, SES
shall provide its use to the Customer as soon as reasonably possible.
6. UNAVAILABILITY
6.1 The Customer's Transponder shall be regarded as Unavailable if:
6.1.1. the Received Signal Power falls below the Minimum Transponder
Performance by more than 1 dB;
6.1.2 the interruption of the Service(s) pursuant to CLAUSE 8.1
exceeds thirty (30) minutes in any calendar quarter;
6.1.3 any failure of the Satellite or any part thereof causes an
interruption of transmissions of the Service(s); or
6.1.4 the 27.5 MS/s QPSK digital carrier at the centre frequency of
the Customer's Transponder, complying fully with SCHEDULE II,
which saturates the Customer's Transponder as indicated by
the satellite DLA input power telemetry as specified by SES
and has a 3/4 rate FEC, exhibits a Bit Error Rate worse than
10-9 when received on a typical 60 cm antenna with no
pointing error, with a G/T of no worse than 13.5 dB/K located
in Betzdorf, Luxembourg, under clear sky conditions. It is
understood that SES shall have no obligation to monitor the
bit error rate.
6.2 During any period of Unavailability the Customer may obtain (at its
cost) temporary bridging services from an alternative service
provider. The Customer's payment obligations hereunder shall be
suspended from the start of the period of Unavailability to the end
of such period or, if later, the date the Customer's arrangements
for bridging services in respect of such period of Unavailability
come to an end, however such date shall not be later than 30 days
after the end of any period of Unavailability. In this regard, SES
shall refund to the Customer the pro rata temporis portion of the
charges paid by the Customer for the period of Unavailability and/or
the Customer shall not be liable to pay SES the pro rata temporis
portion of the charges payable (but not yet paid) in respect of such
period of Unavailability (as applicable).
6.3 If the Customer's Transponder becomes Unavailable for a period of
thirty (30) or more consecutive days, then the Customer may
terminate the Agreement by written notice to SES ( provided that
such notice is sent while the Customer's Transponder is Unavailable)
and CLAUSE 16.1 shall apply.
7
<PAGE> 8
CONFIDENTIAL
6.4 Clauses 5, 6.2 and 6.3 shall be the Customer's sole remedies in the
event of an Unavailability and SES shall have no other obligation.
7. EXCLUDING CIRCUMSTANCES
Clauses 6.2 and 6.3 shall not apply:
7.1 to an Unavailability caused by an act or omission of the Customer or
of the customer's Associates;
7.2 where the Customer Signals, the Customer Uplink Signals or the
Uplink Facilities do not comply with Schedule II or where the
Customer Signals are not received by the Uplink Facilities or the
Customer Uplink Signals are not received by the Customer's
Transponder due to no fault of SES or any SES Associate.
8. INTERRUPTION, TESTING AND MONITORING
8.1 SES shall be entitled to interrupt the Service(s) and to require the
Customer to cease transmission of the Customer Uplink Signals where
necessary (i) to provide the cause of a Spare TWTA, and (ii) for
operational testing, maintenance, monitoring, preventive or curative
repair or adjustment to be carried out either with respect to the
Satellite as a whole or part thereof, or one or more of its
transponders where necessary, in SES' reasonable opinion, to
preserve the integrity of the Satellite or the overall quality of
the satellite transmissions in the short, medium or long term. SES
shall give the Customer as much notice thereof as is practicable in
the circumstances and shall agree with the Customer upon the date
and time of interruption wherever possible.
8.2 SES shall also be entitled to interrupt the Service(s) or to require
the Customer to cease transmission of the Customer Uplink Signals if
the Customer is in breach of its obligations hereunder ALWAYS
PROVIDED THAT if such breach is due to a technical issue, SES shall
not interrupt the Service(s) without allowing the Customer
reasonable period of time to correct it, unless the technical issue
either (i) is interfering with another customer of SES, (ii) could
cause potentially damage or degradation to the Satellite or to its
proper functioning or (iii) could affect the quality of the
transmissions provided by the Satellite. Nothing in this CLAUSE 8.2
shall permit SES to interrupt the Services in circumstances where
there is a bona fide dispute between the parties as to any fees due
to be paid under this Agreement. Any such dispute, if not resolved
by negotiation, shall be dealt with as provided for in CLAUSE 27.
8.3 SES shall monitor the Customer Uplink Signals and the performance of
the Customer's Transponder in accordance with the provisions of
SCHEDULE IV and supply an analysis of the results when so requested
by the Customer. Such data shall be limited to information which SES
can reasonable be expected to obtain and which it can reveal without
liability or breach of any duty to any third party. Such information
shall be kept confidential.
8.4 The Customer shall procure that the operator of the Uplink
Facilities shall assist SES in making any tests to ensure that such
Facilities and the Customer Uplink
8
<PAGE> 9
CONFIDENTIAL
Signals comply with Clause 10.3
8.5 All Service(s) using the Customer's Transponder shall be uplinked
from the same uplink antenna.
9. PRE-EMPTION
- Intentionally deleted -
10. USE OF TRANSPONDER AND ENCRYPTION
10.1 The frequencies for the Customer Uplink Signals and the Customer
Downlink Signals initially allocated by SES shall be those stated in
Schedule 1-B or notified to the Customer before CSD.
10.2 The Customer shall, on CSD, commence transmitting the Service(s) and
thereafter maintain full transmission of the majority of the
Service(s) as described in SCHEDULE III. For the avoidance of doubt
this CLAUSE 10.2 is not designed to interfere with the Customer's
plans for the roll out of the Service(s) and SES accepts that such
plans do not envisage the transmission of a full complement of
Service(s) for the first year of this Agreement and may also mean
that the Customer does not have any Service(s) ready to commence
transmission on CSD.
10.3 The Customer shall procure that the Customer Signals and Customer
Uplink Signals and Uplink Facilities comply with SCHEDULE II and do
not interfere with or damage the Satellite or any of its
transponders.
10.4 The Customer may, if so provided in SCHEDULE V, encrypt the Customer
Signals provided that the Customer, at its costs, provides SES with
ten operational decoders authorised for reception and any other
equipment needed to receive the Customer Downlink Signals.
10.5 SES shall have the right, at any time, to replace the transponder
carrying the Service(s) on the Satellite by another transponder on
any other ASTRA satellite at the same orbital position provided that
the replacement transponder has the same polarization, bandwidth and
the same uplink and downlink signal frequency as the transponder
used by the Customer prior to such replacement and provides Minimum
Transponder Performance. Unless SES uplinks the Service(s), SES will
endeavour to provide to the Customer advance notice of 24 hours to
perform the necessary operations to uplink the Service(s) to the
other ASTRA satellite. To avoid a Service interruption, the Customer
shall take all necessary arrangements with the operator of the
Uplink Facilities to accommodate such a transponder replacement and
SES will either (i) move the Customer's Transponder in tandem with
any other customer's transponder on the Satellite or (ii) relax the
technical requirements of the Access Agreement to require only two
(2) uplinks for the three (3) allocated customer's transponders with
frequencies in the E and F bands.
10.6 The Customer shall not use the Customer's Transponder in any way not
specified in this Agreement.
11. SERVICE INFORMATION
The Customer shall provide to SES the Service(s) information in compliance
with SCHEDULE III.
9
<PAGE> 10
CONFIDENTIAL
12. COMPLIANCE WITH LAW
12.1 The Customer shall comply to all material extent with all laws,
regulations or provisions relevant for the performance of this
Agreement, shall, where necessary, at all times have and comply with
a broadcasting license or authorization for the Service(s) and shall
promptly inform SES of any material change thereof. If the
Service(s) is not subject to the laws of a member of the European
Union it shall, nevertheless, comply with the provisions of the
"Television Without Frontiers" directive of 3 October 1989, as may
be amended, as transposed into the laws of Luxembourg being
currently Article 6 and Chapter IV of the Luxembourg Electronic
Media Law of 27 July 1991.
12.2 SES shall not exercise its right to terminate this Agreement
under CLAUSE 15.1 by reason of non-compliance by the Customer
pursuant to CLAUSE 12.1 except where such non-compliance has been
determined by a court or other authority with competent jurisdiction
or where otherwise requested by the Government of the Grand Duchy of
Luxembourg. Moreover if compliance with CLAUSE 12.1 would result in
the contravention of any future law or regulation in the Target
Market, its non-compliance with CLAUSE 12.1 shall constitute an
event of force majeure.
13. SES' AUTHORITY
This Agreement is subject to the continuing right of SES to provide the
Customer's Transponder pursuant to the Concession and the Cahier des
Charges. If this right is withdrawn, then this Agreement shall terminate
automatically unless the Government of Luxembourg wishes to undertake SES'
rights and obligations hereunder. In either case, SES shall be discharged
of all liability and obligation to the Customer subject to CLAUSE 16.
14. ASSIGNMENT
14.1 Subject to the remainder of this CLAUSE 14 the Customer shall not
assign, transfer, sub-let, or otherwise allow any third party to
directly or indirectly exercise its rights, in whole or in part,
under this Agreement. For the purpose hereof, an assignment shall
also include a change in the control of the Customer or of a
substantial part of its assets or business.
14.2 SES hereby authorises the Customer at any time to assign its rights
under this Agreement to (a) any affiliate or (b) Procable Sp Z O.O.
("Procable") provided that the Customer retains not less than a
33% shareholding in Procable, and in any such event on condition
that the Customer agrees to continue to be bound by all its
obligations and liabilities hereunder and to hold SES harmless from
any breach of this Agreement by its Assignee. For the purposes of
this CLAUSE 14.2, a company will be regarded as an affiliate of the
Customer if the Customer holds not less than a 50% interest in the
shares or equivalent of that company or if the company holds at
least 50% interest in the Customer or a company being under common
control with the Customer.
14.3 Upon SES' and the Luxembourg Government prior written consent, which
shall not be unreasonably withheld or delayed, the Customer may
sub-contract the benefit of
10
<PAGE> 11
CONFIDENTIAL
this Agreement to any third party provided that (i) no such
sub-contract shall relieve the Customer of its obligations and
liabilities under this Agreement and the Customer shall be
responsible for the acts, default and omissions of the sub-
contractor, its employees and agents as fully as if they were
acts, default, omissions of the Customer itself and (ii) the
Customer will share revenues exceeding the charge payable in the
relevant calendar year with SES on a 50/50 basis.
15. TERMINATION
In addition to the termination rights provided herein including without
limitation the Customer's right to terminate as specified in CLAUSE 6.3, a
party may terminate this Agreement forthwith by written notice of the other
party:
15.1 commits a material breach of its obligations hereunder and fails to
remedy such breach (if capable of remedy) within thirty (30) days
of written notice from the party requiring such breach to be
remedied (for the avoidance of doubt, circumstances giving rise to
the right to terminate under CLAUSE 3.2 or CLAUSE 6.3 do not
constitute a material breach);
15.2 is unable to pay its debts as they mature; becomes insolvent; is
subject to bankruptcy, reorganisation, moratorium, insolvency or
similar proceedings for the relief of financially distressed
debtors; is subject to winding up, dissolution or liquidation
(judicial or non-judicial) proceedings; voluntarily or involuntarily
suspends or discontinues its business; liquidates or sells a
substantial part of its assets; makes an assignment for the benefit
of its creditors; or is subject to the appointment of a receiver,
liquidator or other third party over its assets or business; or
15.3 has been prevented by an event of force majeure from materially
performing its obligations hereunder for sixty (60) days or more.
SES will waive its right to terminate the Agreement if and for such
period of time the Customer continues to pay the charge hereunder.
16. EFFECT OF TERMINATION
16.1 Where the Agreement is terminated (i) by the Customer, pursuant to
CLAUSES 6.3, 15.1 or 15.2, (ii) by either party, pursuant to CLAUSE
15.3, or (iii) automatically pursuant to CLAUSE 13, then SES shall
refund to the Customer the pro rata temporis portion of the advance
payments made by the Customer pursuant to SCHEDULE VI relating to
the unexpired portion of the Payment Period in progress on the date
of termination. SES may deduct from such amount all payments, taxes
and duties payable to governments or other entities for which the
Customer is liable hereunder and all sums owed to SES at that time.
16.2 Where SES terminates this Agreement pursuant to CLAUSES 15.1 or
15.2, the Customer shall forthwith pay to SES any sum owed by the
Customer to SES at that time and shall continue to be liable for and
to pay the charge provided in SCHEDULE VI (as if the Agreement had
not been terminated) until such time as SES allocates the Customer's
Transponder to another customer. SES shall have no obligation to
market the Customer's Transponder in priority to unused transponder
capacity on
11
<PAGE> 12
CONFIDENTIAL
SES' satellites and for a price inferior to that payable by the
Customer to SES (unless the Customer makes up for the difference);
however, SES shall use its reasonable efforts to mitigate ITS
losses. If the Customer's Transponder is allocated to another
customer, SES shall refund to the Customer the pro rata temporis
portion of the advance payments made by the Customer pursuant to
SCHEDULE VI relating to the unexpired portion of the Payment Period
in progress on the date at which the other customer starts
transmitting.
17. FORCE MAJEURE
Neither party shall be considered to be in breach or be liable for any
damage suffered by the other party or its Associates, by reason of any
failure to perform any obligation hereunder if and for so long as such
failure is the result of an event of force majeure. Subject to CLAUSE
15.3, the respective obligations of both parties shall be suspended for
such time as such an event prevents either party from performing its
obligations.
18. LIMITATION OF LIABILITY - EXCLUSIVITY OF REMEDIES
18.1 Without prejudice to CLAUSES 5,6, and 16, SES shall not be
liable to the Customer or to the Customer's Associates in any way
whatsoever, except for its gross negligence ("faute lourde") or
wilful misconduct ("dol").
18.2 The remedies expressly provided in this Agreement are the sole
remedies available to the parties and the parties waive any other
rights that they may have.
19. INDEMNITIES
19.1 The Customer shall totally indemnify SES and SES' Associates and
customers against all claims, losses, damages, expenses arising
from:
19.1.1 damages caused to third parties as a result of a breach by
the Customer of this Agreement or a civil duty;
19.1.2 infringement of copyright, defamation, libel or invasion of
privacy (or any allegation thereof) arising in the course of
the use of the Customer's Transponder;
19.1.3 claims in any way connected with the quality or contents of
any programme or display transmitted as part of the
Service(s), or with any failure, however caused, to perform
an obligation owed to any person to transmit any such
programme or display;
19.1.4 infringement by the Customer by virtue of exercising its
rights under this Agreement of any other third party right;
19.1.5 damage caused to the Satellite by the Customer or the
operator of the Uplink Facilities save where SES is said
operator.
19.2 A party (the "First Party") shall indemnify the other party
against all caims, losses,
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damages or expenses arising from an infringement of patent caused by
the use of any apparatus or system provided by the First Party to
the other.
19.3 Neither party shall admit any liability or make any concession in
respect of any claim brought against it for which it may seek an
indemnity under this CLAUSE 19 without the prior written consent of
the indemnifying party and the indemnifying party shall have the
right to control any such proceedings at its own costs and expenses.
20. CONFIDENTIALITY
Each party shall, and shall procure that its Associates shall, both
throughout the TERM and thereafter, keep confidential the provisions of
this Agreement together with all other information disclosed on a
confidential basis by the other party hereunder and shall not disclose the
same to any person except when acting under a court order. Unless otherwise
specified in writing, all information regarding the performance of the
Satellite or the Customer's Transponder or the business affairs of the
parties shall be regarded as confidential. Where necessary to secure its
financing or otherwise in the legitimate course of its business, each party
shall have the right to disclose this Agreement to its professional
advisors, financial institutions and stock exchanges authorities.
21. TRADEMARK - LOGO AND PRESS RELEASES
21.1 Each party agrees to allow the other to use its trademark and logo,
free of charge, throughout the Term, solely for the purpose of
indicating in any document, advertising or communication made or
commissioned by such party that the Service(s) is transmitted via
the ASTRA satellite system.
21.2 The parties shall agree on a press release to announce this
Agreement.
22. NOTICES
Any notice shall be in writing and shall be sent to the address of the
party to be served as above written or to such other address previously
notified to the other party. All notices shall be delivered by hand,
registered, or certified post or facsimile. Notices shall be deemed to have
been received: (i) if delivered by hand, upon such delivery, (ii) if sent
by post, (seventy-two) 72 hours after the envelope containing such notice
was posted, or (iii) if sent by facsimile, when the transmission of the
facsimile is complete. Notices sent by facsimile shall be confirmed by
letter. The initial facsimile number of the parties are: (i) SES: (352) 710
725 291, (ii) the Customer: (48) 22 43 56 31 or (48) 22 43 65 31.
23. SEVERABILITY
In the event that a provision of this Agreement is held to be invalid,
inapplicable or unenforceable such provision shall be replaced by one which
comes closest to the intention of the parties and the remaining provisions
of this Agreement shall be unimpaired.
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24. WAIVER
No relaxation, delay or indulgence by either party in enforcing any right
under this Agreement shall operate as a waiver thereof.
25. ENTIRE AGREEMENT
This Agreement, with the Schedules, is the entire agreement between the
parties in connection with the subject matter hereof and there are no
other agreements, written or oral. This Agreement supersedes all prior
understandings, representations or communications between the parties and
each party declares that it has not relied on any representation except as
expressly set out herein.
26. AMENDMENT
No provision of this Agreement may be amended, waived or terminated, nor
may any breach thereof be waived otherwise than (in each case) by the
express written agreement of the parties hereto. The Agreement will, where
necessary, be amended to reflect the reasonable changes made by the
Luxembourg Government to the Concession or the Cahier des Charges or the
Luxembourg Laws.
27. PROPER LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of the Grand Duchy of Luxembourg and the parties hereby submit to the
exclusive jurisdiction of the Luxembourg courts.
28. LEGAL OPINION
The Customer shall, at SES' request and cost, procure a legal opinion
issued by the Customer's external counsel in favour of SES' lending
institutions, in a form reasonably satisfactory to SES and its lending
institutions.
29. CONDITION PRECEDENT
This Agreement is subject to (i) the approval of the Board of SES, the
Board of the Customer and of the Government of Luxembourg and (ii) the
availability of the Customer's Transponder at SES. The parties shall each
use their reasonable efforts to obtain the approvals required and SES shall
use its reasonable efforts to make the Customer's Transponder available as
soon as practicable after contract signature but in any event before 30
April 1997.
30. MARKETING COOPERATION
Taking into account the Customer's plan to introduce into the market an
aggregate amount of 500,000 IRD's during the start phase of DTH SES and the
Customer shall cooperate jointly
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in the marketing activities for rolling out the Customer's digital
services. Such cooperation shall be mutually agreed from time to time.
IN WITNESS WHEREOF the duly authorised representatives of the parties hereto
have executed this agreement in two originals on the date first before written.
PCI PROGRAMMING INC. SOCIETE EUROPEENNE DES SATELLITES S.A.
/s/ Robert E. Fowler, III /s/ Romain Bausch
- -------------------------- --------------------------
By: Romain Bausch
Title: Director General
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SCHEDULE I: SATELLITE AND TRANSPONDER DESCRIPTION AND PERFORMANCE
SPECIFICATIONS
A. ASTRA 1F SATELLITE DESCRIPTION
1. Satellite Manufacturer : Hughes Communications
Int. Inc.
2. Expected Fuel Lifetime (from OSD) : 14 years
3. Satellite Station-keeping accuracy : Longitude +/- 0.10 degrees
Inclination +/- 0.10 degrees
4. Stabilisation System : 3 axis
5. Designed Channel Capacity :
A maximum of 20 transponders at start of life reducing to 20 transponders
at end of life can be operated simultaneously. All transponders are
eclipse protected and may be selected from the following configurations:
18 transponders in the 17300 - 17700 MHz uplink and 11700 - 12100 MHz
downlink frequency band, 16 transponders in the 12750 - 13000 MHz uplink
and 10700 - 10950 MHz downlink frequency band (ASTRA 1D backup), 16
transponders in the 13000 - 13250 MHz uplink and 10950 - 11200 MHz downlink
frequency band (ASTRA 1C backup), 16 transponders in 14000 - 14250 MHz
uplink and 11450 - 11700 MHz downlink frequency band (ASTRA 1B backup).
6. Polarization : Dual Linear
7. Cross-polarization isolation (for areas
within the 50 dBW e.i.r.p. contour) on
vertical and horizontal transponders : Typical 30 dB
For the avoidance of doubt, the specifications set out in Parts B and C
below shall constitute part of the terms and conditions of this Agreement
but the description of the Satellite in this Part A is for the Customer's
information only and shall not constitute any term or condition of this
Agreement.
B. SPECIFIC DESCRIPTION OF TRANSPONDER USE
1. Initial transponder number on the Satellite : 79
2. Customer Uplink Signal frequency : 17592.50 MHz
3. Customer Downlink Signal frequency : 11992.50 MHz
4. Capacity provided : 27.5 MS/s QPSK
5. Hours of transmission : 24 hours per day
6. Pre-emptibility status : See SCHEDULE VII-A
7. Polarisation : Horizontal
C. ORBITAL POSITION AND TRANSPONDER BANDWIDTH
1. Orbital position : 19.2 degrees East
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2. Usable Transponder bandwidth : 33 MHz (in the band 12.10
to 12.50 GHz)
D. TRANSPONDER PERFORMANCE
1. "MINIMUM TRANSPONDER PERFORMANCE" is defined as a satellite single carrier
saturation e.i.r.p. measured under clear sky conditions by a measurement
test set-up according to standard engineering practice as described in
SCHEDULE I-E of:
<TABLE>
<CAPTION>
F-Band F-band on
City on ASTRA 1F ASTRA 1G
--------- ----------- ---------
<S> <C> <C>
Bialystok 50 50
Gdansk 52.5 50.5
Kielce 52 51.5
Krakow 52 52
Lublin 50 51
Olsztyn 52 50.5
Radom 51.5 51.5
Warsaw 51.5 51
Wroclaw 52.5 52
Betzdorf 51 51
</TABLE>
It is understood that SES shall have no obligation to monitor or measure
the Minimum Transponder Performance in any sites listed above save for
Betzdorf.
2. "RECEIVED SIGNAL POWER" is defined as signal power in dBW on the ground in
Luxembourg measured by a measurement test set-up according to standard
engineering practice as described in SCHEDULE I-E. If the measurement is
not performed under clear sky conditions, the measured value shall be
corrected to account for the effect of weather and propagation conditions.
3. The Minimum Transponder Performance and Received Signal Power shall be
those measured or otherwise ascertained where the Customer is complying or
procuring compliance with SCHEDULE II.
E. MEASUREMENT TEST SET-UP AND STANDARD ENGINEERING PRACTICE
The saturated transponder e.i.r.p. and Received Signal Power is measured
under all weather conditions at the SES Satellite Control Facility in
Betzdorf, Luxembourg. The measured e.i.r.p. for the Customer's
Transponder is kept on record.
In order to accurately determine each transponder e.i.r.p., a measurement
set-up consisting of a calibrated fluxmeter and radiometer is used. The
fluxmeter measures the power flux density at earth surface created by each
individual satellite transponder.
The radiometer measures atmospheric attenuation along the satellite path,
assuming the atmosphere to be an absorbing homogeneous medium at a constant
temperature. Atmospheric attenuation is measured at the beginning of each
e.i.r.p. measurement cycle.
The fluxmeter uses a calibrated antenna, with a calibrated RF measurement
subsystem comprising, among others, a LNA, a down converter and a true RMS
power sensor. A 33 MHz selectivity bandpass filter is used to reduce
errors due to adjacent channel interference during e.i.r.p. measurements.
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SCHEDULE II: CUSTOMER SIGNALS, CUSTOMER UPLINK SIGNALS AND UPLINK FACILITIES
A. SPECIFICATIONS OF CUSTOMER SIGNALS AND CUSTOMER UPLINK SIGNALS
To ensure consistent and uniform reception of high quality video, audio and
data services by the users of ASTRA transmitted services, and to allow full
inter-operability between different manufacturer's equipment, SES requires
each Customer Signal and Customer Uplink Signal to meet the applicable
provisions of the following specifications.
ISO/IEC 13818-1/-2/-3
Generic coding of moving pictures and associated audio (Part 1: Systems:
Part 2: Video and Part 3: Audio).
ETS 300 421
Digital broadcasting systems for television, sound and data services:
framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETS 300 468
Digital broadcasting systems for television, sound and data services;
specification for Service Information (SI) in Digital Video Broadcasting
(DVB) Systems.
ETR 154
Implementation guidelines for the use of MPEG-2 Systems, video and audio in
satellite and cable broadcasting applications.
ETR 211
Guidelines on implementation and usage of service information.
The Customer agrees to transmit the ASTRA Network Information Table ("NIT")
as described in SCHEDULE IX. More specifically, the Customer Uplink Signals
shall automatically update its transmitted NIT to reflect any changes of
the ASTRA NIT. However, the Customer may modify the parts of the NIT
describing the Customer Uplink Signals (e.g. addition of service list
descriptor).
B. CUSTOMER SIGNALS
1. Video source coding shall be as specified in MPEG-2 main profile/main
level.
2. Audio source coding shall be as specified in ISO/IEC 13818-3 and as
defined in ETR 154.
C. CUSTOMER UPLINK SIGNAL AND UPLINK FACILITIES
The Customer shall comply with the specifications and parameters set-out in
the ASTRA Access Agreement, a copy of which has been separately provided to
the Customer, which may be amended by SES, as necessary, provided that such
amendment also applies to other customers on the Satellite.
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CONFIDENTIAL
More specifically, the Customer Uplink Signals and the Uplink Facilities
having access to the ASTRA satellite shall meet the performance
requirements established in the ASTRA Access Agreement. SES will provide a
reasonable prior notice for any amendment requiring a change of hardware.
The following parameters shall also be met:
1. EARTH STATION EIRP
For access to the Satellite, the Uplink Facilities must be able to produce
a minimum earth station e.i.r.p. of to be notified by SES to the Customer
once the Customer has informed SES of the uplink site dBW per RF channel
for transmissions originated from to be notified by the Customer to SES
before OSD.
However, given that the Service(s) can be transferred to another ASTRA
satellite, pursuant to CLAUSE 10.5, such transfer may require a separate
earth station and the Customer should note that for such satellite the
Uplink Facilities must be able to produce a minimum earth station e.i.r.p.
to be determined by SES, which may differ from that of the earth station
which accesses the Satellite.
2. TRANSMISSION STANDARD
The transmission standard used for the video, audio, and data services
shall be in accordance with the specifications given in Section A above.
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SCHEDULE III: SERVICE(S) (CLAUSE 10)
The Customer's Transponder shall be used exclusively for the transmission of
the following packages of television services, and related audio, and other
services as specified below all of them targeting at the general public located
within the Target Market. The expression ""Target Market'' means any or all of
the following countries: Poland, Czech Republic, Slovakia, Hungary, Romania,
Moldova, Bulgaria, Belarus, Russia, Ukraine, Estonia, Latvia, Lithuania,
Slovenia, Croatia, Bosnia Herzegovina, Yugoslavia, Macedonia and Albania. It is
understood that those countries are only to such extent part of the Target
Market as they are covered by the Satellite footprint.
A. PAY-PER-VIEW SERVICES, being television services for which the viewer pays
on the basis of the actual consumption.
B. PAY TV SERVICES, being encrypted television services available upon
subscription.
C. UNENCRYPTED SERVICES, being television services available without any
special decoding equipment.
D. OTHER SERVICES: [TBD]
For each service considered, the Customer shall provide SES with the name of
the service, the types of service (pay-per-view, pay TV, unencrypted), the
nature of the programming and the language(s) of the service.
The above information, for any given Service, shall be provided at least 30
days before the proposed start date for the Service and shall be subject to
SES' consent which shall not be unreasonably withheld or delayed and, where
required, to the approval of the Government of Luxembourg. Any change of
service shall be subject to the prior written consent of SES which shall not be
unreasonably withheld or delayed.
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SCHEDULE IV: MONITORING (CLAUSE 8)
In addition to performing the activities related to controlling the Satellite,
SES will also monitor all the transmissions through all its transponders as
described below.
SES will maintain a Network Operations Centre (NOC) capable of monitoring the
Received Signal Power of the Customer's Transponder on a continual basis in
order to produce a computerized record of the RF characteristics of the
Customer's Transponder.
As part of these activities, SES conducts a quarterly test using its In Orbit
Test System (IOTS) of the performance of each transponder on the ASTRA satellite
system. This test will necessitate that the Customer's Uplink Signal be switched
off during selected periods of time in accordance with CLAUSE 8.1 for not more
than thirty (30) minutes at a time.
If a problem is detected, the NOC Operators will initiate and co-ordinate
corrective measures in co-operation with the Uplink Facility which is
transmitting the Customer Uplink Signals.
The NOC's specific functions and responsibilities will include:
- - Receiving and handling reports of Unavailability from customers
- - Co-ordinating the remedy of the reported difficulty and initiating any
necessary procedures required to restore lost or impaired service in the
most expedient manner
- - Maintaining a complete and accurate record of all reported and observed
service failures, impairments, and customer contacts
- - Co-ordinating the overall line-up, pre-service tests, and actual provisions
of service
- - Arranging the routine monitoring of the Customer's Transponder as described
above
- - Ensuring that any potential events that may affect the operation of the
Satellite as a whole or of the Customer's Transponder (sun transit, routine
testing, etc.) are notified to the Customer as soon as practicable and in
advance if possible
The reporting points for operational purposes shall be:
At the Customer: c/o Baker McKenzie
ul. Dluga 26/28
00-238 Warsaw
Tel: (48) 22 635 3521
(48) 22 635 4111
Fax: (48) 22 635 9447
(48) 39 121 1213
At SES: Network Operations Centre
Satellite Control Facility
L-6815 Chateau de Betzdorf
Luxembourg
Tel: for urgent problems only:
(352) 710 152
Tel: for normal operating and general use:
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Tel: (352) 710 725-344
Fax: (352) 710 725-227
(352) 710 725-213
Attn: Head Network Operations Centre
The above telephone and facsimile numbers are subject to change by SES or the
Customer.
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SCHEDULE V: CONDITIONAL ACCESS SYSTEM
The Customer may encrypt the Customer Signals using such system as it shall
reasonably select, in conjunction with SES, SES' approval not to be unreasonably
withheld or delayed. The conditional access system selected shall be DVB
compliant (based upon the DVB common scrambling algorithm and mechanisms). A
conditional access system cannot be applied to the Customer Signals during the
time period where SES provides, in its ground station in Betzdorf, encoding and
multiplexing of the Customer Signals.
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SCHEDULE VI: CHARGES (CLAUSE 4)
A. The charge payable by the Customer to SES in each year of this Agreement
(being a year which commences on CSD or any anniversary of that date) shall
be the sum of the fees to be determined in accordance with paragraphs (i)
and (ii), subject always to paragraph (iii):
[@Entertainment has requested confidential treatment for trade secrets and
commercial or financial information denoted by "*" and located in (i) and
(ii), below.]
(i) At the Customer's election (the Customer to notify SES of its
election not less than thirty (30) days prior to the commencement of
each year of this Agreement) either:
- an annual fixed fee of *,***,*** USD or
- a monthly fixed fee of ***.*** USD.
The annual fixed fee (when payable) shall be paid on the first day
of the relevant year of this Agreement. The monthly fixed fee
(when payable) shall be payable on the first day of each month of
the relevant year of this Agreement. The Customer hereby elects to
pay the monthly fixed fee in the first year of this Agreement, the
first payment of which shall be on CSD.
(ii) A variable fee of *.** USD for each qualifying digital household up
to ***,*** such households and *.** USD for each qualifying digital
household exceeding ***,*** such households ALWAYS PROVIDED that on
or from 31 March 1999 until the Expiry Date, there shall be deemed
to be not less than ***,*** qualifying digital households
irrespective of the actual number of such households. The
expression "qualifying digital household" means any household
located in which the occupant has a current contract with the
Customer or one of its affiliates or authorized agents or
distributors which gives him the right to receive any services of
the Customer and/or any affiliates of the Customer that are
transmitted using the Customer's Transponder by means of direct
pick-up by the occupant (via direct-to-home) of the digital signal
on an IRD available in the Target Market.
Following determination of the number of qualifying digital
households at the end of the calendar year ending in the relevant
year of this Agreement, the variable payment will be payable on the
average number of houses of the said calendar year (2 point
average) thirty (30) days after notification. For the calendar
year ending in the first year of this Agreement, the 2 point
average will start at zero. Consequently the number of qualifying
digital households for the first year of this Agreement will be
half of the number calculated at the end of that calendar year.
In the first and last year of this Agreement, the variable payment
will be the number of qualifying digital households multiplied by
the appropriate rate(s) adjusted to the number of months in the
relevant calendar year since CSD or until the Expiry Date (as
applicable).
Any calculation of the number of qualifying digital households
shall be verified by an independent auditor to be agreed upon by
the parties.
(iii) The aggregate charges payable by the Customer to SES in any year
shall not exceed 6,750,000 USD.
B. The Customer shall effect payment of all charges to the bank account
identified by SES in the corresponding invoice.
C. The daily rate of charge to be applied for the purposes of calculating any
refund to be made pursuant to Clause 6 of the Agreement shall be the
aggregate charges payable for the Payment Period in the course of which an
Unavailability occurred divided by the number of
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days contained in said Payment Period.
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SCHEDULE VII: PRIORITY AND PRE-EMPTION
A. CUSTOMER STATUS
The Customer shall have the status of: Non-pre-emptible Customer as defined in
PART B below.
B. CATEGORIES OF USE
SES' customers using the ASTRA satellite system shall be accorded (for each
transponder used) priority status as: Protected, Non-Pre-emptible or
Pre-emptible.
1. Protected Customers:
a. will not be subject to pre-emption by other customers;
b. will be entitled to be provided with the use of a back-up transponder
(this will require the pre-emption of Pre-emptible Customer); and
c. shall have the benefit of Spare TWTAs, in preference to certain other
customers, as set out in PART C below.
2. Non-Pre-emptible Customers:
a. will not be subject to pre-emption themselves;
b. will have no rights of pre-emption themselves; and
c. shall have the benefit of Spare TWTAs as set out in PART C below.
3. Pre-emptible Customers:
a. have no rights or pre-emption themselves;
b. may have their transponder pre-empted, as set out in PART D below, in
order to provide a back-up transponder to a Protected Customers; and
c. shall have the benefit of Spare TWTAs, but subject to the rights of
other customers in this Schedule, as set out in PART C below.
C. PRIORITY RULES FOR SPARE TWTAs
As a general rule, Spare TWTAs on the Satellite will be provided on a First
failed/first served basis.
