<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
@ENTERTAINMENT, INC.
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 06-1487156
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NO.)
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>
------------------------
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
Address, including zip code and telephone number, including area
code, or registrant's principal executive offices)
------------------------------
ROBERT E. FOWLER, III
@ ENTERTAINMENT, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------------
COPIES TO:
MARC R. PAUL, ESQ.
BAKER & MCKENZIE
815 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20006
(202)452-7034
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE UNIT PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) (2) (2)(3) FEE(3)
<S> <C> <C> <C> <C>
14 1/2% Series B Senior Discount Notes
due 2008............................ $252,000,000 53.75% $135,450,000 $39,957.75
</TABLE>
(1) The "Amount to be Registered" with respect to the 14 1/2% Series B Senior
Discount Notes due 2008, (the "Exchange Notes") represents the maximum
amount at maturity of Exchange Notes that may be issued pursuant to the
exchange offer described in the Registration Statement. The 14 1/2% Senior
Discount Notes due 2008 (the "Old Notes") for which the Exchange Notes are
hereby offered in exchange, were sold at a substantial discount from their
principal amount at maturity.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) under the Securities Act of 1933, as amended (the
"Securities Act").
(3) The registration fee for the Exchange Notes offered hereby, $39,957.75, is
calculated under Rule 457(f)(1) of the Securities Act as follows: the
product of .000295 and $135,450,000, which represents the proposed maximum
aggregate offering price, based on the average of the bid and asked price as
of July 31, 1998 for the Issuer's Old Notes for which the Exchange Notes are
hereby offered.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
@ ENTERTAINMENT, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND HEADING ON FORM S-4 HEADING OR LOCATION IN PROSPECTUS
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Cover Pages of Registration Statement and Prospectus;
Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Prospectus Summary; Summary Consolidated Financial Data;
Risk Factors
4. Terms of the Transaction........................ Prospectus Summary; The Exchange Offer; United States
Income Tax Considerations; Description of the Notes
5. Pro Forma Financial Information................. Summary Consolidated Financial Data
6. Material Contracts with the Company Being
Acquired........................................ Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... Not Applicable
8. Interests of Named Experts and Counsel.......... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants..... Prospectus Summary; Risk Factors; Use of Proceeds
11. Incorporation of Certain Information By
Reference....................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants..................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies....... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM AND HEADING ON FORM S-4 HEADING OR LOCATION IN PROSPECTUS
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C>
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................ Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................. Prospectus Summary; The Exchange Offer; Use of Proceeds
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
SUBJECT TO COMPLETION, DATED AUGUST 4, 1998
@ENTERTAINMENT, INC.
OFFER TO EXCHANGE
14 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2008
FOR ANY AND ALL OF ITS
OUTSTANDING 14 1/2% SENIOR DISCOUNT NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1998, UNLESS EXTENDED; PROVIDED IT MAY NOT BE EXTENDED BEYOND
1998.
@Entertainment, Inc., a Delaware corporation ("@Entertainment" or the
"Issuer"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount at
maturity of 14 1/2% Series B Senior Discount Notes due 2008 (the "Exchange
Notes") for each $1,000 principal amount at maturity of 14 1/2% Senior Discount
Notes due 2008 (the "Old Notes"), of which $252 million in aggregate principal
amount at maturity are outstanding as of the date hereof, which exchange has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a registration statement of which this Prospectus is a part
(the "Registration Statement"). The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes except that (i) the exchange will
have been registered under the Securities Act and therefore the Exchange Notes
will not bear legends restricting the transfer thereof and (ii) holders of the
Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Registration Rights Agreement (as defined herein), which rights
with respect to Old Notes will terminate upon the consummation of the Exchange
Offer. See "Description of the Notes -- Exchange Offer; Registration Rights."
The Exchange Notes will evidence the same debt as the Old Notes (which they
replace) and will be entitled to the benefits of an indenture dated as of July
14, 1998 governing the Old Notes and the Exchange Notes (the "Indenture"), such
that both series will be treated as a single class of debt securities under the
Indenture. The Old Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of the
Notes."
The Issuer will accept for exchange any and all validly tendered Old Notes
not withdrawn prior to 5:00 p.m., New York City time, on , 1998
("Expiration Date"); provided, however, that if the Issuer, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended; provided further, that in no event will the Exchange
Offer be extended beyond , 1998. Tenders of Old Notes may be withdrawn
at any time prior to the Expiration Date. The Exchange Offer is subject to
certain customary conditions. Old Notes may be tendered only in integral
multiples of $1,000 principal amount at maturity. See "The Exchange Offer --
Certain Conditions to the Exchange Offer."
The Exchange Notes will mature on July 15, 2008. Upon a Change of Control
(as defined herein), each holder of the Exchange Notes may require the Issuer to
repurchase all or a portion of such holder's Exchange Notes at a purchase price
in cash equal to 101% of the Accreted Value (as defined herein) thereof plus
accrued and unpaid interest, if any, to the date of such purchase. In addition,
the Issuer may be required to use the net cash proceeds of certain Asset Sales
(as defined herein) to make an offer to purchase the Exchange Notes at a
purchase price equal to 100% of the Accreted Value thereof, plus accrued and
unpaid interest, if any, to the date of purchase. The Notes will be redeemable
at the option of the Issuer, in whole or in part, at any time on or after July
15, 2003 at the redemption prices set forth herein, plus accrued and unpaid
interest, to the date of redemption. In addition, on or prior to July 15, 2001,
the Issuer may redeem up to 25% of the initially outstanding aggregate principal
amount at maturity of the Notes with some or all of the net cash proceeds of one
or more Public Equity Offerings (as defined herein) at a redemption price equal
to 114.5% of the Accreted Value (as defined herein) thereof at the date of
redemption, plus accrued and unpaid interest, if any, to the date of redemption;
PROVIDED, HOWEVER that not less than 75% of the originally issued aggregate
principal amount at maturity of the Notes would remain outstanding immediately
after giving effect to any such redemption. Any such redemption shall be
effected upon not less than 30 nor more than 60 days' notice given within 30
days after the consummation of a Public Equity Offering (as defined herein). See
"Description of the Notes--Redemption."
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" FROM PAGES [ ] TO [ ] FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Exchange Notes are senior unsecured obligations of the Issuer ranking
PARI PASSU in right of payment with all other existing and future unsubordinated
obligations of the Issuer and senior in right of payment to all future
subordinated indebtedness of the Issuer. The Issuer is a holding company with
limited assets of its own that conducts substantially all of its business
through subsidiaries. The Exchange Notes will be effectively subordinated to all
indebtedness for money borrowed by the subsidiaries of the Issuer. At March 31,
1998, on a pro forma basis after giving effect to the sale of the Old Notes and
the application of the net proceeds therefrom and the drawdown of the $6.5
million AmerBank facility (as defined herein), @Entertainment and its
subsidiaries, on a consolidated basis, would have had approximately $256 million
of outstanding indebtedness, approximately $139 million of which would have been
indebtedness of subsidiaries of @Entertainment. See "Use of Proceeds" and
"Description of the Notes."
The Old Notes were sold by the Issuer on July 8, 1998 to Merrill, Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and J.P. Morgan Securities
Inc. ("J.P. Morgan," and together with Merrill Lynch, the "Initial Purchasers")
pursuant to a Purchase Agreement dated July 8, 1998 by and among the Issuer and
the Initial Purchasers (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Issuer and the Initial Purchasers entered into a Registration
Rights Agreement dated as of July 14, 1998 (the "Registration Rights Agreement")
which granted the holders of the Old Notes certain exchange and registration
rights. The Exchange Offer is being made to satisfy certain of the Issuer's
obligations under the Registration Rights Agreement.
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuer believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold or otherwise transferred by a holder
thereof (other than any holder which is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act or a holder that is a broker-dealer
who acquires Exchange Notes to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holder is not participating, does not intent to participate,
and has no arrangement with any person to participate in the distribution of
such Exchange Notes. However, the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Issuer that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer, where it acquired the Old Notes
exchanged for such Exchange Notes for its own account as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus in connection with the resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any resales of Exchange Notes. See
"The Exchange Offer -- Resale of the Exchange Units", "--Resale of the Exchange
Notes" and "Plan of Distribution."
The Issuer will not receive any proceeds from the Exchange Offer and will
pay all of its expenses incident thereto. Tenders of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the
event that the Issuer terminates the Exchange Offer and does not accept for
exchange any Old Notes, the Issuer will promptly return the Old Notes to the
holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
The Issuer does not intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system. There
can be no assurance that an active market for the Exchange Notes will develop.
To the extent that a market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions, such as yields on
alternative investments, general economic conditions, the Issuer's financial
condition and other conditions. Such conditions might cause the Exchange Notes,
to the extent that they are actively traded, to trade at a significant discount
from face value and from their value at the time of the Exchange Offer. See
"Risk Factors -- Absence of Public Market."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Old Notes. Consequently, interest on the Exchange Notes will be payable
semi-annually in cash in arrears on January 15 and July 15 of each year,
commencing January 15, 2004, at the rate of 14 1/2% per annum. Accreted Value on
the Exchange Notes will accrue from July 14, 1998 (the "Issue Date"). Holders
whose Old Notes are accepted for exchange will not receive Accreted Value
thereon, but because the Accreted Value of the Exchange Notes is calculated from
the Issue Date, there will be no forfeiture of Accreted Value by the holders of
Old Notes whose Old Notes are accepted for exchange in the Exchange Offer.
The Issuer is organized under the laws of the State of Delaware. Although
investors in the Exchange Notes will be able to effect service of process in the
United States upon the Issuer and may be able to effect service of process upon
its directors, due to the fact that the Issuer is primarily a holding company
which holds stock in various entities in Poland, the United Kingdom and the
Netherlands, all or a substantial portion of the assets of the Company (as
defined herein) are located outside the United States. As a result, it may not
be possible for investors to enforce against the Company's assets judgments of
U.S. courts predicated upon the civil liability provisions of U.S. laws.
The Issuer has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Poland, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the laws of the United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may be unenforceable in
Poland.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Issuer 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.
The Issuer also has been advised by its counsel, Baker & McKenzie, that a
final and conclusive judgment duly obtained in actions brought in the United
States will not be recognized and enforced by a Netherlands court and it will be
necessary to bring the matter before the competent Netherlands court. The
claimants may, in the course of these proceedings, submit the judgment rendered
by the court in the United States. If and to the extent that the Netherlands
court is of the opinion that fairness and good faith so require, it will give
binding effect to such foreign judgment, unless such foreign judgment
contravenes Netherlands principles of public policy.
------------------------------
In this Prospectus, references to "U.S. Dollars" or "$" are to United States
currency, and references to "zloty" or "PLN" are to Polish currency. The Issuer
has presented its primary consolidated financial statements in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP") in
U.S. Dollars. Amounts originally measured in zloty for all periods presented
have been translated into U.S. Dollars in accordance with the methodology set
forth in Statement of Financial Accounting Standards No. 52 ("SFAS No. 52"). For
the convenience of the reader, this Prospectus contains certain zloty amounts
not derived from the consolidated financial statements which have been
translated into U.S. Dollars which should not be construed as a representation
that such zloty amounts actually represent such U.S. Dollar amounts or could be,
or could have been, converted into U.S. Dollars at the rates indicated or at any
other rate. Unless otherwise stated, such U.S. Dollar amounts have been derived
by converting from zloty to U.S. Dollars at the rate of PLN 3.45 = $1.00, the
exchange rate quoted by the National Bank of Poland ("NBP") at noon on March 31,
1998. This rate may differ from the actual rates in effect during the periods
covered by the financial information discussed herein. The Federal Reserve Bank
of New York does not certify for customs purposes a noon buying rate for zloty.
See "Exchange Rate Data."
------------------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
------------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements which constitute forward-looking
statements regarding the intent, belief or current expectations of the Issuer or
its officers with respect to, among other things, (i) the Issuer's financing
plans, (ii) trends affecting the Issuer's financial condition or results of
operations, (iii) the impact of competition, (iv) the start up of certain
operations, (v) acquisition opportunities, and (vi) regulatory matters.
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 "Prospectus Summary-Recent Developments,"Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "The
Industry," "Business" and "Regulation" identifies important factors that could
cause such differences.
------------------------------
Reference is made to the following trademarks/tradenames owned by third
parties and used with the permission of the entity shown in parentheses: BET on
Jazz (Black Entertainment Television, Inc), Cartoon Network (The Cartoon
Network, Inc), CNN International (Cable News Network, Inc), Fox Kids (Twentieth
Century Fox Film Corporation), Hallmark (Hallmark Entertainment Network, Inc),
QuesTV (QTV Communications, LLC), National Geographic (National Geographic
Society), Romantica (Zone Broadcasting (Romantica) Limited), Turner Classic
Movies (Turner Classic Movies, Inc), Travel (Landmark Travel Channel Limited),
MTV (MTV Networks Europe), and VH-1 (MTV Networks Europe). In addition to the
trademarks listed above, reference is made to the following
trademarks/tradenames which are owned by third parties:
CryptoWorks-Registered Trademark- (Koninklijke Philips Electronics N.V.), Twoj
Styl (WPTS Sp. z o.o. in which the Company holds a 50 percent interest), HBO
(Time Warner Entertainment Company, L.P.), and Canal+ (Canal+ S.A.).
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes being offered by
this Prospectus. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Issuer and the Exchange
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, and the financial statements and notes filed as a part
thereof. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed with the Commission as an exhibit
are not necessarily complete. With respect to each such contract, agreement or
other document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES LAWS OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
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. AS USED IN THIS PROSPECTUS
REFERENCES TO "@ENTERTAINMENT" OR THE "ISSUER" MEAN @ENTERTAINMENT, INC., A
DELAWARE CORPORATION WHOSE COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET
AND TRADED UNDER THE SYMBOL ATEN, AND TO THE "COMPANY" MEAN @ENTERTAINMENT AND
ITS CONSOLIDATED SUBSIDIARIES, INCLUDING POLAND COMMUNICATIONS, INC. ("PCI") AND
AT ENTERTAINMENT LIMITED ("@EL"). @ENTERTAINMENT PREPARES ITS CONSOLIDATED
FINANCIAL STATEMENTS IN ACCORDANCE WITH U.S. GAAP AND IN U.S. DOLLARS. FOR THE
CONVENIENCE OF THE READER, AMOUNTS IN THIS PROSPECTUS THAT ARE NOT DERIVED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN TRANSLATED TO U.S. DOLLARS. DATA
REGARDING THE COMPANY'S CABLE TELEVISION SUBSCRIBERS ARE AT MAY 31, 1998, UNLESS
OTHERWISE NOTED. CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE
GLOSSARY INCLUDED HEREIN AS ANNEX A. PROSPECTIVE PARTICIPANTS IN THE EXCHANGE
OFFER SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS."
THE COMPANY
GENERAL
The Company is the leading provider of pay television in Poland and is
engaged principally in the provision of cable television services and in the
development, packaging and delivery of high-quality programming. The Company is
the largest cable television operator in Poland, with approximately 865,000
total subscribers, which the Company estimates is more than two and a half times
as many subscribers as the next largest cable television operator. Over the past
three years, the Company has experienced rapid growth in revenues and
subscribers, both through acquisitions and through the build-out of its own
cable networks, resulting in an average increase in revenues and total cable
subscribers of 66% and 56% per annum, respectively. The Company also has
increased its average revenue per subscriber by 12% per annum during this same
period. The Company generated operating income of $3.5 million in 1995, but had
operating losses of $1.3 million, $42.7 million and $14.4 million for 1996, 1997
and the first three months of 1998, respectively. On June 5, 1998, the Company
launched a proprietary programming platform (the "Programming Platform") branded
Wizja TV, consisting of 11 channels of primarily Polish language programming,
over its cable networks. The Company believes that Wizja TV will provide it with
a significant competitive advantage for driving subscriber growth and increasing
revenue per subscriber. Wizja TV will also be sold on a wholesale basis to other
cable operators in Poland.