However, in the event of simultaneous transponder failures (or where the
sequence of failures cannot be determined) on the Satellite, and if the number
of failures exceeds the number of available Spare TWTAs, then the following
rules shall apply:
1. Protected Customers have priority over Non-Pre-emptible Customers who, in
turn, have priority over Pre-emptible Customers.
2. Where, pursuant to this Schedule, conflicting rights to Spare TWTAs arise
between customers with the same priority status, priority shall be given in
accordance with the following rules:
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a. customers whose service starts on the Operational Service Date
("OSD CUSTOMER") shall have priority over those service starts at a
date after such Operational Service Date;
b. between OSD Customers, priority shall be determined by reference to
the expiry dates of their contracts so that the customers with the
later dates of expiry have priority over customers with earlier expiry
dates;
c. between OSD Customers whose contracts expire on the same date,
priority shall be determined by reference to the dates on which they
signed contracts for the use of a transponder, so that the customers
who signed earlier have priority over those who signed later;
d. between customers whose services start after the Operational Service
Date ("POST OSD CUSTOMERS"), priority shall be determined by reference
to the customer start dates, so that the customers with earlier
customer start dates shall have priority over customers with later
customer start dates;
e. between Post OSD Customers who have the same customer start dates,
priority shall be determined in the same manner as applicable for OSD
Customers under PARAGRAPH 2(b) and (c) above; and
f. between customers originating from different satellites (i.e.
customers whose initial transponder was located on an ASTRA satellite
other than the Satellite), priority shall be determined by reference
to their respective start date on their respective initial satellite,
so that the customers with earlier customer start dates shall have
priority over customers with later customer start dates.
3. For the purpose of the above rules, (i) the expiry date of a contract
shall, in case of extension of the contract, refer to the extended expiry
date, and (ii) the customer start date refers to the start date of a
customer's initial service and is not affected by any subsequent change of
the service transmitted under a given customer contract.
D. PRE-EMPTION RULES
1. If PART A above provides that the Customer has the status of
Pre-emptible Customer, then the Customer's Transponder shall be
pre-emptible on the terms set out below.
2. a. SES shall have the right to pre-empt the Customer's Transponder
to provide back-up capacity to restore the service of a Protected
Transponder in respect of which SES is contractually bound to provide
back-up capacity at the time pre-emption occurs and if there is no
Spare TWTA that can be used to restore the Protected Transponder's
service.
b. As used herein, "PROTECTED TRANSPONDER" means the transponder of a
Protected Customer on another ASTRA satellite, to be nominated by SES
and notified by SES to the Customer at any time, the protection of
which directly or indirectly requires the pre-emption of the
Customer's Transponder. There may be several Protected Transponders
nominated by SES, provided that each is on a different ASTRA
satellite. SES may increase or reduce the number of Protected
Transponders at any time by giving prior written notice to the
Customer.
3. To Pre-empt the Customer's Transponder:
a. SES will give the Customer at least 24 hours advance warning (by
fax or phone) of
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such pre-emption save in the event of consecutive failures of a
Protected Transponder, in which case such pre-emption warning may be
shorter, it being understood that SES will keep the Customer informed
of the status of the Protected Transponders affected by such
consecutive failures; and
b. at the expiry of the aforementioned advance warning, SES shall have
the right to forthwith interrupt the transmission of all video and
audio services using the Customer's Transponder and the Customer shall
therefore forthwith, upon SES' request, interrupt the transmission of
the Customer Uplink Signal. SES shall in addition have the right to
interrupt the reception of the Customer Uplink Signals by the
Customer's Transponder.
4. The Customer shall comply diligently with SES' instructions for the
purposes of implementing the pre-emption and shall require the operator of
the Uplink Facilities to do the same.
5. a. If SES pre-empts the Customers' Transponder, then, at that time, SES'
obligation to provide the use of the Customer's Transponder, and the
Customer's obligation to pay the corresponding charge, shall be
suspended. The Agreement shall terminate 30 days after the pre-emption
date unless SES, within this period, restores the Protected
Transponder in respect of which pre-emption was implemented. If such
restoration occurs after this 30 days period, then SES shall offer the
Customer's Transponder back to the Customer on the terms set out in
this Agreement for the outstanding period of Term. The Customer shall
have fifteen (15) days to accept SES' offer.
b. Upon termination of the Agreement pursuant hereto, as the case may be,
i. SES shall refund to the Customer the pro rate temporis portion of
the advance payments made by the Customer pursuant to SCHEDULE VI
and relating to the unexpired portion of the period (in respect
of which the Customer has paid in advance) in progress on the
date of pre-emption; or
ii. the Customer shall pay to SES all outstanding sums owed to SES at
the time of termination.
6. a. The Customer shall fully cooperate with SES for the exercise, by SES,
of its right of pre-emption provided herein and shall not raise any
objection, initiate any legal proceedings against SES or the Protected
Customer benefiting from the pre-emption, or take other steps, to
prevent, delay or obstruct the exercise of this right and the Customer
shall be liable for all damages suffered by SES or such Protected
Customer in connection therewith.
b. The Customer shall not make any claim against SES or the Protected
Customer benefiting from the pre-emption in connection with the
exercise, by SES, of its right of pre-emption and shall indemnify SES
against any related third party claim.
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SCHEDULE VIII: ASTRA ACCESS AGREEMENT
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SCHEDULE IX: ASIUS
30
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[ASTRA LOGO]
ASTRA ACCESS AGREEMENT
PERFORMANCE CHARACTERISTICS OF
EARTH STATIONS HAVING ACCESS TO
ASTRA SATELLITES
- --------------------------------------------------------------------------------
ASTRA ACCESS AGREEMENT SOCIETE EUROPEENNE DES SATELLITES
1 AUGUST 1996 CONFIDENTIAL PROPRIETARY
<PAGE> 32
[ASTRA LOGO]
SOCIETE EUROPEENNE DES SATELLITES S.A.
L-6815 CHATEAU DU BETZDORF, LUXEMBOURG
TEL: (352) 710725-1
FAX: (352) 710725-548
ASTRA is a trademark of Societe Europeenne des Satellites.
The information and data contained herein are subject to change.
<PAGE> 33
CONTENTS
<TABLE>
<C> <S> <C>
1. INTRODUCTION.......................................................... 1
2. ANTENNA SYSTEM........................................................ 2
2.1. General......................................................... 2
2.2. Frequency Range................................................. 2
2.3. Off-axis Antenna Gain Pattern................................... 4
2.4. Polarisation.................................................... 4
2.5. Motorisation, Antenna Pointing and Tracking..................... 4
3. RF EQUIPMENT.......................................................... 5
3.1. Frequency Range and Agility..................................... 5
3.2. E.i.r.p. Capability............................................. 5
3.3. Transmitter Inhibit............................................. 5
3.4. Out-of-Band e.i.r.p. Emission................................... 6
3.5. Off-axis e.i.r.p. Density....................................... 6
3.6. Frequency Stability............................................. 6
4. AMPLITUDE AND GROUP DELAY DISTORTIONS................................. 7
4.1. FM TV transmission in FSS and BSS bands......................... 7
4.2. Digital transmission in FSS and BSS bands....................... 8
4.3. Group Delay Equalisation........................................ 9
5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION............................ 10
5.1. General......................................................... 10
5.2. PAL Transmission Standard....................................... 10
5.2.1. Video Signal............................................ 10
5.2.1.1. Frequency Deviation........................... 10
5.2.1.2. Energy Dispersal.............................. 10
5.2.1.3. Pre-emphasis.................................. 11
5.2.2. On-line Testing......................................... 11
5.2.3 Audio Signals........................................... 11
5.2.3.1. Audio Channel Modes........................... 11
5.2.3.2. Subcarrier Frequency.......................... 15
5.2.3.3. Subcarrier Bandwidth.......................... 16
5.2.3.4. Subcarrier Modulation Index................... 16
5.2.3.5. Analogue Audio................................ 16
5.2.3.5.1. Analogue Audio Deviation.......... 16
5.2.3.5.2. Analogue Audio Bandwidth.......... 16
5.2.3.5.3. Pre-emphasis...................... 16
5.2.3.6. Digital Audio................................. 17
5.2.3.6.1. Sampling Method................... 17
5.2.3.6.2. Modulation Method................. 17
5.2.3.6.3. Auxiliary Data.................... 17
5.2.3.7. Network Control Carrier....................... 17
5.2.4 Teletext................................................ 17
</TABLE>
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<TABLE>
<C> <S> <C>
6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE CODING
FOR DIGITAL SERVICES.................................................. 18
6.1. General......................................................... 18
6.2. Modulation...................................................... 18
6.2.1. BSS bands............................................... 18
6.2.2. FSS bands............................................... 18
6.2.3. Earth Station Degradation............................... 18
6.3. Channel coding.................................................. 18
6.4. Power Spectrum Density Mask..................................... 19
6.4.1. BSS Bands............................................... 19
6.4.2. FSS Bands............................................... 19
6.5. Multiplexing.................................................... 20
6.5.1. General................................................. 20
6.5.2. Transport Stream........................................ 20
6.5.3. Service Information..................................... 20
6.6. Source Coding................................................... 21
7. ASTRA SATELLITE INFORMATION........................................... 22
7.1. ASTRA 1 series.................................................. 22
7.1.1. ASTRA 1 Transponder Frequency Plan...................... 22
7.2. ASTRA 2 series.................................................. 31
7.2.1. ASTRA 2 Transponder Frequency Plan...................... 31
8. ORBITAL POSITION / STATION KEEPING.................................... 35
9. BEACON INFORMATION.................................................... 35
9.1. ASTRA 1A and ASTRA 1B Beacon Details............................ 36
9.2. ASTRA 1C, 1D, 1E, 1F, 1G and 1H Beacon Details.................. 36
9.3. ASTRA 2A Beacon Details......................................... 36
9.4. ASTRA 2B Beacon Details......................................... 37
Annex 1.................................................................... 38
MULTIPLEX DIAGNOSTIC TABLE (MDT)...................................... 38
</TABLE>
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<PAGE> 35
1. INTRODUCTION
In order to access an ASTRA satellite, approval must first be obtained from
Societe Europeenne des Satellites - SES. The purpose of this approval is to
control the technical parameters of the Uplink Facilities and Customer's Uplink
Signal, to ensure that the following objectives are met:
- - The desired signal quality and availability are achieved;
- - Harmful interference is not produced in the other transmissions carried by
any ASTRA spacecraft;
- - The interference produced in other satellite systems will not exceed the
coordinated levels.
This document outlines the specifications established by SES in order to achieve
those objectives. Access to a specific ASTRA satellite will only be granted
after compliance to the specifications has been demonstrated to the satisfaction
of SES.
In case of contradiction between the ASTRA Access Agreement and the Customer's
Transponder Agreement, the latter shall prevail.
The following definitions are utilised in this document:
OPERATOR - Person, firm, corporation or other legal entity using an ASTRA
transponder.
SATELLITE CONTROL FACILITY (SCF) - SES earth station complex located at
Betzdorf, Grand Duchy of Luxembourg.
DIGITAL TRANSMISSION FACILITY (DTF) - Part of the SES earth station complex,
located at Betzdorf, Grand Duchy of Luxembourg, in which digital services are
handled.
ANALOGUE NETWORK OPERATIONS CENTRE (NOC) - The monitor and control center for
all analogue ASTRA services, located at the SCF. This provides a 24 hour monitor
and control network reporting point for service quality monitoring and problem
resolution for the ASTRA analogue satellites.
DIGITAL NETWORK OPERATIONS CENTRE (DINO) - The monitor and control centre for
all ASTRA digital services, located at the DTF. This provides a 24 hour monitor
and control network reporting point for service quality monitoring and problem
resolution for the ASTRA digital satellites.
REFERENCE STANDARD EARTH STATION (RSES) - These stations are highly maintained
up- and downlinks to be used in developing baseline performance standards for
transmissions carried by the ASTRA satellites.
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<PAGE> 36
<TABLE>
<CAPTION>
SATELLITE REFERENCE STANDARD EARTH STATION
--------- --------------------------------
<S> <C>
ASTRA 1A...........................BTZ # 2
ASTRA 1B...........................BTZ # 3
ASTRA 1C...........................BTZ # 4
ASTRA 1D...........................BTZ # 5
ASTRA 1E...........................BTZ # 6
ASTRA 1F...........................BTZ # 10
ASTRA 1G...........................BTZ # 12
ASTRA 1H...........................BTZ # 14
ASTRA 2A...........................BTZ # 13
ASTRA 2B...........................BTZ # 15
</TABLE>
Table 1. ASTRA REFERENCE STANDARD EARTH STATIONS
2. ANTENNA SYSTEM
2.1 GENERAL
A dedicated antenna system shall be used for access to any ASTRA satellite.
Simultaneous access to two or more ASTRA satellites by a single antenna system
is not permitted, but it is permitted for one antenna to access a single
spacecraft in both the FSS and BSS bands. By using a dedicated antenna system as
specified herein for a given ASTRA satellite, link performance in terms of
uplink and downlink Carrier/Thermal Noise (C/N) and Carrier/Cross Polar
Interference (C/X) can be maintained.
2.2 FREQUENCY RANGE
The antenna system is required to meet all the specifications set in the next
items operating in the appropriate FSS or BSS frequency range.
The uplink frequency ranges for the different ASTRA satellites (primary and
back-up bands) are shown in the following Table 2.
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<TABLE>
<CAPTION>
FSS BSS
Satellite 12.75-13.25 13.75-14.00 14.00-14.50 17.30-18.10
<S> <C> <C> <C> <C> <C> <C> <C>
ASTRA 1A..... A-Band
ASTRA 1B..... B-Band
ASTRA 1C..... C-Band A-Band
ASTRA 1D..... D-Band C-Band B-Band E-Band
ASTRA 1E..... D-Band C-Band B-Band E-Band
ASTRA 1F..... A-Band E-Band F-Band
ASTRA 1G..... G-Band E-Band F-Band
ASTRA 1H..... G-Band E-Band F-Band
ASTRA 2A..... G-Band E-Band F-Band
ASTRA 2B..... G-Band B-Band E-Band F-Band
</TABLE>
Table 2. ASTRA Uplink Frequency Bands
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2.3. OFF-AXIS ANTENNA GAIN PATTERN
The gain, (expressed in dBi), relative to an isotropic antenna, at any off-axis
angle (-) (expressed in degrees) shall comply with the following:
<TABLE>
<CAPTION>
FREQUENCY RANGE (GHz) GAIN (dBi) ANGULAR RANGE
- --------------------- ---------- -------------
<S> <C> <C>
14.00 - 14.50 . . . . . G </- 29 - 25 log (-) 1 degree < (-) </- 20 degrees
G </- 32 - 25 log (-) 20 degrees < (-) </- 48 degrees
G </- -10 48 degrees < (-) </- 180 degrees
12.75 - 13.25 . . . . . G </- 29 - 25 log (-) 0.5 degrees < (-) </- 36.3 degrees
13.75 - 14.00 . . . . . G </- -10 36.3 degrees < (-) </- 180 degrees
17.30 - 18.10 . . . . . G </- 29 - 25 log (-) 1 degree < (-) </- 36.3 degrees
G </- -10 36.3 degrees < (-) </- 180 degrees
</TABLE>
2.4. POLARISATION
The ASTRA satellites employ dual linear orthogonal polarisation. The antenna
polarisation angle will be set with SES during service line-up, following the
appropriate procedure established by the NOC and the DINO. The cross-polarised
signal component transmitted by the antenna shall be as specified below:
FSS band: 30 dB
BSS band: 35 dB
2.5. MOTORISATION, ANTENNA POINTING AND TRACKING
Permanent uplink antennas shall be motorised in both azimuth and elevation to
enable rapid repointing in case of necessity, and to facilitate accurate antenna
pattern measurements.
Further, the utilisation of a suitable tracking system is recommended in order
to meet the e.i.r.p. stability requirement specified in the following section
3.2. The tracking system design shall be based on the ASTRA satellite station
keeping and beacon frequency parameters, which are presented in sections 8 and 9
respectively. It shall guarantee the clear sky polarisation value specified in
the previous section 2.4.
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<PAGE> 39
3. RF EQUIPMENT
The RF equipment, including any redundant equipment, is required to meet all
the specifications set out in the following sections 3.1 to 3.6.
3.1. FREQUENCY RANGE AND AGILITY
It shall be possible to set the carrier centre frequency to within +-125 kHz.
3.2. E.I.R.P. CAPABILITY
The e.i.r.p. will be established by SES based on the utilised channel and on
the uplink geographical location.
It is expected that SES may request changes in the earth station e.i.r.p.
during the course of the contract, to account for changes in the transponder
performance over its lifetime, utilisation of redundant units or utilisation of
a different transponder.
The uplink e.i.r.p. stability shall be equal to or better than +-0.5 dB
including antenna pointing and tracking errors.
Means shall be provided to allow adjustment of the carrier level to within 0.5
dB of the specified value.
3.3. TRANSMITTER INHIBIT
Operators accessing ASTRA satellites may be required by the NOC or the DINO to
shut down a transmission in the case where it is producing harmful interference
into other transmissions. Shut down of a transmission may also be required to
allow the switching into operation of redundant units in the satellite.
In order to comply with this requirement, the Operator shall provide
continuous manning of the uplink site or a remote control system to another
location which will be manned continuously.
The transmitter shall utilise a system which automatically inhibits the
transmission of a chain upon the detection of failure conditions such as loss
of phase lock on an upconverter or excessive HPA transmit power. This system may
also be designed to, alternatively, switch the transmission to a stand-by chain.
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<PAGE> 40
3.4. OUT-OF-BAND E.I.R.P. EMISSION
Earth station out-of-band emissions are additional sources of interference for
other carriers utilising ASTRA transponders. The two contributions to
out-of-band e.i.r.p. emission are spurious output and intermodulation products.
Note that the specification applies across all ASTRA uplink bands (both FSS and
BSS) for all stations. The specified limits for these two contributions are the
following:
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, and 17.30 - 18.10 GHz bands, resulting from spurious output, must
not exceed 4.0 dBW/4 kHz;
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, and 17.30 - 18.10 GHz bands, resulting from intermodulation
products, must not exceed 12.0 dBW/4 kHz.
3.5. OFF-AXIS E.I.R.P. DENSITY
This parameter has a direct impact on the interference produced in other
satellite systems. In order to keep this interference within acceptable levels,
the earth station must comply with the following e.i.r.p. limits. The off-axis
angle, (-), is referred to the main lobe axis, in degrees.
For the frequency range 14.00 - 14.50 GHz, based on ITU-R Report 1001:
<TABLE>
<S> <C> <C>
35 - 25log (-) dBW/40 kHz for 2.5 degrees </- (-) </- 48 degrees
-7 dBW/40 kHz for 48 degrees < (-) </- 180 degrees
</TABLE>
For the frequency range 12.75 - 13.25 GHz based on the ITU Appendix 30B planned
limits (averaged over the necessary bandwidth of 26 MHz:
<TABLE>
<S> <C> <C>
-25 - 25log (-) dBW/kHz for 0.5 degrees </- (-) </- 36.3 degrees
-64 dBW/kHz for 36.3 < (-) </- 180 degrees
</TABLE>
For the frequency range 13.75 - 14.00 GHz, the antenna must fully comply with
the antenna specification (section 2.3).
For the frequency range 17.30 - 18.10 GHz, the input power to the antenna shall
not exceed 30 dBW in a single transponder, and the antenna must conform fully
with the antenna specification (section 2.3).
3.6. FREQUENCY STABILITY
The RF frequency tolerance of the transmitted carrier shall be equal to or
better than +/- 150 kHz, long and short term stability.
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<PAGE> 41
4. AMPLITUDE AND GROUP DELAY DISTORTIONS
4.1. FM TV TRANSMISSION IN FSS AND BSS BANDS
The earth station IF uplink filter shall be provided in the uplink chain and
shall conform to the amplitude limits shown in Figure 4.1.1.
The group delay produced by transmit earth station IF and RF equipment --
including the up-converter, IF filter, HPA, RF filter combiners, feed and
transmission lines -- shall be equalised to the limits given in Figure 4.1.2.
[FIGURE 239A]
<TABLE>
<CAPTION>
FREQUENCY (MHz) AMPLITUDE (dB)
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A B C D a b c d
---- ---- ---- ---- --- --- --- ----
20.2 25.2 28.9 40.0 0.2 2.2 8.3 25.0
</TABLE>
Figure 4.1.1 IF UPLINK FILTER AMPLITUDE RESPONSE
[FIGURE 239B]
<TABLE>
<CAPTION>
FREQUENCY (MHz) GROUP DELAY (ns)
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
A/3 A H f g h
----- ---- ----- --- --- ----
6.7 20.2 24.6 2.0 3.0 12.0
</TABLE>
Figure 4.1.2 IF UPLINK FILTER GROUP DELAY RESPONSE
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<PAGE> 42
4.2. DIGITAL TRANSMISSION IN FSS AND BSS BANDS
For the FSS or BSS transmit channel from upconverter input to antenna output,
the total amplitude and group delay distortions shall not exceed the values
specified in Table 4.2.1.
<TABLE>
<CAPTION>
FSS BSS
------------ -----------
<S> <C> <C> <C> <C>
FREQUENCY (MHZ)................. 26 30 33 39
Amplitude variation (dB pp)...... 0.5 0.7 0.5 0.7
Group delay variation (nss pp)... 6.0 8.0 6.0 8.0
</TABLE>
Table 4.2.1 AMPLITUDE AND GROUP DELAY DISTORTIONS
In the case where an RF channel filter network is used, the amplitude and group
dealy masks specified in Figure 4.2.1 and 4.2.2 shall be met from the HPA output
to the antenna output.
(FIGUE 240)
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) AMPLITUDE (dB)
------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
A B C a b c
--- --- --- --- --- ---
FSS........... 26 30 114 0.25 0.35 35
BSS........... 33 39 123
</TABLE>
Figure 4.2.1 RF CHANNEL FILTER AMPLITUDE RESPONSE
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<PAGE> 43
[FIGURE 241]
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) GROUP DELAY (ns)
---- ----------------- ------------------
A B a b
--- --- --- ---
<S> <C> <C> <C> <C>
FSS............. 26 30 3.5 5.0
BSS............. 33 39
</TABLE>
Figure 4.2.2. RF CHANNEL GROUP DELAY MASK
4.3 GROUP DELAY EQUALISATION
Equalisation capability shall be provided at the earth station for intrinsic
group delay in the earth station transmit equipment and for group delay in the
satellite transponder.
The maximum range of satellite group delay to be equalised at the earth station
is given below:
- -- Linear : +/-1.0 ns/MHz
- -- Parabolic : 0.5 ns/MHz(2)
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<PAGE> 44
5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION
5.1. GENERAL
In general the baseband television signal parameters defined shall be designed
in accordance with the relevant definitions and standards for that system and
as authorised by SES.
5.2. PAL TRANSMISSION STANDARD
5.2.1 VIDEO SIGNAL
The transmitted video signal shall correspond to that of ITU-R Report 624-4 and
Recommendation 472-3, using PAL values with a maximum video signal bandwidth of
5 MHz.
A lowpass filter at the video input to the modulator shall reject any signal
above 6 MHz by at least 40 dB. Up to 5 MHz this filter shall have a group
ripple of less than +/-20 ns.
The following items present information concerning the basic modulation
parameters.
5.2.1.1. FREQUENCY DEVIATION
The utilised peak-to-peak frequency deviation for the video signal shall be 16
MHz/V, assuming the difference between white and black levels to be 0.7 V.
5.2.1.2. ENERGY DISPERSAL
The earth station shall be equipped to add to the TV signal a fixed amplitude
symmetrical triangular waveform, phase locked to the video frame rate, capable
of producing the specified peak-to-peak deviation of the television carrier.
The utilised frequency of that waveform shall be 25 Hz.
- -- In the presence of a modulating signal: 2.0 MHz
- -- In the absence of a modulating signal: 4.0 MHz
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<PAGE> 45
5.2.1.3. PRE-EMPHASIS
The utilised pre-emphasis network shall be that defined in the ITU-R
Recommendation 405-1 (625 lines).
5.2.2. ON LINE TESTING
In order to enable service performance monitoring while on-line transmission is
present, vertical interval test signals (VITS) shall be inserted on the
transmitted baseband video signal. These signals are based on ITU-R
Recommendation 473-5, as depicted in Figures 5.2.2.1 - 5.2.2.3 and shall utilise
one of the following VITS line modes:
<TABLE>
<CAPTION>
Test signal Line Line Line
----------- ---- ---- ----
<S> <C> <C> <C>
CCIR 17............17 18 19
CCIR 18............18 or 19 or 20
CCIR 330...........330 331 332
CCIR 331...........331 332 333
</TABLE>
In addition line 22 shall always be used as a "quiet" line to allow the
measurement of end-to-end signal/noise ratio or for other purposes specified by
SES.
5.2.3. AUDIO SIGNALS
5.2.3.1. AUDIO CHANNEL MODES
The TV carrier shall (normally) be supplemented by a number of audio channels.
The following sections describe the various subcarrier configurations that may
be used for the transmission of audio channels for both TV-related and non
TV-related applications.
Only those subcarriers specified in the Customer's Transponder Agreement shall
be utilised and only subcarrier modulation equipment approved by SES shall be
employed.
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<PAGE> 46
<TABLE>
<CAPTION>
Characteristics measured Waveform used Line number
- ------------------------ --------------------------------------- ---------------
<S> <C> <C> <C>
Linear distortions
Insertion gain............................ B(2) Bar 17 and 330
Amplitude/frequency response.............. C(2) and C(1) Multiburst 18
Line-time waveform distortion............. B(2) Bar 17 and 330
Short-time waveform distortion:
-- step response........................ B(2) Bar 17 and 330
-- pulse response....................... B(1) 2T 17 and 330
Chrominance-luminance gain inequality..... B(2) and G, or G(2) Bar & Subcarr. 17 and 330, 331
B(2) and F Bar & 20T 17
Chrominance-luminance delay inequality.... F 20T 17
Non-linear distortions
Luminance line-time non-linearity......... D(1) Staircase 17
Chrominance non-linearity................. G(2) 3 Step Subcarr. 331
Luminance-chrominance intermodulation:
-- differential gain.................... D(2) Modulated 330
-- differential phase................... D(2) and E Staircase 330, 331
Chrominance-luminance intermodulation..... B(2) and G(1) or G(2) Bar & Subcarr. 17,331
</TABLE>
Table from CCITT-Rec No. 67
Figure 5.2.2.1 VERTICAL INTERVAL TEST SIGNALS
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<PAGE> 47
[FIGURE 249A]
[FIGURE 245B]
Figure 5.2.2.2. VERTICAL INTERVAL TEST SIGNALS
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<PAGE> 48
[FIGURE 246A]
[FIGURE 246B]
Figure 5.2.2.3. VERTICAL INTERVAL TEST SIGNALS
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<PAGE> 49
5.2.3.2. SUBCARRIER FREQUENCY
The audio subcarriers shall utilise only the frequencies presented in Table
5.2.3.2.1, and shall only be used in the manner indicated in column "Type'',
and in accordance with Section 5.2.3.1.
<TABLE>
<CAPTION>
TYPE FREQUENCY (MHZ)
<S> <C>
Digital Only......................................................... 6.12@
Digital Only......................................................... 6.30@
Digital Only......................................................... 6.48@
Digital Only......................................................... 6.66@
Digital Only......................................................... 6.84@
TV sound (A:L/M)..................................................... 7.02
TV sound (A:R/M)..................................................... 7.20
D or A (L/M)......................................................... 7.38
D or A (R/M)......................................................... 7.56
D or A (L/M)......................................................... 7.74
D or A (R/M)......................................................... 7.92
Digital Only......................................................... 8.10*
Digital Only......................................................... 8.28*
Digital Only......................................................... 8.46#
Low Speed Data for network control.................................... 8.595#
</TABLE>
Table 5.2.3.2.1 SUBCARRIERS FREQUENCIES
A = analogue companded system with Panda(R)-1 parameters.
D = digital stereo 192 kbit/s QPSK signal using ISO 11172-3 Layer II
parameters.
L = left stereo R = right stereo M = mono
* - Frequency tolerance of +/-0.005 MHz for all subcarriers
@ - As an option these five subcarriers may be replaced by a single
non-companded analogue subcarrier at 6.50 MHz used for mono TV sound.
# - In some applications the use of this subcarrier may be restricted to
prevent degradation of the picture quality.
(R) - Panda is a registered trademark of WEGENER Communications Inc.
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<PAGE> 50
5.2.3.3. SUBCARRIER BANDWIDTH
A 130 kHz nominal bandwidth shall be utilised for all the analogue companded or
digital audio subcarriers. In the case of the non-companded mono subcarrier, the
nominal bandwidth of the modulated signal shall be 200 kHz.
5.2.3.4. SUBCARRIER MODULATION INDEX
The modulation index of the subcarrier, BETAsc, is given by the following
expression:
BETAsc = Osc/Fsc
Where Osc is the peak deviation produced by the subcarrier in the TV carrier and
Fsc is the frequency of the subcarrier, both Osc and Fsc being given in MHz.
For the analogue companded subcarriers, a modulation index of 0.15 shall be
utilised. For the digital audio subcarriers, a modulation index of 0.12 shall be
utilised. For the network control subcarrier (8.595 MHz) a modulation index 0.10
shall be utilised. In the case of the non-companded mono subcarrier a modulation
index of 0.26 shall be utilised.
5.2.3.5. ANALOGUE AUDIO
5.2.3.5.1 ANALOGUE AUDIO DEVIATION
The peak frequency deviation produced by a 9 dBm0 test on the analogue companded
subcarriers shall be +/- 50 kHz. In the case of the non-companded mono
subcarrier, a 9 dBm0 test tone shall produce a peak frequency deviation of
+/- 85 kHz.
5.2.3.5.1 ANALOGUE AUDIO BANDWIDTH
All the analogue audio channels shall provide an audio baseband ranging from
20 Hz to 15 kHz.
5.2.3.5.3. PRE-EMPHASIS
The analogue companded subcarriers shall utilise 75 mu's together
with an adaptive pre-emphasis compatible with the WEGENER Communications
Panda(R)-l system. The pre-emphasis time constant of the non-companded audio
subcarrier shall be 50 mu's.
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<PAGE> 51
5.2.3.6. DIGITAL AUDIO
The digital audio subcarriers shall utilise ISO 11172-3 Layer II coding system
to achieve a CD quality stereo channel and shall conform with the SES document
"ASTRA DIGITAL RADIO (ADR)".
5.2.3.6.1. SAMPLING METHOD
The analogue stereo signal input shall be sampled at a rate of 48 ksamples/s.
Compression based on the ISO 11172-3 Layer II algorithm shall then be performed
to generate a 192 kbit/s digital stereo signal.
5.2.3.6.2 MODULATION METHOD
The digital audio signals shall be modulated using the differential QPSK method,
with a convolutional code of rate 3/4, with constraint length 7. CCITT V.35
scrambling shall be employed. An appropriate filter mask shall be applied in the
modulator to limit the bandwidth to the same value as for an analogue companded
subcarrier.
5.2.3.6.3. AUXILIARY DATA
The format of any auxiliary data in the ISO 11172-3 Layer II data stream shall
be agreed by SES in writing.
5.2.3.7. NETWORK CONTROL CARRIER
The maximum data rate shall be 14.4 kbit/s using asynchronous FSK modulation.
The modulation index shall be 0.10.
5.2.4 TELETEXT
The Teletext signal shall conform to the specifications for Teletext System B as
defined in ITU-R Recommendation 653, for the case of a 625/50 television system.
THE VBI (VERTICAL BLANKING INTERVAL) SHALL NOT BE USED FOR TRANSMISSION OF ANY
OTHER TYPE OF INFORMATION OR SIGNAL WITHOUT PREVIOUS AUTHORISATION IN WRITING
FROM SES.
Teletext signals shall only be inserted between lines 7 and 21 inclusive (and
the corresponding lines in the second field) other than on those lines used for
VITS test signals as specified in paragraph 5.2.2 unless specifically approved
in writing by SES.
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6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE CODING FOR DIGITAL
SERVICES
6.1. GENERAL
Channel coding and modulation equipment shall conform to the following
specifications:
ETS 300 421
Digital broadcasting systems for television, sound and data services;
Framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
The transmitted RF carrier spectrum shall not be inverted with respect to the
modulator output spectrum. The phase accuracy at the modulator output shall be
+/- 2 degrees. The amplitude accuracy at the modulator output shall be +/- 0.2
dB.
6.2. MODULATION
6.2.1. BBS BANDS
The modulation shall be QPSK at a transmission bit rate of 55.0 Mbit/s, in order
to operate with a single carrier at a fixed symbol rate of 27.5 Msym/s.
6.2.2. FSS BANDS
The modulation shall be QPSK at a transmission bit rate of 44.0 Mbit/s, in order
to operate with a single carrier at a fixed symbol rate of 22.0 Msym/s.
6.2.3. EARTH STATION DEGRADATION
The Eb/No degradation (for the case of FEC 3/4 and BER = 10(7)) caused by the
earth station equipment shall be less than 0.5 dB. This value shall be verified
in a station loop including baseband, IF and RF equipment of the uplink and
downlink chain.
6.3. CHANNEL CODING
Forward Error Correction (FEC) shall conform to the specifications given in
section 6.1 and shall permit the use of one or more of the following FEC ratios;
1/2, 2/3, 3/4 or (in the case of FSS 26 MHz bandwidth) 5/6.
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6.4 POWER SPECTRUM DENSITY MASK
6.4.1 BSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.1. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
Frequency Offset (+/-) Amplitude
(MHz) (dB)
- ---------------------- --------- [FIGURE 251A]
<S> <C>
0 - 19.50 0.0
19.50 - 29.25 -25.0
>/- 40.00 -40.0 FIGURE 6.4.1 BSS POWER SPECTRUM MASK
</TABLE>
6.4.2 FSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.2. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
Frequency Offset (+/-) Amplitude
(MHz) (dB)
- ---------------------- --------- [FIGURE 251B]
<S> <C>
0 - 14.75 0.0
14.75 - 22.50 -25.0
>/- 30.00 -40.0 FIGURE 6.4.2 FSS POWER SPECTRUM MASK
</TABLE>
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6.5. MULTIPLEXING
6.5.1. GENERAL
Multiplexing of video, audio, and data signals shall conform to the following
specifications:
ISO/IEC 13818-1
Generic coding of moving pictures and associated audio (Part 1: Systems).
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
6.5.2. TRANSPORT STREAM
The Transport Stream (excluding error correcting code overhead) shall operate at
one of the following bit rates, dependent on the FEC to be used:
<TABLE>
<CAPTION>
Transport Stream bit rate
FEC ratio (Mbit/s)
--------- -------------------------
BSS FSS
----- -----
<S> <C> <C>
1/2............ 25.34 20.27
2/3............ 33.79 27.03
3/4............ 38.01 30.41
5/6............ n.a. 33.79
</TABLE>
6.5.3. SERVICE INFORMATION
Service Information shall conform to the following specifications:
ETS 300 468
Digital broadcasting systems for television, sound and data services;
Specification for Service Information (SI) in Digital Video Broadcasting
(DVB) systems.
ETR 211
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Guidelines on implementation and usage of
service information.
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It is further required to receive the original ASTRA NETWORK INFORMATION TABLE
(NIT) uplinked from Betzdorf and to re-transmit this table in intervals of at
least 10 seconds on each locally uplinked ASTRA transponder.
The last version of the original NIT should be kept in memory. This ensures an
uninterrupted availability of the NIT in case the original NIT cannot be
received.
By means of the local service Information editing station, the transponder
specific parts of the NIT can be modified/updated at any time.
A MULTIPLEX DIAGNOSTIC TABLE (MDT) has been defined to provide a mechanism for
conveying diagnostic information about the consistency of all multiplexes to the
central Network Operations Centre at Betzdorf.
The local uplinks should generate such MDT in the case a service failure occurs
for longer than 10 seconds, i.e. if a service component (video, audio, subtitle
or accompanied data) or a Service Information component (NIT, SDT, EIT or TDT)
is missing.
This involves that the local encoders signal corresponding failure information
to the local multiplex controller that shall generate the MDT. After the failure
has been eliminated, the local uplink stops transmitting the MDT.
Details on the Multiplex Diagnostic Table concept can be found in Annex 1.
In addition it is recommended that a transmitted SERVICE DESCRIPTION TABLE (SDT)
includes the service information about all services on the respective
transponder on which it is transmitted, and that an EVENT INFORMATION TABLE
(EIT) includes the event information about all present and following events for
all services on the respective transponder.
6.6. SOURCE CODING
Source coding of video and audio signals shall conform to the following
specifications:
ISO/IEC 13818-2/-3
Generic coding of moving pictures and associated audio (Part 2: Video and
Part 3: Audio).
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
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7. ASTRA SATELLITE INFORMATION
7.1. ASTRA 1 SERIES
Presently, there are six ASTRA satellites (ASTRA 1A to 1F) at the orbital
position of 19.2 degrees East. In the middle of 1997, ASTRA 1G will be added to
fill the available frequency spectrum at 19.2 degrees East. ASTRA 1G is SES'
seventh satellite to be co-positioned at 19.2 degrees East. Adding 16
transponders, the spacecraft will increase the digital transmission capacity on
that position to 120 transponders.
The eight satellite at the 19.2 degrees East orbital position, ASTRA 1H will be
launched to provide backup capability for the other satellites at that position.
7.1.1. ASTRA 1 TRANSPONDER FREQUENCY PLAN
Figures 7.1.a. to 7.1.g. present the ASTRA 1 satellite system frequency plans.
All transponders are linearly polarised, utilising the polarisation scheme
presented in Table 7.1. The two polarisations are orthogonal to each other and
the horizontal polarisation has a counter-clockwise rotation of 7.5 degrees
relative to the orbit plane, as viewed from the satellite.
<TABLE>
<CAPTION>
TRANSPONDER UPLINK DOWNLINK
----------- ------ --------
<S> <C> <C> <C>
Odd.................... Vertical Horizontal
Even................... Horizontal Vertical
</TABLE>
Table 7.1 - ASTRA 1 TRANSPONDER POLARISATION SCHEME
All the ASTRA 1 satellites provide four different downlink coverage modes, as
detailed in Tables 7.1.a. to 7.1.b. These four modes provide different
coverage, concentrating more downlink power in different regions of Europe.
<TABLE>
<CAPTION>
SATELLITE ASTRA 1A ASTRA 1B ASTRA 1C ASTRA 1D
--------- -------- -------- -------- --------
MODE TRANSPONDER
-------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Horizontal 1 1,5,9,13 17,21,25,29 33,37,41,45 49,53,57,61
Horizontal 2 3,7,11,15 19,23,27,31 35,39,43,47,63 51,55,59,63
Vertical 1 4,8,12,16 20,24,28,32 36,40,44,48,64 52,56,60,64
Vertical 2 2,6,10,14 18,22,26,30 34,38,42,46 50,54,58,62
</TABLE>
TABLE 7.1.A. - ASTRA 1A TO 1D DOWNLINK
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<TABLE>
<CAPTION>
SATELLITE ASTRA 1E ASTRA 1F ASTRA 1G
MODE TRANSPONDER
<S> <C> <C> <C>
Horizontal + ..... 65, 69, 73, 77, 81 85, 89, 93, 97, 101 105, 109, 113, 117
Horizontal - ..... 67, 71, 75, 79 83, 87, 91, 95, 99, 103 107, 111, 115, 119
Vertical - ....... 68, 72, 76, 80 84, 88, 92, 96, 100, 104 108, 112, 116, 120
Vertical + ....... 66, 70, 74, 78, 82 86, 90, 94, 98, 102 106, 110, 114, 118
Table 7.1.b. ASTRA 1E to 1G DOWNLINK
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</TABLE>
23
<PAGE> 58
[FIGURE 256]
Figure 7.1 a A-BAND FREQUENCY PLAN
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<PAGE> 59
[FIGURE 257]
Figure 7.1 b B-BAND FREQUENCY PLAN
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<PAGE> 60
[FIGURE 258]
Figure 7.1 c C-BAND FREQUENCY PLAN
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[FIGURE 259]
Figure 7.1 d D-BAND FREQUENCY PLAN
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[FIGURE 260]
Figure 7.1 e E-BAND FREQUENCY PLAN
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<PAGE> 63
[FIGURE 261]
Figure 7.1 f F-BAND FREQUENCY PLAN
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<PAGE> 64
[FIGURE 262]
Figure 7.1 g G-BAND FREQUENCY PLAN
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7.2. ASTRA 2 SERIES
As of autumn 1997, a second orbital position at 28.2 degrees East will be
activated with the deployment of ASTRA 2A. A second satellite, ASTRA 2B, will be
co-located at 28.2 degrees East in late 1998.
ASTRA 2A will have 28 active Ku-band transponders (32 for the first five years)
operating in the Broadcast Satellite Services frequency band (11.70 - 12.50
GHz), powered by 100 Watt travelling-wave tube amplifiers.
ASTRA 2B will provide up to 28 highpower Ku-band transponders (30 for the first
five years) with an output of 108 Watt each. All transponders can operate over
Europe and a steerable antenna offers the capability for up to 16 transponders
in the 12.50 - 12.75 GHz frequency range to be activated within any area of the
earth visible from 28.2 degrees East.
Co-located at 28.2 degrees East, the two spacecraft will provide SES with a
total of 56 transponders in the frequency range 11.70 - 12.75 GHz for digital
broadcasts at the second ASTRA orbital position.
7.2. ASTRA 2 TRANSPONDER FREQUENCY PLAN
Figures 7.2.a. and 7.2.b. present the ASTRA 2 satellite frequency plans. All
transponders are linearly polarised, utilising the polarisation scheme
presented in Table 7.2. The two polarisations are orthogonal to each other and
the horizontal polarisation has a counter-clockwise rotation of 7.5 degrees
relative to the orbit plane, as viewed from the satellite.
<TABLE>
<S> <C> <C>
Transponder Uplink Downlink
Odd................... Vertical Horizontal
Even.................. Horizontal Vertical
</TABLE>
Table 7.2. - ASTRA 2 TRANSPONDER POLARISATION SCHEME
All the ASTRA 2 satellites provide different downlink coverage modes, as
detailed in Table 7.2.a. These four modes provide different coverage,
concentrating more downlink power in different regions of Europe.
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<PAGE> 66
<TABLE>
<CAPTION>
SATELLITE ASTRA 2A ASTRA 2B
- --------- ------------------------------ -----------------------------
TRANSPONDER
- ----------------------------------------------------------------------------------------------
Pol. Beam E-Band F-Band F-Band G-Band
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Horizontal ........ South 1, 5, 9, 13, 17 21, 25 29, 33, 37 41, 45, 49, 53
Horizontal ........ North 3, 7, 11, 15 19, 23, 27 31. 35. 39 43, 47, 51, 55
Vertical .......... South 2, 6, 10, 14, 18 22, 26, 30, 34, 38 42, 46, 50, 64
Vertical .......... North 4, 8, 12, 16 20, 24, 28 32, 36, 40 44, 48, 52, 56
</TABLE>
Table 7.2.a. -- ASTRA 2A AND 2B DOWNLINK
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<PAGE> 67
[FIGURE 265]
Figure 7.2 a ASTRA 2A FREQUENCY PLAN
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[FIGURE 266]
Figure 7.2 b ASTRA 2B Frequency Plan
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<PAGE> 69
8. ORBITAL POSITION/STATION KEEPING
The nominal orbital position of the ASTRA 1 satellites is 19.2 degrees East. The
orbital position of the ASTRA 2 satellites is 28.2 degrees East.
Under normal operating conditions SES will maintain the ASTRA satellites within
the following station-keeping box:
+/- 0.10 degrees North/South
+/- 0.10 degrees East/West
9. BEACON INFORMATION
The following table shows the beacon frequencies (MHz) for the different
spacecraft:
<TABLE>
<CAPTION>
Vertical Horizontal
-------- ----------
<S> <C> <C>
ASTRA 1A.............. 11203.0 11446.5
ASTRA 1B............... 11453.5 11696.5
ASTRA 1C............... 11451.0 11448.5
ASTRA 1D............... 11454.0 11447.5
ASTRA 1E............... 11202.0 10948.5
ASTRA 1F............... 11201.0 10946.5
ASTRA 1G............... 11701.0 11699.0
ASTRA 1H............... 11707.0 11693.5
ASTRA 2A............... 11706.0 11694.5
ASTRA 2B............... 11708.0
11710.0
</TABLE>
Table 9.1 BEACON FREQUENCIES (MHz)
At least one beacon will always be operational per spacecraft.
The beacon frequency stability is 1 ppm per day. Under normal operating
conditions the minimum beacon e.i.r.p. on any spacecraft shall be 16 dBW. For
the design of suitable tracking antenna systems, the following information
regarding the appropriate ASTRA ranging and telemetry characteristics shall be
used as a baseline.
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9.1 ASTRA 1A AND ASTRA 1B BEACON DETAILS
The following characteristics apply to both ASTRA 1A and ASTRA 1B.
PCM Telemetry : Phase modulation of beacon carrier by PCM (Biphase L)
telemetry to a peak deviation of 1.0+/-0.1 radians. Data
rate is 1 kbit/s.
Analog Telemetry : Phase modulation of beacon carrier by frequency modulated
14.5 kHz subcarrier to a peak deviation of 1.0+/-0.1
radians.
Ranging : Phase modulation of beacon carrier by ranging signals at
19 kHz or 27.777 kHz to a peak deviation of 1.0+/-0.1
radians.
Ranging + PCM
Telemetry : Phase modulation of beacon carrier by composite ranging
signals at 19 kHz or 27.777 kHz together with PCM telemetry
data signal to a peak deviation of 1.0+0.1 radians. In
absence of ranging signals, the deviation of PCM data alone
is 0.5+/-0.05 radians.
There are four ranging tones. The first three ranging tones at 35.43 Hz,
283.45 Hz and 3968.25 Hz serially frequency modulate the 19 kHz subcarrier.
The fourth ranging tone is at 27.777 kHz.
9.2. ASTRA 1C, 1D, 1E, 1F, 1G, 1H AND 2A BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 1C, 1D, 1E, 1F,
1G, 1H and 2A.
During PCM-mode, the beacon is phase modulated (PM) by a telemetry subcarrier
with a subcarrier frequency of 32 kHz and a modulation index of 1.25+/-0.15
radians. The subcarrier is biphase modulated by telemetry data.
During ranging mode, the 32 kHz subcarrier is switched off and the beacon is
phase modulated by sequences of 4 ranging tones with a modulation index of
1.00+/-0.15 radians.
9.4. ASTRA 2B BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 2B.
During PCM mode, the beacon is phase modulated (PM) by a telemetry
subcarrier with a subcarrier frequency of 32 kHz and a peak modulation index of
1.5 radians. The subcarrier is coherent PSK modulated by telemetry data.
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During ranging mode, the 32 kHz subcarrier is switched off and the
beacon is phase modulated by a ranging tone, which itself is modulated by
an ambiguity resolution code. The peak modulation index during ranging is
0.7 radians.
During simultaneous PCM and ranging on the TM downlink signal, the
PCM-modulated 32 kHz subcarrier and ranging tone are combined into one
baseband signal, which modulates the main carrier with max. effective
modulation indices of 1.4 radians for the PCM-signal and 0.4 radians for the
ranging tone.
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<PAGE> 72
ANNEX 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of
service components such as video, audio and subtitling and of Service
information tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport
mechanism, the Multiplex Diagnostic Table (MDT) has been defined. This system
will serve for conveying diagnostic information about the consistency of all
DVB/MPEG-2 multiplexes on ASTRA to the central Digital Network Operations
Centre (DINO) of Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service
Information components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the
underlying concept of the MDT system is to detect and signal failures at the
point where they are generated, the system supervisor of the DVB/MPEG-2
encoding, multiplexing and modulation equipment should monitor the correct
functioning of all equipment modules and should generate an MDT in the case a
service failure occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams
can be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle will be applied e.g. by the special monitor IRDs of the DINO
which can not only receive and extract incoming MDTs from the multiplexes but
also can generate MDTs in the case e.g. Service Information components are
missing. All MDTs are being fed via the ASTRA Service Information Update System
(ASIUS) into the Service Availability System (SAS) of the Digital Network
Operations Centre. Upon reception of an MDT an alert is initiated by the DINO
computer system which then enables the operator to act appropriately based on
detailed transponder specific diagnostic information provided together with the
alert message.
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3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in transport stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite Network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
multiplex diagnostic section()[
table id 8 uimsbf
section syntax indicator 1 bslbf
SES reserved 1 bslbf
ISO reserved 2 bslbf
section length 12 uimsbf
transport stream id 16 uimsbf
original network id 16 uimsbf
MDT version number 4 uimsbf
Fault source 12 uimsbf
Fault type 16 uimsbf
for (1=0;i<N;i++)[
Fault major 16 uimsbf
Fault minor 16 uimsbf
]
Table id = 0xB0
Section syntax indicator = 0
SES reserved = 1
Section length: This is a 12 bit field, the first two bits of which shall be
"00". It specifies the number of bytes of the section, starting immediately
following the section length field. The section length shall not exceed 181
bytes so that the entire section has a maximum length of 184 bytes.
Transport stream id: This is a 16 bit field which serves as a label to identify
the transport stream where the error or warning has occurred.
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ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
network id of the originating delivery system of the transport stream where the
error or warning has occured.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with the transport stream id and
the original network id, identifies the origin of the failure. Fault source
values can be defined by the operator of the transport stream within the ranges
defined in Table 1.
FAULT TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type, the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these
codes. In case of missing components of a service (Fault type = 0x0100) the
Fault major code is equal to the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as
described in Table 3. In that case the service id of the service comprising the
missing component is defined in the Fault major field and the missing component
is defined in the Fault minor field.
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TABLE 1; FAULT SCORE
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Fault score range Description
- --------------------------- ----------------------------
<S> <C>
0x0000 Undefined
0x0001,...,0x0064 SI-editing & controller
0x0065,...,0x01F4 Audio encoder
0x01F5,...,0x0226 Video encoder
0x0227,...,0x03B6 Data inserter
0x03B7,...,0x03E8 CA system
0x03E9,...,0x041A Multiplexer
0x041B,...,0x044C Re-Multiplier
0x044D,...,0x047E Modulator
0x047F,...,0x060E Decoder
0x060F,...,0x0640 Network termination
0x0641,...,0x0A00 ASTRA reserved
0x0A01,...,0x0FFF User defined
</TABLE>
TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Fault type Description
- --------------------------- ----------------------------
<S> <C>
0x0000 Undefined
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0100 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
- --------------------------------------------------------------------------------
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Table 3: Fault minor codes for Fault type value = 0x0100 (COMPONENT MISSING)
(Fault major specifies the service id of the service missing components.)
<TABLE>
<CAPTION>
Fault minor
if Fault type = 0x0100 DESCRIPTION
---------------------- ------------------------------------
<S> <C> <C>
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
</TABLE>
Table 4: (Fault major codes for Fault type value = 0x0002 (SDT MISSING)
<TABLE>
<CAPTION>
Fault minor
if Fault type = 0x0002 (SDT MISSING) DESCRIPTION
------------------------------------ --------------------------------
<S> <C> <C>
0x0001 DVB-SI SDT missing
Other values ASTRA reserved
</TABLE>
Table 5: Fault major codes for Fault type value = 0x0004 (EIT MISSING)
<TABLE>
<CAPTION>
Fault minor
if Faulttype = 0x0004 (EIT missing) DESCRIPTION
------------------------------------ --------------------------------
<S> <C> <C>
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
</TABLE>
- -------------------------------------------------------------------------------
ASTRA ACCESS AGREEMENT SOCIETE EUROPEENNE DES SATELLITES
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(ASTRA LOGO)
ASTRA SERVICE INFORMATION
UPDATE SYSTEM
(ASIUS)
TECHNICAL DESCRIPTION
SES - ASIUS CONFIDENTIAL
SYE - 045/12-96
06 December 1996
0
<PAGE> 78
TABLE OF CONTENTS
1 INTRODUCTION ...................................................... 2
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM ............ 2
3 FUNCTIONAL FEATURES OF ASUIS ...................................... 5
3.1 SI Data Structures considered by ASIUS........................ 5
3.1.1 Network Information Table (NIT)........................ 5
3.1.2 Service Description Table (SDT)........................ 5
3.1.3 Multiplex Diagnostic Table (MDT)....................... 9
3.2 SI Data Acquisition........................................... 9
3.3 SI Data Processing............................................ 10
3.4 SI Data Distribution.......................................... 10
4 GLOSSARY.................................... ...................... 12
5 REFERENCES......................................................... 13
ANNEX 1............................................................ 14
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1 INTRODUCTION
Service Information (SI) systems for Digital Video Broadcast are considered
by broadcasters and also by network operators as one of the crucial
elements in digital transmission of video, audio and data signals. With the
plethora of services being available in the digital age, an effective means
of guiding consumers around the various services on offer is an essential
pre-requisite of any consumer oriented digital transmission and reception
system. Beyond informing about the available services, there is also a need
to allow for the quick acquisition of any service that can be received.
Based on the DVB SI specification Societe Europeenne des Satellites (SES)
has developed the ASTRA Service Information Update System (ASIUS) for
providing tuning information and also for informing the digital IRDs about
all services on the ASTRA network. In addition ASIUS monitors the Service
Information on all transponders, checks the presence and the correctness of
this data and provides also diagnostics information on the consistency of
the multiplexes.
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM
The ASTRA Service Information Update System (ASIUS) is an application of
the DVB Service Information specification as standardised in ETS 300468/1/
and may serve the Digital Satellite IRD to quickly tune to the receivable
services on ASTRA. It also enables the presentation of services and
broadcasters in a convenient way to the consumer.
This is achieved by compiling and transmitting an ASTRA Network
Information Table (ASTRA NIT) providing tuning information as well as an
ASTRA Service Description Table (ASTRA SDT) containing information about
all services on all transponders on the ASTRA network. Thus the IRD is
enabled to present the names of all services on ASTRA, the names of all
corresponding broadcasters (service providers) and the service types such
as TV, Radio, Teletext or data services, without having to tune to each
transponder.
The concept for the ASIUS involves the transmission of the ASTRA NIT on
each transponder. This NIT conveys information about the physical
parameters of all multiplexes on ASTRA (frequency, symbol rate, etc.) as
well as the information about the network itself (ID, name, satellite
position).
Furthermore, the concept involves the transmission of the ASTRA SDT on two
ASTRA Service Information channels (Barker Channels), one with horizontal
and one with vertical polarization.
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As it is the objective to provide up-to-date network information and service
description data about all transponders on ASTRA, a concept for an automatic
updating of the ASTRA NIT/SDT has been developed, considering all updates from
the Betzdorf earth station as well as the remote uplinks.
The ASTRA NIT is mainly under the administration of SES (network operator)
except for parts as e.g. the Forward Error Correction (FEC) scheme which may be
adjusted by the remote uplink operators.
The multiplex specific SDTs are under the administration of the broadcasters.
ASIUS receives the SDTs transmitted on all transponders, extracts those parts
directly related to each respective transponder and compiles an ASTRA SDT with
service description information (e.g. service names, service providers,
service types) about all services on ASTRA.
[FIGURE 278]
Figure 1: Transmission and updating of ASTRA NIT and SDT tables
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3 FUNCTIONAL FEATURES OF ASIUS
3.1 SI DATA STRUCTURES CONSIDERED BY ASIUS
Regarding the various tables defined by MPEG-2 and by the DVB project, there are
only a few relevant for the ASIUS. These are the Network Information Table, the
Service Description Table, the Event Information Table (EIT), and the Time and
Date Table (TDT).
3.1.1 NETWORK INFORMATION TABLE (NIT)
The structure of the Network Information Table is presented in Figure 3. The
ASTRA NIT is divided in sections according to the MPEG-2 syntax. Each section
includes a loop over network related descriptors which is used for conveying the
network name descriptor and the linkage descriptors to the ASTRA Service
Information channel.
For each transport stream the NIT contains a loop over transport stream related
descriptors including the satellite delivery system descriptor with information
such as frequency, polarisation, symbol rate and FEC scheme. Conveying an
optional service list descriptor in that loop of the NIT is not considered by
ASIUS.
3.1.2 ASTRA SERVICE DESCRIPTION TABLE (SDT)
The structure of the Service Description Table is illustrated in Figure 4. The
ASTRA SDT is also divided into sections according to the MPEG-2 syntax. For each
Transport Stream at least one section with service description data is
transmitted. All SDT sections include a loop over all services on the
corresponding Transport Stream. For each service a loop of descriptors including
service descriptor and country availability descriptor is conveyed. NVOD
reference descriptor and time shifted service descriptor are also considered by
ASIUS. In order to identify the actual Transport Stream on which Service
Information is received and thus to identify the relevant SI parts that have
been updated at a remote uplink, the corresponding transports stream id can be
found in each header of a service description section for the actual Transport
Stream /1/.
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[FIGURE 280]
Figure 2: Interconnection between ASIUS and the Digital NOC
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<TABLE>
<CAPTION>
NETWORK INFORMATION TABLE (NIT)
ACTUAL NETWORK OTHER NETWORK
-------------- -------------
SECTION 1 SECTION 2 SECTION 3
--------- --------- ---------
<S> <C> <C> <C>
network id
section number
FOR 1 = O ... N NETWORK DESCRIPTORS
network name descriptor
linkage descriptor
FOR 1 = O ... N TRANSPORT STREAMS
transport stream id
original network id
FOR 1 = O ... N TRANSPORT
DESCRIPTORS
delivery system descriptor
</TABLE>
Figure 3: Structure of the Network Information Table
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<TABLE>
<CAPTION>
SERVICE DESCRIPTION TABLE (SDT)
OTHER
TRANSPORT
ACTUAL TRANSPORT STREAM STREAM
- ------------------------------------------------ ---------
TRANSPORT STREAM 1 TRANSPORT ...
STREAM 2
- ------------------------------------- --------- ----
SECTION 1 SECTION 2 SECTION 3
--------- --------- ---------
<S> <C> <C> <C> <C>
transport stream id
section number
original network id
FOR 1 = O ... N SERVICES
service id
scrambling yes/no
FOR 1 = O ... N DESCRIPTORS
service descriptor
country availability descriptor
NVOD reference descriptor
time shifted service descriptor
</TABLE>
Figure 4: Structure of the Service Description Table
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3.1.3. MULTIPLEX DIAGNOSTIC TABLE (MDT)
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and of Service Information
tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined by SES. This system is
serving for conveying diagnostic information about the consistency of all
DVB/MPEG-2 multiplexes on ASTRA to the central DINO in Betzdorf.
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service
Information components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the
underlying concept of the MDT system is to detect and signal failures at the
point where they are generated, the system supervisor of the DVB/MPEG-2
encoding, multiplexing and modulation equipment should monitor the correct
functioning of all equipment modules and should generate an MDT in the case a
service failure occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams
can be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which
can not only receive an extract incoming MDTs from the multiplexes but also can
generate MDTs in the case e.g. Service Information components are missing. All
MDTs are being fed via the ASIUS into the Service Availability System (SAS) of
the Digital Network Operations Centre. Upon reception of an MDT an alert is
initiated by the DINO computer system which then enables the operator to act
appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
Details about the MDT concept can be found in Annex 1.
3.2. SI Data Acquisition
The ASTRA Service Information Update System in Betzdorf includes the reception
of all Transport Streams of the ASTRA Satellite System. From these Transport
Streams the relevant SI is extracted and passed over the ASIUS processing
station. This includes the NIT for the actual network (ASTRA) and the SDT for
the actual Transport Stream. If a MDT has been received (which occurs only in
case of a failure), it will also be transferred.
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to ASIUS.
The following processing steps have been implemented in ASIUS for the SI data
acquisition:
1. Reception of the DVB/MPEG-2 Transport Streams from all ASTRA transponders.
2. Extraction of all transponders SI data (NIT, MDT, SDT, EIT, TDT). By
means of the version number mechanism provided in each section syntax,
the IRD considers only the updated parts of this data.
3. Transmission of all the updates from the IRDs to ASIUS. The IRDs
furthermore monitor the availability of the NIT, SDT, EIT and TDT
(Time and Date Table) in each Transport Stream and shall generate a
Multiplex Diagnostic Table and transmit it to the ASIUS processor, if a
failure is detected.
3.3 SI DATA PROCESSING AND MONITORING
After having received an update the ASIUS compiles a new version of the
ASTRA NIT and ASTRA SDT. Since the system has immediate access to all
SI data on the ASTRA network it monitors the presence, correctness, and also
the consistency of the SI data. In case of an erroneous situation an alarm is
triggered and the operators in the DINO are informed.
3.4 SI DATA DISTRIBUTION
After the compilation of the received SI data by the ASIUS processor, the
updated ASTRA NIT is transmitted on all transponder uplinked from Betzdorf.
The ASTRA SDT is inserted into the two transponders which contain the ASTRA
Service Information channel. In addition a linkage descriptor is inserted in
the ASTRA NIT, which is available on all transponders. This descriptor points
to transport stream ids and service ids of the ASTRA Service Information
channels.
If the consumer wants to have access to the ASTRAL SDT the IRD will read the
linkage descriptor and tune to one of the corresponding transponders. After
the reading of the ASTRA SDT all services available on the ASTRA Satellite
System could be displayed. It is however assumed that certain filter
mechanisms would be applied to the data before displaying the information in a
consumer friendly way. More details on the functionality of the ASTRA Service
Information channel are described SES' "Technical Recommendations for Digital
IRDs"/2/. A flow chart of the access functionality for the ASTRA SDT is
depicted in Figure 5.
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[FIGURE 285]
Figure 5: Example of the access functionality for the ASTRA SDT
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4 GLOSSARY
ASIUS ASTRA Service Information Update System
DNO Digital Network Operation Centre
DVB Digital Video Broadcasting
DTH Direct-to-Home satellite transmission
FEC Forward Error Correction
IRD Integrated Receiver Decoder
MDT Multiplex Diagnostic Table
NIT Network Information Table
NOC Network Operation Centre
NVOD Near-Video-On-Demand
SDT Service Description Table
SES Societe Europeenne des Satellites
SI Service Information
SMATV Satellite Master Antenna Television
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06 December 1996
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5 REFERENCES
/1/ ETS 300 468 "Digital broadcasting systems for television, sound and data
services; specification for Service Information (SI) in Digital Video
Broadcasting (DVB) Systems"
/2/ "Technical Recommendations for Digital Integrated Receiver Decoders", SES
SES-ASIUS CONFIDENTIAL
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06 December 1996
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ANNEX 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and of Service Information
tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined. This system is serving
for conveying diagnostic information about the consistency of all DVB/MPEG-2
multiplexes on ASTRA to the central Digital Network Operations Centre (DINO) of
Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment and should generate an MDT in the case a service failure occurs
for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams
can be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which can
not only receive and extract incoming MDTs from the multiplexes but also can
generate MDTs in the case e.g. Service Information components are missing. All
MDTs are being fed via the ASTRA Service Information Update System (ASIUS) into
the Service Availability System (SAS) of the Digital Network Operations Centre.
Upon reception of an MDT an alert is initiated by the DINO computer system which
then enables the operator to act
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appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in Transport Stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite Network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
multiplex diagnostic section[
table id............................... 8 uimsbf
section syntax indicator............... 1 bslbf
SES reserved........................... 1 bslbf
ISO reserved........................... 2 bslbf
section length......................... 12 uimsbf
transport stream id.................... 16 uimsbf
original network id.................... 16 uimsbf
MDT version number..................... 4 uimsbf
Fault source........................... 12 uimsbf
Fault type............................. 16 uimsbf
for (l=0;i<N;i++)[
Fault major......................... 16 uimsbf
Fault minor......................... 16 uimsbf
]
TABLE ID = 0XB0
SECTION SYNTAX INDICATOR = 0
SES RESERVED = 1
SECTION LENGTH: this is a 12 bit field, the first two bits of which shall be
"00". it specifies the number of bytes of the section, starting immediately
following the section length field. the section length shall not exceed 181
bytes so that the entire section has a maximum length of 184 bytes.
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<PAGE> 92
TRANSPORT STREAM ID: This is a 16 bit field which serves as a label to identify
the Transport Stream where the error or warning has occurred.
ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
networkid of the originating delivery system of the Transport Stream where the
error or warning has occurred.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with transport stream id and the
original network id, identifies the origin of the failure. Fault source values
can be defined by the operator of the Transport Stream within the ranges
defined in Table 1.
FAMILY TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type, the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these
codes. In case of missing components of a service (Fault type = 0x0100) the
Fault major code is equal the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as
described in Table 3. In that case the service id of the service comprising
the missing component is defined in the Fault major field and the missing
component is defined in the Fault minor field.
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<PAGE> 93
TABLE 1: FAULT SOURCE
<TABLE>
<CAPTION>
Fault source range Description
- ------------------------------- ----------------------------
<S> <C>
0x0000 Undefined
0x0001,...,0x0064 SI-editing & controlled
0x0065,...,0x01F4 Audio encoder
0x01F5,...,0x0226 Video encoder
0x0227,...,0x03B6 Data inserter
0x03B7,...,0x03E8 CA system
0x03E9,...,0x041A Multiplexer
0x041B,...,0x044C Re-multiplexer
0x044D,...,0x047E Modulator
0x047F,...,0x060E Decoder
0x060F,...,0x0640 Network termination
0x0641,...,0x0A00 ASTRA reserved
0x0A01,...,0x0FFF User defined
</TABLE>
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<PAGE> 94
TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
Fault type Description
- ----------------------------- ---------------------------
<S> <C>
0x0000 Undefined
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0010 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
Table 3: Fault minor codes for Fault type value = 0x0100 (COMPONENT MISSING)
(Fault major specifies the service id of the service with missing components)
<TABLE>
<CAPTION>
Fault minor Description
if Fault type = 0x0100
- ----------------------------- ------------------------------
<S> <C>
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
</TABLE>
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<PAGE> 95
TABLE 4: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0002 (SDT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0002 (SDT missing) Description
- ------------------------------------ ------------------------
<S> <C>
0x0001 DVB-SI SDT missing
Other values ASTRA reserved
</TABLE>
TABLE 5: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0004 (EIT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0004 (EIT missing) Description
- ------------------------------------ ------------------------
<S> <C>
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
</TABLE>
The information and data contained herein are subject to change.
Societe Europeenne des Satellites S.A.
L-6815 Chateau de Betzdorf, Luxembourg
Tel.: (352) 71 07 25-1, Fax: (352) 71 07 25-548
SES-ASIUS CONFIDENTIAL
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<PAGE> 1
Exhibit 10.21
CONFIDENTIAL
---------
AGREEMENT
---------
for digital transmission on the ASTRA system
between
SOCIETE EUROPEENNE DES SATELLITES S.A.
and
PCI PROGRAMMING INC.
<PAGE> 2
CONFIDENTIAL
1. Interpretation............................................... 4
2. Agreement.................................................... 6
3. Term......................................................... 6
4. Charges...................................................... 6
5. Spare TWTA................................................... 7
6. Unavailability............................................... 7
7. Excluding Circumstances...................................... 8
8. Interruption, Testing and Monitoring.......................... 8
9. Pre-emption.................................................. 9
10. Use of Transponder and Encryption............................ 9
11. Service Information.......................................... 10
12. Compliance with Law.......................................... 10
13. SES' Authority............................................... 10
14. Assignment................................................... 10
15. Termination.................................................. 11
16. Effect of Termination........................................ 12
17. Force Majeure................................................ 12
18. Limitation of Liability - Exclusivity of Remedies............ 12
19. Indemnities.................................................. 12
20. Confidentiality.............................................. 13
21. Trademark - Logo and Press Releases.......................... 13
22. Notices...................................................... 13
23. Severability................................................. 14
24. Waiver....................................................... 14
25. Entire Agreement............................................. 14
26. Amendment.................................................... 14
2
<PAGE> 3
CONFIDENTIAL
27. Proper Law and Jurisdiction.................................. 14
28. Legal Opinion................................................ 14
29. Condition Precedent.......................................... 15
30. Marketing Cooperation........................................ 15
SCHEDULE I: Satellite and Transponder Description and
Performance Specifications........................... 16
SCHEDULE II: Customer Signals, Customer Uplink Signals and
Uplink Facilities.................................... 18
SCHEDULE III: Service(s)........................................... 20
SCHEDULE IV: Monitoring........................................... 21
SCHEDULE V: Conditional Access system............................ 23
SCHEDULE VI: Charges.............................................. 24
SCHEDULE VII: Priority and Pre-emption............................. 26
SCHEDULE VIII: ASTRA Access Agreement............................... 29
SCHEDULE IX: ASIUS................................................ 30
3
<PAGE> 4
CONFIDENTIAL
AGREEMENT
DATED 27 MARCH 1997
BETWEEN:
(1) SOCIETE EUROPEENNE DES SATELLITES S.A.