In order to reach television households in Poland which it does not expect
to cover with its cable networks, the Company intends to launch in September
1998 a complementary digital satellite direct-to-home broadcasting ("D-DTH")
service allowing subscribers to receive Wizja TV via a satellite dish. The
Company has completed the testing of its production and transmission facility
and completed a limited launch of its D-DTH service, including Wizja TV, to
approximately 250 reception systems on July 1, 1998. The Company has also
received advance orders from 16,000 potential subscribers to its D-DTH service.
The Company believes that its multi-channel Polish-language D-DTH service is the
first D-DTH service available in Poland. In connection with the launch of the
Company's D-DTH service, through May 31, 1998 the Company had received
approximately 25,000 preliminary indications of demand from potential
subscribers relating to its D-DTH service and had received more than 350,000
telephone calls relating to the Wizja TV product. Upon the full launch of the
Company's D-DTH system in September 1998, an expanded version of Wizja TV will
be transmitted on both the Company's D-DTH system and cable networks. The
Company has also entered into an agreement with Philips Business Electronics
B.V. ("Philips") to supply the satellite dish, digital set top box and related
hardware and to distribute the Company's D-DTH service through more than 1,000
Philips authorized retailers located throughout Poland. See "Business--D-DTH."
1
<PAGE>
POTENTIAL MARKET OPPORTUNITY
With approximately 39 million people and 12.3 million television households
(as estimated by the Company at December 31, 1997), the Company believes that
Poland represents a highly attractive and dynamic market for the provision of
pay television. Television viewing rates in Poland are among the highest in
Europe with an average television viewing rate in 1996 of approximately 252
minutes per day per adult. This rate compares favorably to the 1996 U.S. and
U.K. average television viewing rates of approximately 240 minutes and 215
minutes per day per adult, respectively. In addition, as there are only
approximately 12 free-to-air television channels generally available in Poland
that contain primarily Polish-language programming, the Company believes that
significant opportunities exist to provide high-quality Polish-language
programming on a multi-channel basis.
CABLE TELEVISION MARKET. The Company believes the market for cable
television in Poland is attractive with growth opportunities coming both
from homes passed by cable that are not cable subscribers and homes
currently not passed by cable. Of the approximately 4.0 million homes in
Poland currently passed by cable, the Company estimates that approximately
1.0 million households do not subscribe to cable. In addition, approximately
8.3 million homes are currently not passed by cable.
D-DTH MARKET. The Company believes that significant opportunity exists
for a D-DTH service in Poland. Approximately 8.3 million homes currently are
not passed by cable and approximately 1.6 million homes currently are
equipped with an analog direct-to-home service ("A-DTH") satellite dish.
Based on Polish consumers' willingness to spend disposable income on
television entertainment, evidenced in part by the country's 53% VCR
penetration rate at an average cost of $225 per VCR, the Company believes
that its D-DTH service will represent an attractive and affordable
entertainment alternative.
COMPANY OPERATIONS
CABLE TELEVISION. The Company operates the largest cable television system
in Poland with approximately 1,530,000 homes passed and approximately 865,000
total subscribers. The Company's cable subscribers are located in 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 believes additional subscriber
growth can be achieved through a combination of increased penetration, new
network build-out and acquisitions. In addition, the Company believes that its
offering of Wizja TV on its cable networks, which began June 5, 1998, will
increase its number of subscribers and increase revenue per subscriber. At March
31, 1998, the Company had invested more than $121 million to construct
fiber-optic cable networks, which it believes are among the most technologically
advanced in Poland and are comparable to modern cable networks in the United
States. The networks constructed by the Company provide excess channel capacity
and are designed to maximize reliability. It is the Company's policy to upgrade
as rapidly as possible substandard networks that it has acquired.
DIGITAL SATELLITE DIRECT-TO-HOME BROADCASTING. The Company intends to
expand its distribution capacity by launching in September 1998 a complementary
D-DTH broadcasting service for Poland, targeted at homes that are not
subscribers to the Company's cable service. The programming to be provided will
be Wizja TV. The Company completed a limited launch of its D-DTH service,
including Wizja TV, to approximately 250 reception systems on July 1, 1998. The
Company has also received advance orders from 16,000 potential subscribers to
its D-DTH service. The Company believes that its multi-channel Polish-language
D-DTH service is the first D-DTH service available in Poland. The Company's
D-DTH service is being broadcast to Poland from its transmission facilities in
Maidstone, United Kingdom.
Philips, a leading electronics manufacturer and, through its Polish
affiliates, the largest electronics retailer in Poland, has agreed to supply the
Company with D-DTH reception systems, which include the
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satellite dish, the digital set top box and all related hardware ("D-DTH
Reception Systems"), for up to 500,000 initial subscribers to the Company's
D-DTH service. Philips has also agreed to distribute, install and service the
Company's D-DTH Reception Systems through more than 1,000 Philips authorized
electronics retailers located throughout Poland. Philips has operated in Poland
since 1991 and has experience introducing new products to the Polish market
through its extensive retail network. In addition, Philips has supplied an
end-to-end product package for MEASAT's D-DTH service in Malaysia, utilizing
CryptoWorks-Registered Trademark- technology similar to that to be used in the
Company's D-DTH service.
Because the Company's D-DTH service will, it believes, be the first D-DTH
service available in Poland, there are likely to be issues of first impression
arising under Polish law with respect to certain aspects of the Company's D-DTH
business and related programming arrangements and there can be no assurance that
these issues will be decided favorably for the Company. In addition, the Polish
and European Union broadcasting regulations are part of a developing regulatory
framework that may change adversely to the Company as the Polish D-DTH market
develops. See "Risk Factors--Limited D-DTH Experience and Uncertainties
Associated with the D-DTH Market," "--Polish Regulation of the D-DTH Market",
"--European Union Regulation of D-DTH Business," "--Dependence on Philips as
Principal Supplier," "Business--D-DTH--Technology and Infrastructure," and
"Regulation."
PROGRAMMING. The Company began broadcasting to Poland from its transmission
facilities in Maidstone, United Kingdom and retransmitting Wizja TV across its
cable networks on June 5, 1998, and on its D-DTH system on a limited basis on
July 1, 1998, and it plans to transmit Wizja TV on its D-DTH system on a
full-scale basis starting in September 1998. To promote the launch of Wizja TV,
the Company has commenced a $20 million nationwide marketing campaign which the
Company believes will be the largest single-year product launch expenditure to
date in Poland. Wizja TV's current channel line-up includes three channels,
Atomic TV, Wizja 1, and Wizja Pogoda, that are owned and operated by the
Company, and 11 channels that are produced by third parties, 9 of which are
broadcast under exclusive agreements for pay television in Poland. Atomic TV is
a Polish-language music television channel, targeting 14 to 29 year olds. Atomic
TV began to be broadcast via satellite in April 1997 across the cable networks
of the Company and other cable operators. Atomic TV is currently distributed to
more than 900,000 cable subscribers, and the Company believes that based on
distribution it is the leading music television channel in the Polish market.
Wizja 1, a general entertainment channel showing movies, sports, series and
children's programming, and Wizja Pogoda, a weather channel, were launched on
July 1, 1998 and July 21, 1998, respectively, across the Company's cable
networks and on its D-DTH system. The Company expects to expand Wizja TV's
initial channel line-up to include additional basic and premium channels,
including the Company's proprietary Wizja Sport channel, and eventually to
introduce tiered packages containing a variety of combinations of 21 or more
channels. Wizja Sport, a sports channel, is expected to be launched during the
fourth quarter of 1998.
Wizja TV includes certain exclusive Polish pay television rights to channels
and events covering what the Company believes are the most important programming
genres to viewers in the Polish market, including movies, sports, children's
programming, documentaries and music.
The Company has signed a license agreement for the exclusive distribution on
its D-DTH system, and amended its existing agreement for non-exclusive
distribution across its cable networks, of HBO's premium movie channel.
The Company has also entered into long-term exclusive agreements to
broadcast to Poland live coverage of certain sports events, including the Polish
national soccer team's away games, certain European matches of Lech Poznan, a
Polish Premier League soccer team, European soccer matches, including matches
from the Dutch and Portuguese leagues, Polish Speedway League events, European
Grand Prix Speedway events, International Skating Union Champion Series ice
skating, games of three leading teams in the Polish Premier Hockey League, and
certain boxing events including local Polish boxing and fights involving Prince
Naseem. The Company has also entered into an exclusive agreement to broadcast
the Wimbledon tennis tournament to Poland. These events will initially be
carried on Wizja 1,
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and when it is established, on Wizja Sport. When established, Wizja Sport will
initially provide 12 hours of local and international sporting events per week.
The Company believes that Wizja Sport will be the first channel in the Polish
market principally dedicated to Polish sports programming.
In addition, the Company has signed license agreements for exclusive pay
television distribution to Poland of the following channels: BET on Jazz, The
Cartoon Network, Turner Classic Movies, Fox Kids Poland, The Hallmark
Entertainment Channel, the National Geographic Channel, QuesTV, Romantica and
Travel. The Company has also signed a license agreement for distribution in
Poland of CNNI, and has entered into a binding heads of agreement for the
exclusive distribution on its D-DTH system of MTV and the non-exclusive
distribution across its cable networks of VH-1. The Company expects to launch
MTV and VH-1 in the third quarter of 1998. The Company is also in the process of
negotiating license agreements for exclusive pay television distribution to
Poland of additional channels.
COMPANY STRENGTHS
The Company has certain strengths that it believes position it to compete
successfully in the Polish pay television market and to take advantage of the
significant viewer demand for multi-channel high-quality Polish-language
programming. These strengths include the following:
LEADING MARKET POSITION. The Company is currently the largest cable
television operator in Poland and estimates that it has more than two and a
half times as many subscribers as the next largest operator in Poland. Its
cable television networks serve approximately 865,000 total subscribers,
representing approximately 29% of all cable subscribers in Poland and
approximately 52% of all cable subscribers in Poland to systems offering
approximately 20 or more channels. 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 to acquire, at attractive prices, or displace these smaller
cable operators. In addition, frequent lack of exclusivity of cable
operators' agreements with co-operative housing authorities ("co-op
authorities") facilitates overbuilding of these smaller cable operators.
Once the Company launches its D-DTH service, its strategy is to achieve
rapid penetration of the Polish market by distributing D-DTH Reception
Systems to 500,000 targeted initial subscribers at a price significantly
decreased by promotional incentives. The Company believes that its service
is the first Polish-language D-DTH service available in Poland 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 pay television in Poland.
COMPELLING PROGRAMMING. The Company has secured for Wizja TV certain
exclusive Polish pay television rights to channels and events covering what
it believes are the most important programming genres to viewers in the
Polish market, including movies, sports, children's programming,
documentaries and music. The Company currently provides Wizja TV to its
cable subscribers and intends to offer Wizja TV on its D-DTH system. The
Company believes that this selection of high-quality Polish-language
programming will provide it with a significant competitive advantage in
increasing its cable subscriber base and establishing its D-DTH subscriber
base.
ADVANCED TECHNOLOGY. The Company's own 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 incremental channel
capacity as well as additional services such as voice and data transmission.
The Company believes that its multi-channel Polish-language D-DTH service
will be among the first digital television platforms launched in Europe. The
Company believes that in the future it will be able to provide its D-DTH
customers with additional value-added services, including interactive
television, pay per view, near-
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video-on-demand, data transfer, and services related to electronic banking,
should the Company decide to pursue such ancillary sources of revenue.
STRONG D-DTH DISTRIBUTION NETWORK. Philips has agreed to distribute,
install and service D-DTH Reception Systems to up to 500,000 initial
subscribers through more than 1,000 Philips authorized retailers located
throughout Poland. The Company believes this widespread distribution network
through Poland's largest electronics retailer provides the Company with a
competitive advantage for distributing its D-DTH service into the Polish
market.
HIGH CABLE PENETRATION AND LOW CHURN. The Company's cable systems are
currently achieving premise penetration of approximately 57% 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 62%. The Company believes that its
offering of Wizja TV across its cable networks, which began June 5, 1998,
will improve its penetration by expanding its program offering from 10
primarily Polish-language channels not available on terrestrial frequencies
to 18 channels. In addition, the Company has historically experienced annual
churn rates of less than 10%, which compare favorably to other markets such
as the United Kingdom, where in 1996 churn rates were approximately three
times this figure. In 1997, the Company's churn rate increased to 12.2%,
though it would have been 9.8% had the Company not disconnected
approximately 17,000 non-paying subscribers in one of its acquired and
rebuilt networks. The Company expects that it may continue to experience
increases in its churn rate above historical levels during the
implementation of its current pricing strategy, which commenced in January
1997 and is designed to increase revenue per subscriber and to achieve real
profit margin increases in U.S. Dollar terms.
SUBSTANTIAL INFRASTRUCTURE INVESTMENT. The Company has developed an
advanced production facility in Maidstone, United Kingdom for the production
and transmission of Wizja TV. In addition, the Company has created a
centralized call center (the "Call Center") to handle sales and service for
both its cable and D-DTH customers. The Company believes that the Call
Center is among the most sophisticated in Poland. The Company believes that
its facilities provide it with a competitive advantage in terms of
subscriber management services and cost efficiency.
EXPERIENCED MANAGEMENT. The Company has established a strong management
team, with extensive experience in the television industry. In addition, the
Company has executed consulting agreements with Samuel Chisholm and David
Chance, who were formerly Chief Executive Officer and Deputy Managing
Director, respectively, of British Sky Broadcasting Group plc ("BSkyB"),
which is the leading pay television broadcasting service in the United
Kingdom and Ireland. In addition to providing consulting services, Messrs.
Chisholm and Chance serve on @Entertainment's Board of Directors.
BUSINESS STRATEGY
The Company's principal objective is to enhance its position as the leading
provider of 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 advanced cable television and D-DTH systems. The
Company's business strategy is designed to increase its market share and
subscriber base and to maximize revenue per subscriber. To accomplish its
objectives and to capitalize on its competitive advantages, the Company intends
to (i) develop and control content, (ii) grow its distribution capabilities
through organic growth and through acquisitions, (iii) control its own
subscriber management with advanced integrated management information systems,
and (iv) establish Wizja TV as the leading brand name in the Polish pay
television industry.
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FINANCING PLAN
The development of the Company's businesses will require significant capital
to fund capital expenditures, working capital, debt service and operating
losses, including contractual commitments in connection with its D-DTH and
programming businesses. The Company believes that in addition to the net
proceeds from the sale of the Old Notes, cash on hand and cash from operations,
it will need additional funding of at least $150 million to fulfill its current
business plan and to fund these commitments through the end of 1999. The Company
expects that it will obtain such funding either through public or private debt
or equity offerings or bank financings or a combination thereof. See "Risk
Factors--Need for Additional Financing."
The Company is, after the sale of the Old Notes, highly leveraged. At March
31, 1998, on a pro forma basis after giving effect to the sale of the Old Notes
and the application of the proceeds therefrom and the drawdown of the $6.5
million credit facility with American Bank in Poland, S.A. ("AmerBank"),
@Entertainment and its subsidiaries, on a consolidated basis, would have had
approximately $256 million of outstanding indebtedness, approximately $139
million of which would have been indebtedness of subsidiaries of @Entertainment
(including approximately $130 million of PCI's 9 7/8% Senior Notes due 2003 and
9 7/8% Series B Senior Notes due 2003 (collectively, the "PCI Notes"). The
Indenture and the indenture governing the PCI Notes ("PCI Indenture") limit, but
do not prohibit, the incurrence of additional indebtedness by @Entertainment and
its subsidiaries and by PCI and its subsidiaries, respectively. See "Risk
Factors--Substantial Leverage; Ability to Service Debt."
RECENT DEVELOPMENTS
On April 17, 1998, the Company signed a letter of intent with Telewizyjna
Korporacja Partycypacyjna S.A. ("TKP"), a Polish company that currently operates
an A-DTH and terrestrial single channel premium pay television service in
Poland, and the shareholders of TKP, namely, Canal+ S.A., Agora S.A., and PolCom
Invest S.A. The letter of intent provided for bringing together the Company's
Wizja TV programming platform and the Canal+ Polska premium pay television
channel and for the joint development and operation of a D-DTH service in
Poland. The letter of intent called for the Company to invest approximately $112
million in TKP, and to sell substantially all of the Company's D-DTH and
programming assets to TKP for approximately $42 million. The TKP joint venture
was to be owned 40% by the Company, 40% by Canal+ S.A., 10% by Agora S.A. and
10% by PolCom Invest S.A. The letter of intent also contained a standstill
provision whereby neither the Company nor TKP could, for a period of 45 days
after the execution of the letter of intent, launch any digital pay television
service. As a result, the Company postponed its launch of the Wizja TV
programming platform and its D-DTH service, which was originally scheduled for
April 18, 1998. The establishment of the joint venture was subject to the
execution of definitive agreements, regulatory approvals and certain other
closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent. Therefore, the Company terminated the
letter of intent on June 1, 1998. The Company has informed TKP and its
shareholders that the Company remains willing to discuss other joint marketing
arrangements which may include some form of joint venture, investment, or
cooperation in the future. A portion of the net proceeds of the Offering may be
used for such purpose. TKP and its shareholders have informed the Company that
they believe the Company did not have the right to terminate the letter of
intent and have initiated arbitration proceedings against the Company. The
Company has submitted its answer and counterclaims. See "Business--Legal
Proceedings."
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CORPORATE ORGANIZATIONAL STRUCTURE
The chart on this page outlines the organizational structure of the Issuer
and certain of its principal subsidiaries that is currently being implemented.
[Chart shows @Entertainment, Inc.'s (the "Issuer") ownership in certain of
its principal subsidiaries in its D-DTH, programming, and cable businesses.
D-DTH: The Issuer owns 100% of At Entertainment Limited ("@EL") and 100% of
Wizja TV Sp. z o.o. PROGRAMMING: The Issuer owns 100% of Sereke Holding B.V.
("Sereke"), 50% of WPTS Sp. z o.o. ("Twoj Styl"), 100% of Ground Zero Media Sp.
z o.o. ("GZM"), and 100% of @Entertainment Programming, Inc. ("@EP"). CABLE: The
Issuer owns 100% of Poland Communications, Inc ("PCI"). PCI owns 100% of Polska
Telewizja Kablowa S.A. ("PTK S.A."), and has an ownership interest in other
cable subsidiaries. PCI will own 49% of Cable Television Newco ("CATV") (in
formation) and 49% of PTK Operator Sp. z o.o. ("PTK Operator") (structure to be
implemented). CATV will own 51% of PTK Operator (structure to be implemented).]
* Certain of the cable television operating subsidiaries are owned directly
by Poland Cablevision (Netherlands) B.V. ("PCBV"), of which 92.3% is
owned by PCI. See "Certain Relationships and Related Transactions--PCBV
Stockholders' Agreement."
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THE EXCHANGE OFFER
The Exchange Offer.............. The Issuer is offering to exchange $1,000 principal amount
at maturity of Exchange Notes for each $1,000 principal
amount at maturity of Old Notes that is properly tendered
and accepted. The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes except
that (i) the exchange will have been registered under the
Securities Act and therefore the Exchange Notes will not
bear legends restricting the transfer thereof and (ii)
holders of the Exchange Notes will not be entitled to
certain rights of holders of the Old Notes under the
Registration Rights Agreement which rights with respect to
Old Notes will terminate upon the consummation of the
Exchange Offer. See "Description of the Notes-- Exchange
Offer; Registration Rights." The Exchange Notes will
evidence the same debt as the Old Notes (which they
replace) and will be entitled to the benefits of the
Indenture, such that both series will be treated as a
single class of debt securities under the Indenture.
Subject to certain conditions, a holder who wishes to
tender must transmit a properly completed and duly
executed Letter of Transmittal to Bankers Trust Company
(the "Exchange Agent") on or prior to the Expiration Date.
For procedures for tendering, see "The Exchange Offer."
Based upon no-action letters issued by the staff of the
Commission to third parties, the Issuer believes that the
Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold
or otherwise transferred by a holder thereof (other than
any holder which is an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act or a
holder that is a broker-dealer who acquires Exchange Notes
to resell pursuant to Rule 144A or any other available
exemption under the Securities Act), without compliance
with the registration and prospectus delivery provisions
of the Securities Act; provided that such Exchange Notes
are acquired in the ordinary course of such holders'
business and such holder is not participating, does not
intend to participate, and has no arrangement with any
person to participate in the distribution of such Exchange
Notes. However, the Commission has not considered the
Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission
would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Holders of
Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been
met. Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer, where it
acquired the Old Notes exchanged for such Exchange Notes
for its own account as a result of market-making or other
trading activities, must acknowledge that it will deliver
a prospectus in connection with the resale of such
Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes" and "Plan of Distribution."
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Registration Rights Agreement... The Old Notes were sold by the Issuer on July 14, 1998 to
the Initial Purchasers pursuant to the Purchase Agreement.
Pursuant to the Purchase Agreement, the Issuer and the
Initial Purchasers entered into the Registration Rights
Agreement. This Exchange Offer is intended to satisfy
certain rights under the Registration Rights Agreement,
which terminate upon the consummation of the Exchange
Offer. The holders of the Exchange Notes are not entitled
to any exchange or registration rights with respect to the
Exchange Notes. The Old Notes are subject to the payment
of additional interest under certain circumstances if the
Issuer is not in compliance with its obligations under the
Registration Rights Agreement. See "Description of the
Notes--Exchange Offer; Registration Rights."
Expiration Date; Withdrawal..... The Exchange Offer will expire at 5:00 p.m., New York City
time, on the "Expiration Date." As used herein, the term
"Expiration Date" means 5:00 p.m., New York City time, on
; provided, however, that if the Issuer, in its
sole discretion, has extended the period of time for which
the Exchange Offer is to remain open, the term "Expiration
Date" means the latest time and date to which the Exchange
Offer is extended; provided further that in no event will
the Exchange Offer be extended beyond . The
tender of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date by
sending a written notice of withdrawal to the Exchange
Agent. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of
the Exchange Offer. Any Old Notes not accepted for
exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
See "The Exchange Offer--Terms of the Exchange Offer;
Period for Tendering Old Notes."
Certain Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer................ conditions, which may be waived by the Issuer. See "The
Exchange Offer -- Certain Conditions to the Exchange
Offer."
Federal Income Tax For Federal income tax purposes, the exchange pursuant to
Consequences.................. the Exchange Offer will not result in any income, gain or
loss to the holders or the Issuer. See "United States
Income Tax Considerations."
Use of Proceeds................. There will be no proceeds to the Issuer from the exchange
pursuant to the Exchange Offer.
Exchange Agent.................. Bankers Trust Company is serving as Exchange Agent in
connection with the Exchange Offer.
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CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state
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securities laws. Accordingly, such Old Notes may be resold only (i) to a person
whom the seller reasonably believes is a qualified institutional buyer (as
defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, (ii) in a transaction meeting the requirements of
Rule 144 under the Securities Act, (iii) in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Issuer so requests), (iv) to the Issuer or (v)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. The Issuer does not currently anticipate
that it will register the Old Notes under the Securities Act. See "Risk
Factors--Consequences of Failure to Exchange Old Notes" and "The Exchange
Offer--Consequences of Exchanging Old Notes; Consequences of Failure to
Exchange."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will have been registered under
the Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement, which rights with respect to Old Notes will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes--Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture, which also authorized the issuance of the Old
Notes, such that both series will be treated as a single class of debt
securities under the Indenture. See "Description of the Notes" for further
information and for definitions of certain capitalized terms used below.
The Exchange Notes will bear interest at the same rate and on the same terms
as the Old Notes. Consequently, interest on the Exchange Notes will be payable
semi-annually in cash in arrears on January 15 and July 15 of each year,
commencing January 15, 2004, at the rate of 14 1/2% per annum. Accreted Value on
the Exchange Notes will accrue from July 14, 1998 (the "Issue Date"). Holders
whose Old Notes are accepted for exchange will not receive Accreted Value
thereon, but because the Accreted Value of the Exchange Notes is calculated from
the Issue Date, there will be no forfeiture of Accreted Value by the holders of
Old Notes whose Old Notes are accepted for exchange in the Exchange Offer.
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Notes Offered................... $252,000,000 aggregate principal amount at maturity of
14 1/2% Series B Senior Discount Notes due 2008.
Maturity Date................... July 15, 2008
Yield and Interest.............. The yield to maturity of the Notes will be 14 1/2%
(computed on a semiannual bond equivalent basis),
calculated from July 14, 1998. See "United States Income
Tax Considerations." Cash interest will not accrue prior
to July 15, 2003. Thereafter, cash interest on the Notes
will accrue at a rate of 14 1/2% per annum and will be
payable semi-annually in arrears on January 15 and July 15
of each year, commencing January 15, 2004. For U.S.
federal income tax purposes, purchasers of the Notes will
be required to include amounts in gross income in advance
of the receipt of the cash payments to which the income is
attributable.
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Original Issue Discount......... Each Exchange Note is being offered at an original issue
discount for U.S. federal income tax purposes. Although
there are no periodic payments of interest on the Notes
prior to January 15, 2004, original issue discount (i.e.,
the difference between the stated redemption price at
maturity and the issue price of such Exchange Note) will
accrete from the Issue Date up to July 15, 2003 and will
be includable as interest income periodically in a
holder's gross income for U.S. federal income tax purposes
in advance of receipt of the cash payments to which the
income is attributable.
Optional Redemption............. The Exchange Notes will be redeemable at the option of the
Issuer, in whole or in part, at any time on or after July
15, 2003 at the redemption prices set forth herein, plus
accrued and unpaid interest thereon to the date of
redemption. In addition, on or prior to July 15, 2001, the
Issuer may redeem up to 25% of the originally issued
aggregate principal amount at maturity of the Notes at a
redemption price equal to 114.5% of the Accreted Value
thereof at the redemption date, with the net cash proceeds
of one or more Public Equity Offerings (as defined
herein); PROVIDED, HOWEVER, that not less than 75% of the
originally issued aggregate principal amount at maturity
of the Notes remain outstanding immediately after giving
effect to such redemption. See "Description of the
Notes--Redemption." and "--Certain Definitions." See
"Description of the Notes--Redemption." and "--Certain
Definitions."
Change of Control............... Following the occurrence of a Change of Control (as
defined herein), each holder of Exchange Notes will have
the right to require the Issuer to purchase all or a
portion of such holder's Exchange Notes at a purchase
price in cash equal to 101% of the Accreted Value of the
Notes plus accrued and unpaid interest, if any, to the
date of purchase.
Asset Sale Proceeds............. The Issuer will be required in certain circumstances to
make offers to repurchase the Notes, on a pro rata basis,
at 100% of the Accreted Value of the Notes, plus accrued
interest, if any, to the date of repurchase, with the net
cash proceeds of certain sales or dispositions of assets
in one transaction or a series of related transactions.
See "Description of the Notes--Certain Covenants--
Limitation on Sale of Assets."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Ranking......................... The Exchange Notes will be senior unsecured obligations of
the Issuer ranking PARI PASSU in right of payment with all
other existing and future unsubordinated obligations of
the Issuer and senior in right of payment to all future
obligations of the Issuer expressly subordinated in right
of payment to the Exchange Notes. At March 31, 1998, the
Issuer had no subordinated indebtedness outstanding. The
Issuer is a holding company with limited assets of its own
that conducts substantially all of its business through
subsidiaries. The Exchange Notes will be effectively
subordinated to all indebtedness for money borrowed by the
subsidiaries of the Issuer. At March 31, 1998, on a pro
forma basis after giving effect to the sale of the Old
Notes and the application of the net proceeds therefrom
and the drawdown of the $6.5 million AmerBank facility,
@Entertainment and its subsidiaries, on a consolidated
basis, would have had approximately $256 million of
outstanding indebtedness, approximately $139 million of
which would have been indebtedness of subsidiaries of
@Entertainment. Subject to certain limitations, the Issuer
and its subsidiaries may incur additional indebtedness in
the future. See "Description of the Notes-Certain
Covenants."
Restrictive Covenants........... The indenture governing the Notes (the "Indenture") will
include covenants with respect to the following matters:
(i) limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances and
sale of capital stock of restricted subsidiaries; (iv)
limitation on transactions with affiliates; (v) limitation
on liens; (vi) limitation on sale of assets; (vii)
limitation on dividend and other payment restrictions
affecting restricted subsidiaries; (viii) consolidations,
mergers, and sale of assets; and (ix) limitation on lines
of business. See "Description of the Notes-Certain
Covenants."
</TABLE>
RISK FACTORS
Prospective participants in the Exchange Offer should consider all the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
herein under "Risk Factors."
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below as of and for each
of the years in the five-year period ended December 31, 1997 have been derived
from the consolidated financial statements of the Company and the notes thereto,
prepared in conformity with U.S. GAAP which have been audited by the Company's
independent public accountants. The consolidated financial statements as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997 (the "Consolidated Financial Statements"), which have
been audited by KPMG Polska Sp. z o.o., independent public accountants, are
included elsewhere in this Prospectus. The consolidated financial data as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 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 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 summary consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Cable television revenue........................ $ 6,562 $ 8,776 $ 18,557 $ 24,923 $ 38,138 $ 7,508 $ 12,686
Depreciation and amortization................... (2,257) (3,459) (5,199) (9,788) (16,294) (3,450) (4,949)
Operating (loss) income......................... (1,205) 380 3,545 (1,347) (42,670) (1,016) (14,358)
Interest expense................................ (116) (2,327) (4,373) (4,687) (13,902) (3,205) (3,649)
Net loss(1)..................................... (2,342) (2,383) (1,289) (6,617) (54,824) (3,571) (17,296)
Net loss applicable to holders of Common
Stock(2)...................................... (2,342) (4,194) (1,289) (7,676) (91,066) (4,551) (17,296)
OTHER FINANCIAL DATA:
Consolidated EBITDA(3).......................... $ 1,052 $ 3,839 $ 8,744 $ 8,441 $ (8,274) $ 2,434 $ (9,409)
PCI EBITDA(4)................................... 1,052 3,839 8,744 8,441 5,387 2,597 3,899
Expenditures for the purchase and construction
of property, plant and equipment(5)........... 5,490 11,695 16,715 26,581 42,454 4,867 23,085
Ratio of earnings to fixed charges(6)........... N/A 0.37 0.86 0.21 N/A 0.04 N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED(7)
----------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................................ $ 58,589 $ 184,624
Property, plant and equipment, net............................................................... 139,231 139,231
Total assets..................................................................................... 303,794 435,394
Total notes payable.............................................................................. 132,297 256,282
Total stockholders' equity....................................................................... 137,826 145,441
</TABLE>
- ----------------------------------
(1) The year ended December 31, 1997 includes non-cash compensation expense of
$18,102,000 relating to the granting of certain management stock options.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 16 to the Consolidated Financial Statements included
elsewhere in this Prospectus.