L-6815 Chateau de Betzdorf, Grand Duchy of Luxembourg ("SES"); and
(2) PCI Programming Inc.
c/o Poland Communications Inc.
1 Commercial Plaza
Hartford, CT 06033, USA (the "Customer")
PREAMBLE:
(A) SES is the operator of the ASTRA satellite system which comprises several
satellites co-located at 19.2 degrees East for the retransmission of
television and radio services;
(B) The satellite, described in SCHEDULE I-A hereto, is part of this satellite
system;
(C) The Customer wishes to use transponder capacity on a transponder of said
satellite to transmit the digital services described herein on the terms
and conditions set out below;
IT IS HEREBY AGREED AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement, the following words and expressions shall have
the meanings ascribed to them below;
"CAHIER DES CHARGES" : the ministerial enactment (arrete
ministeriel) of the Luxembourg government setting out the duties to
be observed by SES in performance of the Concession;
"CONCESSION" : the concession contract ("Contrat de Concession")
entered into by the government of Luxembourg and SES to enable SES
to operate the Satellite System and any amendment thereof;
"CUSTOMER DOWNLINK SIGNALS" : downlink RF(1)-QPSK(2) modulated time
division
- --------------------------
(1) Radio frequency
(2) Quadrature please shift keying
4
<PAGE> 5
CONFIDENTIAL
multiplexed carrier carrying the Service(s) from the Customer's
Transponder;
"CUSTOMER SIGNALS": the bit stream, carrying the Service(s),
produced by the Customer and transmitted to the Uplink Facilities
for onward transmission via the Customer's Transponder and
conforming to SCHEDULE II;
"CUSTOMER START DATE" OR "CSD": the date on which the Customer
has agreed to commence the transmission of the Service(s) on the
Customer's Transponder, being the date upon which the Board of SES
and the Government of Luxembourg have given their approval and
operational service date of ASTRA 1G has occurred;
"CUSTOMER UPLINK SIGNALS": the RF-QPSK modulated time division
multiplexed carrier, carrying the Service(s), transmitted from the
Uplink Facilities to the Customer's Transponder and conforming to
SCHEDULE II;
"CUSTOMER'S TRANSPONDER": the transponder capacity on the
Satellite as described in SCHEDULE I-B, or any alternative
transponder capacity subsequently allocated to the Customer pursuant
hereto, and via which the Customer transmits the Service(s);
"EXPIRY DATE": the last day of the Term;
"LIBOR": the one month London inter bank offered rate, applying to
the currency of this Agreement, as quoted by Banque et Caisse
d'Epargne de l'Etat in Luxembourg on the due date for payment;
"MINIMUM TRANSPONDER PERFORMANCE": as defined in Schedule I-D;
"OPERATIONAL SERVICE DATES" OR "OSD": the date on which SES
declared the Satellite operational, being 1 January 1996;
"PAYMENT PERIOD": a period of the Term in respect of which
payments are payable or have been paid pursuant to SCHEDULE VI;
"PRE-EMPTION": the deliberate interruption and/or cessation of the
availability of a transponder by SES in accordance with the rules
set out in SCHEDULE VII and "PRE-EMPT" shall be construed
accordingly;
"RECEIVED SIGNAL POWER": as defined in SCHEDULE I-D;
"SATELLITE": the ASTRA 1E satellite as described in SCHEDULE I-A;
"SERVICE(S)": the Customer's services described in SCHEDULE III;
"SES' ASSOCIATES": SES' officers, employees, consultants, agents,
contractors or subcontractors however it is understood that CLT/DTS
performing the play-out for the Customer, are not considered as SES
Associate;
"SPARE TWTA": a spare travelling wave tube amplifier which can be
switched to recover traffic on the Satellite;
"TARGET MARKET": as defined in SCHEDULE III;
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"TERM": the duration of this Agreement as specified in CLAUSE 3;
"TRANSPONDER": a part of the Satellite which receives, amplifies and
frequency-translates the uplink signals and retransmits them as
downlink signals;
"UNAVAILABLE", "UNAVAILABILITY": as defined in CLAUSE 6;
"UPLINK FACILITIES": all equipment and ancillary facilities used to
transmit the Customer Uplink Signals to the Satellite conforming to
SCHEDULE II;
"VAT": Value added tax or any similar tax or charge.
1.2 In case of conflict between this Agreement and the Schedules hereto,
this Agreement shall prevail.
2. AGREEMENT
With effect from CSD SES will perform the transmission of the Customer
Uplink Signals carrying the Service(s) by exclusively providing the
Customer's Transponder for the purpose and monitor the digital transmission
of the Customer Uplink Signals on the terms set out herein. This Agreement
does not include multiplexing and uplinking.
3. TERM
3.1 This Agreement shall begin on the date hereof and expire on the
tenth (10th) anniversary of CSD.
3.2 Either party may terminate this Agreement upon 6 months written
notice if the Customer does not target the Polish DTH market prior
to 1 January 1999. "Target the Polish DTH market" means that (i) the
Customer shall have a licence or permit (if necessary) for its
activity and (ii) actively markets and promotes DTH reception by
ensuring availability in the market of decoder boxes (integrated
receiver devices ("IRD's").
4. CHARGES
4.1 The Customer shall pay the charges set out in SCHEDULE VI as and on
the dates set out therein.
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4.2 Sums overdue shall be subject to a late payment interest charge at
2% over LIBOR from the due date. The interest shall accrue on a
daily basis.
4.3 All sums payable by the Customer under SCHEDULE VI are quoted
exclusive of any VAT or other tax or duties. The Customer undertakes
to pay any applicable VAT, other tax or duties upon receipt of an
appropriate invoice from SES.
4.4 All sums due under this Agreement shall be paid in full without
set-off, counterclaim or other deduction.
4.5 Any sums owed by SES to the Customer for Unavailability pursuant to
CLAUSE 6 shall be calculated by SES within 15 days from the date on
which such an event occurred and shall be paid to the Customer
within thirty (30) days thereafter. If the Customer disagree with
the amount so calculated and notified by SES, the Customer shall so
notify SES in writing and the parties shall seek in good faith to
resolve the disagreement. Payments for Unavailability after the due
date for payment determined hereunder shall accrue interest at the
rate set out in CLAUSE 4.2, unless such payments are in dispute.
4.6 In the circumstance set out in CLAUSE 7.2, the Customer shall not be
relieved of its obligation to pay the charges payable hereunder.
5. SPARE TWTA
If the Customer's Transponder becomes Unavailable and if a Spare TWTA is
available, then, subject to the priority rules set out in SCHEDULE VII,
SES shall provide its use to the Customer as soon as reasonably possible.
6. UNAVAILABILITY
6.1 The Customer's Transponder shall be regarded as Unavailable if:
6.1.1 the Received Signal Power falls below the Minimum
Transponder Performance by more than 1 dB;
6.1.2 the interruption of the Service(s) pursuant to CLAUSE 8.1
exceeds thirty (30) minutes in any calendar quarter;
6.1.3 any failure of the Satellite or any part thereof causes an
interruption of transmissions of the Service(s); or
6.1.4 the 27.5 MS/s QPSK digital carrier at the centre frequency
of the Customer's Transponder, complying fully with
SCHEDULE II, which saturates the Customer's Transponder as
indicated by the satellite DLA input power telemetry as
specified by SES and has a 3/4 rate FEC, exhibits a Bit
Error Rate worse than 10(9) when received on a typical
60 cm antenna with no pointing error, with a G/T of no
worse than 13.5 dB/K located in Betzdorf, Luxembourg,
under clear sky conditions. It is understood that
SES shall have no obligation to monitor the bit error rate.
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6.2 During any period of Unavailability the Customer may obtain (at its
cost) temporary bridging services from an alternative service
provider. The Customer's payment obligations hereunder shall be
suspended from the start of the period of Unavailability to the end
of such period or, if later, the date the Customer's arrangements
for bridging services in respect of such period of Unavailability
come to an end, however such date shall not be later than 30 days
after the end of any period of Unavailability. In this regard, SES
shall refund to the Customer the pro rata temporis portion of the
charges paid by the Customer for the period of Unavailability and/or
the Customer shall not be liable to pay SES the pro rata temporis
portion of the charges payable (but not yet paid) in respect of such
period of Unavailability (as applicable).
6.3 If the Customer's Transponder becomes Unavailable for a period of
thirty (30) or more consecutive days, then the Customer may
terminate the Agreement by written notice to SES (provided that such
notice is sent while the Customer's Transponder is Unavailable) and
CLAUSE 16.1 shall apply.
6.4 CLAUSES 5, 6.2 and 5.3 shall be the Customer's sole remedies in the
event of an Unavailability and SES shall have no other obligation.
7. EXCLUDING CIRCUMSTANCES
Clauses 6.2 and 6.3 shall not apply:
7.1 to an Unavailability caused by an act or omission of the Customer or
of the Customer's Associates;
7.2 where the Customer Signals, the Customer Uplink Signals or the
Uplink Facilities do not comply with Schedule II or where the
Customer Signals are not received by the Uplink Facilities or the
Customer Uplink Signals are not received by the Customer's
Transponder dues to no fault of SES or any SES Associate.
8. INTERRUPTION, TESTING AND MONITORING
8.1 SES shall be entitled to interrupt the Service(s) and to require
the Customer to cease transmission of the Customer Uplink Signals
where necessary (i) to provide the use of a Spare TWTA, and (ii) for
operational testing, maintenance, monitoring, preventive or curative
repair or adjustment to be carried out either with respect to the
Satellite as a whole or part thereof, or one or more of its
transponders where necessary, in SES' reasonable opinion, to
preserve the integrity of the Satellite or the overall quality of
the satellite transmissions in the short, medium or long term. SES
shall give the Customer as much notice thereof as is practicable in
the circumstances and shall agree with the Customer upon the date
and time of interruption wherever possible.
8.2 SES shall also be entitled to interrupt the Service(s) or to require
the Customer to cease transmission of the Customer Uplink Signals if
the Customer is in breach of its obligations hereunder ALWAYS
PROVIDED THAT if such breach is due to a technical issue, SES shall
not interrupt the Service(s) without allowing the Customer
reasonable period of time to correct it, unless the technical issue
either (i) is interfering with another customer of SES, (ii) could
cause potentially damage or
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degradation to the Satellite or to its proper functioning or (iii)
could affect the quality of the transmissions provided by the
Satellite. Nothing in this CLAUSE 8.2 shall permit SES to interrupt
the Services in circumstances where there is a bona fide dispute
between the parties as to any fees due to be paid under this
Agreement. Any such dispute, if not resolved by negotiation, shall
be dealt with as provided for in CLAUSE 27.
8.3 SES shall monitor the Customer Uplink Signals and the performance of
the Customer's Transponder in accordance with the provisions of
SCHEDULE IV and supply an analysis of the results when so requested
by the Customer. Such data shall be limited to information which SES
can reasonably be expected to obtain and which it can reveal without
liability or breach of any duty to any third party. Such information
shall be kept confidential.
8.4 The Customer shall procure that the operator of the Uplink
Facilities shall assist SES in making any tests to ensure it at
such Facilities and the Customer Uplink Signals comply with
CLAUSE 10.3.
8.5 All Service(s) using the Customer's Transponder shall be uplinked
from the same uplink antenna.
9. PRE-EMPTION
-- INTENTIONALLY DELETED --
10. USE OF TRANSPONDER AND ENGRYPTION
10.1 The frequencies for the Customer Uplink Signals and the Customer
Downlink Signals initially allocated by SES shall be those stated in
SCHEDULE I-B or notified to the Customer before CSD.
10.2 The Customer shall, on CSD, commence transmitting the Service(s) and
thereafter maintain full transmission of the majority of the
Service(s) as described in SCHEDULE III. For the avoidance of doubt
this CLAUSE 10.2 is not designed to interfere with the Customer's
plans for the roll out of the Service(s) and SES accepts that such
plans do not envisage the transmission of a full complement of
Service(s) for the first year of this Agreement and may also mean
that the Customer does not have any Service(s) ready to commence
transmission on CSD.
10.3 The Customer shall procure that the Customer Signals and Customer
Uplink Signals and Uplink Facilities comply with Schedule II and do
not interfere with or damage the Satellite or any of its
transponders.
10.4 The Customer may, if so provided in SCHEDULE V, encrypt the Customer
Signals provided that the Customer, at its costs, provides SES with
ten operational decoders authorised for reception and any other
equipment needed to receive the Customer Downlink Signals.
10.5 SES shall have the right, at any time, to replace the transponder
carrying the Service(s) on the Satellite by another transponder on
any other ASTRA satellite at the same orbital position provided that
the replacement transponder has the same
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polarization, bandwidth and the same uplink and downlink signal
frequency as the transponder used by the Customer prior to such
replacement and provides Minimum Transponder Performance. Unless SES
uplinks the Service(s), SES will endeavour to provide to the
Customer advance notice of 24 hours to perform the necessary
operations to uplink the Service(s) to the other ASTRA satellite. To
avoid a Service interruption, the Customer shall take all necessary
arrangements with the operator of the Uplink Facilities to
accommodate such a transponder replacement and SES will either (i)
move the Customer's Transponder in tandem with any other customer's
transponder on the Satellite or (ii) relax the technical
requirements of the Access Agreement to require only two (2) uplinks
for the three (3) allocated customer's transponders with frequencies
in the E and F bands.
10.6 The Customer shall not use the Customer's Transponder in any way not
specified in this Agreement.
11. SERVICE INFORMATION
The Customer shall provide to SES the Service(s) information in compliance
with Schedule III.
12. COMPLIANCE WITH LAW
12.1 The Customer shall comply to all material extant with all laws,
regulations or provisions relevant for the performance of this
Agreement, shall, where necessary, at all times have and comply with
a broadcasting license or authorization for the Service(s) and shall
promptly inform SES of any material change thereof. If the
Service(s) is not subject to the laws of a member of the European
Union it shall, nevertheless, comply with the provisions of the
"Television Without Frontiers" directive of 3 October 1989, as may
be amended, as transposed into the laws of Luxembourg being
currently Article 6 and Chapter IV of the Luxembourg Electronic
Media Law of 27 July 1991.
12.2 SES shall not exercise its right to terminate this Agreement under
CLAUSE 15.1 by reason of non-compliance by the Customer pursuant to
CLAUSE 12.1 except where such non-compliance has been determined by
a court or other authority with competent jurisdiction or where
otherwise requested by the Government of the Grand Duchy of
Luxembourg. Moreover if compliance with CLAUSE 12.1 would result in
the contravention of any future law or regulation in the Target
Market, its non-compliance with CLAUSE 12.1 shall constitute an
event of force majeure.
13. SES' AUTHORITY
This Agreement is subject to the continuing right of SES to provide the
Customer's Transponder pursuant to the Concession and the Cahier des
Charges. If this right is withdrawn, then this Agreement shall terminate
automatically unless the Government of Luxembourg wishes to undertake SES'
rights and obligations hereunder. In either case, SES shall be discharged
of all liability and obligation to the Customer subject to CLAUSE 16.
14. ASSIGNMENT
14.1 Subject to the remainder of this CLAUSE 14 the Customer shall not
assign, transfer, sub-let, or otherwise allow any third party to
directly or indirectly exercise its rights, in whole or in part,
under this Agreement. For the purpose hereof, an assignment
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shall also include a change in the control of the Customer or of a
substantial part of its assets or business.
14.2 SES hereby authorises the Customer at any time to assign its rights
under this Agreement to (a) any affiliate or (b) Procable Sp Z O. O.
("Procable") provided that the Customer retains not less than a 33%
shareholding in Procable, and in any such event on condition that
the Customer agrees to continue to be bound by all its obligations
and liabilities hereunder and to hold SES harmless from any breach
of this Agreement by its Assignee. For the purposes of this CLAUSE
14.2, a company will be regarded as an affiliate of the Customer if
the Customer holds not less than a 50% interest in the shares or
equivalent of that company or if the company holds at least 50%
interest in the Customer or a company being under common control
with the Customer.
14.3 Upon SES' and the Luxembourg Government prior written consent, which
shall not be unreasonably withheld or delayed, the Customer may
sub-contract the benefit of this Agreement to any third party
provided that (i) no such sub-contract shall relieve the Customer of
its obligations and liabilities under this Agreement and the
Customer shall be responsible for the acts, default and omissions of
the sub-contractor, its employees and agents as fully as if they
were acts, default, omissions of the Customer itself and (ii) the
Customer will share revenues exceeding the charge payable in the
relevant year with SES on a 50/50 basis.
15. TERMINATION
In addition to the termination rights provided herein including without
limitation the Customer's right to terminate as specified in CLAUSE 6.3, a
party may terminate this Agreement forthwith by written notice if the other
party;
15.1 commits a material breach of its obligations hereunder and fails to
remedy such breach (if capable of remedy) within thirty (30) days of
written notice from the party requiring such breach to be remedied
(for the avoidance of doubt, circumstances giving rise to the right
to terminate under CLAUSE 3.2 or CLAUSE 6.3 do not constitute a
material breach);
15.2 is unable to pay its debts as they mature; becomes insolvent; is
subject to bankruptcy, reorganisation, moratorium, insolvency or
similar proceedings for the relief of financially distressed
debtors; is subject to winding up, dissolution or liquidation
(judicial or non-judicial) proceedings; voluntarily or involuntarily
suspends or discontinues its business; liquidates or sells a
substantial part of its assets; makes an assignment for the benefit
of its creditors; or is subject to the appointment of a receiver,
liquidator or other third party over its assets or business; or
15.3 has been prevented by an event of force majeure from materially
performing its obligations hereunder for sixty (60) days or more.
SES will waive its right to terminate the Agreement if and for such
period of time the Customer continues to pay the charge hereunder.
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16. EFFECT OF TERMINATION
16.1 Where the Agreement is terminated (i) by the Customer, pursuant to
CLAUSES 6.3, 15.1 or 15.2, (ii) by either party, pursuant to CLAUSE
15.3, or (iii) automatically pursuant to CLAUSE 13, then SES shall
refund to the Customer the pro rata temporis portion of the advance
payments made by the Customer pursuant to SCHEDULE VI relating to
the unexpired portion of the Payment Period in progress on the date
of termination. SES may deduct from such amount all payments, taxes
and duties payable to governments or other entities for which the
Customer is liable hereunder and all sums owed to SES at that time.
16.2 Where SES terminates this Agreement pursuant to CLAUSES 15.1 or
15.2, the Customer shall forthwith pay to SES any sum owed by the
Customer to SES at that time and shall continue to be liable for and
to pay the charge provided in SCHEDULE VI (as if the Agreement had
not been terminated) until such time as SES allocates the Customer's
Transponder to another customer. SES shall have no obligation to
market the Customer's Transponder in priority to unused transponder
capacity on SES' satellites and for a price inferior to that
payable by the Customer to SES (unless the Customer makes up for the
difference); however, SES shall use its reasonable efforts to
mitigate its losses. If the Customer's Transponder is allocated to
another customer, SES shall refund to the Customer the pro rata
temporis portion of the advance payments made by the Customer
pursuant to SCHEDULE VI relating to the unexpired portion of the
Payment Period in progress on the date at which the other customer
starts transmitting.
17. FORCE MAJEURE
Neither party shall be considered to be in breach or be liable for any
damage suffered by the other party or its Associates, by reason of any
failure to perform any obligation hereunder if and for so long as such
failure is the result of an event of force majeure. Subject to CLAUSE 15.3,
the respective obligations of both parties shall be suspended for such time
as such an event prevents either party from performing its obligations.
18. LIMITATION OF LIABILITY - EXCLUSIVITY OF REMEDIES
18.1 Without prejudice to CLAUSES 5, 6 AND 16, SES shall not be liable
to the Customer or to the Customer's Associates in any way
whatsoever, except for its gross negligence ("faute lourde") or
wilful misconduct ("dol").
18.2 The remedies expressly provided in this Agreement are the sole
remedies available to the parties and the parties waive any other
rights that they may have.
19. INDEMNITIES
19.1 The Customer shall totally indemnify SES and SES' Associates and
customers against all claims, losses, damages, expenses arising
from:
19.1.1 damages caused to third parties as a result of a breach by
the Customer of this Agreement or a civil duty;
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19.1.2 infringement of copyright, defamation, libel or invasion of
privacy (or any allegation thereof) arising in the course of
the use of the Customer's Transponder;
19.1.3 claims in any way connected with the quality or contents of
any programme or display transmitted as part of the
Service(s), or with any failure, however caused, to perform
an obligation owed to any person to transmit any such
programme or display;
19.1.4 infringement by the Customer by virtue of exercising its
rights under this Agreement of any other third party right;
19.1.5 damage caused to the Satellite by the Customer or the
operator of the Uplink Facilities save where SES is said
operator.
19.2 A party (the "First Party") shall indemnify the other party against
all claims, losses, damages or expenses arising from an infringement
of patent caused by the use of any apparatus or system provided by
the First Party to the other.
19.3 Neither party shall admit any liability or make any concession in
respect of any claim brought against it for which it may seek an
indemnity under this CLAUSE 19 without the prior written consent of
the indemnifying party and the indemnifying party shall have the
right to control any such proceedings at its own costs and expenses.
20. CONFIDENTIALITY
Each party shall, and shall procure that its Associates shall, both
throughout the Term and thereafter, keep confidential the provisions of
this Agreement together with all other information disclosed on a
confidential basis by the other party hereunder and shall not disclose the
game to any person except when acting under a court order. Unless otherwise
specified in writing, all information regarding the performance of the
Satellite or the Customer's Transponder or the business affairs of the
parties shall be regarded as confidential. Where necessary to secure its
financing or otherwise in the legitimate course of its business, each party
shall have the right to disclose this Agreement to its professional
advisors, financial institutions and stock exchanges authorities.
21. TRADEMARK - LOGO AND PRESS RELEASES
21.1 Each party agrees to allow the other to use its trademark and logo,
free of charge, throughout the Term, solely for the purpose of
indicating in any document, advertising or communication made or
commissioned by such party that the Service(s) is transmitted via
the ASTRA satellite system.
21.2 The parties shall agree on a press release to announce this
Agreement.
22. NOTICES
Any notice shall be in writing and shall be sent to the address of the
party to be served as above written or to such other address previously
notified to the other party. All notices
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shall be delivered by hand, registered, or certified post or facsimile.
Notices shall be deemed to have been received: (i) if delivered by hand,
upon such delivery, (ii) if sent by post, (seventy-two) 72 hours after
the envelope containing such notice was posted, or (iii) if sent by
facsimile, when the transmission of the facsimile is complete. Notices sent
by facsimile shall be confirmed by letter. The initial facsimile number of
the parties are: (i) SES: (352) 710 725 291, (ii) the Customer: (48)
22 43 56 31 or (48) 22 43 65 31.
23. SEVERABILITY
In the event that a provision of this Agreement is held to be invalid,
inapplicable or unenforceable such provision shall be replaced by one which
comes closest to the intention of the parties and the remaining provisions
of this Agreement shall be unimpaired.
24. WAIVER
No relaxation, delay or indulgence by either party in enforcing any right
under this Agreement shall operate as a waiver thereof.
25. ENTIRE AGREEMENT
This Agreement, with the Schedules, is the entire agreement between the
parties in connection with the subject matter hereof and there are no other
agreements, written or oral. This Agreement supersedes all prior
understandings, representations or communications between the parties and
each party declares that it has not relied on any representation except as
expressly set out herein.
26. AMENDMENT
No provision of this Agreement may be amended, waived or terminated, nor
may any breach thereof be waived otherwise than (in each case) by the
express written agreement of the parties hereto. The Agreement will, where
necessary, be amended to reflect the reasonable changes made by the
Luxembourg Government to the Concession or the Cahier des Charges or the
Luxembourg Laws.
27. PROPER LAW AND JURISDICTION
This Agreement shall be governed by the construed in accordance with the
laws of the Grand Duchy of Luxembourg and the parties hereby submit to the
exclusive jurisdiction of the Luxembourg courts.
28. LEGAL OPINION
The customer shall, at SES' request and cost, procure a legal opinion
issued by the Customer's external counsel in favour of SES' leading
institutions, in a form reasonably satisfactory to SES and its lending
institutions.
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29. CONDITION PRECEDENT
This Agreement is subject to (i) operational service date of ASTRA IG,
(ii) the approval of the Board of SES, the Board of the Customer and of the
Government of Luxembourg and (iii) the availability of the Customer's
Transponder at SES. The parties shall each use their reasonable efforts to
obtain the approvals required and SES shall use its reasonable efforts to
make the Customer's Transponder available as soon as practicable after
contract signature but in any event before 30 April 1997.
30. MARKETING COOPERATION
Taking into account the Customer's plan to introduce into the market an
aggregate amount of 500,000 IRD's during the start phase of DTH SES and the
Customer shall cooperate jointly in the marketing activities for rolling
out the Customer's digital services. Such cooperation shall be mutually
agreed from time to time.
IN WITNESS WHEREOF the duly authorised representatives of the parties hereto
have executed this agreement in two originals on the date first before written.
PCI PROGRAMMING INC. SOCIETE EUROPEENNE DES SATELLITES S.A.
/s/ ROBERT E. FOWLER, III /s/ Romain Bausch
- ------------------------- --------------------------------------
By: Romain Bausch
Title: Director General
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SCHEDULE I: SATELLITE AND TRANSPONDER DESCRIPTION AND PERFORMANCE
SPECIFICATIONS
A. ASTRA 1E SATELLITE DESCRIPTION
1. Satellite Manufacturer : Hughes Communication Int. Inc.
2. Expected Fuel Lifetime (from OSD) : 14 years
3. Satellite Station-keeping accuracy : Longitude +/- 0.10 degrees
inclination +/- 0.10 degrees
4. Stabilisation System : 3 axis
5. Designed Channel Capacity :
A maximum of 20 transponders can be operated simultaneously in the first
five years reducing to 18 transponders thereafter. All transponders are
eclipse protected and may be selected from the following configurations:
18 transponders in the 17300 - 17700 MHz uplink and 11700 - 12100 MHz
downlink frequency band, 16 transponders in the 12750 - 13000 MHz uplink
and 10700 - 10950 MHz downlink frequency band (ASTRA 1D backup), 16
transponders in the 13000 - 13250 MHz uplink and 10950 - 11200 MHz downlink
frequency band (ASTRA 1C backup), 16 transponders in the 14000 - 14250 MHz
uplink and 11450 - 11700 MHz downlink frequency band (ASTRA 1B backup).
6. Polarization : Dual Linear
7. Cross-polarization isolation (for areas
within the 50 dBW e.i.r.p. contour) on
vertical and horizontal transponders : Typical 30 dB
For the avoidance of doubt, the specifications set out in Parts B and C below
shall constitute part of the terms and conditions of this Agreement but the
description of the Satellite in this Part A is for the Customer's information
only and shall not constitute any term or condition of this Agreement.
B. SPECIFIC DESCRIPTION OF TRANSPONDER USE
1. Initial transponder number on the Satellite : 79
2. Customer Uplink Signal frequency : 17592.50 MHz
3. Customer Downlink Signal frequency : 11992.50 MHz
4. Capacity provided : 27.5 MS/s QPSK
5. Hours of transmission : 24 hours per day
6. Pre-emptibility status : See Schedule VII-A
7. Polarisation : Horizontal
C. ORBITAL POSITION AND TRANSPONDER BANDWIDTH
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1. Orbital position : 19.2 degrees East
2. Usable Transponder bandwidth : 38 MHz (in the band 11.70 to 12.10 GHz)
D. TRANSPONDER PERFORMANCE
1. "Minimum Transponder Performance" is defined as a satellite single carrier
saturation e.i.r.p. measured under clear sky conditions by a measurement
test set-up according to standard engineering practice as described in
Schedule I-E of (all figures in dbW):
ACTIVATED ON ACTIVATED ON
CITY ASTRA 1E OR 1F ASTRA 1G
---- -------------- --------
Bialystok 50 50
Gdansk 52.5 50
Kielce 52 51
Krakow 52 52
Lublin 50 51
Olsztyn 52 50
Radom 51 51
Warsaw 52 51
Wroclaw 52.5 52
Betzdorf 51 51
It is understood that SES shall have no obligation to monitor or measure
the Minimum Transponder Performance in any sites listed above save for
Betzdorf.
2. "RECEIVED SIGNAL POWER" is defined as signal power in dBW on the ground in
Luxembourg measured by a measurement test set-up according to standard
engineering practice as described in SCHEDULE I-E. If the measurement is
not performed under clear sky conditions, the measured value shall be
corrected to account for the effect of weather and propagation conditions.
3. The Minimum Transponder Performance and Received Signal Power shall be
those measured or otherwise ascertained where the Customer is complying or
procuring compliance with SCHEDULE II.
E. MEASUREMENT TEST SET-UP AND STANDARD ENGINEERING PRACTICE
The saturated transponder e.i.r.p. and Received Signal Power is measured
under all weather conditions at the SES Satellite Control Facility in
Betzdorf, Luxembourg. The measured e.i.r.p. for the Customer's Transponder
is kept on record.
In order to accurately determine each transponder e.i.r.p., a measurement
set-up consisting of a calibrated fluxmeter and radiometer is used. The
fluxmeter measures the power flux density at earth surface created by each
individual satellite transponder.
The radiometer measures atmospheric attenuation along the satellite path,
assuming the atmosphere to be an absorbing homogeneous medium at a constant
temperature. Atmospheric attenuation is measured at the beginning of each
e.i.r.p. measurement cycle.
The fluxmeter uses a calibrated antenna, with a calibrated RF measurement
subsystem comprising, among others, a LNA, a down converter and a true RMS
power sensor. A 33 MHz selectivity bandpass filter is used to reduce errors
due to adjacent channel interference during e.i.r.p. measurements.
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SCHEDULE II. CUSTOMER SIGNALS. CUSTOMER UNLINK SIGNALS AND UPLINK FACILITIES
A. Specifications of Customer Signals and Customer Uplink Signals
To ensure consistent and uniform reception of high quality video, audio and
data services by the users of ASTRA transmitted services, and to allow full
inter-operability between different manufacturer's equipment, SES requires
each Customer Signal and Customer Uplink Signal to meet the applicable
provisions of the following specifications:
ISO/IEC 13818-1/-2/-3
Generic coding of moving pictures and associated audio (Part 1: Systems;
Part 2: Video and Part 3: Audio).
ETS 300 421
Digital broadcasting systems for television, sound and data services:
framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETS 300 468
Digital broadcasting systems for television, sound and data services;
specification for Service Information (SI) in Digital Video Broadcasting
(DVB) Systems.
ETR 154
Implementation guidelines for the use of MPEG-2 Systems, video and audio in
satellite and cable broadcasting applications.
ETR 211
Guidelines on implementation and usage of service information.
The Customer agrees to transmit the ASTRA Network Information Table
("NIT") as described in SCHEDULE IX. More specifically, the Customer
Uplink Signals shall automatically update its transmitted NIT to reflect
any changes of the ASTRA NIT. However, the Customer may modify the parts of
the NIT describing the Customer Uplink Signals (e.g. addition of service
list descriptor).
B. CUSTOMER SIGNALS
1. Video source coding shall be as specified in MPEG-2 main profile/main
level.
2. Audio source coding shall be as specified in ISO/IEC 13818-3 and as defined
in ETR 154.
C. CUSTOMER UPLINK SIGNAL AND UPLINK FACILITIES
The Customer shall comply with the specification and parameters set-out in
the ASTRA Access Agreement, a copy of which has been separately provided to
the Customer, which may be amended by SES, as necessary, provided that such
amendment also applies to other customers on the Satellite.
More specifically, the Customer Uplink Signals and the Uplink Facilities
having access to the ASTRA satellite shall meet performance requirements
established in the ASTRA.
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<PAGE> 19
CONFIDENTIAL
Access Agreement. SES will provide a reasonable prior notice for any
amendment requiring a change of hardware.
The following parameters shall also be met:
1. EARTH STATION EIRP
For access to the Satellite, the Uplink Facilities must be able to produce
a minimum earth station e.i.r.p. of to be notified by SES to the Customer
once the Customer has informed SES of the uplink site dBW per RF channel
for transmissions originated from to be modified by the Customer to SES
before OSD.
However, given that the Service(s) can be transferred to another ASTRA
satellite, pursuant to Clause 10.5, such transfer may require a separate
earth station and the Customer should note that for such satellite the
Uplink Facilities must be able to produce a minimum earth station e.i.r.p.
to be determined by SES, which may differ from that of the earth station
which accesses the Satellite.
2. TRANSMISSION STANDARD
The transmission standard used for the video, audio, and data services
shall be in accordance with the specifications given in Section A above.
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CONFIDENTIAL
SCHEDULE III: SERVICE(S) (CLAUSE 10)
The Customer's Transponder shall be used exclusively for the transmission of the
following packages of television services, and related audio, and other services
as specified below all of them targeting at the general public located within
the Target Market. The expression "Target Market" means any or all of the
following countries: Poland, Czech Republic, Slovakia, Hungary, Romania,
Moldova, Bulgaria, Belarus, Russia, Ukraine, Estonia, Latvia, Lithuania,
Slovania, Croatia, Bosnia Herzegovina, Yugoslavia, Macedonia and Albania. It is
understood that those countries are only to such extent part of the Target
Market as they are covered by the Satellite footprint.
A. PAY-PER-VIEW SERVICES, being television services for which the viewer pays
on the basis of the actual consumption.
B. PAY TV SERVICES, being encrypted television services available upon
subscription.
C. UNENCRYPTED SERVICES, being television services available without any
special decoding equipment.
D. OTHER SERVICES: [TBD]
For each service considered, the Customer shall provide SES with the name of the
service, the types of service (pay-per-view, pay TV, unencrypted), the nature of
the programming and the language(s) of the service.
The above information, for any given Service, shall be provided at least 30 days
before the proposed start date for the Service and shall be subject to SES'
consent which shall not be unreasonably withheld or delayed and, where required,
to the approval of the Government of Luxembourg. Any change of service shall be
subject to the prior written consent of SES which shall not be unreasonably
withheld or delayed.
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CONFIDENTIAL
SCHEDULE IV: MONITORING (CLAUSE 8)
In addition to performing the activities related to controlling the Satellite,
SES will also monitor all the transmissions through all its transponders as
described below.
SES will maintain a Network Operations Centre (NOC) capable of monitoring the
Received Signal Power of the Customer's Transponder on a continual basis
in order to produce a computerized record of the RF characteristics of the
Customer's Transponder.