(2) The year ended December 31, 1997 includes a loss of $33,806,000 representing
the difference between the consideration paid for redeemable preferred stock
in excess of the carrying value of such stock. See Note 1 to the
Consolidated Financial Statements included elsewhere in this Prospectus.
(3) EBITDA consists of net loss adjusted for interest and investment income,
depreciation and amortization, interest expense, foreign currency gains and
losses, equity in losses of affiliated companies, income taxes,
extraordinary items, non-recurring items (e.g. compensation expense related
to stock options), gains and losses from the sale of assets other than in
the normal course of business and minority interest. The items excluded from
EBITDA are significant components in understanding and assessing the
Company's financial performance. 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 loss as an indicator of the Company's operating
performance or to cash flows from operations as a measure of liquidity.
(4) PCI EBITDA reflects the EBITDA for PCI and its subsidiaries, whose primary
operations consist of the Company's cable television business. For the years
1993 through 1996, consolidated EBITDA was entirely attributable to PCI and
its subsidiaries.
(5) Expenditures in 1993 and 1994 include the costs of construction of cable
television systems and exclude costs of acquiring cable systems and other
property, plant and equipment.
(6) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net loss before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness, amortization
of deferred financing costs and that portion of operating lease expense
deemed to be interest expense. For all periods presented, the Company
incurred net losses before income taxes and hence earnings to fixed charges
indicate a less than one to one coverage. For the years ended December 31,
1993, 1994, 1995, 1996, 1997 and for the three months ended March 31, 1997
and 1998 earnings were insufficient to cover fixed charges by $1,140,000,
$1,580,000, $689,000, $3,631,000, $55,799,000, $3,300,000 and $16,963,000,
respectively.
(7) Adjusted to give effect to the sale of the Old Notes and the receipt and
application of the net proceeds therefrom and drawdown of the $6.5 million
AmerBank facility.
13
<PAGE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MAY 31,
------------------------------------------ ----------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
Homes passed by cable(1)............................... 298,316 711,545 1,088,540 1,408,100 1,530,262
Basic cable subscribers(2)............................. 112,534 262,077 460,625(5) 636,283 701,907
Basic cable penetration(3)............................. 37.7% 36.8% 42.3% 45.2% 45.9%
Annual cable churn rates(4)............................ 9.1% 9.2% 7.8% 12.2% N/A
</TABLE>
- ------------------------
(1) 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.
(2) Includes only subscribers to the Company's package with the largest number
of non-premium channels (the "Basic Tier") and the Company's package with
more limited programming offerings of 17 to 24 channels (the "Intermediate
Tier"). See "Business--Cable Operations--Services and Fees."
(3) Basic cable subscribers as a percentage of homes passed by cable at period
end.
(4) 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.
(5) Includes approximately 15,000 subscribers served by a cable system the
Company acquired on January 1, 1997.
14
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NOTES IS SUBJECT TO A NUMBER OF RISKS. HOLDERS OF THE
OLD NOTES SHOULD CONSIDER CAREFULLY ALL THE INFORMATION SET FORTH HEREIN BEFORE
TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. 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. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is, after the sale of the Old Notes highly leveraged. At March
31, 1998, on a pro forma basis after giving effect to the issuance of the Notes
and the application of the proceeds therefrom and the drawdown of the $6.5
million AmerBank facility, @Entertainment and its subsidiaries, on a
consolidated basis, would have had approximately $256 million of outstanding
indebtedness, approximately $139 million of which would have been indebtedness
of subsidiaries of @Entertainment (including approximately $130 million of PCI
Notes). The Indenture and the PCI Indenture limit, but do not prohibit, the
incurrence of additional indebtedness by @Entertainment and its subsidiaries and
by PCI and its subsidiaries, respectively.
The Company's ratio of earnings to fixed charges indicate a less than one to
one coverage. For the years ended December 31, 1995, 1996, 1997 and the three
months ended March 31, 1998, earnings were insufficient to cover fixed charges
by $0.7 million, $3.6 million, $55.8 million and $17.0 million, respectively.
The Company anticipates that, in light of the amount of its existing
indebtedness and the possible incurrence of additional indebtedness to finance
acquisitions and to fund and expand its cable, D-DTH, 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, the PCI Notes,
and any other outstanding indebtedness and to adequately fund its planned
capital expenditures and operations, including its committed contractual
obligations, (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 incurrence of additional indebtedness, the payment of
dividends and on operations, and (vi) because all or part 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. The Company must generate
substantial additional cash flow in order to pay interest and repay principal on
the Notes, and there can be no assurance 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, minimum guaranteed
contractual commitments, interest payments and scheduled principal payments,
including with respect to the Notes. If the Company is unable to generate
sufficient cash flow from operations in the future it may be required to reduce
the scope of its presently anticipated expansion of operations, reduce capital
expenditures (including expenditures related to acquisitions), refinance all or
a portion of its existing indebtedness (including the Notes), or obtain
additional financing. While it is the Company's intention to only enter into
financing arrangements that it considers advantageous, there can
15
<PAGE>
be no assurances that the Company will be able to obtain financing on
satisfactory terms, if at all. In the event the Company obtains any future
financing on less than favorable terms, the Company might be forced to operate
under terms that would restrict its operations and reduce its cash flow. In such
event, the holders of the Notes could experience increased credit risk and could
experience a decrease in the market value of their investment because the
Company might be forced to operate under terms that would restrict its
operations and might find its cash flow reduced. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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. The
Indenture and the PCI Indenture contain certain restrictive covenants. Such
restrictions will affect, and in many respects will significantly limit or
prohibit, among other things, the ability of the Company to incur indebtedness,
make prepayments of certain indebtedness, pay dividends, make investments,
engage in transactions with stockholders and affiliates, issue capital stock of
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. See "Description of the Notes--Certain Convenants."
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
Pay television operators typically experience losses and negative cash flow
in their initial years of operation due to the large capital investment required
for the construction or acquisition of their programming and distribution
systems and the administrative costs incurred in connection with commencing
operations. Consistent with this pattern, the Company incurred operating losses
of $4.6 million and $1.2 million in 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, $42.7 million and $14.4
million for 1996, 1997 and the first three months of 1998, respectively.
The Company expects to experience substantial operating losses and negative
free cash flows for at least the next two years due to (i) the large investments
required for the acquisition of equipment and facilities for its D-DTH business,
including providing D-DTH Reception Systems to the 500,000 initial subscribers
at a price significantly decreased by promotional incentives pursuant to the
Company's business strategy, and the administrative costs required in connection
with commencing its D-DTH business operations and (ii) the large investments
required to develop, produce and acquire the programming for Wizja TV. There can
be no assurance that the Company will be able to generate operating income or
positive cash flows in the future or that its operating losses and negative cash
flows will not increase. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Exchange Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. Neither the
Exchange Agent nor the Issuer is under any duty to give notification of defects
or irregularities with respect to tenders of Old Notes for exchange. Holders of
Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Notes as set forth in the legends thereon as a consequence of the
issuance of the Old Notes pursuant to exemption from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
securities laws of states and other jurisdictions. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange
16
<PAGE>
Notes will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or any other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution," "Description of the Notes --
Exchange Offer; Registration Rights," and "The Exchange Offer -- Consequences of
Failure to Exchange."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were resold by the Initial Purchasers to qualified institutional
buyers as defined in Rule 144A of the Securities Act, to institutional
accredited investors within the meaning of Rule 501(a) (1), (2), (3) or (7) of
the Securities Act and are trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen based, automated market for trading of securities
eligible for resale under Rule 144A. The Exchange Notes are new securities for
which there currently is no market. Although the Initial Purchasers are making a
market in the Old Notes and have advised the Issuer that they currently intend
to make a market in the Exchange Notes, they are not obligated to do so and may
discontinue such market making at any time without notice. The Issuer does not
currently intend to list the Exchange Notes on a national securities exchange or
to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can be
given that an active market will develop for any of the Exchange Notes or as to
the liquidity of the trading market for any of the Exchange Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling such Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time. If a trading market develops for the Exchange Notes,
future trading prices of such Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, the Issuer's results
of operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Issuer, the Exchange Notes may trade at a
discount from their face value and from their value at the time of the Exchange
Offer.
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's creditors,
including the holders of the Notes, to participate in the assets of any of
@Entertainment's subsidiaries upon any liquidation or administration of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including the holders of any indebtedness for money borrowed (such as the
holders of the PCI Notes), trade creditors of such subsidiaries and other
persons granted priority claim rights under the Polish Code of Civil Procedure.
At March 31, 1998, on a pro forma basis after giving effect to the sale of the
Old Notes and the application of the net proceeds therefrom and the drawdown of
the $6.5 million credit facility with AmerBank, @Entertainment and its
subsidiaries, on a consolidated basis, would have had approximately $256 million
of outstanding indebtedness, approximately $139 million of which would have been
indebtedness of subsidiaries of @Entertainment (including approximately $130
million of PCI Notes). In addition, the ability of @Entertainment's creditors,
including the holders of the Notes, to participate in distributions of assets of
@Entertainment's subsidiaries will be limited to the extent that the outstanding
shares of any of its subsidiaries are either pledged to secure other creditors
of the Company or are owned by third parties. All of the debt owed by PCBV to
PCI, which totalled approximately $137.5 million at March 31, 1998, has been
pledged for the benefit of the holders of the PCI Notes; the amount of such
pledged debt is
17
<PAGE>
required under the terms of the PCI Indenture to be sufficient to equal,
together with cash and cash equivalents held by PCI, at least 110% of the
outstanding principal amount of the PCI Notes and provide for all payments owed
on the PCI Notes. The $6.5 million AmerBank facility is secured by promissory
notes from, and shares of, certain of the Company's cable operating
subsidiaries. The Company's $2.2 million loan from Polski Bank Rozwoju S.A. is
secured by a mortgage on real estate owned by third parties, which mortgage is
secured by a pledge of shares of one of the Company's cable operating
subsidiaries. The Company is considering entering into a sale-leaseback
arrangement with one or more financial institutions with respect to its D-DTH
Reception Systems, transferring ownership of the D-DTH Reception Systems to such
financial institutions.
The Notes will be obligations solely of @Entertainment. The ability of
@Entertainment to pay interest (or premium, if any) on the Notes or to repay the
Notes at maturity or otherwise will be dependent upon either the cash flows 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 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. Further,
@Entertainment currently does not own, directly or indirectly, a majority
interest in certain subsidiaries, and may not have operating control of other
entities in which it may currently have or 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.
The PCI Indenture limits, but does not prohibit, the payment of dividends by
PCI and the ability of PCI to incur additional indebtedness. PCI could not pay
dividends to the Issuer as of March 31, 1998 because certain financial ratios
did not meet the minimum amounts provided in the PCI Indenture. Accordingly, any
cash flow of PCI in 1997 and the first three months of 1998 would not have been
available to @Entertainment to service its indebtedness. To the extent that PCI
is prohibited from paying dividends or other distributions to @Entertainment by
the terms of the PCI Indenture, any cash flow of PCI will not be available to
service indebtedness of @Entertainment, including the Notes. There can be no
assurance that PCI's performance will ever permit it to pay dividends or other
distributions to @Entertainment under the terms of the PCI Indenture.
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, and to the extent that it can continue to pay its debts as they
mature in the usual course after such payment.
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, 1998), 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 spolka
akcyjna ("S.A.") are required by law to establish reserve funds (in an amount
equal to one-third of their share capital) out of which they cannot pay
dividends. In addition, the statutes of any type of Polish company can contain
provisions requiring that the company
18
<PAGE>
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, the Company's Dutch subsidiaries may
only distribute profits to stockholders insofar as their equity exceeds the
paid-up and called-up capital increased by 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 assurance that
@Entertainment will receive timely payments from its subsidiaries, if at all, or
other economic benefits from its equity interests in its subsidiaries.
NEED FOR ADDITIONAL FINANCING
The Company believes that, in addition to the net proceeds from the sale of
the Old Notes, cash on hand and cash from operations, it will need additional
funding of at least $150 million to fulfill its current business development
plan through the end of 1999. This additional financing will be required to fund
ongoing development and expansion of the Company's D-DTH business and its
programming business, and such businesses are expected to incur operating losses
and negative cash flow for at least the next two years. At July 21, 1998, the
Company was committed to pay at least approximately $380 million in guaranteed
payments (including but not limited to payments for the D-DTH Reception Systems
and payments of guaranteed minimum amounts due under programming agreements and
satellite transponder leases) over the next seven years, of which at least
approximately $235 million was committed through the end of 1999. These payments
may increase if the Company enters into additional programming agreements. If
the Company is unable to make these payments, it will have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company expects that it will also require additional external funding for
its business development plan in years subsequent to 1999 if the Company
continues to provide promotional incentives to subscribers (other than the
500,000 initial subscribers) with respect to the D-DTH Reception Systems. Future
sources of financing for the Company could include public or private debt or
equity offerings or bank financings or any combination thereof. There can be no
assurance that such additional financing will be available to the Company or, if
available, that it could be obtained on acceptable terms within the limitations
contained in the Company's financing arrangements (including the Indentures).
Moreover, if the Company's plans or assumptions change, if its assumptions prove
inaccurate, if it consummates unanticipated investments in or acquisitions of
other companies, if it experiences unexpected costs or competitive pressures, or
if the net proceeds of the sale of the Old Notes, existing cash, or projected
cash flow from operations prove to be insufficient, the Company
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may need to obtain greater amounts of additional financing. PCI maintains a
credit facility of approximately $6.5 million, under which all amounts were
drawn in June 1998. @Entertainment is currently negotiating to enter into an
agreement with one or more banks to provide a larger liquidity facility. In the
event that the Company and TKP are able to reach an agreement regarding a joint
venture, investment or some other form of cooperation, the Company's use of net
proceeds from the sale of the Old Notes may be reallocated and some portion
thereof may be used by the Company to fund the Company's participation therein.
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. 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 not be able to make its minimum guaranteed
contractual commitments, which would have a material adverse affect on the
Company's business, financial condition and results of operations. In addition,
in such a case the Company 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."
ASSET ENCUMBRANCES
PCI has entered into agreements with AmerBank which, in the aggregate,
provide for a credit facility of approximately $6.5 million. All amounts under
this facility were drawn in June 1998. In addition, @Entertainment is currently
negotiating to enter into an agreement with one or more banks to provide a
larger liquidity facility. The Company's existing facilities are secured, and
certain of the Company's future indebtedness, including the possible liquidity
facility described above, may be secured, which could have material consequences
to holders of the Notes. Such security includes, and is expected in the future
to include, the fixed assets of the Issuer's subsidiaries as well as the capital
stock and intercompany indebtedness of subsidiaries. Under the provisions of the
PCI Indenture, PCI is required to pledge to the holders of the PCI Notes debt
owed by PCBV to PCI in an amount sufficient to equal, together with cash and
cash equivalents held by PCI, at least 110% of the outstanding principal amount
of the PCI Notes and provide for all payments owed on the PCI Notes; the amount
of PCBV debt subject to such pledge was approximately $137.5 million at March
31, 1998. The principal fixed assets of the Company's subsidiaries consist of
cable television headends, cable television plant, subscriber equipment,
uplinks, transmission equipment, full automation system, compression,
conditional access, call center featured switch and subscriber management
equipment, satellite vans, and production and post-production facilities. The
value of a substantial portion of the Company's fixed assets is derived from the
employment of such assets in the cable television, D-DTH or programming
businesses. These assets are highly specialized and, taken individually, can be
expected to have limited marketability. Consequently, in the event of a
realization by the Company's secured creditors on the collateral securing the
Company's secured debt, creditors would likely seek to sell the business as a
going concern through a sale of pledged capital stock of subsidiaries, either in
its entirety, or by regional cluster or other business unit, in order to
maximize the proceeds realized. The price obtained upon any such sale could be
adversely affected by the need to comply with applicable governmental
regulations and laws, including foreign ownership limitations and foreign
exchange controls. The amounts (and the timing of the receipt of any amounts)
available to satisfy @Entertainment's obligations on the Notes after any such
sale may be adversely affected by procedural and substantive provisions of U.S.,
Polish, English, and Dutch insolvency, bankruptcy and administrative laws
favoring secured creditors and limiting the rights of unsecured creditors.
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LIMITED D-DTH EXPERIENCE AND UNCERTAINTIES ASSOCIATED WITH THE D-DTH MARKET
LIMITED D-DTH EXPERIENCE. Although certain of the Company's executives have
experience in the A-DTH market in Poland, the Company had no experience
delivering D-DTH services prior to the July 1, 1998 limited launch of its D-DTH
business. 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 digitalizing 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, particularly the larger 36" diameter dishes
used for A-DTH. 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 from a single satellite position, (ii)
the improved signal quality of D-DTH, and (iii) the increased capacity for
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 service, or that it will not face competition from other
D-DTH businesses in Poland. In view of these challenges, the prospects for the
Company's 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 experience in a comparable business. In addition, the Polish D-DTH market is
subject to a developing regulatory framework that may change as the market
develops. In this regard, although the Company has been discussing with the
Polish National Radio and Television Council (the "Council") the feasibility of
applying for a Polish broadcasting license, there can be no assurances that the
Company's broadcast of programming from outside of Poland will not become
subject to the application of Polish laws regulating television broadcasting or
that certain European Union broadcasting regulations will not be amended, which
could have a material adverse effect on the Company's ability to broadcast into
Poland programming uplinked from the United Kingdom and on the Company's
business, financial condition and results of operation. See "--Polish Regulation
of the DTH Market," "--European Union Regulation of D-DTH Business" and
"Regulation."
EXPECTED LOSSES. The Company expects that its D-DTH business will incur
substantial operating losses for at least two years of operation while it is
developed and expanded. The Company plans to spend up to approximately $200
million to provide 500,000 targeted initial subscribers with D-DTH Reception
Systems at a price significantly decreased by promotional incentives. In
addition, 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 for each transponder and up to $182 million for all three
transponders for the remaining term of their leases. The leases for the two
transponders on the Astra 1F satellite and the transponder on the Astra 1G
satellite will expire in 2007. The Company has incurred and will continue to
incur capital expenditures and operating expenses related to its transmission,
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 and maintain a successful programming platform for the Polish
market and its ability to control other costs which do not vary with the number
of subscribers. Holders of the Notes 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 competitive characteristics of the
pay television industry in Poland. There can be no assurance that the roll out
of the Company's D-DTH business will proceed as planned, or that if achieved,
the Company's D-DTH service will attract enough subscribers to result in
profitability or positive cash flow for the Company in future years.
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FACTORS BEYOND THE COMPANY'S CONTROL. The success of the Company's D-DTH
business is subject to factors that are beyond its control and difficult to
predict, including (i) the size of the D-DTH service market, (ii) the rates of
penetration of such market, (iii) the acceptance of the D-DTH service 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 multi-channel alternatives, including the continued
expansion of cable television and competition from other D-DTH services in
Poland, and (vii) the immediate and long-term viability of D-DTH services to
Poland.
ABILITY TO ATTRACT SUBSCRIBERS. The initial subscribers will be required to
make a substantial up-front investment to subscribe to the Company's D-DTH
service. The Company's strategy is to provide the D-DTH Reception System to the
initial subscribers at a price significantly decreased by promotional incentives
of up to approximately $400 per subscriber or an aggregate of up to
approximately $200 million for the 500,000 targeted initial subscribers.
Although the Company believes that the price at which the initial subscribers
will acquire the subscription package (including the D-DTH Reception System
rental, installation, and a one year's subscription for all channels (other than
any premium channels)), which the Company expects to be up to approximately $135
plus applicable taxes per initial subscriber, 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 required from subsequent subscribers may increase unless the Company
decides to continue to provide promotional incentives to subscribers for the
D-DTH Reception Systems. Accordingly, there can be no assurance that the Company
will attract or retain additional subscribers if it ceases to provide
promotional incentives to subscribers of the D-DTH Reception System. See "--Need
for Additional Financing."
DEPENDENCE ON PHILIPS AS PRINCIPAL SUPPLIER
Certain critical components and services used in the Company's D-DTH
satellite transmission system, including the Philips' digital integrated,
receiver decoders ("IRD"), a smartcard-based proprietary conditional access
system which uses Philips CryptoWorks-Registered Trademark- technology, and a
satellite receiving dish and related equipment (the outdoor unit or "ODU"),
which together constitute the D-DTH Reception System, as well as retail,
installation and support services, are initially to be provided exclusively by
Philips. The Company has concluded an agreement 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. Philips has granted the Company an exclusive license of its
CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which will terminate when the Company has purchased 500,000 D-DTH
Reception Systems from Philips, unless terminated earlier in accordance with the
terms of the agreement or extended by mutual consent of Philips and the Company.
Philips has agreed not to distribute any other IRDs under the Philips' trademark
in Poland until December 31, 1999 or any earlier date on which the Company has
secured 500,000 initial subscribers to its D-DTH service in Poland. The
Company's agreement with Philips provides that after such period the Company may
license one or two suppliers of IRDs in addition to Philips and Philips shall
license its CryptoWorks-Registered Trademark- technology to such additional
suppliers for the Polish market. Although the agreement with Philips provides a
means by which the Company could obtain a second and third supplier for all or
part of its future requirements for D-DTH Reception Systems, there can be no
assurance that the Company will be able to secure such additional suppliers.
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 service
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's agreement with Philips provides for full distribution,
installation and servicing through more than 1,000 Philips authorized
electronics retailers located throughout Poland. Philips has
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agreed to distribute a complete subscription package, comprising the D-DTH
Reception System, as well as the necessary installation and support services
through Philips' retail network in Poland, 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. See
"Business--D-DTH--Technology and Infrastructure."
DEPENDENCE UPON SATELLITES
The Company's D-DTH business will depend on its ability to broadcast using
transponders on the Astra 1F and 1G satellites, both of which have been
successfully launched, are currently operational and are located at 19.2 degrees
east. Satellites are subject to significant risks that may prevent or impair
proper commercial operations, including satellite defects, destruction and
damage. To date, the Company is not aware of significant disruption of
transmissions on the Astra 1F or 1G 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. The leases for the two transponders on the Astra 1F satellite
and the transponder on the Astra 1G satellite will expire in 2007. The ability
of the Company to transmit its programming following the termination of the
Company's leases of the transponders on the Astra 1F and 1G satellites (and
following the expiration of the expected useful lives of the Astra 1F and 1G
satellites in approximately 2015) 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 incorporate Philips' CryptoWorks-Registered Trademark-
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 either 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. To
the Company's knowledge, there has not been a breach of
CryptoWorks-Registered Trademark- since its introduction in Malaysia in 1996. To
the extent a breach occurs, the Company will take countermeasures, including
over-the-air measures and if necessary the replacement of smartcards. Although
the Company expects its conditional access system, subscriber management system
and smartcard system 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 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 or maintain
contracts 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 to secure other construction resources, all at
reasonable costs and on satisfactory terms and conditions. Many of such factors
are beyond the control of
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the Company. In addition, at May 31, 1998, approximately 57% of the Company's
cable plant had been constructed utilizing pre-existing conduits of the Polish
national telephone company ("TPSA"). A substantial portion of the Company's
contracts with TPSA for the use of such conduits 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, 1998, approximately 69,000, or
8%, 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
Operations--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
costs 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.
The Company obtains significant programming from sources on which it depends
to provide it with additional high-quality programming that appeals to mass
audiences in Poland. Although the Company has no reason to believe that any of
its existing programming agreements will be canceled, will not be renewed upon
expiration or will not otherwise become unenforceable, if such agreements are
canceled, are not renewed, or otherwise became unenforceable 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 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.
The Company has purchased exclusive Polish pay television rights from third
parties for programming on 9 of the current 14 channels on Wizja TV. In some of
the agreements, however, the channel supplier may terminate the agreement and/or
eliminate the exclusivity rights if the Company does not achieve specified
milestones for subscriber numbers by certain specified dates. In addition, most
of the agreements impose certain restrictions on the tiering of the particular
channel, which will limit the flexibility of the Company in determining program
tiering in the future, and also include provisions whereby the Company
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agrees to indemnify the channel supplier against any claims, including claims
made by governmental authorities, resulting from the exclusive nature of the
rights granted or from the tiering restrictions.
Some of the Company's programming and sports rights agreements require
payments based on a guaranteed minimum number of subscribers, and some required
payments at the time of execution. At July 21, 1998, the Company was committed
to pay at least approximately $156 million in guaranteed minimum payments over
the next seven years in respect of broadcasting and programming agreements, of
which at least approximately $39 million was committed through the end of 1999.
In addition, the Company is continuing to negotiate additional agreements with
channel suppliers and sports rights organizations, which agreements if
consummated may require the Company to pay additional guaranteed minimum
payments and/or payments at the time of execution.
As part of its strategy to create more programming content, and in
particular to develop high-quality Polish-language programming, the Company
recently established entities to create programming, either directly or through
joint ventures, for inclusion on Wizja TV. 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 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 programming to which the Company will have access 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, the Company intends to create additional 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, or if introduced, that such
channels will be successful. See "Business--Programming-- Proprietary
Programming."
Certain programming for the Polish market is subject to regulation by the
Polish authorities. See "--Regulation of the Polish Cable Television Industry,"
"--Limitations on Foreign Ownership of Multi-Channel Pay Television Operators
and Broadcasters" and "Business--Legal Proceedings."
COMPETITION IN THE MULTI-CHANNEL PAY TELEVISION INDUSTRY
The multi-channel pay 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
multi-channel pay television services are competitive with alternative delivery
systems depends, 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 multi-channel pay television industry in Poland. See "The Industry--The
Polish Multi-Channel Pay Television Industry" and "Regulation."
The Company believes that competition in the cable television industry is
primarily based upon price, program offerings, customer service and quality and
reliability of cable networks. Small SMATV operators are active throughout
Poland, and they pose a competitive threat to the Company because they often
incur lower capital expenditures and operating costs and therefore have the
ability to charge lower fees to subscribers than does the Company. In addition,
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 business also competes 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
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in the future compete with multi-channel multipoint distribution systems
("MMDS") and D-DTH television services (including the Company's D-DTH service).
The Company's D-DTH business will compete with traditional cable systems,
including its own, and terrestrial broadcast and A-DTH services as well as other
potential D-DTH and MMDS services. TKP, which is partially owned by Canal+ S.A.,
currently offers a single channel Polish-language pay television service
(including A-DTH) and has announced plans to introduce thematic D-DTH channels
in Poland in September 1998. 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 the DTH business than the Company. If competing D-DTH services are
successfully launched in Poland, they could have a material adverse impact on
the Company. There can be no assurance that the Polish market for D-DTH services
will be sufficiently large to support competing D-DTH businesses.
With respect to its programming business, the Company competes with other
television companies, both free-to-air and pay television (including Canal+ and
HBO) for the acquisition of sports rights and most other programming, including
the rights to feature films and television series and the right to participate
in joint ventures with other creators of programming. With respect to the
creation of its proprietary programming, the Company competes with other
programming creators for the hiring of personnel with creative and production
talent. To the extent that the Company is precluded from creating or obtaining
programming due to exclusive agreements entered into between programming
creators and the Company's competitors, the Company will face difficulty in
creating or acquiring sufficient high-quality programming to attract and retain
subscribers and commercial advertising customers for its cable and D-DTH
services. To the extent that the Company is unable to negotiate exclusive
agreements with suppliers of its programming or such agreements become
unenforceable, the Company will not be able to preclude its competitors from
obtaining access to such programming, which would make the Company's programming
line-up less unique and less attractive to subscribers. There can be no
assurance that in the future the Company will be able to continue to create or
will be able to acquire sufficient high-quality programming, either through
exclusive or non-exclusive arrangements.
CHANGES IN TECHNOLOGY
The multi-channel pay television 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 multi-channel pay television industry is uncertain. The Company will use
digital compression technology in its D-DTH business. 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 multi-channel pay 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 on 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.
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Although the Company believes that the Astra satellites, Philips'
CryptoWorks-Registered Trademark- proprietary conditional access system and
compression system and the Philips' IRDs together constitute a reliable cost-
effective D-DTH system, certain other large European providers of D-DTH services
have selected different satellites, encryption technology and decoders. If
another satellite platform, 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 promotional incentive basis, thus
causing confusion for existing and potential subscribers, delays in providing
subscribers with IRDs and conditional access systems, and significant unexpected
costs.
ACQUISITION STRATEGY
A significant element of the Company's growth strategy is expansion by
acquisition of cable television networks that either are located in reasonable
proximity to the Company's existing networks 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 networks on satisfactory terms, if at all,
or that it will be able to obtain required approvals from the Polish
Anti-Monopoly Office (the "Anti-Monopoly Office") with respect to any such
acquisitions. See "--Regulation of the Polish Cable Television Industry." In
addition, the Company encounters competition for the acquisition of cable
networks from existing cable television operators and also from financial
investors. See "Business--Competition."
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 expected growth and expansion, particularly in its new D-DTH
business. Failure to successfully manage its expected 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 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, may require regulatory approvals and in which it has limited
experience, such as interactive television, pay per view, near-video-on-demand,
data transfer, services related to electronic banking, telephony, internet
access, sports clubs ownership, publishing and other media. If the Company were
to enter into such businesses, there can be no assurance that the
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Company would be successful or that the capital utilized in such businesses
would not decrease the amount of capital available for use in its cable, D-DTH
and programming businesses.
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.