As part of these activities, SES conducts a quarterly test using its In Orbit
Test System (IOTS) of the performance of each transponder on the ASTRA
satellite system. This test will necessitate that the Customer's Uplink Signal
be switched off during selected periods of time in accordance with Clause 8.1
for not more than thirty (30) minutes at a time.
If a problem is detected, the NOC Operators will initiate and co-ordinate
corrective measures in co-operation with the Uplink Facility which is
transmitting the Customer Uplink Signals.
The NOC's specific functions and responsibilities will include:
- -- Receiving and handling reports of Unavailability from customers
- -- Co-ordinating the remedy of the reported difficulty and initiating any
necessary procedures required to restore lost or impaired service in the
most expedient manner
- -- Maintaining a complete and accurate record of all reported and observed
service failures, impairments, and customer contacts
- -- Co-ordinating the overall line-up, pre-service tests, and actual provisions
of service
- -- Arranging the routine monitoring of the Customer's Transponder as described
above
- -- Ensuring that any potential events that may affect the operation of the
Satellite as a whole or of the Customer's Transponder (sun transit, routine
testing, etc.) are notified to the Customer as soon as practicable and in
advance if possible
The reporting points for operational purposes shall be:
AT THE CUSTOMER: c/o Baker McKenzie
ul. Dluga 26/28
00-238 Warsaw
Tel: (48) 22 635 3521
(48) 22 635 4111
Fax: (48) 22 635 9447
(48) 39 121 1213
AT SES: Network Operations Centre
Satellite Control Facility
L-6815 Chateau de Betzdorf
Luxembourg
Tel: for urgent problems only:
(352) 710 152
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CONFIDENTIAL
Tel: for normal operating and general use:
Tel: (352) 710 725-344
Fax: (352) 710 725-227
(352) 710 725-213
Attn: Head Network Operations Centre
The above telephone and facsimile numbers are subject to change by SES or the
Customer.
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CONFIDENTIAL
SCHEDULE V: CONDITIONAL ACCESS SYSTEM
The Customer may encrypt the Customer Signals using such system as it shall
reasonably select, in conjunction with SES, SES' approval not to be unreasonably
withheld or delayed. The conditional access system selected shall be DVB
compliant (based upon the DVB common scrambling algorithm and mechanisms). A
conditional access system cannot be applied to the Customer Signals during the
time period where SES provides, in its ground station in Betzdorf, encoding and
multiplexing of the Customer Signals.
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CONFIDENTIAL
SCHEDULE VI: CHARGES (CLAUSE 4)
A. The charge payable by the Customer to SES in each year of this Agreement
(being a year which commences on CSD or any anniversary of that date) shall
be the sum of the fees to be determined in accordance with paragraphs (i)
and (ii), subject always to paragraph (iii):
[@Entertainment has requested confidential treatment for trade secrets and
commercial or financial information denoted by "*" and located in (i) and
(ii), below.]
(i) At the Customer's election (the Customer to notify SES of its
election not less than thirty (30) days prior to the commencement of
each year of this Agreement) either:
- an annual fixed fee of *,***,*** USD or
- a monthly fixed fee of ***.*** USD.
The annual fixed fee (when payable) shall be paid on the first day
of the relevant year of this Agreement. The monthly fixed fee
(when payable) shall be payable on the first day of each month of
the relevant year of this Agreement. The Customer hereby elects to
pay the monthly fixed fee in the first year of this Agreement, the
first payment of which shall be on CSD.
(ii) A variable fee of *.** USD for each qualifying digital household up
to ***,*** such households and *.** USD for each qualifying digital
household exceeding ***,*** such households ALWAYS PROVIDED that on
or from 31 March 1999 until the Expiry Date, there shall be deemed
to be not less than ***,*** qualifying digital households
irrespective of the actual number of such households. The
expression "qualifying digital household" means any household
located in which the occupant has a current contract with the
Customer or one of its affiliates or authorized agents or
distributors which gives him the right to receive any services of
the Customer and/or any affiliates of the Customer that are
transmitted using the Customer's Transponder by means of direct
pick-up by the occupant (via direct-to-home) of the digital signal
on an IRD available in the Target Market.
Following determination of the number of qualifying digital
households at the end of the calendar year ending in the relevant
year of this Agreement, the variable payment will be payable on the
average number of houses of the said calendar year (2 point
average) thirty (30) days after notification. For the calendar
year ending in the first year of this Agreement, the 2 point
average will start at zero. Consequently the number of qualifying
digital households for the first year of this Agreement will be
half of the number calculated at the end of that calendar year.
In the first and last year of this Agreement, the variable payment
will be the number of qualifying digital households multiplied by
the appropriate rate(s) adjusted to the number of months in the
relevant calendar year since CSD or until the Expiry Date (as
applicable).
Any calculation of the number of qualifying digital households
shall be verified by an independent auditor to be agreed upon by
the parties.
(iii) The aggregate charges payable by the Customer to SES in any year
shall not exceed 6,750,000 USD.
B. The Customer shall effect payment of all charges to the bank account
identified by SES in the corresponding invoice.
C. The daily rate of charge to be applied for the purposes of calculating any
refund to be made pursuant to Clause 6 of the Agreement shall be the
aggregate charges payable for the Payment Period in the course of which an
Unavailability occurred divided by the number of days contained in said
Payment Period
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CONFIDENTIAL
SCHEDULE VII: PRIORITY AND PRE-EMPTION
A - CUSTOMER STATUS
The Customer shall have the status of: Non-pre-emptible Customer as defined in
Part B below.
B - CATEGORIES OF USE
SES' customers using the ASTRA satellite system shall be accorded (for each
transponder used) priority status as: Protected, Non-Pre-emptible or
Pre-emptible.
1. Protected Customers:
a. will not be subject to pre-emption by other customers;
b. will be entitled to be provided with the use of a back-up transponder
(this will require the pre-emption of Pre-emptible Customer); and
c. shall have the benefit of Spare TWTAs, in preference to certain other
customers, as set out in PART C below.
2. Non-Pre-emptible Customers:
a. will not be subject to pre-emption themselves;
b. will have no rights of pre-emption themselves; and
c. shall have the benefit of Spare TWTAs as set out in PART C below.
3. Pre-emptible Customers:
a. have no rights of pre-emption themselves;
b. may have their transponder pre-empted, as set out in PART D below, in
order to provide a back-up transponder to a Protected Customer; and
c. shall have the benefit of Spare TWTAs, but subject to the rights of
other customers in this Schedule, as set out in PART C below.
C. PRIORITY RULES FOR SPARE TWTAs
As a general rule, Spare TWTAs on the Satellite will be provided on a first
failed/first served basis.
However, in the event of simultaneous transponder failures (or where the
sequences of failures cannot be determined) on the Satellite, and if the number
of failures exceeds the number of available Spare TWTAs, then the following
rules shall apply:
1. Protected Customers have priority over Non-Pre-emptible Customers who, in
turn, have priority over Pre-emptible Customers.
2. Where, pursuant to this Schedule, conflicting rights to Spare TWTAs arise
between customers with the same priority status, priority shall be given in
accordance with the following rules:
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CONFIDENTIAL
a. customers whose service starts on the Operational Service Date ("OSD
Customer") shall have priority over those whose service starts at a
date after such Operational Service Date;
b. between OSD Customers, priority shall be determined by reference to
the expiry dates of their contracts so that the customers with the
later dates of expiry have priority over customers with earlier expiry
dates;
c. between OSD Customers whose contracts expire on the same date,
priority shall be determined by reference to the dates on which they
signed contracts for the use of a transponder, so that the customers
who signed earlier have priority over those who signed later;
d. between customers whose services start after the Operational Service
Date ("POST OSD CUSTOMERS"), priority shall be determined by
reference to the customer start dates, so that the customers with
earlier customer start dates shall have priority over customers with
later customer start dates;
e. between Post OSD Customers who have the same customer start dates,
priority shall be determined in the same manner as applicable for OSD
Customers under PARAGRAPH 2(b) AND (c) above; and
f. between customers originating from different satellites (i.e.
customers whose initial transponder was located on an ASTRA satellite
other than the Satellite), priority shall be determined by reference
to their respective start date on their respective initial satellite,
so that the customers with earlier customer start dates shall have
priority over customers with later customer start dates.
3. For the purpose of the above rules, (i) the expiry date of a contract
shall, in case of extension of the contract, refer to the extended expiry
date, and (ii) the customer start date refers to the start date of a
customer's initial service and is not affected by any subsequent change of
the service transmitted under a given customer contract.
D. PRE-EMPTION RULES
1. If PART A above provides that the Customer has the status of Pre-emptible
Customer, then the Customer's Transponder shall be pre-emptible on the
terms set out below.
2. a. SES shall have the right to pre-empt the Customer's Transponder to
provide back-up capacity to restore the service of a Protected
Transponder in respect of which SES is contractually bound to provide
back-up capacity at the time pre-emption occurs and if there is no
Spare TWTA that can be used to restore the Protected Transponder's
service.
b. As used herein, "PROTECTED TRANSPONDER" means the transponder of a
Protected Customer on another ASTRA satellite, to be nominated by SES
and notified by SES to the Customer at any time, the protection of
which directly or indirectly requires the pre-emption of the
Customer's Transponder. There may be several Protected Transponders
nominated by SES, provided that each is on a different ASTRA
satellite. SES may increase or reduce the number of Protected
Transponders at any time by giving prior written notice to the
Customer.
3. To Pre-empt the Customer's Transponder:
a. SES will give the Customer at least 24 hours advance warning (by fax
or phone) of
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CONFIDENTIAL
such pre-emption save in the event of consecutive failures of a
Protected Transponder, in which case such pre-emption warning may be
shorter, it being understood that SES will keep the Customer informed
of the status of the Protected Transponders affected by such
consecutive failures; and
b. at the expiry of the aforementioned advance warning, SES shall have
the right to forthwith interrupt the transmission of all video and
audio services using the Customer's Transponder and the Customer shall
therefore forthwith, upon SES' request, interrupt the transmission of
the Customer Uplink Signal. SES shall in addition have the right to
interrupt the reception of the Customer Uplink Signals by the
Customer's Transponder.
4. The Customer shall comply diligently with SES' instructions for the purpose
of implementing the pre-emption and shall require the operator of the
Uplink Facilities to do the same.
5. a. If SES pre-empts the Customer's Transponder, then, at that time, SES'
obligation to provide the use of the Customer's Transponder, and the
Customer's obligation to pay the corresponding charge, shall be
suspended. The Agreement shall terminate 30 days after the pre-emption
date unless SES, within this period, restores the Protected
Transponder in respect of which pre-emption was implemented. If such
restoration occurs after this 30 days period, then SES shall offer the
Customer's Transponder back to the Customer on the terms set out in
this Agreement for the outstanding period of Term. The Customer shall
have fifteen (15) days to accept SES' offer.
b. Upon termination of the Agreement pursuant hereto, as the case may be,
i. SES shall refund to the Customer the pro rata temporis portion of
the advance payments made by the Customer pursuant to SCHEDULE VI
and relating to the unexpired portion of the period (in respect
of which the Customer has paid in advance) in progress on the
date of pre-emption; or
ii. the Customer shall pay to SES all outstanding sums owed to SES at
the time of termination.
6. a. The Customer shall fully cooperate with SES for the exercise, by SES,
of its right of pre-emption provided herein and shall not raise any
objection, initiate any legal proceedings against SES or the Protected
Customer benefiting from the pre-emption, or take other steps, to
prevent, delay or obstruct the exercise of this right and the Customer
shall be liable for all damages suffered by SES or such Protected
Customer in connection therewith.
b. The Customer shall not make any claim against SES or the Protected
Customer benefiting from the pre-emption in connection with the
exercise, by SES, of its right of pre-emption and shall indemnify SES
against any related third party claim.
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CONFIDENTIAL
SCHEDULE VIII: ASTRA ACCESS AGREEMENT
29
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CONFIDENTIAL
SCHEDULE IX: ASIUS
30
<PAGE> 30
(ASTRA ACCESS AGREEMENT)
PERFORMANCE CHARACTERISTICS OF
EARTH STATIONS HAVING ACCESS TO
ASTRA SATELLITES
- --------------------------------------------------------------------------------
ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
<PAGE> 31
(ASTRA LOGO)
SOCIETE EUROPEENNE DES SATELLITES S.A.
L-6815 CHATEAU DE BETZDORF, LUXEMBOURG
TEL: (352) 710725-1
FAX: (352) 710725-548
ASTRA is a trademark of Societe Europeenne des Satellites.
The information and data contained herein are subject to change.
<PAGE> 32
CONTENTS
<TABLE>
<S> <C>
1. INTRODUCTION .......................................................... 1
2. ANTENNA SYSTEM ........................................................ 2
2.1. General ......................................................... 2
2.2. Frequency Range ................................................. 2
2.3. Off-axis Antenna Gain Pattern ................................... 4
2.4. Polarisation .................................................... 4
2.5. Motorisation, Antenna Pointing and Tracking ..................... 4
3. RF EQUIPMENT .......................................................... 5
3.1. Frequency Range and Agility ..................................... 5
3.2. E.i.r.p. Capability ............................................. 5
3.3. Transmitter Inhibit ............................................. 5
3.4. Out-of-Band e.i.r.p. Emission ................................... 6
3.5. Off-axis e.i.r.p. Density ....................................... 6
3.6. Frequency Stability ............................................. 6
4. AMPLITUDE AND GROUP DELAY DISTORTIONS ................................. 7
4.1. FM TV transmission in FSS and BSS bands ......................... 7
4.2. Digital transmission in FSS and BSS bands ....................... 8
4.3. Group Delay Equalisation ........................................ 9
5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION ............................ 10
5.1. General ......................................................... 10
5.2. PAL Transmission Standard ....................................... 10
5.2.1. Video Signal ............................................. 10
5.2.1.1. Frequency Deviation ............................. 10
5.2.1.2. Energy Dispersal ................................ 10
5.2.1.3. Pre-emphasis .................................... 11
5.2.2. On-line Testing .......................................... 11
5.2.3. Audio Signals ............................................ 11
5.2.3.1. Audio Channel Modes ............................. 11
5.2.3.2. Subcarrier Frequency ............................ 15
5.2.3.3. Subcarrier Bandwidth ............................ 16
5.2.3.4. Subcarrier Modulation Index ..................... 16
5.2.3.5. Analogue Audio .................................. 16
5.2.3.5.1. Analogue Audio Deviation ............. 16
5.2.3.5.2. Analogue Audio Bandwidth ............. 16
5.2.3.5.3. Pre-emphasis ......................... 16
5.2.3.6. Digital Audio ................................... 17
5.2.3.6.1. Sampling Method ...................... 17
5.2.3.6.2. Modulation Method .................... 17
5.2.3.6.3. Auxiliary Data ....................... 17
5.2.3.7. Network Control Carrier ......................... 17
5.2.4. Teletext ................................................. 17
</TABLE>
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ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
I
<PAGE> 33
CONTENTS
<TABLE>
<S> <C>
6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE
CODING FOR DIGITAL SERVICES ........................................... 18
6.1. General ......................................................... 18
6.2. Modulation ...................................................... 18
6.2.1. BSS bands ................................................ 18
6.2.2. FSS bands ................................................ 18
6.2.3. Earth Station Degradation ................................ 18
6.3. Channel coding .................................................. 18
6.4. Power Spectrum Density Mask ..................................... 19
6.4.1. BSS Bands ................................................ 19
6.4.2. FSS Bands ................................................ 19
6.5. Multiplexing .................................................... 20
6.5.1. General .................................................. 20
6.5.2. Transport Stream ......................................... 20
6.5.3. Service Information ...................................... 20
6.6. Source Coding ................................................... 21
7. ASTRA SATELLITE INFORMATION ........................................... 22
7.1. ASTRA 1 series .................................................. 22
7.1.1. ASTRA 1 Transponder Frequency Plan ....................... 22
7.2. ASTRA 2 series .................................................. 31
7.2.1. ASTRA 2 Transponder Frequency Plan ....................... 31
8. ORBITAL POSITION/STATION KEEPING ...................................... 35
9. BEACON INFORMATION .................................................... 35
9.1. ASTRA 1A and ASTRA 1B Beacon Details ............................ 36
9.2. ASTRA 1C, 1D, 1E, 1F, 1G and 1H Beacon Details .................. 36
9.3. ASTRA 2A Beacon Details ......................................... 36
9.4. ASTRA 2B Beacon Details ......................................... 37
Annex 1 ..................................................................... 38
MULTIPLEX DIAGNOSTIC TABLE (MDT) ...................................... 38
</TABLE>
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ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
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<PAGE> 34
1. INTRODUCTION
In order to access an ASTRA satellite, approval must first be obtained from
Societe Europeenne des Satellites - SES. The purpose of this approval is to
control the technical parameters of the Uplink Facilities and Customer's Uplink
Signal, to ensure that the following objectives are met:
- -- The desired signal quality and availability are achieved;
- -- Harmful interference is not produced in the other transmissions carried by
any ASTRA spacecraft;
- -- The interference produced in other satellite systems will not exceed the
coordinated levels.
This document outlines the specifications established by SES in order to
achieve those objectives. Access to a specific ASTRA satellite will only be
granted after compliance to the specifications has been demonstrated to the
satisfaction of SES.
In case of contradiction between the ASTRA Access Agreement and the Customer's
Transponder Agreement, the latter shall prevail.
The following definitions are utilised in this document:
OPERATOR -- Person, firm, corporation or other legal entity using an ASTRA
transponder.
SATELLITE CONTROL FACILITY (SCF) -- SES earth station complex located at
Betzdorf, Grand Duchy of Luxembourg.
DIGITAL TRANSMISSION FACILITY (DTF) -- Part of the SES earth station complex,
located at Betzdorf, Grand Duchy of Luxembourg, in which digital services are
handled.
ANALOGUE NETWORK OPERATIONS CENTRE (NOC) -- The monitor and control centre for
all analogue ASTRA services, located at the SCF. This provides a 24 hour
monitor and control network reporting point for service quality monitoring and
problem resolution for the ASTRA analogue satellites.
DIGITAL NETWORK OPERATIONS CENTRE (DINO) -- The monitor and control centre for
all ASTRA digital services, located at the DTF. This provides a 24 hour monitor
and control network reporting point for service quality monitoring and problem
resolution for the ASTRA digital satellites.
REFERENCE STANDARD EARTH STATION (RSES) -- These stations are highly maintained
up- and downlinks to be used in developing baseline performance standards for
transmission carried by the ASTRA satellites.
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ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
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<PAGE> 35
<TABLE>
<CAPTION>
REFERENCE STANDARD
SATELLITE EARTH STATION
--------- ------------------
<S> <C>
ASTRA 1A..................BTZ #2
ASTRA 1B..................BTZ #3
ASTRA 1C..................BTZ #4
ASTRA 1D..................BTZ #5
ASTRA 1E..................BTZ #6
ASTRA 1F..................BTZ #10
ASTRA 1G..................BTZ #12
ASTRA 1H..................BTZ #14
ASTRA 2A..................BTZ #13
ASTRA 2B..................BTZ #15
</TABLE>
Table 1. ASTRA REFERENCE STANDARD EARTH STATIONS
2. ANTENNA SYSTEM
2.1. GENERAL
A dedicated antenna system shall be used for access to any ASTRA satellite.
Simultaneous access to two or more ASTRA satellites by a single antenna system
is not permitted, but it is permitted for one antenna to access a single
spacecraft in both the FSS and BSS bands. By using a dedicated antenna system
as specified herein for a given ASTRA satellite, link performance in terms of
uplink and downlink Carrier/Thermal Noise (C/N) and Carrier/Cross Polar
Interference (C/X) can be maintained.
2.2. FREQUENCY RANGE
The antenna system is required to meet all the specifications set in the next
items operating in the appropriate FSS or BSS frequency range.
The uplink frequency ranges for the different ASTRA satellites (primary and
back-up bands) are shown in the following Table 2.
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ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
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<PAGE> 36
<TABLE>
<CAPTION>
FSS BSS
---------------------------------------------- ----------------
Satellite 12.75-13.25 13.75-14.00 14.00-14.50 17.30-18.10
- --------- ---------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASTRA 1A..... A-Band
ASTRA 1B..... B-Band
ASTRA 1C..... C-Band A-Band
ASTRA 1D.....D-Band C-Band B-Band E-Band
ASTRA 1E.....D-Band C-Band B-Band E-Band
ASTRA 1F..... A-Band E-Band F-Band
ASTRA 1G..... G-Band E-Band F-Band
ASTRA 1H..... G-Band E-Band F-Band
ASTRA 2A..... G-Band E-Band F-Band
ASTRA 2B..... G-Band B-Band E-Band F-Band
</TABLE>
TABLE 2. ASTRA UPLINK FREQUENCY BANDS
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ASTRA Access Agreement SOCIETE EUROPEENNE DES SATELLITES
1 August 1996 CONFIDENTIAL PROPRIETARY
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<PAGE> 37
2.3 OFF-AXIS ANTENNA GAIN PATTERN
The gain, (expressed in dBi), relative to an isotropic antenna, at any off-axis
angle (-) (expressed in degrees) shall comply with the following:
<TABLE>
<CAPTION>
FREQUENCY RANGE (GHz) GAIN (dBI) ANGULAR RANGE
- --------------------------------------------------------------------------------
<S> <C> <C>
14.00 - 14.50....... G</- 29 - 25 log (-) 1 degrees < (-) </- 20 degrees
G</- 32 - 25 log (-) 20 degrees < (-) </- 48 degrees
G</- -10 48 degrees < (-) </- 180 degrees
12.75 - 13.25....... G</- 29 - 25 log (-) 0.5 degrees < (-) </- 36.3 degrees
13.75 - 14.00....... G</- -10 36.3 degrees < (-) </- 180 degrees
17.30 - 18.10....... G</- 29 - 25 log (-) 1 degrees < (-) </- 20 degrees
G</- -10 36.3 degrees < (-) </- 180 degrees
</TABLE>
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2.4. POLARISATION
The ASTRA satellites employ dual linear orthogonal polarisation. The antenna
polarisation angle will be set with SES during service line-up, following the
appropriate procedure established by the NOC and the DINO. The cross-polarised
signal component transmitted by the antenna shall be as specified below:
FSS band: 30 dB
BSS band: 35 dB
2.5. MOTORISATION, ANTENNA POINTING AND TRACKING
Permanent uplink antennas shall be motorised in both azimuth and elevation to
enable rapid repointing in case of necessity, and to facilitate accurate antenna
pattern measurements.
Further, the utilisation of a suitable tracking system is recommended in order
to meet the e.i.r.p. stability requirement specified in the following section
3.2. The tracking system design shall be based on the ASTRA satellite station
keeping and beacon frequency parameters, which are presented in sections 8 and 9
respectively. It shall guarantee the clear sky polarisation value specified in
the previous section 2.4.
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3. RF EQUIPMENT
The RF equipment, including any redundant equipment, is required to meet all
the specifications set out in the following sections 3.1 to 3.6.
3.1. FREQUENCY RANGE AND AGILITY
It shall be possible to set the carrier centre frequency to within +/- 125 kHz.
3.2. e.i.r.p. CAPABILITY
The e.i.r.p. will be established by SES based on the utilised channel and on
the uplink geographical location.
It is expected that SES may request changes in the earth station e.i.r.p.
during the course of the contract, to account for changes in the transponder
performance over its lifetime, utilisation of redundant units or utilisation of
a different transponder.
The uplink e.i.r.p. stability shall be equal to or better than +/- 0.5 dB
including antenna pointing and tracking errors.
Means shall be provided to allow adjustment of the carrier level to within
0.5 dB of the specified value.
3.3. TRANSMITTER INHIBIT
Operators accessing ASTRA satellites may be required by the NOC or the DINO to
shut down a transmission in the case where it is producing harmful interference
into other transmissions. Shut down of a transmission may also be required to
allow the switching into operation of redundant units in the satellite.
In order to comply with this requirement, the Operator shall provide continuous
manning of the uplink site or a remote control system to another location which
will be manned continuously.
The transmitter shall utilise a system which automatically inhibits the
transmission of a chain upon the detection of failure conditions such as loss of
phase lock on an upconverter or excessive HPA transmit power. This system may
also be designed to, alternatively, switch the transmission to a stand-by chain.
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3.4. OUT-OF-BAND E.I.R.P. EMISSION
Earth station out-of-band emissions are additional sources of interference for
other carriers utilising ASTRA transponders. The two contributions to
out-of-band e.i.r.p. emission are spurious output and intermodulation products.
Note that the specification applies across all ASTRA uplink bands (both FSS and
BSS) for all stations. The specified limits for these two contributions are
the following:
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, and 17.30 - 18.10 GHz bands, resulting from spurious output, must not
exceed 4.0 dBW/4 kHz;
- -- The out-of-band on-axis e.i.r.p. emissions in the 12.75 - 13.25, 13.75 -
14.50, AND 17.30 - 18.10 GHz bands, resulting from intermodulation
products, must not exceed 12.0 dBW/4 kHz.
3.5. OFF-AXIS e.i.r.p. DENSITY
This parameter has a direct impact on the interference produced in other
satellite systems. In order to keep this interference within acceptable levels,
the earth station must comply with the following e.i.r.p. limits. The off-axis
angle, (-), is referred to the main lobe axis, in degrees.
For the frequency range 14.00-14.50 GHz, based on ITU-R Report 1001:
35 - 25log (-) dBW/40 kHz for 2.5 degrees </- (-) </- 48 degrees
-7 - dBW/40 kHz for 48 degrees < (-) </- 180 degrees
For the frequency range 12.75 - 13.25 GHz based on the ITU Appendix 30B planned
limits (averaged over the necessary bandwidth of 26 MHz):
-25 - 25log (-) dBW/Hz for 0.5 degrees </- (-) </- 36.3 degrees
-64 dBW/Hz for 36.3 < (-) </- 180 degrees
For the frequency range 13.75 - 14.00 GHz, the antenna must fully comply with
the antenna specification (section 2.3).
For the frequency range 17.30 - 18.10 GHz, the input power to the antenna
shall not exceed 30 dBW in a single transponder, and the antenna must conform
fully with the antenna specification (section 2.3).
3.6. FREQUENCY STABILITY
The RF frequency tolerance of the transmitted carrier shall be equal to or
better than +/- 150 kHz, long and short term stability.
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4. AMPLITUDE AND GROUP DELAY DISTORTIONS
4.1. FM TV TRANSMISSION IN FSS AND BSS BANDS
The earth station IF uplink filter shall be provided in the uplink chain and
shall conform to the amplitude limits shown in Figure 4.1.1.
The group delay produced by transmit earth station IF and RF equipment -
including the up-converter, IF filter, HPA, RF filter combiners, feed and
transmission lines - shall be equalised to the limits given in Figure 4.1.2.
[FIGURE 143A]
<TABLE>
<CAPTION>
FREQUENCY (MHz) AMPLITUDE (dB)
- ------------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A B C D a b c d
- ----- ------ ------ ------ ----- ----- ----- -----
20.2 25.2 28.9 40.0 0.2 2.2 8.3 25.0
- ------------------------------------------ -----------------------------------
</TABLE>
Figure 4.1.1. IF UPLINK FILTER AMPLITUDE RESPONSE
[FIGURE 143B]
<TABLE>
<CAPTION>
FREQUENCY (MHz) GROUP DELAY (ns)
- ----------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
A/3 A H f g h
- ----- ----- ----- ----- ----- -----
6.7 20.2 24.6 2.0 3.0 12.0
- ----------------------------------- --------------------------------------
</TABLE>
Figure 4.1.2. IF UPLINK GROUP DELAY RESPONSE
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4.2. DIGITAL TRANSMISSION IN FSS AND BSS BANDS
For the FSS or BSS transmit channel from upconverter input to antenna output,
the total amplitude and group delay distortions shall not exceed the values
specified in Table 4.2.1.
<TABLE>
<CAPTION>
FSS BSS
----------------- -----------------
<S> <C> <C> <C> <C>
Frequency (MHz)................. 26 30 33 39
Amplitude variation (dBpp)...... 0.5 0.7 0.5 0.7
Group delay variation (nspp).... 6.0 8.0 6.0 8.0
</TABLE>
Table 4.2.1. AMPLITUDE AND GROUP DELAY DISTORTIONS
In the case where an RF channel filter network is used, the amplitude and group
delay masks specified in Figure 4.2.1 and 4.2.2 shall be met from the HPA
output to the antenna output.
(FIGURE 144)
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) AMPLITUDE (dB)
- ---- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
A B C a b c
FSS 26 30 114
0.25 0.35 35
BSS 33 39 123
</TABLE>
Figure 4.2.1. RF CHANNEL FILTER AMPLITUDE RESPONSE
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<PAGE> 42
[FIGURE 145]
<TABLE>
<CAPTION>
BAND FREQUENCY (MHz) GROUP DELAY (ns)
A B a b
<S> <C> <C> <C> <C>
FSS... 26 30
3.5 5.0
BSS 33 39
</TABLE>
Figure 4.2.2. RF CHANNEL GROUP DELAY MASK
4.3. GROUP DELAY EQUALISATION
Equalisation capability shall be provided at the earth station for intrinsic
group delay in the earth station transmit equipment and for group delay in the
satellite transponder.
The maximum range of satellite group delay to be equalised at the earth
station is given below:
- -- Linear : +/-1.0 ns/MHz
- -- Parabolic : 0.5 ns/MHz(2)
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5. BASEBAND PARAMETERS FOR FM TV TRANSMISSION
5.1. GENERAL
In general the baseband television signal parameters defined shall be designed
in accordance with the relevant definitions and standards for that system and as
authorised by SES.
5.2. PAL TRANSMISSION STANDARD
5.2.1. VIDEO SIGNAL
The transmitted video signal shall correspond to that of ITU-R Report 624-4 and
Recommendation 472-3, using PAL values with a maximum video signal bandwidth of
5 MHz.
A lowpass filter at the video input to the modulator shall reject any signal
above 6 MHz by at least 40 dB. Up to 5 MHz this filter shall have a group delay
ripple of less than +/-20 ns.
The following items present information concerning the basis modulation
parameters.
5.2.1.1. FREQUENCY DEVIATION
The utilised peak-to-peak frequency deviation for the video signal shall be
16 MHz/V, assuming the difference between white and black levels to be 0.7 V.
5.2.1.2. ENERGY DISPERSAL
The earth station shall be equipped to add to the TV signal a fixed amplitude
symmetrical triangular waveform, phase locked to the video frame rate, capable
of producing the specified peak-to-peak deviation of the television carrier.
The utilised frequency of that waveform shall be 25 Hz.
The energy dispersal waveform shall be applied automatically and produce the
following peak-to-peak deviation of the TV carrier:
- -- In the presence of a modulating signal: 2.0 MHz
- -- In the absence of a modulating signal: 4.0 MHz
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5.2.1.3. PRE-EMPHASIS
The utilised pre-emphasis network shall be that defined in the ITU-R
Recommendation 405-1 (625 lines).
5.2.2. ON-LINE TESTING
In order to enable service performance monitoring while on-line transmission is
present, vertical interval test signals (VITS) shall be inserted on the
transmitted baseband video signal. These signals are based on ITU-R
Recommendation 473-5, as depicted in Figures 5.2.2.1 - 5.2.2.3 and shall
utilise one of the following VITS line modes:
<TABLE>
<CAPTION>
TEST SIGNAL LINE LINE LINE
----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CCIR 17.............. 17 18 19
CCIR 18.............. 18 or 19 or 20
CCIR 330............. 330 331 332
CCIR 331............. 331 332 333
</TABLE>
In addition line 22 shall always be used as a "quiet" line to allow the
measurement of end-to-end signal/noise ratio or for other purposes specified by
SES.
5.2.3. AUDIO SIGNALS
5.2.3.1. AUDIO CHANNEL MODES
The TV carrier shall (normally) be supplemented by a number of audio channels.
The following sections describe the various subcarrier configurations that may
be used for the transmission of audio channels for both TV-related and non
TV-related applications.
Only those subcarriers specified in the Customer's Transponder Agreement shall
be utilised and only subcarrier modulation equipment approved by SES shall be
employed.
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<PAGE> 45
<TABLE>
<CAPTION>
CHARACTERISTICS MEASURED WAVEFORM USED LINE NUMBER
------------------------ ------------- -----------
<S> <C> <C> <C>
Linear distortions
Insertion gain........ B(2) Bar 17 and 330
Amplitude/frequency
response............ C(2) and C(1) Multiburst 18
Line-time waveform
distortion.......... B(2) Bar 17 and 330
Short-time waveform
distortion:
-- step response..... B(2) Bar 17 and 330
-- pulse response.... B(1) 2T 17 and 330
Chrominance-luminance
gain inequality..... B(2) and G(1), Bar & Subcarr. 17 and 330, 331
or G(2) Bar & 20T 17
B(2) and F
Chrominance-luminance
delay inequality.... F 20T 17
Non-linear distortions
Luminance line-time
non-linearity....... D(1) Staircase 17
Chrominance
non-linearity....... G(2) 3Step Subcarr. 331
Luminance-Chrominance
intermodulation:
-- differential
gain........... D(2) Modulated 330
-- differential
phase.......... D(2) and E Staircase 330, 331
Chrominance-luminance
intermodulation..... B(2) and G(1) Bar & Subcarr. 17.331
or G(2)
</TABLE>
Table from CCITT-Rec N. 67
Figure 5.2.2.1 VERTICAL INTERVAL TEST SIGNALS
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[FIGURE 149 A]
[FIGURE 149 B]
Figure 5.2.2.2 VERTICAL INTERVAL TEST SIGNALS
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[FIGURE 150 A]
[FIGURE 150 B]
Figure 5.2.2.3 VERTICAL INTERVAL TEST SIGNALS
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<PAGE> 48
5.2.3.2. SUBCARRIER FREQUENCY
The audio subcarriers shall utilise only the frequencies presented in Table
5.2.3.2.1. and shall only be used in the manner indicated in the column
"Type", and in accordance with Section 5.2.3.1.
<TABLE>
<CAPTION>
TYPE FREQUENCY (MHz)
- ---- ---------------
<S> <C>
Digital Only ..................... 6.12@
Digital Only ..................... 6.30@
Digital Only ..................... 6.48@
Digital Only ..................... 6.66@
Digital Only ..................... 6.84@
TV sound (A:L/M) ................. 7.02
TV sound (A:R/M) ................. 7.20
D or A (L / M) ................... 7.38
D or A (R / M) ................... 7.56
D or A (L / M) ................... 7.74
D or A (R / M) ................... 7.92
Digital Only ..................... 8.10*
Digital Only ..................... 8.28*
Digital Only ..................... 8.46#
Low Speed Data for network control 8.595#
</TABLE>
Table 5.2.3.2.1. SUBCARRIERS FREQUENCIES
A = analogue companded system with Panda(R)-I parameters.