REGULATION OF THE POLISH CABLE TELEVISION INDUSTRY
The operation of a cable television system in Poland is regulated by various
governmental bodies, including the Minister of Communications ("MOC") and PAR
under the Communications Act, and the Council under the Radio and Television Act
of 1992, as amended (the "Television Act"). Cable television operators in Poland
also are subject to the intellectual property rights protections contained in
the Law on Copyright and Neighboring Rights of 1994 (the "Copyright Act"). Cable
television services in Poland may be offered only by cable television operators
that have received Permits 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 Multi-Channel Pay Television Operators and Broadcasters" and
"Regulation--Poland--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 109 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 76,600
basic subscribers at May 31, 1998 located in the areas for which subsidiaries of
PCI do not currently have valid Permits, approximately 76% are located in areas
serviced by recently acquired or constructed 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), and approximately 24% are located in areas
serviced by networks for which certain subsidiaries of PCI have Permit
applications pending. These subsidiaries of PCI have 12 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 business, financial condition and results of operations. See
"Regulation--Poland--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
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transmit on their cable networks, except programming transmitted 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
(including the programming that the Company has begun transmitting on Wizja TV),
or that the Chairman of the Council will register all additional programming
that the Company desires to transmit over its networks, although the Company
believes that any such revocation or refusal to register would violate the
Convention. Also, there can be no assurance that the Council will not take
action regarding unregistered programming the Company transmits over its cable
networks for which it does 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, inter alia, enforcement of intellectual
property rights of 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. Poland has ratified the Rome Convention,
resulting in the intellectual property rights of non-Polish programming
producers being protected in Poland to the same extent that such rights of
Polish producers are protected. See "Regulation--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."
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 distribution of programs on cable networks. The Council has not
issued any regulations that would be applicable to programming broadcast from
outside Poland, such as the Company's Wizja TV programming (though it has issued
regulations relating to Polish broadcasters), 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 and there have been no court rulings on this issue.
There can be no assurance that the Company's interpretation will not be
challenged or that the Company's D-DTH broadcasts from outside of Poland will
not be required to comply, and, if so, that it will be able to comply, with the
requirements of the Television Act, which, among other things, requires a
broadcasting license and imposes foreign ownership restrictions. 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
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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. In this regard, a
Polish affiliate of Canal+ S.A. has commenced a lawsuit in Poland alleging HBO
Polska Sp. z o.o. of broadcasting the HBO television programming in Poland
without a broadcasting license as required by the Television Act. See
"Business--Legal Proceedings." While the Company believes that its activities in
producing programs in and outside of Poland, transmitting the programs to the
Company's transmission facility in the United Kingdom and distributing the
programs to 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 has
been studying and discussing with relevant Polish authorities the feasibility of
locating its transmission and production facilities in Poland and applying for
the Polish broadcasting licenses necessary to engage in such activities.
Although the Company has been discussing with the Council the feasibility of
applying for a Polish broadcasting license, there can be no assurance that such
license would be granted if applied for, and failure to have any required
broadcasting license could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Limitation on
Foreign Ownership of Multi-Channel Pay Television Operations and Broadcasters,"
and "Regulation."
Currently Poland has not sought to regulate foreign DTH broadcasters who
uplink outside of Poland. There can be no assurances, however, that Poland will
not seek to regulate the DTH industry by, 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,
financial condition and results of operations could be materially adversely
affected as the Company seeks to comply with such standards.
Poland is a party to the 1989 European Convention on Transfrontier
Television (the "Convention"), which requires the Polish authorities to
guarantee freedom of reception and retransmission on Polish territory of program
services which meet the requirements of the Convention. The Company believes
that the content of its Programming Platform will comply with the terms of the
Convention. See "--European Union Regulation of D-DTH Business."
D-DTH operators in Poland are subject to substantially the same copyright
restrictions under Polish law as are cable television operators. See
"--Regulation of the Polish Cable Television Industry" and
"Regulation--Poland--Copyright Protection."
Because the Company's D-DTH service will, it believes, be the first D-DTH
service available in Poland, there are likely to be issues of first impression
arising under Polish law with respect to various aspects of the Company's D-DTH
business and related programming arrangements. For example, the Anti-Monopoly
Office has not articulated comprehensive standards that may be applied in an
antitrust review in the D-DTH industry. There can be no assurance that such
issues, if decided unfavorably to the Company, would not have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITATIONS ON FOREIGN OWNERSHIP OF MULTI-CHANNEL PAY 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, ownership
interests and voting rights. In addition, a majority of the management and
supervisory board of any cable television operator holding Permits must be
comprised of Polish citizens residing in Poland. These restrictions do not apply
to any Permits issued prior to July 7, 1995 ("Grandfathered Permits"). See
"Regulation--Poland--Communications Act." At May 31, 1998, approximately 23% 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 Polska Telewizja Kablowa, S.A. ("PTK S.A.") received
a license to establish PTK S.A. to operate cable television
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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").
PTK S.A. will own all cable network assets and operate in the areas covered
by Grandfathered Permits. To comply with foreign ownership requirements for
Permits for networks not covered by Grandfathered Permits, the Company intends
to enter into contractual arrangements with Polska Telewizja Kablowa Operator
Sp. z o.o. (formerly PTK Ryntronik, S.A.) ("PTK Operator"), a Polish entity of
which 49% is expected to be owned by PCI and the remaining 51% is expected to be
owned by a Polish entity of which 49% is expected to be owned by PCI and the
remaining 51% is expected to be owned by a Polish financial institution. See
"Corporate Organizational Structure." In the case of existing cable networks not
covered by Grandfathered Permits or the acquisition or construction of cable
networks not covered by Grandfathered Permits, the Company intends to own,
through PTK S.A., all of the cable network assets and intends to lease the
assets to PTK Operator, which is expected to operate the networks. In the
Company's contemplated leasing arrangements with PTK Operator, it is expected
that PTK Operator will hold the Permits to operate the cable networks, receive
all of the revenues from subscribers, pay all operating expenses relating to the
operation of the networks, and through the lease arrangements pay PTK S.A. rent
equal to substantially all of the cash flows generated by the networks. The
Company believes that this ownership and operating structure does not contradict
the requirements of Polish law. PAR has granted several permits to the Company
and the Company's competitors, based on the lease of assets, for networks using
an ownership and operating structure substantially similar to the one 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 networks and could result in the denial or loss of Permits
applied for or 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. See "Regulation--Poland--Communications Act" and
"Regulation--Poland--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, ownership interest and voting rights. In December 1997, the Polish
government proposed an amendment to the Television Act by which the maximum
foreign ownership interest in a Polish broadcasting company would be increased
to 49%, but there can be no assurance that the Polish parliament will accept
this proposal. 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 has established and intends to continue
to establish entities to engage, directly or indirectly through joint ventures,
in the development and production of Polish-language thematic television
programming outside of Poland, which the Company plans to distribute throughout
Poland via satellite systems from outside of Poland. The Company believes that
the ownership structure of such entities is not subject to 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 ownership or distribution structure
to be established for such future entities, violates Polish regulatory
restrictions on foreign ownership. If the ownership or distribution structure
for such entities or such future entities 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 also be
forced to dispose of its ownership interests in such entities or such future
entities. These regulatory restrictions may materially adversely affect the
Company's ability to enter into relationships with such entities or such future
entities,
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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--Television Act."
UNITED KINGDOM REGULATION OF D-DTH BUSINESS
The Company has established broadcast transmission facilities in the United
Kingdom for the production, post-production and packaging of programming, from
which it broadcasts via uplink to the transponders the Company has leased on
Astra satellites for onward broadcasting to its cable subscribers and from which
it will broadcast to its D-DTH subscribers and other cable operators in Poland.
All of the Company-owned channels, including Wizja l, Wizja Sport, Wizja Pogoda
and Atomic TV, and the majority of the other channels forming Wizja TV are or
will be, at least initially, regulated by the U.K. authorities (primarily the
Independent Television Commission ("ITC")) as satellite television services
("STS"). Under the U.K. Broadcasting Act 1990, as amended (the "Broadcasting
Act"), satellite broadcasters established in the United Kingdom are required to
obtain an STS license. STS licenses are granted by the ITC if certain criteria
are satisfied. The Company has received an STS license from the ITC in the
United Kingdom for Wizja 1, Wizja Sport, Wizja Pogoda and Atomic TV. For most of
the other channels on Wizja TV, the relevant channel supplier is under a
contractual obligation with the Company to obtain an STS license. Under the
terms of the Company's Astra transponder agreements, the Company will be
prohibited from carrying on Wizja TV programming for which a channel supplier
does not have a valid license. The ITC has wide discretion to vary the
conditions of licenses issued under the Broadcasting Act or amend codes (such as
the code on advertising time limits and electronic programming guides ("EPG"))
with which all U.K. licensed broadcasters must comply. There is no assurance
that the Company or its channel suppliers will be able to secure the necessary
STS licenses, or if obtained, that the Company or its channel suppliers will be
able to meet the ongoing requirements of such STS licenses. Failure to obtain in
a timely manner and maintain such licenses would have a material adverse effect
on the Company's ability to roll out 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 primarily by the
authorities in the member state of the EU where it is established, without
regard to the country or countries within the EU in which its broadcast signal
is received. Currently, the 1989 European Convention on Transfrontier Television
(the "Convention") to which Poland is a party, provides that the country in
which a broadcaster uplinks its programming to the satellite (or, if this is not
the case, the country which grants the broadcast frequency or satellite capacity
to the broadcaster) has jurisdiction over that broadcaster. Neither the
Directive nor the Convention contains any requirements or restrictions regarding
foreign ownership of broadcasters. 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, or to impose restrictions on foreign ownership of broadcasters.
The Company understands that a change (the "Amendment") has been largely
agreed by members of the Convention. The Amendment would, if ratified by the
appropriate number of member states, become effective with respect to those
member states that ratify it, and would have three significant effects. First,
it would bring the Convention into conformity with the Directive's establishment
test, providing that a broadcaster should be regulated primarily by the
authorities in the Convention country in which the broadcaster is established.
Second, the Amendment would provide that where a broadcaster's channel is
wholly or principally directed at a country, other than that where it is
established, for the purpose of evading the laws in the
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areas covered by the Convention which would have otherwise applied to it in the
country of reception, this shall constitute an "abuse of rights." Where such an
abuse is alleged, representatives from the country where the broadcaster is
established and from the country of reception would meet to attempt to resolve
the dispute. If they are unable to do so, a dispute resolution process (which
would eventually involve arbitration) could be invoked. The country of reception
could not take measures against the broadcaster unless and until the arbitration
procedure has been completed in favor of the country of reception. The Company
believes that the broadcasting of its channels into Poland from the United
Kingdom would not constitute an "abuse of rights" under the Amendment, though
there can be no assurance that the relevant authority would so decide. An
adverse decision on this issue, if the Amendment is adopted and Poland ratifies
it and decides to invoke it against the Company's broadcasts emanating from the
United Kingdom, would have a material adverse effect on the Company's ability to
broadcast its Programming Platform and its business, financial condition and
results of operations.
Third, the Amendment would allow parties to the Convention to designate that
certain important events (e.g., major sporting events) cannot be broadcast
exclusively by a single television station so as to deprive a large proportion
of the public of that Convention country from seeing the event live or on a
deferred coverage basis on free-to-air television, and also to ensure that
broadcasters under the jurisdiction of one Convention country cannot purchase
exclusive rights to major events specified by another Convention country which
would deprive a large proportion of the public in such Convention countries from
seeing the specified event on a live or deferred coverage basis on free-to-air
television. In this regard, the Amendment would be consistent with changes
recently made to the Directive. If the Amendment is ratified and becomes
applicable to the Polish pay television rights to certain sporting events
purchased on an exclusive basis by the Company, it could eliminate the Company's
right to broadcast such events in Poland on an exclusive basis and could have an
adverse effect on the ability of the Company to acquire the exclusive Polish pay
television rights to such events and to similar events in the future.
While the Amendment was expected to be adopted during the summer of 1998,
the Company understands that two countries have raised objections to the text of
the Amendment -- one country to the "abuse of rights" amendment and the other
country to the legal effect of the "exclusive rights" regime. The Company
understands that further revisions to the Convention will be considered by all
parties to the Convention in the fall of 1998, and if agreement is reached on
the proposed revisions, the Amendment would be adopted at that time. If adopted,
the Company believes that it will be ratified by both Poland and the United
Kingdom, though there can be no assurance that such will be the case.
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-European) ownership restrictions
on broadcasters or regulate digital television services in a way which may be
detrimental to the Company (such as requiring (i) a common interface for all
encryption services used within a particular pay television market, (ii) that
all conditional access providers must allow simulcrypt of their programming or
(iii) that third parties must be given access to the Company's subscriber
management service), 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.
In 1994 Poland made an official application for membership of the EU.
Negotiations on the terms of Poland's proposed admission to the EU commenced in
March 1998. If Poland joins the EU, it would be required to implement and obey
all of the laws and regulations emanating from the European Commission,
including the Directive and EU competition law in their then current versions.
The Company believes that this would require Poland to acknowledge the
establishment test and to recognize the Company's D-DTH broadcast services as
falling under the jurisdiction of the ITC in the United Kingdom. However, there
can be no assurance that such would be the case, nor can there be any assurance
that the Company would be able to comply with all of the various EU laws and
regulations. The burden of complying with any such laws and regulations or any
failure to so comply could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Regulation--European Union."
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REGULATION OF COMPETITION
The Company is regulated by competition law in the jurisdictions in which it
carries on business. At the present time this requires the Company to comply
with competition law in Poland, the UK and the EU.
The current Polish anti-monopoly body of law with respect to the cable,
D-DTH and programming industries is not well established, and the Anti-Monopoly
Office has not articulated comprehensive standards that may be applied in an
antitrust review in such industries. As a general rule, the Anti-Monopoly Act
prohibits, among other things, monopolistic agreements, abuse of dominant market
position, price-fixing arrangements, division of market arrangements, and the
creation of market entry barriers. The Anti-Monopoly Act may deem any such
agreements null and void. Although the Anti-Monopoly Act does not preclude an
enterprise from occupying a dominant market position, any activities by such
enterprise face detailed scrutiny by the Anti-Monopoly Office. Market dominance
is often defined as a company's ability to act independently of competitors,
contractors, and consumers. Companies that obtain control of 40% or more of the
relevant market are usually deemed to have market dominance, and therefore face
greater scrutiny from the Anti-Monopoly Office. There is no assurance that the
exclusivity clauses in the Company's programming agreements will not be
scrutinized by the Anti-Monopoly Office. Although such exclusivity clauses are
not prohibited under the Anti-Monopoly Act, such agreements may be found
unlawful, and therefore unenforceable, if they restrict or hinder competition or
otherwise involve the abuse of a dominant position. The Company does not believe
such agreements have an anti-competitive effect, though there can be no
guarantee that the Anti-Monopoly Office would reach the same conclusion.
The Anti-Monopoly Office recently issued a decision that PCI had achieved a
dominant position and abused that dominant position in one of the areas in which
it operates by moving certain satellite channels to the hyperband frequency. As
a result, a number of subscribers, whose television sets are not equipped to
receive the hyperband frequency, received several different channels to replace
the channels which had been moved. The Company has appealed both the finding of
dominance and the finding that it acted improperly by moving certain channels to
the hyperband frequency.
Several types of concentrations between undertakings, including acquisitions
of privately held stock and also stock that is traded on a stock exchange, 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 or members of their governing bodies. The Company
believes that it may be required to obtain the Anti-Monopoly Office's approval
for future acquisitions. In addition, the Anti-Monopoly Office can review a
company's past and present activities, including its pricing policies, for
potential anti-competitive behavior. The Company receives inquiries from and is
subject to review by various divisions of the Anti-Monopoly Office from time to
time. 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. There can be no
assurance that the Anti-Monopoly Office will approve the Company's future
acquisitions and dispositions or that a review of the Company's past, present or
future operations and acquisitions, will not otherwise adversely impact the
Company's business, strategy, financial condition or results of operations.