D = digital stereo 192 kbit/s QPSK signal using ISO 11172-3
Layer II parameters.
L = left stereo R = right stereo M = mono
* - Frequency tolerance of plus/minus 0.005 MHz for all subcarriers
@ - As an option, these five subcarriers may be replaced by a single
non-companded analogue subcarrier at 6.50 MHz used for mono TV
sound.
+ - These subcarriers may only be used if subcarriers 7.74 and 7.92 MHz
are digital.
# - In some applications the use of this subcarrier may be restricted
to prevent degradation of the picture quality.
(R) - Panda is a registered trademark of WEGENER Communications Inc.
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<PAGE> 49
5.2.3.3. SUBCARRIER BANDWIDTH
A 130 kHz nominal bandwidth shall be utilised for all the analogue companded or
digital audio subcarriers. In the case of the non-companded mono subcarrier, the
nominal bandwidth of the modulated signal shall be 200 kHz.
5.2.3.4 SUBCARRIER MODULATION INDEX
The modulation index of the subcarrier, BETAsc, is given by the following
expression:
BETAsc = Osc/Fsc
Where Osc is the peak deviation produced by the subcarrier in the TV carrier and
Fsc is the frequency of the subcarrier, both Osc and Fsc being given in MHz.
For the analogue companded subcarriers, a modulation index of 0.15 shall be
utilised. For the digital audio subcarriers, a modulation index of 0.12 shall be
utilised. For the network control subcarrier (8.595 MHz) a modulation index of
0.10 shall be utilised. In the case of the non-companded mono subcarrier a
modulation index of 0.26 shall be utilised.
5.2.3.5. ANALOGUE AUDIO
5.2.3.5.1. ANALOGUE AUDIO DEVIATION
The peak frequency deviation produced by a 9 dBm0 test tone on the analogue
companded subcarriers shall be +/- 50 kHz. In the case of the non-companded mono
subcarrier, a 9 dBm0 test tone shall produce a peak frequency deviation of +/-
85 kHz.
5.2.3.5.2. ANALOGUE AUDIO BANDWIDTH
All the analogue audio channels shall provide an audio baseband ranging from 20
Hz to 15 kHz.
5.2.3.5.3. PRE-EMPHASIS
The analogue companded subcarriers shall utilise 75 us together with an adaptive
pre-emphasis compatible with the WEGENER Communications Panda(R)-1 system. The
pre-emphasis time constant of the non-companded audio subcarrier shall be 50 us.
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<PAGE> 50
5.2.3.6. DIGITAL AUDIO
The digital audio subcarriers shall utilise ISO 11172-3 Layer II coding system
to achieve a CD quality stereo channel and shall conform with the SES document
"ASTRA DIGITAL RADIO (ADR)".
5.2.3.6.1 SAMPLING METHOD
The analogue stereo signal input shall be sampled at a rate of 48 ksamples/s.
Compression based on the ISO 11172-3 Layer II algorithm shall then be performed
to generate a 192 kbit/s digital stereo signal.
5.2.3.6.2. MODULATION METHOD
The digital audio signals shall be modulated using the differential QPSK
method, with a convolutional code of rate 3/4, with constraint length 7. CCITT
V.35 scrambling shall be employed. An appropriate filter mask shall be applied
in the modulator to limit the bandwidth to the same value as for an analogue
companded subcarrier.
5.2.3.6.3. AUXILIARY DATA
The format of any auxiliary data in the ISO 11172-3 Layer II data stream shall
be agreed by SES in writing.
5.2.3.7. NETWORK CONTROL CARRIER
The maximum data rate shall be 14.4 kbit/s using asynchronous FSK modulation.
The modulation index shall be 0.10.
5.2.4. TELETEXT
The Teletext signal shall conform to the specifications for Teletext System B
as defined in ITU-R Recommendation 653, for the case of a 625/50 television
system.
THE VBI (VERTICAL BLANKING INTERVAL) SHALL NOT BE USED FOR TRANSMISSION OF ANY
OTHER TYPE OF INFORMATION OR SIGNAL WITHOUT PREVIOUS AUTHORISATION IN WRITING
FROM SES.
Teletext signals shall only be inserted between lines 7 and 21 inclusive (and
the corresponding lines in the second field) other than on those lines used for
VITS test signals as specified in paragraph 5.2.2 unless specifically approved
in writing by SES.
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<PAGE> 51
6. CHANNEL CODING, MODULATION, MULTIPLEXING AND SOURCE CODING FOR DIGITAL
SERVICES
6.1. GENERAL
Channel coding and modulation equipment shall conform to the following
specifications:
ETS 300 421
Digital broadcasting systems for television, sound and data services;
Framing structure, channel coding and modulation for 11/12 GHz satellite
services.
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
The transmitted RF carrier spectrum shall not be inverted with respect to the
modulator output spectrum. The phase accuracy at the modulator output shall be
plus/minus 2 degrees. The amplitude accuracy at the modulator output shall be
plus/minus 0.2 dB.
6.2. MODULATION
6.2.1. BSS BANDS
The modulation shall be QPSK at a transmission bit rate of 55.0 Mbit/s, in
order to operate with a single carrier at a fixed symbol rate of 27.5 Msym/s.
6.2.2. FSS BANDS
The modulation shall be QPSK at a transmission bit rate of 44.0 Mbit/s, in
order to operate with a single carrier at a fixed symbol rate of 22.0 Msym/s.
6.2.3. EARTH STATION DEGRADATION
The E(o)/N(o) degradation (for the case of FEC 3/4 and BER = 10(-7)) caused by
the earth station equipment shall be less than 0.5 dB. This value shall be
verified in a station loop including baseband, IF and RF equipment of the uplink
and downlink chain.
6.2. CHANNEL CODING
Forward Error Correction (FEC) shall conform to the specifications given in
section 6.1 and shall permit the use of one or more of the following FEC
ratios: 1/2, 2/3, 3/4 or (in the case of FSS 26 MHz bandwidth) 5/6.
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<PAGE> 52
6.4. POWER SPECTRUM DENSITY MASK
6.4.1 BSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.1. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
FREQUENCY OFFSET (+/-) AMPLITUDE
(MHz) (dB)
- --------------------- ---------
<S> <C> [FIGURE 155A]
0 - 19.50 ......... 0.0
19.50 - 29.25 ...... -25.0
>/= 40.00 ......... -40.0 FIGURE 6.4.1 BSS POWER SPECTRUM MASK
</TABLE>
6.4.2. FSS BANDS
To avoid adjacent channel interference, the RF spectrum at the output of the
power amplifier of the earth station shall not exceed the tolerance mask shown
in Fig. 6.4.2. It may be necessary to operate the power amplifier in back-off
mode in order to achieve this specification.
<TABLE>
<CAPTION>
FREQUENCY OFFSET (+/-) AMPLITUDE
(MHz) (dB)
- ---------------------- ---------
<S> <C> [FIGURE 155B]
0 - 14.75 ......... 0.0
14.75 - 22.50 ...... -25.0
>/= 30.00 ......... -40.0 FIGURE 6.4.2 FSS POWER SPECTRUM MASK
</TABLE>
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<PAGE> 53
6.5. MULTIPLEXING
6.5.1. GENERAL
Multiplexing of video, audio, and data signals shall conform to the following
specifications:
ISO/IEC 13818-1
Generic coding of moving pictures and associated audio (Part 1: Systems).
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
6.5.2. TRANSPORT STREAM
The Transport Stream (excluding error correcting code overhead) shall operate at
one of the following bit rates, dependent on the FEC to be used:
<TABLE>
<CAPTION>
FEC RATIO TRANSPORT STREAM BIT RATE
(Mbit/s)
--------- -------------------------
<S> <C> <C>
BSS FSS
1/2 . . . . . . . 25.34 20.27
2/3 . . . . . . . 33.79 27.03
3/4 . . . . . . . 38.01 30.41
5/6 . . . . . . . n.a. 33.79
</TABLE>
6.5.3. SERVICE INFORMATION
Service Information shall conform to the following specifications:
ETS 300 468
Digital broadcasting systems for television, sound and data services;
Specification for Service Information (SI) in Digital Video Broadcasting
(DVB) systems.
ETR 211
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Guidelines on implementation and usage of
service information.
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<PAGE> 54
It is further required to receive the original ASTRA NETWORK INFORMATION TABLE
(NIT) uplinked from Betzdorf and to re-transmit this table in intervals of at
least 10 seconds on each locally uplinked ASTRA transponder.
The last version of the original NIT should be kept in memory. This ensures an
uninterrupted availability of the NIT in case the original NIT cannot be
received.
By means of the local Service Information editing station, the transponder
specific parts of the NIT can be modified/updated at any time.
A MULTIPLEX DIAGNOSTIC TABLE (MDT) has been defined to provide a mechanism for
conveying diagnostic information about the consistency of all multiplexes to the
central Network Operations Centre at Betzdorf.
The local uplinks should generate such MDT in the case a service failure occurs
for longer than 10 seconds, i.e. if a service component (video, audio, subtitle
or accompanied data) or a Service Information component (NIT, SDT, EIT or TDT)
is missing.
This involves that the local encoders signal corresponding failure information
to the local multiplex controller that shall generate the MDT. After the
failure has been eliminated, the local uplink stops transmitting the MDT.
Details on the Multiplex Diagnostic Table concept can be found in Annex 1.
In addition it is recommended that a transmitted SERVICE DESCRIPTION TABLE (SDT)
includes the service information about all services on the respective
transponder on which it is transmitted, and that an EVENT INFORMATION TABLE
(EIT) includes the event information about all present and following events for
all services on the respective transponder.
6.6. SOURCE CODING
Source coding of video and audio signals shall conform to the following
specifications:
ISO/IEC 13818-2/-3
Generic coding of moving pictures and associated audio (Part 2: Video and
Part 3: Audio).
ETR 154
Digital broadcasting systems for television; Implementation guidelines for
the use of MPEG-2 systems; Video and audio in satellite and cable
broadcasting applications.
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<PAGE> 55
7. ASTRA SATELLITE INFORMATION
7.1. ASTRA 1 SERIES
Presently, there are six ASTRA satellites (ASTRA 1A to 1F) at the orbital
position of 19.2 degrees East. In the middle of 1997, ASTRA 1G will be added to
fill the available frequency spectrum at 19.2 degrees East. ASTRA 1G is SES'
seventh satellite to be co-positioned at 19.2 degrees East. Adding 16
transponders, the spacecraft will increase the digital transmission capacity on
that position to 120 transponders.
The eight satellite at the 19.2 degrees East orbital position, ASTRA 1H will be
launched to provide backup capability for the other satellites at that position.
7.1.1 ASTRA 1 TRANSPONDER FREQUENCY PLAN
Figures 7.1.a. to 7.1.g. present the ASTRA 1 satellite system frequency plans.
All transponders are linearly polarised, utilising the polarisation scheme
presented in Table 7.1. The two polarisations are orthogonal to each other and
the horizontal polarisation has a counter-clockwise rotation of 7.5 degrees
relative to the orbit plane, as viewed from the satellite.
<TABLE>
<CAPTION>
Transponder Uplink Downlink
----------- ------ ----------
<S> <C> <C>
Odd.................... Vertical Horizontal
Even................... Horizontal Vertical
</TABLE>
All the ASTRA 1 satellites provide four different downlink coverage modes, as
detailed in Tables 7.1.a to 7.1.b. These four modes provide different coverage,
concentrating more downlink power in different regions of Europe.
<TABLE>
<CAPTION>
SATELLITE ASTRA 1A ASTRA 1B ASTRA 1C ASTRA 1D
- --------- -------- --------- -------- --------
MODE TRANSPONDER
- --------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Horizontal 1....... 1, 5, 9, 13 17, 21, 25, 29 33, 37, 41, 45 49, 53, 57, 61
Horizontal 2....... 3, 7, 11, 15 19, 23, 27, 31 35, 39, 43, 47, 63 51, 55, 59, 63
Vertical 1......... 4, 8, 12, 16 20, 24, 28, 32 36, 40, 44, 48, 64 52, 56, 60, 64
Vertical 2......... 2, 6, 10, 14 18, 22, 26, 30 34, 38, 42, 46 50, 54, 58, 62
</TABLE>
Table 7.1.a. - ASTRA 1A to 1D DOWNLINK
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<TABLE>
<CAPTION>
SATELLITE ASTRA 1E ASTRA 1F ASTRA 1G
- --------- ------------------ ------------------------ ------------------
MODE TRANSPONDER
- --------- ----------------------------------------------------------------------
<S> <C> <C> <C>
Horizontal + ........ 65, 69, 73, 77, 81 85, 89, 93, 97, 101 105, 109, 113, 117
Horizontal - ........ 67, 71, 75, 79 83, 87, 91, 95, 99, 103 107, 111, 115, 119
Vertical - .......... 68, 72, 76, 80 84, 88, 92, 96, 100, 104 108, 112, 116, 120
Vertical + .......... 66, 70, 74, 78, 82 86, 90, 94, 98, 102 106, 110, 114, 118
</TABLE>
TABLE 7.1.b. -- ASTRA 1E TO 1G DOWNLINK
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<PAGE> 57
[FIGURE 160]
FIGURE 7.1 A A-BAND FREQUENCY PLAN
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[FIGURE 161]
FIGURE 7.1 B B-BAND FREQUENCY PLAN
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[FIGURE 162]
FIGURE 7.1 C C-BAND FREQUENCY PLAN
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[FIGURE 163]
FIGURE 7.1 D D-BAND FREQUENCY PLAN
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[FIGURE 164]
FIGURE 7.1 E E-BAND FREQUENCY PLAN
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[FIGURE 165]
FIGURE 7.1 F F-BAND FREQUENCY PLAN
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[FIGURE 166]
FIGURE 7.1 G G-BAND FREQUENCY PLAN
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7.2. ASTRA 2 SERIES
As of autumn 1997, a second orbital position at 28.2 degrees East will be
activated with the deployment of ASTRA 2A. A second satellite, ASTRA 2B, will be
co-located at 28.2 degrees East in late 1998.
ASTRA 2A will have 28 active Ku-band transponders (32 for the first five years)
operating in the Broadcast Satellite Services frequency band (11.70 - 12.50
GHz), powered by 100 Watt travelling-wave tube amplifiers.
ASTRA 2B will provide up to 28 highpower Ku-band transponders (30 for the first
five years) with an output of 108 Watt each. All transponders can operate over
Europe and a steerable antenna offers the capability for up to 16 transponders
in 12.50 - 12.75 GHz frequency range to be activated within any area of the
earth visible from 28.2 degrees East.
Co-located at 28.2 degrees East, the two spacecraft will provide SES with a
total of 56 transponders in the frequency range 11.70 - 12.75 GHz for digital
broadcast at the second ASTRA orbital position.
7.2.1. ASTRA 2 TRANSPONDER FREQUENCY PLAN
Figures 7.2.a. and 7.2.b. present the ASTRA 2 satellite frequency plans. All
transponders are linearly polarised, utilising the polarisation scheme presented
in Table 7.2. The two polarisations are orthogonal to each other and the
horizontal polarisation has a counter-clockwise rotation of 7.5 degrees relative
to the orbit plane, as viewed from the satellite.
<TABLE>
<CAPTION>
TRANSPONDER UPLINK DOWNLINK
----------- ------ --------
<S> <C> <C>
Odd Vertical Horizontal
Even Horizontal Vertical
</TABLE>
Table 7.2. - ASTRA 2 TRANSPONDER POLARISATION SCHEME
All the ASTRA 2 satellites provide different downlink coverage modes, as
detailed in Table 7.2.a These four modes provide different coverage,
concentrating more downlink power in different regions of Europe.
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<TABLE>
<CAPTION>
SATELLITE ASTRA 2A ASTRA 2B
- --------------------- -------------------------- ------------------------
TRANSPONDER
---------------------------------------------------
Pol. Beam E-Band F-Band F-Band G-Band
- ---------- ------- -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Horizontal.... South 1,5,9,13,17 21,25 29,33,37 41,45,49,53
Horizontal.... North 3,7,11,15 19,23,27 31,35,39 43,47,51,55
Vertical...... South 2,6,10,14,18 22,26 30,34,38 42,46,50,54
Vertical...... North 4,8,12,16 20,24,28 32,36,40 44,48,52,56
</TABLE>
Table 7.2.a.-ASTRA 2A and 2B DOWNLINK
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[FIGURE 169]
FIGURE 7.2 A ASTRA 2A FREQUENCY PLAN
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[FIGURE 170]
FIGURE 7.2 B ASTRA 2B FREQUENCY PLAN
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8. ORBITAL POSITION/STATION KEEPING
The nominal orbital position of the ASTRA 1 satellites is 19.2 degrees East.
The orbital position of the ASTRA 2 satellites is 28.2 degrees East.
Under normal operating conditions SES will maintain the ASTRA satellites within
the following station-keeping box:
+/-0.10 degrees North/South
+/-0.10 degrees East/West
9. BEACON INFORMATION
The following table shows the beacon frequencies (MHz) for the different
spacecraft:
<TABLE>
<CAPTION>
VERTICAL HORIZONTAL
-------- ----------
<S> <C> <C>
ASTRA 1A.................................. 11203.0 11446.5
ASTRA 1B.................................. 11453.5 11696.5
ASTRA 1C.................................. 11451.0 11448.5
ASTRA 1D.................................. 11454.0 11447.5
ASTRA 1E.................................. 11202.0 10948.5
ASTRA 1F.................................. 11201.0 10946.5
ASTRA 1G.................................. 11701.0 11699.0
ASTRA 1H.................................. 11707.0 11693.5
ASTRA 2A.................................. 11706.0 11694.5
ASTRA 2B.................................. 11708.0
11710.0
</TABLE>
Table 9.1 BEACON FREQUENCIES (MHz)
At least one beacon will always be operational per spacecraft.
The beacon frequency stability is 1 ppm per day. Under normal operating
conditions the minimum beacon e.i.r.p. on any spacecraft shall be 16 dBW. For
the design of suitable tracking antenna systems, the following information
regarding the appropriate ASTRA ranging and telemetry characteristics shall be
used as a baseline.
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9.1. ASTRA 1A AND ASTRA 1B BEACON DETAILS
The following characteristics apply to both ASTRA 1A and ASTRA 1B.
PCM Telemetry: Phase modulation of beacon carrier by PCM (Biphase L)
telemetry to a peak deviation of 1.0+/-0.1 radians. Data
rate is 1 kbits/s.
Analog Telemetry: Phase modulation of beacon carrier by frequency modulated
14.5 kHz subcarrier to a peak deviation of 1.0+/-0.1
radians.
Ranging: Phase modulation of beacon carrier by ranging signals at
19 kHz or 27.777 kHz to a peak deviation of 1.0+/-0.1
radians.
Ranging + PCM Phase modulation of beacon carrier by composite ranging
Telemetry signals at 19 kHz or 27.777 kHz together with PCM telemetry
data signal to a peak deviation of 1.0+/-0.1 radians. In
absence of ranging signals, the deviation of PCM data alone
is 0.5+/-0.05 radians.
There are four ranging tones. The first three ranging tones at 35.43 Hz, 283.45
Hz and 3968.25 Hz serially frequency modulate the 19 kHz subcarrier. The fourth
ranging tone is at 27.777 kHz.
9.2. ASTRA 1C, 1D, 1E, 1F, 1G, 1H AND 2A BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 1C, 1D, 1E, 1F, 1G,
1H and 2A.
During PCM-mode, the beacon is phase modulated (PM) by a telemetry subcarrier
with a subcarrier frequency of 32 kHz and a modulation index of 1.25+/-0.15
radians. The subcarrier is biphase modulated by telemetry data.
During range mode, the 32 kHz subcarrier is switched off and the beacon is phase
modulated by sequences of 4 ranging tones with a modulation index of 1.00+/-0.15
radians.
9.4. ASTRA 2B BEACON DETAILS
The following characteristics apply to the beacons on ASTRA 2B.
During PCM mode, the beacon is phase modulated (PM) by a telemetry subcarrier
with a subcarrier frequency of 32 kHz and a peak modulation index of 1.5
radians. The subcarrier is coherent PSK modulated by telemetry data.
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During ranging mode, the 32 kHz subcarrier is switched off and the beacon is
phase modulated by a ranging tone, which itself is modulated by an ambiguity
resolution code. The peak modulation index during ranging is 0.7 radians.
During simultaneous PCM and ranging on the TM downlink signal, the
PCM-modulated 32 kHz subcarrier and ranging tone are combined into one baseband
signal, which modulates the main carrier with max. effective modulation indices
of 1.4 radians for the PCM-signal and 0.4 radians for the ranging tone.
- --------------------------------------------------------------------------------
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ANNEX 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and of Service Information
tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined. This system will serve
for conveying diagnostic information about the consistency of all DVB/MPEG-2
multiplexes on ASTRA to the central Digital Network Operations Centre (DINO) of
Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment modules and should generate an MDT in the case a service failure
occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams can
be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle will be applied e.g. by the special monitor IRDs of the DINO
which can not only receive and extract incoming MDTs from the multiplexes but
also can generate MDTs in the case e.g. Service Information components are
missing. All MDTs are being fed via the ASTRA Service Information Update System
(ASIUS) into the Service Availability System (SAS) of the Digital Network
Operations Centre. Upon reception of an MDT an alert is initiated by the DINO
computer system which then enables the operator to act appropriately based on
detailed transponder specific diagnostic information provided together with the
alert message.
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3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in transport stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
multiplex diagnostic section ( )[
table id 8 uimsbf
section syntax indicator 1 bslbf
SES reserved 1 bslbf
ISO reserved 2 bslbf
section length 12 uimsbf
transport stream id 16 uimsbf
original network id 16 uimsbf
MDT version number 4 uimsbf
Fault source 12 uimsbf
Fault type 16 uimsbf
for (l=0;i<N;i++)[
Fault major 16 uimsbf
Fault minor 16 uimsbf
]
TABLE ID = 0XB0
SECTION SYNTAX INDICATOR = 0
SES RESERVED = 1
SECTION LENGTH: This is a 12 bit field, the first two bits of which shall be
"00". It specified the number of bytes of the section, starting immediately
following the section length field. The section length shall not exceed
181 bytes so that the entire section has a maximum length of 184 bytes.
TRANSPORT STREAM ID: This is a 16 fit field which serves as a label to identify
the transport stream where the error or warning has occurred.
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ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
net work id of the originating delivery system of the transport stream where the
error or warning has occurred.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with the transport stream id and the
original network id, identifies the origin of the failure. Fault source values
can be defined by the operator of the transport stream within the ranges defined
in Table 1.
FAULT TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type, the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these codes.
In case of missing components of a service (Fault type = 0x0100) the Fault major
code is equal to the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as described
in Table 3. In that case the service id of the service comprising the missing
component is defined in the Fault major field and the missing component is
defined in the Fault minor field.
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TABLE 1: FAULT SOURCE
<TABLE>
<CAPTION>
FAULT SOURCE RANGE DESCRIPTION
------------------ -----------
<S> <C>
0x0000 Undefined
0x0001,...,0x0064 SI-editing & controller
0x0065,...,0x01F4 Audio encoder
0x01F5,...,0x0226 Video encoder
0x0227,...,0x03B6 Data inserter
0x03B7,...,0x03E8 CA system
0x03E9,...,0x041A Multiplexer
0x041B,...,0x044C Re-multiplexer
0x044D,...,0x047E Modulator
0x047F,...,0x060E Decoder
0x060F,...,0x0640 Network termination
0x0641,...,0x0A00 ASTRA reserved
0x0A01,...,0x0FFF User defined
</TABLE>
TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
FAULT TYPE DESCRIPTION
---------- -----------
<S> <C>
0x0000 Undefined
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0100 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
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TABLE 3: FAULT MINOR CODES FOR FAULT TYPE VALUE = 0x0100 (COMPONENT MISSING)
(Fault major specifies the service id of the service with missing components.)
<TABLE>
<CAPTION>
Fault minor
if Fault type = 0x0100 DESCRIPTION
---------------------- -------------------------------
<S> <C>
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
</TABLE>
TABLE 4: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0002 (SDT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0002 (SDT missing) DESCRIPTION
------------------------------------ ------------------
<S> <C>
0x0001 DVB-SI SDT missing
Other values ASTRA reserved
</TABLE>
TABLE 5: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0004 (EIT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0004 (EIT missing) DESCRIPTION
------------------------------------ ------------------
<S> <C>
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
</TABLE>
- -------------------------------------------------------------------------------
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[ASTRA LOGO]
ASTRA SERVICE INFORMATION
UPDATE SYSTEM
(ASIUS)
TECHNICAL DESCRIPTION
SES-ASIUS CONFIDENTIAL
SYE-045/12-96
06 DECEMBER 1996
0
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1 INTRODUCTION.......................................................... 2
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM................ 2
3 FUNCTIONAL FEATURES OF ASIUS.......................................... 5
3.1 SI Data Structures considered by ASIUS........................... 5
3.1.1 Network Information Table (NIT)........................... 5
3.1.2 Service Description Table (SDT)........................... 5
3.1.3 Multiplex Diagnostic Table (MDT).......................... 9
3.2 SI Data Acquisition.............................................. 9
3.3 SI Data Processing............................................... 10
3.4 SI Data Distribution............................................. 10
4 GLOSSARY.............................................................. 12
5 REFERENCES............................................................ 13
ANNEX 1............................................................... 14
</TABLE>
SES - ASIUS CONFIDENTIAL
SYE-045/12-6
06 DECEMBER 1996
1
<PAGE> 78
1 INTRODUCTION
Service information (SI) systems for Digital Video Broadcast are considered by
broadcasters and also by network operators as one of the crucial elements in
digital transmission of video, audio and data signals. With the plethora of
services being available in the digital age, an effective means of guiding
consumers around the various services on offer is an essential pre-requisite of
any consumer oriented digital transmission and reception system. Beyond
informing about the available services, there is also a need to allow for the
quick acquisition of any service that can be received.
Based on the DVB SI specification Societe Europeenne des Satellites (SES) has
developed the ASTRA Service Information Update System (ASIUS) for providing
tuning information and also for informing the digital IRDs about all services on
the ASTRA network. In addition ASIUS monitors the Service Information on all
transponders, checks the presence and the correctness of this data and provides
also diagnostics information on the consistency of the multiplexes.
2 CONCEPT OF THE ASTRA SERVICE INFORMATION UPDATE SYSTEM
The ASTRA Service Information Update System (ASIUS) is an application of the DVB
Service Information specification as standardised in ETS 300468/1/ and may serve
the Digital Satellite IRD to quickly tune to the receivable services on ASTRA.
It also enables the presentation of services and broadcasters in a convenient
way to the consumer.
This is achieved by compiling and transmitting an ASTRA Network Information
Table (ASTRA NIT) providing tuning information as well as an ASTRA Service
Description Table (ASTRA SDT) containing information about all services on all
transponders on the ASTRA network. Thus the IRD is enabled to present the names
of all services on ASTRA, the names of all corresponding broadcasters (service
providers) and the service types such as TV, Radio, Teletext or data services,
without having to tune to each transponder.
The concept for the ASIUS involves the transmission of the ASTRA NIT on each
transponder. This NIT conveys information about the physical parameters of all
multiplexes on ASTRA (frequency, symbol rate, etc.) as well as the information
about the network itself (ID, name, satellite position).
Furthermore, the concept involves the transmission of the ASTRA SDT on two ASTRA
Service Information channels (Barker Channels), one with horizontal and one with
vertical polarization.
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As it is the objective to provide up-to-date network information and service
description data about all transponders on ASTRA, a concept for an automatic
updating of the ASTRA NIT/SDT has been developed, considering all updates from
the Betzdorf earth station as well as the remote uplinks.
The ASTRA NIT is mainly under the administration of SES (network operator)
except for parts as e.g. the Forward Error Correction (FEC) scheme which may be
adjusted by the remote uplink operators.
The multiplex specific SDTs are under the administration of the broadcasters.
ASIUS receives the SDTs transmitted on all transponders, extracts those parts
directly related to each respective transponder and compiles an ASTRA SDT with
service description information (e.g. service names, service providers,
service types) about all services on ASTRA.
[FIGURE 182]
Figure 1: Transmission and updating of ASTRA NIT and SDT tables
SES-ASIUS CONFIDENTIAL
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06 December 1996
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<PAGE> 80
The process of updating the ASTRA NIT and ASTRA SDT is illustrated in Figure 1.
The process involves the following steps:
1. The ASTRA NIT can be received at all remote uplink sections outside
Betzdorf and can then be inserted into the remotely uplinked multiplexes.
The ASTRA SDT is transmitted on two transponders (one with horizontal, one
with vertical polarization) from Betzdorf and therefore does not have to be
received/inserted at the remote uplinks.
2. Any remote uplink operator can at any time update the information in the
NIT related to his remote uplink (i.e. change the FEC scheme of his
transponder and/or add a service list descriptor) and/or the corresponding
service description data in the SDT and insert the data into the remote
multiplex.
3. At Betzdorf, the NIT/SDT processing system performs the following tasks:
a) receive all Transport Streams of ASTRA,
b) extract those parts of the NITs and SDTs which have been altered by
the remote uplinks,
c) compile this update information to generate new versions of the
ASTRA NIT and SDT,
d) insert the updated ASTRA NIT into all multiplexes uplinked from
Betzdorf,
e) insert the updated ASTRA SDT into the multiplexes carrying the
ASTRA Service Information channels.
4. The remote uplinks again can receive this updated ASTRA NIT and insert the
data into the remotely uplinked multiplexes.
After step 3, a complete update process of the ASTRA NIT and ASTRA SDT is
performed. The update process is continuously repeated. Thus, all remotely
mastered updates are almost immediately available in the ASTRA NIT/SDT.
The update process for the ASTRA NIT/SDT is stable since for each part of the
data there is only one master uplink assigned which is allowed to edit updates.
Other uplinks are slaves concerning the data mastered by a specific up-link
operator and therefore only insert the received updated data into their own
remote up-link.
The interconnection between ASIUS and other equipment of the Digital Network
Operations Centre (DINO) at Betzdorf is illustrated in Figure 2.
SES-ASIUS
SYE-045/12-96 CONFIDENTIAL
06 DECEMBER 1996
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3. FUNCTIONAL FEATURES OF ASIUS
3.1 SI DATA STRUCTURES CONSIDERED BY ASIUS
Regarding the various tables defined by MPEG-2 and by the DVB project, there are
only a few relevant for the ASIUS. These are the Network Information Table, the
Service Description Table, the Event Information Table (EIT), and the Time and
Date Table (TDT).
3.1.1 NETWORK INFORMATION TABLE (NIT)
The structure of the Network Information Table is presented in Figure 3. The
ASTRA NIT is divided in sections according to the MPEG-2 syntax. Each section
includes a loop over network related descriptors which is used for conveying the
network name descriptor and the linkage descriptors to the ASTRA Service
Information channel.
For each transport stream the NIT contains a loop over transport stream related
descriptors including the satellite delivery system descriptor with information
such as frequency, polarisation, modulation, symbol rate and FEC scheme.
Conveying an optional service list descriptor in that loop of the NIT is not
considered by ASIUS.
3.1.2 ASTRA SERVICE DESCRIPTION TABLE (SDT)
The structure of the Service Description Table is illustrated in Figure 4. The
ASTRA SDT is also divided into sections according to the MPEG-2 syntax. For each
Transport Stream at least one section with service description data is
transmitted. All SDT sections include a loop over all services on the
corresponding Transport Stream. For each service a loop of descriptors including
service descriptor and country availability descriptor is conveyed.
NVOD reference descriptor and time shifted service descriptor are also
considered by ASIUS. In order to identify the actual Transport Stream on which
Service Information is received and thus to identify the relevant SI parts that
have been updated at a remote uplink, the corresponding transports stream id can
be found in each header of a service description section for the actual
Transport Stream/1/.
SES - ASIUS
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[FIGURE 185]
Figure 2: Interconnection between ASIUS and the Digital NOC
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<TABLE>
<CAPTION>
NETWORK INFORMATION TABLE (NIT)
----------------------------------------------------------------------------
ACTUAL NETWORK OTHER NETWORK
-------------------------------------------------------- -------------
SECTION 1 SECTION 2 SECTION 3
--------- --------- ---------
<S> <C> <C> <C>
network id
section number
FOR I = 0 ... N NETWORK DESCRIPTORS
network name descriptor
linkage descriptor
FOR I = 0 ... N TRANSPORT STREAMS
transport stream id
original network id
FOR I = 0 ... N TRANSPORT
DESCRIPTORS
deliverysy stem descriptor
</TABLE>
Figure 3: Structure of the Network Information Table
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Service Description Table (SDT)
actual transport stream other
transport
stream
transport stream 1 transport ...
stream 2
section 1 section 2 section 3
transport stream id
section number
original network id
for I = 0 ... N services
service id
scrambling yes/no
for I = 0 ...N descriptors
service descriptor
country availability descriptor
NVOD reference descriptor
time shifted service descriptor
Figure 4: Structure of the Service Description Table
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3.1.3. MULTIPLEX DIAGNOSTIC TABLE (MDT)
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and of Service Information
tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined by SES. This system is
serving for conveying diagnostic information about the consistency of all
DVB/MPEG-2 multiplexes on ASTRA to the central DINO in Betzdorf.
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment modules and should generate an MDT in the case a service failure
occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams can
be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which can
not only receive and extract incoming MDTs from the multiplexes but also can
generate MDTs in case e.g. Service Information components are missing. All MDTs
are being fed via the ASIUS into the Service Availability System (SAS) of the
Digital Network Operations Centre. Upon reception of an MDT an alert is
initiated by the DINO computer system which then enables the operator to act
appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
Details about the MDT concept can be found in Annex 1.
3.2 SI DATA ACQUISITION
The ASTRA Service Information Update System in Betzdorf includes the reception
of all Transport Streams of the ASTRA Satellite System. From these Transport
Streams the relevant SI is extracted and passed over to the ASIUS processing
station. This includes the NIT for the actual network (ASTRA) and the SDT for
the actual Transport Stream. If a MDT has been received (which occurs only in
case of a failure), it will also be transferred
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<PAGE> 86
to ASIUS.
The following processing steps have been implemented in ASIUS for the SI data
acquisition:
1. Reception of the DVB/MPEG-2 Transport Streams from all ASTRA transponders.
2. Extraction of all transponders SI data (NIT, MDT, SDT, EIT, TDT). By means
of the version number mechanism provided in each section syntax, the IRD
considers only the updated parts of this data.
3. Transmission of all the updates from the IRDs to ASIUS. The IRDs
furthermore monitor the availability of the NIT, SDT, EIT and TDT (Time and
Date Table) in each Transport Stream and shall generate a Multiplex
Diagnostic Table and transmit it to the ASIUS processor, if a failure is
detected.
3.3 SI DATA PROCESSING AND MONITORING
After having received an update the ASIUS compiles a new version of the ASTRA
NIT and ASTRA SDT. Since the system has immediate access to all SI data on the
ASTRA network it monitors the presence, correctness, and also the consistency of
the SI data. In case of an erroneous situation an alarm is triggered and the
operators in the DINO are informed.
3.4 SI DATA DISTRIBUTION
After the compilation of the received SI data by the ASIUS processor, the
updated ASTRA NIT is transmitted on all transponder uplinked from Betzdorf. The
ASTRA SDT is inserted into the two transponders which contain the ASTRA Service
Information channel. In addition a linkage descriptor is inserted in the ASTRA
NIT, which is available on all transponders. This descriptor points to
transport stream ids and service ids of the ASTRA Service Information channels.
If the consumer wants to have access to the ASTRA SDT and IRD will read the
linkage descriptor and tune to one of the corresponding transponders. After the
reading of the ASTRA SDT all services available on the ASTRA Satellite System
could be displayed. It is however assumed that certain filter mechanisms would
be applied to the data before displaying the information in a consumer friendly
way. More details on the functionality of the ASTRA Service Information channel
are described in SES' 'Technical Recommendations for Digital IRDs'/2/. A flow
chart of the access functionality for the ASTRA SDT is depicted in Figure 5.
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[FIGURE 190]
Figure 5: Example of the access functionality for the ASTRA SDT
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4 GLOSSARY
ASIUS ASTRA Service Information Update System
DNO Digital Network Operation Centre
DVB Digital Video Broadcasting
D/H Direct-to-Home satellite transmission
FEC Forward Error Correction
IRD Integrated Receiver Decoder
MDT Multiplex Diagnostic Table
NIT Network Information Table
NOC Network Operation Centre
NVOD Near-Video-On-Demand
SDT Service Description Table
SES Societe Europeenne des Satellites
SI Service Information
SMATV Satellite Master Antenna Television
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<PAGE> 89
5 REFERENCES
/1/ ETS 300 468 "Digital broadcasting systems for television, sound and data
services; specification for Service Information (SI) in Digital Video
Broadcasting (DVB) Systems"
/2/ "Technical Recommendations for Digital Integrated Receiver Decoders",
SES
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<PAGE> 90
ANNEX 1
SOCIETE EUROPEENNE DES SATELLITES
TECHNICAL DEPARTMENT
MULTIPLEX DIAGNOSTIC TABLE (MDT)
1 INTRODUCTION
In a digital broadcast environment with a multitude of services there is a need
for highly automated means to monitor and subsequently to provide information
(e.g. failure messages) about the availability of services as well as of service
components such as video, audio and subtitling and of Service Information
tables.
In order to support the detection of service failures, to provide information
for remedial measures and to efficiently log such events, a transport mechanism,
the Multiplex Diagnostic Table (MDT) has been defined. This system is serving
for conveying diagnostic information about the consistency of all DVB/MPEG-2
multiplexes on ASTRA to the central Digital Network Operations Centre (DINO) of
Societe Europeenne des Satellites (SES).
2 FUNCTIONALITY
MDTs can be generated at any point in the transmission chain to signal missing
streams (e.g. video, audio, subtitle or accompanied data) or Service Information
components (e.g. NIT, SDT, EIT or TDT) within a multiplex. As the underlying
concept of the MDT system is to detect and signal failures at the point where
they are generated, the system supervisor of the DVB/MPEG-2 encoding,
multiplexing and modulation equipment should monitor the correct functioning of
all equipment modules and should generate an MDT in the case a service failure
occurs for longer than 10 seconds.
MDTs shall then be periodically transmitted every 10 seconds until the failure
is fixed. In addition to faulty equipment modules also missing input streams can
be identified by subsequent modules in the transmission chain which then
generate corresponding MDTs.
This principle is applied e.g. by the special monitor IRDs of the DINO which can
not only receive and extract incoming MDTs from the multiplexes but also can
generate MDTs in the case e.g. Service Information components are missing. All
MDTs are being fed via the ASTRA Service Information Update System (ASIUS) into
the Service Availability System (SAS) of the Digital Network Operations Centre.
Upon reception of an MDT an alert is initiated by the DINO computer system which
then enables the operator to act
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<PAGE> 91
appropriately based on detailed transponder specific diagnostic information
provided together with the alert message.
3 SYNTAX OF THE MULTIPLEX DIAGNOSTIC TABLE (MDT)
The syntax of the MDT is conforming to the one defined in the standard ISO/IEC
13818-1 for the definition of private sections.
As defined in that standard, private data may be sent in Transport Stream
packets with PID not listed in the Program Map Table sections.
Therefore, Multiplex Diagnostic Tables shall be carried on PID 0x1FFD using the
normal payload unit start indicator/pointer field mechanism described in the
standard ISO/IEC 13818-1. This PID shall not be used for any other purpose on
the ASTRA Satellite Network. A MDT must be inserted in maximum one Transport
Stream Packet resulting in a maximum table size of 184 bytes.
<TABLE>
<S> <C>
multiplex diagnostic section(){
table id 8 uimsbf
section syntax indicator 1 bslbf
SES reserved 1 bslbf
ISO reserved 2 bslbf
section length 12 uimsbf
transport stream id 16 uimsbf
original network id 16 uimsbf
MDT version number 4 uimsbf
Fault source 12 uimsbf
Fault type 16 uimsbf
for (I=0<N;i++){
Fault major 16 uimsbf
Fault minor 16 uimsbf
}
</TABLE>
TABLE ID = 0XB0
SECTION SYNTAX INDICATOR = 0
SES RESERVED = 1
SECTION LENGTH: This is a 12 bit field, the first two bits of which shall be
"00". It specifies the number of bytes of the section, starting immediately
following the section length field. The section length shall not exceed 181
bytes so that the entire section has a maximum length of 184 bytes.
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TRANSPORT STREAM ID: This is a 16 bit field which serves as a label to identify
the Transport Stream where the error or warning has occurred.
ORIGINAL NETWORK ID: This 16 bit field gives the label identifying the
network id of the originating delivery system of the Transport Stream where the
error or warning has occurred.
MDT VERSION NUMBER: This 4 bit field identifies the version number of the MDT
structure. Currently, the MDT version number shall be set to "0".
FAULT SOURCE: This is a code that, together with the transport stream id and the
original network id, identifies the origin of the failure. Fault source values
can be defined by the operator of the Transport Stream within the ranges defined
in Table 1.
FAULT TYPE: This 16 bit field identifies the basic type of errors or warnings.
Only values described in Table 2 are defined. In every MDT section only one
Fault type shall be listed resulting in only one basic type of error or warning
per MDT.
FAULT MAJOR: This 16 bit field provides more detailed information about the
errors or warnings as defined by the Fault type. Depending on the value of the
Fault type. the Fault major has different meanings. Currently, only the values
given in Table 4 and 5 are defined. If for a Fault type no Fault major code is
defined, the loop within the MDT shall be empty. If for a Fault type several
Fault major codes are defined the loop may contain more than one of these codes.
In case of missing components of a service (Fault type = 0x0100) the Fault major
code is equal to the service id of this service.
FAULT MINOR: This field provides additional information about the error or
warning as described by the combination of Fault type and Fault major. If no
Fault minor code is defined for a Fault major code, the Fault minor field shall
be present and all bits shall be set to "1". For the time being Fault minor is
only defined for Fault type = 0x0100 (Component of service missing) as
described in Table 3. In that case the service id of the service comprising the
missing component is defined in the Fault major field and the missing component
is defined in the Fault minor field.
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<PAGE> 93
TABLE 1: FAULT SOURCE
<TABLE>
<CAPTION>
Fault source range Description
------------------ -----------
<S> <C>
0x0000 ....................... Undefined
0x0001,...,0x0064 ............ SI-editing & controller
0x0065,...,0x01F4 ............ Audio encoder
0x01F5,...,0x0226 ............ Video encoder
0x0227,...,0x03B6 ............ Data inserter
0x03B7,...,0x03E8 ............ CA system
0x03E9,...,0x041A ............ Multiplexer
0x041B,...,0x044C ............ Re-multiplexer
0x044D,...,0x047E ............ Modulator
0x047F,...,0x060E ............ Decoder
0x060F,...,0x0640 ............ Network termination
0x0641,...,0x0A00 ............ ASTRA reserved
0x0A01,...,0x0FFF ............ User defined
</TABLE>
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<PAGE> 94
TABLE 2: FAULT TYPE
<TABLE>
<CAPTION>
Fault type
if Fault type = 0x0100 Description
- ---------------------- -----------
<S> <C>
0x0000 Undefined
0x0001 NIT missing
0x0002 SDT missing
0x0004 EIT missing
0x0008 TDT missing
0x0009 PAT missing
0x000A CAT missing
0x0100 Component of service missing
Other fault type <= 0x0800 ASTRA reserved
Fault type > 0x0800 User defined
</TABLE>
TABLE 3: FAULT MINOR CODES FOR FAULT TYPE VALUE = 0x0100 (COMPONENT MISSING)
(Fault major specifies the service id of the service with missing components.)
<TABLE>
<CAPTION>
Fault minor Description
----------- -----------
<S> <C>
0x0001 Video component missing
0x0002 Audio component missing
0x0004 EBU Teletext subtitles missing
0x0008 Associated EBU Teletext missing
0x0010 Data component missing
0x0020 DVB subtitling missing
0x0040 PMT missing
Other values ASTRA reserved
</TABLE>
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<PAGE> 95
TABLE 4: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0002 (SDT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0002 (SDT missing) Description
------------------------------------ ------------------
<S> <C>
0x0001 DVB-SI SDT missing
Other values ASTRA reserves
</TABLE>
TABLE 5: FAULT MAJOR CODES FOR FAULT TYPE VALUE = 0x0004 (EIT MISSING)
<TABLE>
<CAPTION>
Fault major
if Fault type = 0x0004 (EIT missing) Description
------------------------------------ ------------------
<S> <C>
0x0001 DVB-SI EIT missing
Other values ASTRA reserved
</TABLE>
The information and data contained herein are subject to change.
Societe Europeenne des Satellites S.A.
L-6815 Chateau de Betzdorf, Luxembourg
Tel.: (352) 71 07 25-1, Fax: (352) 71 07 25-548
SES-ASIUS CONFIDENTIAL
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<PAGE> 1
Exhibit 10.22
ASSIGNMENT AND ASSUMPTION AGREEMENT ("AGREEMENT"), effective as of June 23,
1997 ("Effective Date"), between Poland Communications, Inc. ("PCT"), a New York
corporation with offices at c/o Chase Enterprises, One Commercial Plaza,
Hartford, Connecticut 06103 and @Entertainment, Inc. ("Entertainment"), a
Delaware corporation with offices at c/o Chase Enterprises, One Commercial
Plaza, Hartford, Connecticut 06103.
WHEREAS, PCI and _________________ ("Employee") are parties to that
certain Employment Agreement (the "Employment Agreement") effective
as of ________________;
WHEREAS, effective June 22, 1997, PCI, as part of a reorganization of its
corporate structure, became a subsidiary of Entertainment through a contribution
of shares from shareholders of PCI;
WHEREAS, in connection therewith, Entertainment will assume certain duties
formerly performed by PCI, including the employment of certain employees of PCI,
including Employee;
NOW THEREFORE, for the consideration of One Dollar ($1.00), and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
1. PCI hereby assigns to Entertainment all of its right, title and interest as
employer, (defined as "the Company") in the Employment.
2. Entertainment hereby assumes and agrees to perform all the obligations and
responsibilities of PCI as the employer under the Employment Agreement and
agrees to be bound by all the provisions of the Employment Agreement.
Employee shall become and be considered an employee of Entertainment.
3. Entertainment indemnifies and agrees to hold PCI harmless from and against
any and all claims made, suits commenced or judgments entered arising out
of or in connection with the Employment Agreement and its employment of
Employee.
4. This Agreement is binding upon PCI, Entertainment and Employee, and their
respective heirs, successors, executors, administrators, personal
representatives and assigns.
5. This Agreement may be executed in several counterparts but the counterparts
shall constitute but one and the same instrument.
6. This Agreement shall be construed in accordance with the laws of the State
of ___________________. In the event that any provision of this Agreement
shall be found unenforceable or invalid, the same shall not affect the
remaining provisions of this instrument.
<PAGE> 2
To signify agreement with the foregoing, the parties have executed this
Agreement as of the date first above written.
POLAND COMMUNICATIONS, INC.
By: _______________________
Its:_______________________
@ENTERTAINMENT, INC.
By: _______________________
Its:_______________________
ACKNOWLEDGED AND AGREED:
EMPLOYEE
_________________________
<PAGE> 3
6. This Agreement may be executed in several counterparts but the counterparts
shall constitute but one and the same instrument.
7. This Agreement shall be construed in accordance with the laws of the State of
______________. In the event that any provision of this Agreement shall be
found unenforceable or invalid, the same shall not affect the remaining
provisions of this instrument.
To signify agreement with the foregoing, the parties have executed this
Agreement as of the date first above written.
POLAND COMMUNICATIONS, INC.
By:________________________
Its:_______________________
@ENTERTAINMENT, INC.
By:________________________
Its:_______________________
ACKNOWLEDGED AND AGREED:
EMPLOYEE
_______________________
<PAGE> 1
EXHIBIT 10.23
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (the "Agreement"), dated as of the 8th day of
March 1990, by the among CHASE INTERNATIONAL CORPORATION, Delaware corporation
("CIC"). FRANK N. COOPER ("FNC"), REECE COMMUNICATIONS, INC., a Delaware
corporation ("RCI"), RUTTER-DUNN COMMUNICATIONS, INC., an Ohio corporation
("RDCI"), POLAND CABLEVISION U.S.A., INC., a Delaware corporation ("PCUI"), and
POLAND CABLEVISION (NETHERLANDS) B.V., a Netherlands corporation (the
"Company");
W I T N E S S E T H
WHEREAS, CIC, FNC, RCI, RDCI, and PCUI are the owners of all of the issued
and outstanding shares of the Company (CIC having purchased all of the shares of
the Company previously owned by William R. Sinkunas, in accordance with the
original Shareholders Agreement of the Company); and
WHEREAS, the parties hereto desire by this Agreement to provide the various
matters relating to the Company and to protect their equity investments therein;
NOW, THEREFORE, in consideration of the promises and mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
agree as follows:
Section 1. Definitions.
"Articles" means the articles of Association of the Company, as in effect
from time to time.
"Board" means the Managing Board of the Company.
-1-
<PAGE> 2
"Business Agreement" means the Business Agreement dated as of November 21,
1989 by and among CIC, the Company and the Existing Shareholders referred to
therein.
"Corporate Shareholder" means any Shareholder which is a corporation,
company, partnership, trust or other incorporated or unincorporated entity which
is not a natural person, and shall include, for so long as it is a Shareholder,
each of CIC, RCI, RDCI and PCUI.
"Individual Shareholder" means any Shareholder who is a natural person, and
shall include, for so long as each is a Shareholder, WRS and FNC.
"Involuntary Transfer" means any transfer by reason of enforcement of any
lien or other encumbrance, attachment, execution or other legal process,
judicial or other order, or other operation of law.
"PTK" means Polska Telewizja Kablowa S.A., a Polish joint stock company in
which the Company is a shareholder.
"Shareholder" means any person or entity who owns or holds Shares.
"Share" means any of the registered shares with a nominal value of one
Dutch guilder each, which constitute part of the capital of the Company.
Section 2. Shareholdings. The parties hereto agree that CIC, FNC, RCI, RDCI
and PCUI each holds the number of shares of the Company set forth below:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Chase International Corporation 169,200;
Frank N. Cooper 1,600;
Reece Communications, Inc. 24,000;
Rutter-Dunn Communications, Inc. 4,000; and
Poland Cablevision U.S.A., Inc. 1,200;
</TABLE>
and that the full nominal amount for all such shares has been paid.
Section 3. Funding Provisions.
(a) Reference is hereby made to the Business Agreement, the Loan Agreement
referred to in the Business Agreement and the Loan Documents referred to
therein, and letter agreements being entered into as of the date hereof
pursuant to the Business Agreement which reflect further agreements between the
parties relating to the subject matter hereof.
(b) In the event that the Board shall determine that the Company is in
need of additional funds, the Board shall first attempt to provide such funds
by third-party sources, within the discretion of the Board. In the event that
such third-party sources are not available, such funds may be provided by the
issuance of additional share capital to the Shareholders or by the solicitation
and receipt of loans from the Shareholders or any of them, as the Board shall
elect.
If any lender which is unaffiliated with any of the Shareholders shall
require, as a condition of lending money
-3-
<PAGE> 4
to the Company, that all Shareholders guarantee such loan and pledge their
shares to secure the same, and the Board reasonably determine after
investigation that a loan cannot be obtained elsewhere on the same or better
terms without such guarantee and pledge, then all Shareholders may be required
to pledge all of their Shares in the Company (including Shares which are
partially protected or permanently protected) pursuant to a non-recourse
guarantee to enable it to obtain such loan, on such reasonable terms as the
Board shall negotiate; provided that no Shareholder shall be required to
provide such guarantee and pledge unless the terms of such guarantee and pledge
(i) shall not require the Shareholder to have any personal liability on such
guarantee, but only permit the lender to have recourse under such guarantee to
such Shareholder's Shares, and (ii) as to any Shareholder other than CIC shall
not be more onerous than the terms of CIC's guarantee and pledge taken as a
whole. All Shareholders shall cooperate fully and sign all documents required
to effect such guarantee and pledge.
In the event that the Board solicits and receives loans from the
Shareholders or any of them, any such loans shall bear interest at a rate not
to exceed 10% per annum and shall be repayable only to the extent that, upon
any date upon which principal, interest or other payment is due in respect of
such loan, the company has sufficient cash on hand to make such payment, and
that, to the extent that any such
-4-
<PAGE> 5
payment is not made in full by reason of the Company's not having sufficient
cash on hand, the amount not paid shall remain due and payable in accordance
with the provisions of the Loan Documents therefor (including any provisions
regarding overdue principal and interest), but shall be paid only if, as and
when the company has sufficient cash on hand to make such payment. The
limitations upon payment of otherwise due and payable amounts hereunder shall
expire, however, as to all loans of CIC to the Company on a date three (3)
years after the date of this Agreement.
In the event that the Board shall determine that additional share capital
should be issued, the Board shall give written notice to all Shareholders of
the total funds required and the amount each Shareholder is entitled to
contribute as additional share capital. Such amount shall be that percentage of
the total funds required which the Shares held by that Shareholder represent of
the total issued and outstanding Shares of the Company. If any Shareholder (a
"Defaulting Shareholder") declines or fails to provide his or its share of the
funds sought by the company within 30 days of the date notice is given by the
Company as provided above, by payment in cash or by certified check to the
order of the Company delivered to the Board at the address set forth in the
Company's notice, the Board shall give notice (the "Second Notice") of such
fact to each other Shareholder and each such other Shareholder who desires to
contribute part or all of the funds
-5-
<PAGE> 6
due to be contributed by the Defaulting Shareholder may elect within 15 days of
receipt of the Second Notice to contribute such funds by payment in the manner
set forth above in such proportions as all such other Shareholders may agree or,
failing agreement, in the same proportion as each of such other Shareholder's
holdings bear to the aggregate holdings of those contributing the funds due from
the Defaulting Shareholder. Following the making of all such contributions
(including the contributions initially due from Shareholders and amounts
contributed in the place of Defaulting Shareholders) the Board shall issue to
each Shareholder making a contribution at such time an amount of additional
Shares equal to (i) the aggregate amount contributed by such Shareholder
(including, where applicable, amounts contributed in the place of any Defaulting
Shareholder), converted, if required, into Dutch guilders at the then applicable
rate of exchange, divided by (ii) the nominal value per Share (which as of the
date hereof is acknowledged to be one Dutch guilder per Share), as the same may
be adjusted by reason of all stock splits, stock dividends, recapitalizations
and similar events occurring following the date hereof. Any Shareholder failing
to provide his or its share of any funds sought by the Company by the dates
specified above shall irrevocably waive the right to make such contribution and
to acquire additional Shares in respect thereof. In no event shall the Board or
the Company issue any request for additional funds as provided above in order to
provide funds
-6-
<PAGE> 7
for the payment of any debt or other obligation or liability due to any
Shareholder.
(c) Notwithstanding Section 3(b) above the shareholdings of the
Shareholders (other than CIC and its transferees) shall be protected from
dilution for failure to provide any funds sought by the Company pursuant to
such Section 3(b) as follows:
(i) One-half of the current shareholdings of each Shareholder
executing this Agreement (other than CIC) shall be considered "permanently
protected" from dilution, meaning that, regardless of any stock dividends,
stock splits, reverse splits, recapitalization, reclassification of securities,
issuance of new securities of any class, mergers, consolidations or other
corporate reorganizations occurring hereafter with respect to the Company, each
Share constituting part of such shareholding shall forever represent 0.0005% of
the total equity in the Company and of the total votes which may be cast by
Shareholders on any subject. Accordingly, but without in any way limiting the
generality of the foregoing, in the event of any request for funds as
contemplated by Section 3(b), any Shareholder holding Shares which are
"permanently protected" as aforesaid shall not be obligated to contribute
one-half of the amount requested from him or it, nor shall such Shareholder be
diluted for failure to contribute one-half of such funds requested, as provided
in Section 3(b). In the event of the occurrence of any of the events referred
to above, including
-7-
<PAGE> 8
but not limited to any request for funds made as provided in Section 3(b),
any Shareholder holding shares which are "permanently protected" shall
automatically be issued that number of Shares (or any parties entitled to
receive additional Shares shall forego the receipt of that number of the
additional Shares to which they would be entitled) as will insure that such
Shareholder maintains, with respect to all Shares owned by such Shareholder
which are "permanently protected", the percentage interest in the Company's
equity and the voting power of its Shares specified above.
(ii) in addition to the foregoing, the other one-half of the current
shareholdings of each Shareholder executing this Agreement (other than CIC
and its transferees) shall be considered to be "partially protected" from
dilution, meaning that (1), in the event of any request for funds made at
any time for the development of the business of PTK in the cities of Warsaw
or Krakow, any Shareholder holding Shares which are "partially protected"
as aforesaid shall not be obligated to contribute the other one-half of the
amount requested from him or it, nor shall such Shareholder be diluted for
failure to contribute such other one-half of such funds requested, but such
Shareholder shall automatically be issued that number of Shares (or the
parties contributing funds in response to such request shall forego the
receipt of one-half of the additional Shares to which they would be
entitled in respect of the funds contributed) as will insure that such
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Shareholder maintains, with respect to all Shares owned by such
Shareholders which are "partially protected", the same percentage
interest in the equity of the Company and the voting power of the Shares
which such "partially protected" Shares had prior to such request for
funds; and (2), in the event that CIC fails timely to exercise the option
referred to in Section B hereof, immediately thereupon all Shares which
heretofore have been "partially protected" shall become "permanently
protected" within the meaning set forth in Section 3(c)(i) above and
entitled to all of the rights, privileges and protections of "permanently
protected" Shares as set forth therein.
The parties acknowledge that the current intent of the Company is to raise
capital for and commence construction in Warsaw and Krakow before doing likewise
with respect to any other city in Poland. The Company (and CIC as its majority
shareholder) shall be free, however, to raise capital for and construct systems
in such cities (and in such portions of such cities) in Poland at the pace and
in the order (or concurrently) as it shall deem commercially reasonable.
(d) The rights set forth in Section 3(c) above are intended to and shall
inure to the benefit of any permitted transferee of any Shareholder. Any
Shareholder transferring any of his or its Shares in accordance with the terms
of this Agreement shall designate to the transferee and to the Company whether
the Shares being transferred are Shares which are "permanently protected" or
"partially protected", within the
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meaning of those phrases set forth in Section 3(c) above.
Section 4. Restrictions on Transferee of Shares Procedures for Payment.
(a) The parties hereto agree that the transfer of Shares shall only be
permitted in any of the circumstances described below:
(i) in connection with the merger or consolidation of any Corporate
Shareholder with or into, or the transfer of any Shares owned by any
Corporate Shareholder to, any other corporation, company, partnership,
trust or other incorporated or unincorporated entity which controls, is
controlled by or is under common control with such Corporate Shareholder;
(ii) in connection with the liquidation, distribution or other
termination of any Corporate Shareholder;
(iii) in connection with the gift by any Shareholder of any portion
of his shareholdings, so long as the Shares are donated only to the spouse,
children, stepchildren, sons-in-law, daughters-in-law or parents of such
Shareholder or (in the case of a Corporate Shareholder) the foregoing
relatives of any person owning 50% or more of the outstanding Shares of any
Shareholder; provided that any such transferee has agreed to, and does
accept the Shares transferred subject to appropriate voting trust, proxy or
other similar procedures
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<PAGE> 11
retaining for the Shareholder-transferor the exclusive right to vote the Shares
being transferred;
(iv) if such transfer is made to a person or entity who is then a
Shareholder of the Company; or
(v) if such transfer is made to CIC pursuant to its exercise of the
option referred to in Section 8 hereof, or if such transfer is made to any
party pursuant to its exercise of its right of first refusal referred to in
Section 9 hereof, or if such transfer is made by any of the parties
executing this Agreement following the failure of any other party to fully
exercise its right of first refusal with respect thereto, as set forth in
Section 9 hereof.
Further, no transfer of the type described above in this Section 4(a) shall
be permitted unless and until the transferee shall have executed an instrument
satisfactory in form and substance to the Company agreeing to become a party to
and be bound by all of the terms and conditions of this agreement. Any transfer
of Shares which is permitted under this Section 4(a) shall not be subject to the
rights of first refusal set forth in Section 9 hereof.
(b) All transfers of Shares (including any transfer made or to be made by
reason of or resulting from any Involuntary Transfer), whether or not permitted
hereunder, shall be made in compliance with the provisions of Article 9 of the
Articles. In order to facilitate the consummation of transfers
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permitted pursuant to Section 4(a) above, each Shareholder hereby agrees in
advance, and intending to bind himself or itself irrevocably, to vote his or
its Shares and take such other action as may be required in order for such
permitted transfers to be consummated. In addition, each Shareholder agrees
upon request to execute (and re-execute) such proxies or power of attorney
(which may also be irrevocable, to the extent permitted by applicable law) as
are necessary in order to permit another party to take on such Shareholder's
behalf any action which may be required in order for such permitted transfers
to be consummated. In addition, each Shareholder also agrees to take all
actions permitted by law to prevent the transfer of Shares otherwise than in
accordance with Section 4(a) above.
Section 5. Prohibition on Pledges, etc; Permitted Transactions.
(a) Anything in the Articles or other governing documents of the Company to
the contrary notwithstanding, no Shareholder may create a usufruct
("vruchtgebruik") or a pledge ("pandrecht") on any Shares, or otherwise
mortgage, hypothecate, grant a security interest in, or otherwise encumber any
Shares to or in favor of any other person or entity unless all of the other
Shareholders shall have consented thereto in writing, and the Company and each
other Shareholder may treat any such action taken without such consent as void
and of no force and effect.
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<PAGE> 13
(b) Each of the parties hereto hereby consents to and approves the taking
of any of the actions referred to in Section 5(a) hereof with respect to any of
the Shares if and to the extent required to secure borrowings made by the
Company or PTK to provide financing for the conduct of the business of PTK; and
further agrees to vote his or its Shares and take such other action as may be
required in order for such actions with respect to the Shares to be taken,
including executing (and re-executing) such proxies or powers of attorney (which
may also be irrevocable, to the extent permitted by applicable law) in order to
permit another party to take on such Shareholder's behalf any action which such
Shareholder has committed himself or itself to take pursuant to this Section;
and further consents to and approves the transfer (whether or not an Involuntary
Transfer) of any such Shares to any person or entity providing such financing if
made in accordance with the terms under which such financing was provided.
Section 6. Repurchase of Shares upon death, liquidation, etc.
(a) Upon the death of any Individual Shareholder, the executor,
administrator or other authorized representative of the estate of such
Individual Shareholder shall promptly offer to sell such Individual
Shareholder's shares to the other Shareholders at the price and upon the terms
set forth in this Section, by notice in writing to the Board and such other
Shareholders entitled to purchase.
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<PAGE> 14
(b) Upon the liquidation, dissolution or other termination of the existence
of any Corporate Shareholder (other than in connection with a BONA FIDE
reorganization of the holdings of the shareholder(s) of such Corporate
Shareholder), the liquidator, receiver or other person or entity having the
responsibility for the winding up of the affairs of such Corporate Shareholder
shall promptly offer to sell such Corporate Shareholder's Shares to the other
Shareholders at the price and upon the terms set forth in this Section, by
notice in writing to the Board and such other Shareholders entitled to purchase.
(c) Upon the death of Norval D. Reece or Edward T. Rutter, Reece
Communications, Inc. or Rutter-Dunn Communications, Inc., as the case may be,
shall promptly offer to sell all of the Shares owned by such Corporate
Shareholder to the other Shareholders at the price and upon the terms set forth
in this Section, by notice in writing to the Board and such other Shareholders
entitled to purchase.
(d) The Shareholders entitled to purchase shall have the initial right for
a period of 60 days after receipt of any of the offers referred to above in this
Section to accept such offer as to all or any portion of the Shares being
offered. Any election to purchase any such Shares shall be made in writing
delivered to the party offering the Shares within such 60-day period and, once
made, shall be binding upon the Shareholder making the same, regardless of the
number of Shares.
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<PAGE> 15
which such Shareholder may be allocated as hereinafter provided. If the
aggregate number of Shares which the other Shareholders elect to purchase
exceeds those available for purchase, the available Shares shall be apportioned
among the Shareholders electing to purchase the same in the same proportion as
the holdings of each of the Shareholders electing to purchase bears to the
aggregate holdings of all those electing to purchase. If after completion of the
procedure described above there remain any unpurchased Shares, the Company shall
be obligated to purchase such remaining Shares, unless it is not legally
permitted to do so. In the event that the Company is not legally permitted to
purchase such remaining shares or fails to complete the purchase of such
remaining shares, the offering Shareholder shall have the right to sell or
otherwise dispose of the Shares not purchased upon such terms as such offering
Shareholder deems appropriate.
(e) The price at which any Shares shall be offered to the other
Shareholders entitled to purchase and then to the Company under the terms of
this Section shall be the price determined to be the market value of the Shares
being offered by an independent expert to be appointed in consultation between
the offering Shareholder, the other Shareholders entitled to purchase and the
Company, or, if agreement on such expert has not been reached within four weeks,
by a registered accountant to be appointed by the Chairman of the Netherlands
Institute of Registered Accountants. The period for the
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acceptance by any Shareholder of any of the offers referred to above in this
Section shall in any event not terminate until a date 30 days after the date
such determination of price is made.
(f) Following the acceptance of any of the offers referred to above the
transferor and transferee(s) of the applicable Shares shall comply with the
provisions of Article 9 of the Articles EXCEPT THAT it is hereby acknowledged
and agreed by the parties hereto that
(i) consent is hereby given by all Shareholders (including CIC and its
transferees) to the extent required for the Company to purchase any Shares
as provided above; and
(ii) approval is hereby given by all Shareholders (including CIC and
its transferees) for the transfer of any Shares purchased in accordance
with the procedures described above.
(g) The purchase price for any Shares purchased pursuant to this Section
shall be paid, subject to compliance by the seller with all of the requirements
of Article 9 of the Articles and applicable law relating to the transfer of such
Shares, in five equal annual installments, the first of which shall be paid on
the date all of such requirements have been satisfied and the remainder of which
shall be paid on the four succeeding anniversaries thereof, together in each
case with interest on the unpaid portion of the price calculated at an
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<PAGE> 17
annual rate of 10%.
Section 7. Obligation to Refer Offers. In the event that (i) CIC receives,
and desires to accept, an offer to purchase Shares held by it and (ii) following
such purchase, the number of Shares owned by CIC would be less than the total
number of Shares owned at such time by FNC, RCI, RDCI and PCUI collectively, CIC
shall be obligated to offer such other Shareholders in writing the right to
participate in such sale by selling a portion of the Shares owned by such other
Shareholders, the portion which such other Shareholder shall have the right to
sell being determined in accordance with the following formula:
Total shares to be purchased
Shares owned by Shareholder x ------------------------------
Total outstanding shares
Any Shareholder wishing to sell the number of Shares which he or it is permitted
to sell pursuant to the foregoing formula (or any lesser number) shall be
required to so indicate in writing to CIC within 30 days of receipt of CIC's
written notice; otherwise such Shareholder shall lose the right to participate
in the sale. To the extent that any such Shareholder elects to participate in
the sale, the number of Shares which CIC may sell shall be correspondingly
reduced. Any such Shareholder electing to participate in the sale shall be
obligated to cooperate to the fullest extent with CIC to complete the sale.
Notwithstanding the foregoing, all Shareholders participating in the sale and
the party purchasing
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the Shares shall be obligated to comply with all of the provisions of Article 9
of the Articles regarding the transfer of Shares, it being the intention of the
foregoing to preserve for Shareholders the right, whether or not they have
elected to sell, to purchase the Shares being offered at their fair market value
as provided in the Articles.
Section 8. CIC Options to Purchase. (a) CIC shall have the irrevocable
right and option to purchase from the Shareholders executing this Agreement and
their transferees (other than transferees as to whom CIC has been offered its
right of first refusal under Section 9(a) and failed to exercise the same, whose
Shares shall not be subject to the option set forth in this Section 8(a)) all
(but not less than all) of the Shares then owned by such Shareholders which are
"partially protected" (as defined in Section 3(c) hereof), upon the following
terms and conditions:
(i) the price payable for each such Share shall be equal to $50.00,
such price to be appropriately adjusted in the case of additional issuances
of Shares to holders of "partially protected" Shares pursuant to stock
splits, stock dividends or the anti-dilution provisions of Section 3(e)
hereof (it being understood that such price per Share shall not be adjusted
notwithstanding the issuance of Shares to any other shareholder as a result
of any request for funds pursuant to Section 3, or otherwise);
(ii) the aggregate purchase price shall be
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paid by certified or bank checks made out to the individual selling
Shareholders;
(iii) such option may only be exercised by CIC giving all of the
Shareholders executing this Agreement then owning Shares which are
"partially protected" (as defined in Section 3(c) hereof) written notice of
its intention to exercise such option which is given to such other
Shareholders between November 20, 1990 and November 30, 1990, inclusive;
and
(iv) in the event such written notice is duly and timely given, CIC
shall thereupon be obligated to purchase the "partially protected" Shares
then owned by the other Shareholders executing this Agreement, and such
Shareholders shall be obligated to sell such Shares, for the per Share
price set forth above, at a closing to be held not later than fourteen (14)
days after the date of the written notice of the exercise of CIC's option.