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 ("Fair Trading Act"), and unilateral
anti-competitive practices through the Competition Act of 1980 (the "CA"). 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. The Company has
filed with the OFT certain of its exclusive programming license agreements, and
these have been deemed not registrable.
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The Company is also subject to the competition law provisions of the EC
Treaty, namely Articles 85 and 86. Article 85(1) prohibits as incompatible with
the common market agreements between undertakings and concerted practices which
may affect trade between member states of the EC and which have as their object
or effect the prevention, restriction or distortion of competition within the
EC. A prohibited agreement (or at least those provisions which fall within
Article 85(1)), if severable from the remainder of the agreement, will be
unenforceable before national courts and the parties thereto are liable to be
fined by the European Commission if the agreement is not notified to it.
Article 86 prohibits undertakings from abusing a dominant market position
which they hold in the whole or a substantial part of the EC. A company may be
dominant in several Member States or indeed part of a single Member State.
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. Article 85 and 86 are considered
in greater detail in the section on Regulation below. The Company does not
consider that at the present time that any of the agreements to which it is
party infringes Articles 85 and 86, but there can be no assurance that this is
the case. If such agreements were found to infringe Articles 85 and 86 then any
restrictions in the agreements, such as the grant of exclusivity, would be void
and unenforceable. See "Regulation--Poland--Anti-Monopoly
Act," "--United Kingdom--Regulation of Competition," and "--European
Union--Regulation of Competition."
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, antitrust and corporate laws and requirements to obtain
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 a material adverse effect
on the market value and liquidity of the Units. 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.
@Entertainment is organized under the laws of the State of Delaware.
Although the holders of the Notes 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
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United States. As a result, it may not be possible for investors to enforce
against the Company's asset 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.
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; Donald Miller-Jones, Chief
Financial Officer, Vice President and Treasurer of @Entertainment; Przemyslaw
Szmyt, Vice President, General Counsel and Secretary of @Entertainment; David
Warner, Chief Operating Officer of @EL; David Keefe, Chief Executive Officer of
PCI; and Dorothy Hansberry, Vice President and General Counsel 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, Miller-Jones, Szmyt, Warner, and Keefe, and Ms. Hansberry, which
expire on dates ranging from December 31, 1999 to April 7, 2002 and are
terminable in certain circumstances. See "Employment Agreements."
CONTROL BY EXISTING STOCKHOLDERS
At March 31, 1998, Polish Investments Holding L.P. ("PIHLP"), the Cheryl
Anne Chase Marital Trust ("CAC Trust" and, together with PIHLP, the "Chase
Entities") and ECO Holdings III Limited Partnership ("ECO", and together with
the Chase Entities, the "Principal Stockholders") owned in the aggregate
approximately 58.3% of the outstanding common stock of @Entertainment ("Common
Stock"). As a result, the Principal Stockholders, acting together, are 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. See "Principal Stockholders" and "Description of
Capital Stock." There may be conflicts of interest between the stockholders of
@Entertainment (including the Principal Stockholders) and their representatives
on the Board of Directors on the one hand, and the holders of the Notes on the
other hand, and there can be no assurance that any such conflict, should it
occur, will be resolved in a manner favorable to the holders of the Notes. No
procedures are being adopted to resolve any conflicts of interest that may arise
between the stockholders or their representatives on the Board of Directors and
the holders of the Notes.
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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 zloty.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 27% in 1995,
approximately 20% in 1996, and approximately 14.9% in 1997. The exchange rate
for the zloty has stabilized and the rate of devaluation of the z$loty has
generally decreased since 1991 and the zloty has appreciated against the U.S.
Dollar in the three months ended March 31, 1998. Inflation and currency exchange
fluctuations have had, and may continue to have, a material adverse effect on
the business, 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 zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its 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 business, financial condition and results of operations.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Notes will be issued at a discount to their principal amount at
maturity. Although cash interest is not expected to accrue on the Notes prior to
July 15, 2003, and there are not expected to be any periodic payments of
interest on the Notes prior to January 15, 2004, original issue discount (the
difference between the "stated redemption price at maturity" and the "issue
price," as such terms are defined in the Internal Revenue Code of 1986, as
amended (the "Code"), and Treasury Regulations thereunder) ("OID") of the Notes
will accrete from the issue date of such Notes up to the maturity date.
Consequently, purchasers of Notes generally will be required to include amounts
in gross income for United States federal income tax purposes in advance of
their receipt of the cash payments to which the income is attributable. Such
amounts in the aggregate will be equal to the difference between the "stated
redemption price at maturity" (inclusive of stated interest on the Notes) and
the "issue price" of the Notes.
In the event a bankruptcy case is commenced by or against the Company under
the United States Bankruptcy Code (the "Bankruptcy Code") after the issuance of
the Notes, the claim of a holder of Notes may be limited to an amount equal to
the sum of (i) the initial offering price and (ii) that portion of the OID which
is not deemed to constitute "unmatured interest" for the purposes of the
Bankruptcy Code. Any OID that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest." To the extent that the
Bankruptcy Code differs from the Code in determining the method of amortization
of OID, a holder of Notes may realize taxable gain or loss on payment of such
holder's claim in bankruptcy.
For United States federal income tax purposes, because the yield to maturity
on the Notes is equal to or in excess of the sum of the long-term applicable
federal rate for the month in which the Notes are issued plus five percentage
points, the Notes will be classified as "applicable high yield discount
obligations" within the meaning of section 163(i) of the Code. Consequently,
subject to the next sentence, the Company will not be entitled to deduct as
interest expense for United States federal income tax purposes the accreted OID
under the Notes until such time as the accreted OID is paid to the holders of
such Notes. Moreover, the Company will never be entitled to deduct as interest
expense for United States federal income tax purposes the accreted OID under the
Notes to the extent that the accreted OID is attributable to the yield on the
Notes in excess of the sum of the long-term applicable federal rate for the
month in which the Notes are issued plus six percentage points, even if such
portion of the accreted OID is
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subsequently paid by the Company to the holders of the Notes. As a result of the
classification of the Notes as "applicable high yield discount obligations,"
therefore, the Company's deduction for United States federal income tax purposes
of interest economically accrued under the Notes will be deferred or denied
relative to other types of high yield debt instruments that pay stated interest
currently or do not defer the payment of accrued OID for more than five years.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuer on July 14, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Old Notes with qualified institutional buyers in
reliance on Rule 144A under the Securities Act and institutional accredited
investors (as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities
Act). As a condition to the sale of the Old Notes, the Issuer and the Initial
Purchaser entered into the Registration Rights Agreement as of July 14, 1998.
Pursuant to the Registration Rights Agreement, the Issuer agreed that, unless
the Exchange Offer is not permitted by applicable law or Commission policy, it
would (i) use its best efforts to file with the Commission a Registration
Statement under the Securities Act with respect to the Exchange Notes by
September 11, 1998; (ii) use its best efforts to cause such Registration
Statement to become effective under the Securities Act by October 11, 1998; and
(iii) upon effectiveness of the Registration Statement, use its best efforts to
commence the Exchange Offer and maintain the effectiveness of the Registration
Statement and keep the Exchange Offer open for not less than 30 calendar days
(or longer if required by applicable law). A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Issuer's obligations under the
Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange any and all Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The Issuer will issue $1,000 principal amount at maturity of
Exchange Notes in
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exchange for each $1,000 principal amount at maturity of outstanding Old Notes
surrendered pursuant to the Exchange Offer. Old Notes may be tendered only in
integral multiples of $1,000 principal amount at maturity.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of Old Notes under the Registration Rights Agreement,
which rights with respect to Old Notes will terminate upon the consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture, which also authorized the issuance of the Old Notes,
such that both series will be treated as a single class of debt securities under
the Indenture.
As of the date of this Prospectus, an aggregate of $252 million in principal
amount at maturity of the Old Notes is outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about , to
all holders of Old Notes known to the Issuer. The Issuer's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "-- Certain Conditions to the Exchange Offer"
below.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Issuer intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Securities Act, the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations of the Commission thereunder. See "Description of the
Notes--Exchange Offer; Registration Rights."
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving written notice
of such extension to the holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Issuer. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Certain Conditions to the Exchange Offer." The Issuer
will give written notice of any extension, amendment, nonacceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth below
and the acceptance thereof by the Issuer will constitute a binding agreement
between the tendering holder and the Issuer upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at the address set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be
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received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trustee or other nominee and who wishes to tender
should contact such registered holder of Old Notes promptly and instruct such
registered holder of Old Notes to tender on behalf of the beneficial owner. If
such beneficial owner wishes to tender on its own behalf, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and delivering
its Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such beneficial owner's name or obtain a properly completed power
of attorney from the registered holder of Old Notes. The transfer of record
ownership may take considerable time. If the Letter of Transmittal is signed by
a person or persons other than the registered holder or holders of Old Notes,
such Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein below). In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes whose acceptance might, in the judgment of the Issuer, or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Issuer shall determine.
Neither the Issuer, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
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representative capacity, such persons should so indicate when signing, and,
unless waived by the Issuer, proper evidence satisfactory to the Issuer of their
authority to so act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Old Notes in
connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, (iii) the holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Old Notes acquired by
such holder directly from the Issuer should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Issuer. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
the holder is required to acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the holder will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Issuer shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Issuer has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
In all cases, the issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer, or if Old Notes are submitted for a greater amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry procedures described below, such non exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) designated by the tendering holder as promptly as practicable after
the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or
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facsimile thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" on or prior to
the Expiration Date or the guaranteed delivery procedures described below must
be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under " --Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are registered,
if different from that of the withdrawing holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Issuer whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
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CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
Exchange Notes for such Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued by,
any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Issuer to accept for exchange or exchange some or all of the Old Notes tendered
pursuant to the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the Exchange Offer or any other transactions contemplated by the
Exchange Offer by any government or governmental authority, domestic or foreign,
or any action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the sole
judgment of the Issuer might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) above or, in the sole judgment
of the Issuer, might result in the holders of Exchange Notes having obligations
with respect to resales and transfers to Exchange Notes which are greater than
those described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed with
the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national securities
exchange or in the over-the-counter market, (ii) any limitation by any
governmental agency or authority which may adversely affect the ability of the
Issuer to complete the transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by any governmental agency or
authority which adversely affects the extension of credit or (iv) a commencement
of a war, armed hostilities or other similar international calamity directly or
indirectly involving the United States, or, in the case of any of the foregoing
existing at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Issuer and its subsidiaries taken as a whole that, in the sole judgment of the
Issuer, is or may be adverse to the Issuer, or the Issuer shall have become
aware of facts that, in the sole judgment of the Issuer have or may have adverse
significance with respect to the value of the Old Notes or the Exchange Notes;
which, in the sole judgment of the Issuer in any case, and regardless of the
circumstances (including any action by the Issuer) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
To the Issuer's knowledge, as of the date of this Prospectus, none of the
foregoing events has occurred.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
44
<PAGE>
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
DELIVERY TO: Bankers Trust Company, Exchange Agent
BY MAIL OR BY HAND:
Bankers Trust Company
Four Albany Street
7th Floor
New York, New York 10006
ATTENTION: Corporate Trust Trustee Administration
Telephone: (212) 250-6573
By Facsimile: (212) 250-0933
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer of approximately $25,000 (plus any out-of-pocket expenses, including
without limitation, legal fees and expenses incurred by the Exchange Agent) will
be paid by the Issuer.
ACCOUNTING TREATMENT
For accounting purposes, the Issuer will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Issuer to register Exchange Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
REGULATORY MATTERS
The Issuer is not aware of any governmental or regulatory approvals that are
required in order to consummate the Exchange Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "United States Income Tax Considerations."
45
<PAGE>
The Old Notes which are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to a person whom the seller reasonably believes is a
qualified institutional buyer (as defined in Rule 144A under the Securities Act)
in a transaction meeting the requirements of Rule 144A, (ii) in a transaction
meeting the requirements of Rule 144 under the Securities Act, (iii) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Issuer so requests),
(iv) to the Issuer or, (v) pursuant to an effective registration statement and,
in each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction. Under certain
circumstances, the Issuer is required to file a Shelf Registration Statement.
See "Description of Notes--Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
In the event that (i) the Exchange Offer Registration Statement is not filed
with the Commission on or prior to the 60th calendar day following the Issue
Date, (ii) the Exchange Offer Registration Statement is not declared effective
on or prior to the 90th calendar day following the Issue Date, (iii) the
Exchange Offer is not consummated on or prior to the 120th calendar day
following the Issue Date, or, as the case may be, a Shelf Registration Statement
with respect to the Notes is not declared effective on or prior to the 120th
calendar day following the Issue Date or (iv) the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective but
thereafter ceases to be effective or usable (except in certain limited periods)
(each such event referred to in clauses (i) through (iv) above, a "Registration
Default"), then the Issuer will be required to pay additional interest in cash
on each interest payment date in an amount equal to one-half of one percent
(0.5%) per annum of the applicable Accreted Value of the Notes with respect to
the first 90-day period following such Registration Default. The amount of such
additional interest will increase by an additional one-half of one percent
(0.5%) per annum for each subsequent 90-day period until such Registration
Default has been cured, up to a maximum of one and one-half percent (1.5%) per
annum. Upon the cure of all applicable Registration Defaults, such additional
interest will cease to accrue. See "Description of the Notes--Exchange Offer;
Registration Rights."
46
<PAGE>
USE OF PROCEEDS
The Issuer will not receive any proceeds from the issuance of the Exchange
Notes or the consummation of the Exchange Offer or any sale of the Exchange
Notes to any broker-dealer.
The Company intends to use the net proceeds from the sale of the Old Notes
which were approximately $120 million after deducting offering expenses and the
Initial Purchasers' discount, to fund (i) capital expenditures, operating losses
and working capital primarily related to the launch and development of its D-DTH
business, (ii) the acquisition of cable television networks (approximately $37
million) and certain minority interests in subsidiaries of the Company which are
held by unaffiliated third parties (approximately $16 million), and (iii)
general corporate purposes and certain other investments. See "Prospectus
Summary--Recent Developments."
The Company believes that, in addition to the net proceeds from the sale of
the Old Notes, cash on hand and cash from operations, it will need additional
funding of at least $150 million to fulfill its current business development
plan through the end of 1999. This additional financing will be required to fund
ongoing development and expansion of the Company's D-DTH and programming
businesses, and such businesses are expected to incur operating losses and
negative cash flow for at least the next two years. At July 21, 1998, the
Company was committed to pay at least approximately $380 million in guaranteed
payments (including but not limited to payments for the D-DTH Reception Systems,
and payments of guaranteed minimum amounts due under programming agreements and
satellite transponder leases) over the next seven years, of which at least
approximately $235 million was committed through the end of 1999. These payments
may increase if the Company enters into additional programming agreements. The
Company expects that it will also require additional external funding for its
business development plan in years subsequent to 1999 if the Company continues
to provide promotional incentives to subscribers (other than the 500,000 initial
subscribers) with respect to the D-DTH Reception Systems. Future sources of
financing for the Company could include public or private debt or equity
offerings or bank financings or any combination thereof. Moreover, if the
Company's plans or assumptions change, if its assumptions prove inaccurate, if
it consummates unanticipated investments in or acquisitions of other companies,
if it experiences unexpected costs or competitive pressures, or if the net
proceeds from the sale of the Old Notes, existing cash and projected cash flow
from operations prove to be insufficient, the Company may need to obtain greater
amounts of additional financing. 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. See "Risk Factors--Need for Additional Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." PCI maintains a credit facility of
approximately $6.5 million, under which all amounts were drawn in June 1998.