In the event that CIC fails to exercise the foregoing option, all Shares
(by whomsoever owned) which are then "partially protected" shall immediately
become "permanently protected", in each case within the meaning of such terms
set forth in Section 3(c). As set forth in Section 4(a), the transfer to CIC of
any Shares acquired by CIC pursuant to the proper exercise of the foregoing
option shall be a permitted transfer of such Shares hereunder and shall be
entitled to all of the benefits set forth in Section 4(b) hereof.
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(b) (i) CIC is hereby granted by all of the other Shareholders the
irrevocable option and right to purchase all (but not less than all) of the
Shares held by them constituting the "permanently protected" portion thereof, at
a price per Share of $454.545 (appropriately adjusted to reflect the issuance of
additional Shares due to stock splits, stock dividends, or the anti-dilution
provisions of Section 3(c) hereof) (the "Option Price"), at any time during the
period from the date hereof until the close of business on August 22, 1991 (the
"Option Period"). Nothing herein shall be construed to prevent the Shareholders
from selling or transferring their Shares in advance of receipt of an "Exercise
Notice" (as defined below), and CIC shall lose its option hereunder as to any
Shares in the "permanently protected" portion so sold or transferred provided
that the Shareholder had provided CIC with a right of first refusal in
accordance with Section 9 hereof on such sale or transfer.
(ii) The option shall be exercisable by written notice (an "Exercise
Notice") from CIC to each of the other Shareholders. Upon the giving of such
Exercise Notice, CIC shall thereupon be obligated to purchase the Shares set
forth in the Exercise Notice, and the Shareholders shall be obligated to sell
the Shares, as described herein. No later than thirty days after giving such
Exercise Notice, a closing shall be held, at which each of the selling
Shareholders shall deliver the Shares being purchased from him or it, duly
endorsed or in
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blank for transfer, if the Shares are then represented by certificates, or if
not, an Instrument of Transfer and Bill of Sale in a form reasonably acceptable
to CIC, together with any and all corporate proxies and actions to permit the
transfer to CIC in accordance with the Articles of Association of the Company.
CIC shall simultaneously deliver to each selling Shareholder the first
installment of the total purchase price for the Shares purchased from him or it,
by certified or bank check or other immediately available funds.
(iii) Payment of the aggregate purchase price for any Shares purchased
pursuant to the option provided herein shall be payable in forty-eight equal
monthly installments, without interest, the first being payable one (1) month
after the date of the closing as described in (ii) above. Such deferred payment
obligation shall be evidenced by a promissory note for each Shareholder
containing, inter alia, provisions for the acceleration of amounts still due in
the event of any default in payment thereunder and otherwise in form reasonably
satisfactory to the payee thereunder.
(iv) Transfers of Shares pursuant to the exercise of this option shall be
"permitted transfers" of such Shares under Section 4(a) hereof and shall be
entitled to all of the benefits set forth in Section 4(b) hereof.
Section 9. Rights of First Refusal.
(a) In addition to the rights granted pursuant to
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Section 8 above, CIC shall have the right to purchase from any of the other
Shareholders executing this Agreement any Shares which any such Shareholder
desires to sell at any time, upon the same terms and conditions as such
Shareholder proposes to sell, and subject to the following terms and
conditions:
(i) in the event that any of the Shareholders executing this Agreement
shall receive an offer to purchase any of the Shares held by such
Shareholder, such Shareholder shall give CIC written notice thereof,
accompanied (1) by a copy of the agreement pursuant to which it is proposed
that such Shares be sold (which shall specifically identify the proposed
purchaser, and the proposed purchase price and payment terms), (2) a
representation and warranty by such Shareholder that the offer is bona fide
in all respects and, (3) a stipulation by such Shareholder that the
involvement of the prospective purchaser in the business to be conducted by
PTK will enhance such business;
(ii) CIC shall have forty-five (45) days after receipt of such written
notice to notify the selling Shareholder of its intention to purchase, and
to complete the purchase of the Shares proposed to be sold upon all of the
terms upon which such Shares were proposed to be sold. The cash portion of
the purchase price shall be paid by certified or bank check.
(iii) In the event that CIC fails duly and
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timely to exercise its right of first refusal as aforesaid, the selling
Shareholder shall have the right to sell the Shares proposed to be sold to
the intended purchaser, so long as such sale is completed upon the terms
set forth in the written notice to CIC referred to above within forty-five
(45) days of CIC's notifying the selling Shareholder that it elects not to
exercise its right of first refusal.
(b) Similarly, the other Shareholders executing this Agreement shall have
the right to purchase from CIC any Shares which CIC desires to sell at any time,
upon the same terms as CIC proposes to sell, and subject to the following terms
and conditions:
(i) In the event that CIC shall receive an offer to purchase any of
the Shares held by CIC, CIC shall give written notice thereof to RCI (or,
if it is no longer a Shareholder, RDCI) (it being the responsibility of
such party (hereinafter, the "Notice Party") to thereafter notify all of
the other Shareholders entitled to purchase CIC's Shares), accompanied (1)
by a copy of the agreement pursuant to which it is proposed that such
Shares be sold (which shall specifically identify the proposed purchaser,
and the proposed purchase price and payment terms), (2) a representation
and warranty by CIC that the offer is bona fide in all respects and (3) a
stipulation by CIC that the involvement of the prospective purchaser in the
business to be conducted by PTK will enhance
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such businesses.
(ii) The Shareholders entitled to purchase CIC's Shares shall have
forty-five (45) days after receipt of such written notice to notify CIC of
their intention to purchase, and to complete the purchase of the Shares
proposed to be sold upon all of the terms upon which such Shares were
proposed to be sold. It shall be the responsibility of the Shareholders
entitled to purchase CIC's Shares to decide amongst themselves as to how
such Shares are to be allocated amongst them. CIC shall not be obligated to
honor notifications received from any Shareholder other than the Notice
Party. The cash portion of the purchase price shall be paid by certified or
bank check.
(iii) In the event that the other Shareholders fail duly and timely to
exercise their right of first refusal as aforesaid, CIC shall have the
right to sell the Shares proposed to be sold to the intended purchaser, so
long as such sale is completed upon the terms set forth in the written
notice referred to above within forty-five (45) days of the Notice Party
notifying CIC that the other Shareholders elect not to exercise their right
of first refusal.
(c) As set forth in Section 4(a), the transfer of any Shares acquired by
any party pursuant to the proper exercise of the foregoing right of first
refusal, or the transfer to any proposed third party purchaser of any Shares
following any party's failure to exercise such right of first
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refusal, shall each be a permitted transfer of such Shares hereunder and shall
be entitled to all of the benefits set forth in Section 4(b) hereof.
Section 10. Special Covenants. The parties hereto agree that, anything in
the Articles of the Company to the contrary notwithstanding, the consideration
upon which the Company enters into any contract with any party affiliated with
CIC must be commercially reasonable or must be approved by both Norval D. Reece
and Edward T. Rutter (except that such approval shall not be required from any
such party once he (or an entity controlled by him) has ceased to hold any
interest, directly or indirectly, in the Company). Challenges by Shareholders
under this Section 10 shall be limited to the consideration involved in any
such contract, and shall not be permitted to void or invalidate such a contract.
Section 11. Legends. In the event that the Company shall issue
certificates for, or other instruments evidencing Shares, such documents shall
have the following legend printed or stamped thereon:
"THE SHARES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND
PLEDGE AS MORE FULLY SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE
SHAREHOLDERS OF THIS COMPANY WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY:"
The Company shall also cause its share register to be appropriately annotated
to reflect the foregoing.
Section 12. Representations and Warranties. Each
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Shareholder hereby represents and warrants to the Company and each of the other
Shareholders as follows:
(a) Valid and Binding Agreement. This Agreement constitutes the valid
and binding agreement of such Shareholder, enforceable against such Shareholder
in accordance with its terms, except that such enforcement may be limited by
any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect affecting
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(b) No Violation. Neither the execution and delivery by such Shareholder
of this Agreement, nor the consummation by such Shareholder of the transactions
contemplated hereby, will violate any agreement, contract, shareholder
agreement, security agreement, lien or other instrument or commitment to which
such Shareholder is a party or any order, writ or injunction.
(c) Information: Investment Intent. Such Shareholder has had access to
such information concerning the Company and he or it has had the opportunity to
ask such questions of and to receive answers from the Company concerning the
terms and conditions of its participation in the Company as he or it believes
necessary to make an informed decision regarding such participation. Such
Shareholder understands and acknowledges that (i) he or it is acquiring the
Shares without
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registration under the United States Securities Act of 1933, as amended (the
"Securities Act"); (ii) he or it is not anticipated that there will be a market
for any of the Shares in the foreseeable future; (iii) it is acquiring such
Shares for its own account and not with a view to the distribution thereof in
any transaction that would be in violation of the securities laws of the United
States of America, the Netherlands or any other applicable jurisdiction; and
(iv) he or it will not sell any of the Shares unless such sale is registered,
or exempt from registration, under the Securities Act and/or is otherwise
permitted under the laws of the Netherlands or any other applicable
jurisdiction.
Section 13. Disclosure of Information. Each Shareholder shall hold and
keep confidential any and all data and information of a proprietary nature
relating to the Company, PTK, any subsidiary thereof or any successor in
interest thereto, including, but not limited to, budgets and financial analyses
and programming, which such Shareholder may know or may hereafter know as a
result of his or its interest in the Company. Each Shareholder shall not at any
time during the period he or it is a Shareholder or thereafter directly or
indirectly disclose any such information to any third party or use the same in
any way other than in connection with the business and affairs of the Company
or PTK.
Section 14. Agreement Not to Compete. Each Shareholder hereby covenants
and agrees that for so long as he or it
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is a Shareholder, he or it will not have any interest, direct or indirect,
whether as a shareholder, director, officer, employee, partner or joint
venturer (other than (i) any ownership in the Company or (ii) a three percent
(3%) or less interest in any publicly held entity other than the Company), in
any business or company seeking or having a license or franchise to engage in,
or which proposes to engage or is engaged in any aspect of the cable television
business in the country of Poland, including, without limitation, operating or
providing SMATV, DBS, MDS, MMDS, STV or any other competitive services for
television reception for a fee in the country of Poland. Each Shareholder
further agrees that during such period he or it will not perform any services
as an employee or, agent for or consultant to any such business or company.
Section 15. Remedies for Breach. Each Shareholder acknowledges that a
breach by him or it of any of the terms of this Agreement will irreparably harm
the Company and the other Shareholders, and accordingly agrees that, in
addition to any other available remedies, the Company and any of the other
Shareholders shall each be entitled to specific performance of all of the terms
of this Agreement and/or injunctive relief to restrain any breach of such terms.
Section 16. Implementation of Agreement. All Shareholders and the Company
agree promptly hereafter to take all actions necessary on their part (including,
without limitation, giving proxies, authorizing or approving changes in
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the Company's capital structure or governing documents and adopting by way of
voting in a meeting, or execution of a circular resolution, all resolutions to
be adopted by the General Meeting of Shareholders), in order to implement all of
the terms of this Agreement.
Section 17. Power of Attorney. Each Shareholder hereby makes, constitutes
and appoints Willam C.B. van Wettum of Naarden the Netherlands as such
Shareholder's agent and attorney-in-fact for such Shareholder in such
Shareholder's name, place and stead and for such Shareholder's use and benefit,
to sign, execute, certify, acknowledge, swear to, file and/or record, to the
full extent permitted hereby, any instruments that may be required to adopt by
way of voting in a meeting, or execution of a circular resolution, any
resolutions to be adopted by the General Meeting of Shareholders to effectuate
the issuance of Shares pursuant to Article 3.2 of the Articles, the pledge of
Shares pursuant to Article 6 of the Articles or the transfer of Shares pursuant
to Article 9.4 and 9.5 of the Articles, or to take any other action which such
Shareholder may be obligated to take pursuant to the terms of this Agreement.
The power of attorney granted pursuant to this Section:
(a) is a special power of attorney coupled with an interest and is
irrevocable;
(b) may be exercised by any such attorney-in-fact by recording the name of
the Shareholder for whom such attorney-
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in-fact may be acting, with the single signature of such attorney-in-fact
together with the recital that such attorney-in-fact acts as attorney-in-fact
for him or it; and
(c) shall survive the death, bankruptcy or mental incapacitation of any
Shareholder, to the extent such Shareholder may legally contract for such
survival, and shall also survive the transfer, sale or assignment of such
Shareholder's ownership interest to the extent necessary to enable such
attorney-in-fact to execute, acknowledge, swear to and file any instrument or
instruments required by reason thereof.
Section 18. Notices. All notices, requests and other communications
required or contemplated hereunder shall be in writing and shall be deemed to
have been duly given to the recipient when delivered in person or mailed
certified mail, postage prepaid (or by the most nearly comparable method if
mailed from or to a location outside of the United States), addressed to such
recipient at his or its address set forth at the end of this Agreement or at
such other address as shall have been given to all of the other parties hereto
for such purpose. Copies of any notice required or permitted to be given any
party to this Agreement shall be given to all other parties to this Agreement.
Section 19. Amendment. This Agreement may be amended from time to time, but
only by the written agreement of all of the Shareholders.
Section 20. Benefit. This Agreement and each of its
-30-
<PAGE> 31
provisions, whether so expressed or not, shall be binding upon the Company and
the Shareholders, and their respective heirs, executors, administrators,
personal representatives, successors and assigns. This Agreement shall inure to
the benefit of the Company and the Shareholders, and also to the benefit of each
of the other parties referred to in this Section, but only to the extent
expressly permitted herein.
Section 21. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 22. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
Section 23. Headings. The Section headings set forth in this Agreement
are for the convenience of the parties only, do not form a part hereof and
shall not affect the interpretation or construction of this Agreement.
Section 24. Pronouns. Any pronoun and any variation thereof used herein
shall be deemed to refer to the masculine, feminine or neuter, or singular or
plural, as the context may require.
Section 25. Severability. If at any time any provision of this Agreement
shall be determined by any court of competent jurisdiction to be illegal,
invalid or unenforceable, such provision shall be of no force and effect, but
the
-31-
<PAGE> 32
remaining provisions of this Agreement shall continue in full force and effect
and the illegality, invalidity or unenforceability of any other provision of
this Agreement.
Section 26. No Waiver. Any provision hereof can be waived only by a
written instrument making specific reference to this Agreement signed by the
party against whom enforcement of such waiver is sought. Any waiver by any party
of a breach of any provision of this Agreement shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach
of any other provision of this Agreement. The failure of a party to insist upon
strict adherence to any term of this Agreement shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
Section 27. Prior Agreements. This Agreement is intended to, and hereby
does, supersede in their entirety any and all prior agreements or under-
standings, written or oral, between any of the parties hereto relating to any of
the matters referred to herein (including, without limitation, the Shareholders
Agreement dated October 19, 1989 between the parties hereto other than CIC), all
of which shall henceforth be treated as of no force and effect.
Section 28. Status of Transferees. Any person or entity acquiring any
Share, by accepting it, shall be deemed to become and be a party to this
Agreement as if such person or entity signed this Agreement as a Shareholder.
-32-
<PAGE> 33
Section 29. Management Fee of CIC. Each Shareholder hereby agrees that CIC
may cause the Company to fund up to $250,000 per year as a management fee
payable to CIC, throughout the term of the PTK joint venture, provided, that the
first year's management fee shall be payable for the period November 21, 1989
through November 20, 1990; and provided, further, that, during such first year,
50% of such fee shall be earned and paid ratably over the first twelve months,
with the remaining 50% balance payable no sooner than November 20, 1990.
IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.
Witness:
/s/ FRANK N. COOPER
- --------------------------- ----------------------------------
FRANK N. COOPER
Address for purpose of notice, etc:
1-3 Kings Highway East,
2nd Floor
Haddonfield, N.J. 08033
U.S.A.
Attest: REECE COMMUNICATIONS, INC.
BY:
- --------------------------- -------------------------------
Its President
Address for purpose of notice, etc:
1875 Quarry Road
Yardley, PA 19067
U.S.A.
-33-
<PAGE> 34
Attest: RUTTER-DUNN COMMUNICATIONS,
INC.
By:
- --------------------------- ----------------------------------
Its President
Address for purpose of notice, etc:
1-3 Kings Highway East,
2nd Floor
Haddonfield, N.J. 08033
U.S.A.
Attest: POLAND CABLEVISION U.S.A., INC.
BY:
- --------------------------- ----------------------------------
Its President
Address for purpose of notice, etc:
c/o Edward T. Rutter
1-3 Kings Highway East, 2nd Floor
Haddonfield, N.J. 08033
U.S.A.
POLAND CABLEVISION (NETHERLANDS) B.V.
By:
----------------------------------
Managing Director
Address for purpose of notice, etc:
c/o E. Clive Anderson, Esq.
2000 One Logan Square
Philadelphia, PA 19103
U.S.A.
-34-
<PAGE> 35
Attest: CHASE INTERNATIONAL CORPORATION
By:
- --------------------------- -------------------------------
Its
Address for purpose of notice, etc:
One Commercial Plaza
Hartford, CT 06103
U.S.A.
-35-
<PAGE> 36
AMENDMENT NO. 1
TO
SHAREHOLDERS AGREEMENT
This Amendment No. 1 dated as of March 8, 1990 to the Shareholders
Agreement dated of even date between the parties hereto (the "Shareholders
Agreement").
W I T N E S S E T H T H A T
The parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions. Unless otherwise specifically defined herein, all terms
herein used with initial capitals shall have the respective meanings given to
them in the Shareholders Agreement.
2. Option for Partially protected Shares. The provisions of Section 8(a)
of the Shareholders Agreement shall be amended and/or supplemented as follows:
(a) The parties agree that CIC may exercise the option referred to therein
at any time.
(b) The aggregate purchase price for all the "partially protected" Shares
as described in the Shareholders Agreement shall be $770,000, payable pro rata
to the Shareholders (other than CIC) in cash, as to one-half, on November 21,
1990, and as to the other half, on May 21, 1991.
(c) The Shareholders (other than CIC) shall transfer title to the
"partially protected" Shares owned by them to CIC at a closing on November 21,
1990, subject to the
-1-
<PAGE> 37
receipt of such Shareholders of their respective pro rata shares of $385,000
(being one-half of the purchase price payable with respect thereto), and
non-interest bearing promissory notes of CIC due May 21, 1991 and guaranteed by
D.T. Chase Enterprises, Inc., for the balance due to each Shareholder.
3. Exercise of Option.
(a) CIC hereby gives the other Shareholders irrevocable notice of its
intention to exercise the option referred to in Section 8(a) of the
Shareholders Agreement, as its terms have been amended and/or supplemented
hereby, and hereby irrevocably commits to pay the purchase price therefor,
against transfer of title to such Shares, upon the respective due dates, all as
set forth in Section 2 above.
(b) Anything in the Shareholders Agreement to the contrary notwithstanding,
no Shareholder other than CIC shall have a right to transfer his or its
"partially protected' Shares, other than to CIC pursuant its exercise of option
described above. Any purported transfer in violation hereof shall be void and of
no effect.
4. Option for Permanently Protected Shares. In lieu of the option granted
pursuant to Section 8(b) of the Shareholders Agreement, which is hereby
terminated, CIC shall have an option to purchase from the other Shareholders all
of the Shares which as of the date hereof are "permanently protected', which the
parties hereto agree as of the date
-2-
<PAGE> 38
hereof are owned as follows:
<TABLE>
<S> <C>
Reece Communications, Inc. 12,000
Rutter-Dunn Communications, Inc. 2,000
Poland Cablevision U.S.A., Inc. 600
Frank N. Cooper 800
------
Total 15,400
</TABLE>
upon the following terms and conditions:
(a) For the purposes hereof, the term "subscriber" shall mean a customer of
any cable television or similar system developed by PTK who has been a customer
for at least ninety (90) consecutive days and who has paid in full for the
subscribed services for at least three (3) consecutive months; and the term
"required subscriber count" with respect to any city listed in Exhibit A hereto
shall mean that number of subscribers which is set forth opposite that city in
Exhibit A hereto.
(b) Anything in the Shareholders Agreement to the contrary notwithstanding,
no Shareholder (other than CIC) shall have any right or legal ability to
transfer his or its Shares except as permitted by (i) Section 4 of the
Shareholders Agreement (PROVIDED that, in accordance with Section 28 of the
Shareholders Agreement, each permitted transferee shall be deemed to become and
be a party to the Shareholders Agreement as amended by this Amendment No. 1, as
if such person or entity signed the Shareholders Agreement and this Amendment
No. 1 as a Shareholder) or (ii) subclause (2) below. Any purported
-3-
<PAGE> 39
transfer in violation hereof shall be void and of no effect.
(c) At any time from the date hereof until a date sixty (60) days after the
month end of the month in which the required subscriber count has been first
realized with respect to any city listed in Exhibit A hereto, CIC shall have the
right and option to acquire with respect to such city a total of 1711 Shares
(1712 Shares for the first such city) from the other Shareholders (on a PRO RATA
basis) for the aggregate price of $777,726.49 ($778,181.04 for the first such
city). CIC shall cause PTK to provide notice to it, and CIC shall be obligated
to notify each of the other Shareholders in writing, that the required
subscriber count has been met as to a specified city within thirty (30) days
after the end of the month in which such count has been first realized. It is
the intention of the parties hereto that CIC shall have this option with respect
to each of the cities; that each such option shall be separately exercisable
once the required subscriber count for that city shall have been realized
whether or not CIC shall have exercised or failed to exercise its option with
respect to any other city; that the number of Shares subject to option with
respect to each city shall in all events be 1711 (1712 Shares for the first such
city) and the price for the Shares subject to option with respect to each city
shall in all events be $777,726.49 ($778,191.04 for the first such city); and
that neither the number of Shares nor the price for such Shares for any city
shall be affected by CIC's exercise or failure to
-4-
<PAGE> 40
exercise its option with respect to any other city. (The numbers of shares
described herein shall be subject to adjustment, however, to reflect the
issuance of additional shares due to stock splits, stock dividends, or the
anti-dilution provisions of Section 3(c) of the Shareholders Agreement or
similar events.)
(d) CIC's option with respect to any city shall be exercisable during the
time period set forth in subsection (c) above by written notice (an "Exercise
Notice") from CIC to each of the other Shareholders to that effect. In the event
of such exercise, the other Shareholders shall be bound to deliver to CIC from
the Shares owned by them their pro rata shares of the 1711 Shares (or 1712
Shares in the case of the first city) to be purchased by CIC with respect to
such city, and shall be entitled to receive their pro rata shares of $777,726.49
(or $778,181.06 in the case of the first city), the aggregate price to be paid
therefor.
(e) To close the purchase of any Shares to be acquired pursuant to the
exercise of any of the options contained in this Section 4, the Shareholders
shall transfer title to such Shares to CIC within thirty (30) days of the date
of the Exercise Notice, subject to receipt at the time of such transfer of
non-interest bearing promissory notes of CIC due six (6) months after the date
of the applicable Exercise Notice and guaranteed by D.T. Chase Enterprises,
Inc., for each Shareholder's pro rata Share of the purchase price therefor.
-5-
<PAGE> 41
(f) If CIC fails timely to exercise or waives its option with respect to
the Shares attributable to any city, or if PTK has not commenced construction as
regards to any city on Exhibit A within five years after the date hereof or if
the required subscriber count shall not have been realized as regards any city
on Exhibit A within nine years after the date hereof, such Shares attributable
to such city shall thereupon cease to be subject to this option, but shall
continue to have their status as "permanently protected" Shares under the
Shareholders Agreement, and shall be transferable, subject to the provisions of
the Shareholders Agreement.
5. Covenant Not to Compete. Each Shareholder agrees that he or it (and if
an entity, each of its Shareholders, directors and officers, and each entity
which is controlled by, controls or is under common control with, such entity)
will be bound by the restrictions of Section 14 of the Shareholder Agreement,
and further will continue to be so bound for an additional period of ten years
after he or it ceases to be a Shareholder (or, if such additional period exceeds
the maximum period permissible under applicable law, such lesser period as is
permissible).
6. Reasonableness of Restrictions. Each of the Shareholders has been
actively involved in negotiating, and has carefully read and considered the
provisions of the Shareholders Agreement and this Amendment No. 1. Each party
hereto has taken such legal counsel as he or it has deemed appropriate as
6
<PAGE> 42
to the effects and ramifications of the provisions of the Shareholders
Agreement and this Amendment No. 1. Having done so, each such Shareholder
agrees that the restrictions on transfer provided in the Shareholders Agreement
and Sections 3(b) and 4(b) hereof and the restrictions on competition
provided in the Shareholders Agreement and Section 5 hereof are fair and
reasonable and reasonably required for the protection of the Company and the
other Shareholders and are fully enforceable against each such Shareholder.
Each Shareholder waives to the fullest extent permissible under applicable law
any rights be or it may have to challenge the validity or enforceability of
such restrictions.
Each Shareholder covenants and agrees that, if he or it shall violate any
of the covenants or agreements regarding restrictions on transfer or
restrictions on competition or disclosure of confidential information contained
in the Shareholders Agreement or Amendment No. 1, each of the other
Shareholders shall be entitled to an accounting and repayment of his or its pro
rata share of (a) one-half of the total profit (in the case of any transfer of
share in violation hereof) or (b) all profits, compensation, remunerations, or
benefits directly or indirectly realized by the breaching Shareholder in
connection with such breach (in the case of competition or disclosure of
confidential information in violation hereof). This remedy shall be in addition
to and not in limitation of any other rights or remedies to which the
-7-
<PAGE> 43
parties hereto may be entitled, at law or in equity or under this Agreement
(including injunctive relief under Section 16 of the Shareholder's Agreement).
7. Permitted Transfers. Transfers of shares made pursuant to or as
contemplated by this Amendment No. 1 shall be "Permitted transfers" of such
Shares under Section 4(a) of the Shareholders Agreement and shall be entitled
to all of the benefits set forth in Section 4(b) thereof.
8. Savings Clauses. The Shareholders Agreement, as modified or amended
hereby, is hereby ratified and confirmed.
9. Restriction on Books of Company. The Company shall require each agent
empowered to record entries in the Shareholders' Register to obtain a
certificate from CIC prior to recording any transfers of Shares in the
Shareholders' Register.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the date set forth above.
CHASE INTERNATIONAL CORPORATION /s/ FRANK N. COOPER
-------------------------------
Frank N. Cooper
By: ____________________________
Its Executive Vice President
-8-
<PAGE> 44
POLAND CABLEVISION U.S.A., INC. REECE COMMUNICATIONS, INC.
By: __________________________ By: __________________________
Its President Its President
POLAND CABLEVISION (NETHERLANDS) RUTTER-DUNN COMMUNICATIONS, INC.
B.V.
By: ___________________________ By: ___________________________
Managing Director Its President
9
<PAGE> 45
<TABLE>
<CAPTION>
REQUIRED
CITY SUBSCRIBER COUNT
---- ----------------
<S> <C>
Warsaw 63,750
Cracow 31,125
Gdansk 35,250
Katowice 35,000
Posnan 35,000
Bydqoszcz 28,500
Lodz 66,325
Lublin 24,700
Wroclaw 49,000
</TABLE>
10
<PAGE> 1
Exhibit 10.24
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement"), effective as of June
23, 1997 ("Effective Date"), between Poland Communications, Inc. ("PCI"), a New
York corporation with offices at c/o Chase Enterprises, One Commercial Plaza,
Hartford, Connecticut 06103 and @Entertainment, Inc. ("Entertainment"), a
Delaware corporation with offices at c/o Chase Enterprises, One Commercial
Plaza, Hartford, Connecticut 06103.
WHEREAS, PCI and _________________ ("Employee") are parties to that
certain Executive Employment Agreement (the "Employment Agreement") effective as
of _________________ ("Option Agreement");
WHEREAS, effective June 22, 1997, PCI, as part of a
reorganization of its corporate structure, became a subsidiary of
Entertainment through a contribution of shares from shareholders of PCI;
WHEREAS, in connection therewith, Entertainment will assume
certain duties formerly performed by PCI, including the employment of
certain employees of PCI, including Employee;
WHEREAS, the Option Agreement provides for adjustment/substitution of
shares subject to the option in the event of certain reorganizations;
WHEREAS, Entertainment has adopted the @Entertainment 1997 Stock Option
Plan (the "Option Plan");
NOW THEREFORE, for the consideration of One Dollar ($1.00), and
for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows;
1. PCI hereby assigns to Entertainment all of its right, title and interest as
employer, (defined as "the Company") in the Employment Agreement and Option
Agreement.
2. Entertainment hereby assumes and agrees to perform all the obligations and
responsibilities of PCI as the employer under the employment Agreement and
Option Agreement and Agrees to be bound by all the provisions of the
employment Agreement and Option Agreement. Employee shall become and be
considered an employee of Entertainment.
3. Entertainment hereby agrees that Employee's option to purchase common stock
of PCI, constitutes, pursuant to the terms of the Option Agreement and this
Agreement, an option to purchase _________________ shares of Common Stock of
Entertainment at $ _________________ per share. Any incremental rights to
exercise the option shall be adjusted accordingly. Such option to purchase
common stock of Entertainment is issued in connection with, and is subject to
the terms and conditions of, the Option Plan and the Option Agreement;
however, in the event of a conflict, the terms of the Option Agreement shall
control.
4. Entertainment indemnifies and agrees to hold PCI harmless from and against
any and all claims made, suits commenced or judgments entered arising out of
or in connection with the Employment Agreement, Option Agreement and its
employment of Employee.
5. This Agreement is binding upon PCI, Entertainment and Employee, and their
respective heirs, successors, executors, administrators, personal
representatives and assigns.
<PAGE> 1
EXHIBIT 11.1
POLAND COMMUNICATIONS, INC.
For the three months ended March 31, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March, 1996
------------------ ------------------
<S> <C> <C>
Net Loss applicable to common shareholders (4,543) (1,075)
----------- -----------
Weighted average number of shares outstanding 18,948,000 12,215,000
Net Loss per share $ (.24) $ (.09)
----------- -----------
</TABLE>
Page 1
<PAGE> 1
Exhibit 15
@Entertainment Inc.
Hartford, Connecticut
Ladies and Gentlemen:
Re: Registration Statement No. 333-XXX
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our reports dated June 23, 1997 related to our
reviews of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such reports are
not considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
------------------------------
KPMG PEAT MARWICK LLP
Hartford, Connecticut
July 14, 1997
<PAGE> 1
EXHIBIT 21
LIST OF THE SUBSIDIARIES OF THE COMPANY
<TABLE>
<S> <C>
Poland Communications, Inc................................................. New York
At Entertainment Limited................................................... United Kingdom
Poland Cablevision (Netherlands) B.V....................................... Netherlands
Polska Telewizja Kablowa S.A............................................... Poland
Polska Telewizja Kablowa -- Warszawa S.A................................... Poland
Polska Telewizja Kablowa -- Krakow S.A..................................... Poland
Polska Telewizja Kablowa -- Ryntronik S.A.................................. Poland
Polska Telewizja Kablowa -- Lublin S.A..................................... Poland
Polska Telewizja Kablowa -- Szczecin Sp. z o.o. ........................... Poland
Poltelkab Sp. z o.o........................................................ Poland
TV SAT Ursus Sp. z o.o. ................................................... Poland
TV KABEL Sp. z o.o. ....................................................... Poland
Telkat Sp. z o.o. ......................................................... Poland
ETV Sp. z o.o. ............................................................ Poland
Kolor Sat Sp. z o.o. ...................................................... Poland
Opolskie TT S.A............................................................ Poland
Czestochowska.............................................................. Poland
Szczecinska TK Sp. z o.o. ................................................. Poland
Otwocka TK Sp. z o.o. ..................................................... Poland
ProCable Sp. z o.o. ....................................................... Poland
Polskie Media S.A. ........................................................ Poland
Mozaic Entertainment Sp. z o.o. ........................................... Poland
Ground Zero Media Sp. z o.o. .............................................. Poland
Telewizja Kablowa GOSAT-Service Sp. z o.o. ................................ Poland
Mozaic, Inc................................................................ Delaware
</TABLE>
<PAGE> 1
Exhibit 23.1
The Board of Directors
@Entertainment, Inc.:
The audits referred to in our report dated March 26, 1997, except as to
Notes 1, 15 and 16 which are as of June 23, 1997, included the related financial
statement schedule as of 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 report dated March 26, 1997, except as to
Notes 1, 15 and 16 which are as of June 23, 1997 on the consolidated financial
statements of @Entertainment, Inc. and subsidiaries as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996
included herein and to the references to our firm under the heading "Experts"
and "Selected Consolidated Financial Data" in the prospectus.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
July 14, 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 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 report dated March 26, 1997, on the
consolidated financial statements of Poland Cablevision (Netherlands) B.V. and
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 included herein and to the references
to our firm under the heading "Experts" and "Selected Consolidated Financial
Data" in the prospectus.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
July 14, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3 MONTHS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 58,508
<SECURITIES> 25,115
<RECEIVABLES> 1,619
<ALLOWANCES> 489
<INVENTORY> 7,866
<CURRENT-ASSETS> 87,696
<PP&E> 107,632
<DEPRECIATION> (21,773)
<TOTAL-ASSETS> 212,937
<CURRENT-LIABILITIES> 16,183
<BONDS> 129,542
35,935
0
<COMMON> 189
<OTHER-SE> 26,308
<TOTAL-LIABILITY-AND-EQUITY> 212,937
<SALES> 0
<TOTAL-REVENUES> 8,258
<CGS> 0
<TOTAL-COSTS> (8,424)
<OTHER-EXPENSES> 171
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 3,205
<INCOME-PRETAX> (3,300)
<INCOME-TAX> 271
<INCOME-CONTINUING> (3,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (980)
<NET-INCOME> (4,551)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