@Entertainment is currently negotiating to enter into an agreement with one or
more banks to provide a larger liquidity facility.
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, the noon exchange
rate quoted by the NBP. Such rates are set forth as zloty per U.S. Dollar. At
March 31, 1998, such rate was PLN 3.45 = $1.00. The Federal Reserve Bank of New
York does not certify for customs purposes a noon buying rate for zloty.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period................... 1.58 2.13 2.44 2.47 2.88 3.51
Average exchange rate during period(1)........... 1.39 1.84 2.27 2.43 2.71 3.31
Highest exchange rate during period.............. 1.58 2.13 2.45 2.54 2.89 3.56
Lowest exchange rate during period............... 1.15 1.58 2.14 2.32 2.47 2.86
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998
-------------------
<S> <C>
Exchange rate at end of period................... 3.45
Average exchange rate during period(1)........... 3.49
Highest exchange rate during period.............. 3.56
Lowest exchange rate during period............... 3.42
</TABLE>
- ------------------------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
47
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and actual
capitalization of the Company on a consolidated basis as of March 31, 1998 and
as adjusted to reflect the completion of the sale of the Old Notes and the
receipt and application of the estimated net proceeds therefrom and the drawdown
of the $6.5 million AmerBank facility as described under "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
------------ -----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 58,589 $ 184,624
------------ -----------
------------ -----------
Long-term liabilities:
PCI Notes(1)...................................................................... $ 129,666 $ 129,666
Old Notes(2)...................................................................... -- 117,485
Other notes payable(1)............................................................ 2,631 9,131
------------ -----------
Total long-term liabilities..................................................... 132,297 256,282
Stockholders' equity:
Preferred stock, par value $.01 per share; Authorized 20,002,500 shares; none
issued and outstanding.......................................................... -- --
Common stock, par value $.01 per share; Authorized 70,000,000 shares; issued and
outstanding 33,310,000 shares(3)................................................ 333 333
Warrants(2)....................................................................... -- 7,615
Paid-in capital................................................................... 230,339 230,339
Cumulative translation adjustment................................................. 2,549 2,549
Accumulated deficit............................................................... (95,395) (95,395)
------------ -----------
Total stockholders' equity...................................................... 137,826 145,441
------------ -----------
Total capitalization.......................................................... $ 270,123 $ 401,723
------------ -----------
------------ -----------
</TABLE>
- ------------------------
(1) See "Description of Indebtedness."
(2) Of the $125.1 million gross proceeds from the sale of 252,000 units, each
consisting of $1,000 principal amount at maturity of the Old Notes and four
warrants (each a "Warrant"), each initially entitling the holders thereof to
purchase 1.81 shares of Common Stock at an exercise price of $13.20 per
share, subject to adjustment, $117.5 million has been allocated to the
initial Accreted Value of the Old Notes and $7.6 million has been allocated
to the Warrants. No assurance can be given that the value allocated to the
Notes and Warrants will be indicative of the price at which the Notes and
Warrants may actually trade.
(3) Does not include 1,824,514 shares of Common Stock reserved for issuance upon
exercise of the Warrants, 1,926,400 shares subject to options which were
exercisable within sixty days of July 8, 1998 and 2,509,600 additional
shares of Common Stock reserved for issuance in connection with options
granted to certain employees of the Company. See "Executive Compensation"
and "Option Grants in Last Fiscal Year."
48
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for each
of the years in the five-year period ended December 31, 1997 have been derived
from the audited consolidated financial statements of the Company and the notes
thereto, prepared in conformity with U.S. GAAP, which have been audited by the
Company's independent public accountants. The Consolidated Financial Statements
as of December 31, 1996 and 1997, and for each of the years in the three-year
period ended December 31, 1997 which have been audited by KPMG Polska Sp. z
o.o., independent public accountants, are included elsewhere in this Prospectus.
The consolidated financial data as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 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
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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Cable television revenue....................... $ 6,562 $ 8,776 $ 18,557 $ 24,923 $ 38,138 $ 7,508 $ 12,686
Operating expenses:
Direct operating expenses.................... (1,481) (2,119) (5,129) (7,193) (14,621) (2,100) (8,648)
Selling, general and administrative
expenses(1)................................ (4,029) (2,818) (4,684) (9,289) (49,893) (2,974) (13,447)
Depreciation and amortization................ (2,257) (3,459) (5,199) (9,788) (16,294) (3,450) (4,949)
--------- --------- --------- --------- ----------- --------- ---------
Operating (loss) income.................... (1,205) 380 3,545 (1,347) (42,670) (1,016) (14,358)
Interest and investment income............... 65 78 174 1,274 5,754 750 850
Interest expense............................. (116) (2,327) (4,373) (4,687) (13,902) (3,205) (3,649)
Equity in income (losses) of affiliated
companies.................................. -- -- -- -- (368) -- 270
Foreign currency (loss) gain, net............ (315) (27) (17) (761) (1,027) (305) 73
--------- --------- --------- --------- ----------- --------- ---------
Loss before income taxes, minority interest
and extraordinary item..................... (1,571) (1,896) (671) (5,521) (52,213) (3,776) (16,814)
Income tax (expense) benefit................. (976) (803) (600) (1,273) 975 (271) (333)
Minority interest............................ 205 316 (18) 1,890 (3,586) 476 (149)
--------- --------- --------- --------- ----------- --------- ---------
Loss before extraordinary item............. (2,342) (2,383) (1,289) (4,904) (54,824) (3,571) (17,296)
Extraordinary item--loss on early
extinguishment of debt(2).................. -- -- -- (1,713) -- -- --
--------- --------- --------- --------- ----------- --------- ---------
Net loss................................... (2,342) (2,383) (1,289) (6,617) (54,824) (3,571) (17,296)
Accretion of redeemable preferred stock...... -- -- -- (2,870) (2,436) (980) --
Preferred stock dividends.................... -- (1,811) -- (1,738) -- -- --
(Excess) deficit of consideration paid for
preferred stock (over) under carrying
amount(3).................................. -- -- -- 3,549 (33,806) -- --
--------- --------- --------- --------- ----------- --------- ---------
Net loss applicable to holders of Common
Stock...................................... $ (2,342) $ (4,194) $ (1,289) $ (7,676) $ (91,066) $ (4,551) $ (17,296)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash provided by/(used in) operating
activities................................ 2,709 1,599 3,839 6,112 (18,773) (1,656) (11,832)
Net cash used in investing activities....... (5,817) (12,341) (21,985) (74,861) 64,842) (7,662) (35,307)
Net cash provided by/(used in) financing
activities................................ 3,332 12,686 17,996 134,889 120,823 (657) 37
Consolidated EBITDA(4)...................... $ 1,052 $ 3,839 $ 8,744 $ 8,441 $ (8,274) $ 2,434 $ (9,409)
PCI EBITDA(5)............................... 1,052 3,839 8,744 8,441 5,387 2,597 3,899
Expenditures for the purchase and
construction of property, plant and
equipment.(6)............................. 5,490 11,695 16,715 26,581 42,454 4,867 23,085
Ratio of earnings to fixed charges(7)....... N/A 0.37 0.86 0.21 N/A 0.04 N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 549 $ 2,493 $ 2,343 $ 68,483 $ 105,691 $ 58,589
Property, plant and equipment, net....... 26,828 33,235 52,320 84,833 117,579 139,231
Total assets............................. 34,165 47,376 68,058 217,537 307,096 303,794
Total notes payable...................... 20,073 35,988 59,405 130,074 130,110 132,297
Redeemable preferred stock............... -- -- -- 34,955 -- --
Total stockholders' equity............... 3,250 1,479 190 31,048 152,355 137,826
</TABLE>
- ------------------------
(1) The year ended December 31, 1997 includes a non-cash compensation expense of
$18,102,000 relating to the granting of certain management stock options.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 16 to the Consolidated Financial Statements included
elsewhere in this Prospectus.
(2) See Note 12 to the Consolidated Financial Statements included elsewhere in
this Prospectus.
(3) Represents the amount paid to preferred stockholders in excess of or less
than the carrying value of such shares. See Note 1 to the Consolidated
Financial Statements included elsewhere in this Prospectus.
(4) EBITDA consists of net loss adjusted for interest and investment income,
depreciation and amortization, interest expense, foreign currency
translation gains and losses, equity in losses of affiliated companies,
income taxes, extraordinary items, non-recurring items (e.g., compensation
expense related to stock options), gains and losses from the sale of assets
other than in the normal course of business and minority interest. The items
excluded from EBITDA are significant components in understanding and
assessing the Company's financial performance. 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 loss as an indicator of the Company's
operating performance or to cash flows from operations as a measure of
liquidity.
(5) PCI EBITDA reflects the EBITDA for PCI and its subsidiaries, whose primary
operations consist of the Company's cable television business. For the years
1993 through 1996, consolidated EBITDA was entirely attributable to PCI and
its subsidiaries.
(6) Expenditures in 1993 and 1994 include the costs of construction of cable
television systems and exclude the costs of acquiring cable systems and
other property, plant and equipment.
(7) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net loss before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness, amortization
of deferred financing costs and that portion of operating lease expense
deemed to be interest expense. For all periods presented, the Company
incurred net losses before income taxes and hence earnings to fixed charges
indicate a less than one to one coverage. For the years ended December 31,
1993, 1994, 1995, 1996, and 1997 and the three months ended March 31, 1997
and 1998, earnings were insufficient to cover fixed charges by $1,140,000,
$1,580,000, $689,000, $3,631,000, $55,799,000, $3,300,000 and $16,963,000,
respectively.
50
<PAGE>
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, included elsewhere in this Prospectus. This
Prospectus contains statements which constitute forward-looking statements
regarding the intent, belief or current expectations of the Issuer or its
officers with respect to, among other things, (i) the Issuer's financing plans,
(ii) trends affecting the Issuer's financial condition or results of operations,
(iii) the impact of competition, (iv) the start up of certain operations, (v)
acquisition opportunties, and (vi) regulatory matters. The Issuer'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 statement
as a result of various factors. The accompanying information contained in this
Prospectus, including, without limitation, the information under "Prospectus
Summary--Relevant Developments," "Risk Factors", "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "The Industry,"
"Business" and "Regulation," identifies important factors that could cause such
differences.
OVERVIEW
The Company's revenues have been, and until the limited launch of the
Company's D-DTH business on July 1, 1998, were derived entirely from its cable
television business and programming related thereto.
Prior to June 1997, the Company's expenses were primarily incurred in
connection with its cable television business and programming related thereto.
Since June 1997, the Company has been incurring, in addition to expenses related
to its cable television and programming businesses, expenses in connection with
the development of its D-DTH business and Wizja TV, which was originally
scheduled for launch on April 18, 1998. On April 17, 1998, the Company signed a
letter of intent with TKP and its shareholders to form a joint venture for
bringing together the Company's Wizja TV programming platform and the Canal+
Polska premium pay television channel and for the joint development and
operation of a D-DTH service in Poland. The letter of intent called for the
Company to invest approximately $112 million in TKP, and to sell substantially
all of the Company's D-DTH and programming assets to TKP for approximately $42
million. The TKP joint venture was to be owned 40% by the Company, 40% by Canal+
S.A., 10% by Agora S.A. and 10% by PolCom Invest S.A. The letter of intent also
contained a standstill provision whereby neither the Company nor TKP could, for
a period of 45 days after the execution of the letter of intent, launch any
digital pay television service. As a result, the Company postponed its launch of
the Wizja TV programming platform and its D-DTH service, which was originally
scheduled for April 18, 1998. The Company estimates that the delay of its
planned April 1998 Wizja TV launch has resulted in approximately $7.2 million of
additional out-of-pocket expenditures as of July 8, 1998, including a $5 million
payment made to Philips to compensate it for costs it incurred as a result of
the suspension of the production process for the D-DTH Reception Systems. The
Company started to transmit Wizja TV across its cable networks on June 5, 1998
and on its D-DTH system on a limited basis on July 1, 1998.
The Company generated operating income of $3.5 million in 1995, but had
operating losses of $1.3 million, $42.7 million and $14.4 million for 1996, 1997
and the first three months of 1998, respectively, primarily due to the increased
levels of acquisitions and related costs and non-cash compensation expense
related to stock options.
In addition to other operating statistics, the Company measures its
financial performance by EBITDA. The Company defines EBITDA to be net loss
adjusted for interest and investment income, depreciation and amortization,
interest expense, foreign currency gains and losses, equity in losses of
affiliated companies, income taxes, extraordinary items, non-recurring items
(e.g., compensation expense related to stock options) and gains and losses from
the sale of assets other than in the normal course of business and minority
interest. The items excluded from EBITDA are significant components in
understanding and assessing the Company's financial performance. The Company
believes that EBITDA and
51
<PAGE>
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 loss or cash
flow from operations and should not be considered as an alternative to net loss
as an indication of the Company's financial performance or as an alternative to
cash flows from operations as a measure of liquidity.
CABLE OVERVIEW
Substantially all of the Company's revenues through March 31, 1998 have been
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 March 31, 1998 approximately 76% of the Company's
subscribers received the Company's Basic Tier. During the three months ended
March 31, 1998, approximately 93% of the Company's revenue was derived from
monthly subscription fees compared to 85% in the corresponding period in 1997.
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, 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 expects that it may continue to experience increases in its
churn rate above historical levels during the implementation of its current
pricing strategy, which commenced in January 1997 and is designed to increase
revenue per subscriber and to achieve real profit margin increases in U.S.
Dollar terms. The Company intends to increase the monthly price for the Basic
Tier service twice in the next six months and premium channels such as Wizja 1,
HBO and Canal+ Polska will each be offered to cable customers for an additional
monthly charge.
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 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.
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 headcount,
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 the Company's cable subsidiary, PCI, for 1995, 1996, 1997 and the
first three months of 1998 was $8.7 million, $8.4 million, $5.4 million and $3.9
million, respectively. The Company expects EBITDA for its cable business to
increase as it fully integrates acquired networks into its regional clusters and
consummates acquisitions. There can be no assurance, however, that the Company
will continue to
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generate positive EBITDA for its cable business in the future. EBITDA is not
intended to represent cash flow from operations under U.S. GAAP and should not
be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to cash flows from operations as a measure of
liquidity.
D-DTH OVERVIEW
The Company intends to expand its distribution capacity by launching in
September 1998 a complementary D-DTH broadcasting service for Poland, targeted
at homes that are not subscribers to the Company's cable service. The
programming to be provided will be Wizja TV. The Company completed a limited
launch of its D-DTH service, including Wizja TV, to approximately 250 reception
systems on July 1, 1998. The Company has also received advance orders from
16,000 potential subscribers to its D-DTH service. The Company believes that its
multi-channel Polish-language D-DTH service is the first D-DTH service available
in Poland. The Company's D-DTH service is being broadcast to Poland from its
transmission facilities in Maidstone, United Kingdom. At March 31, 1998, the
Company had incurred operating expenses of $26.6 million related to the launch
of Wizja TV and the new D-DTH business.
The Company expects to incur substantial operating losses and negative free
cash flows related to the launch of its D-DTH business for at least the next two
years while it develops and expands its D-DTH business. To date, the Company has
relied primarily on funds raised in the Initial Public Equity Offering to fund
the development of its D-DTH business. The Company's D-DTH business plan
requires substantial capital expenditures to fund, among other things, the
promotional incentives that are anticipated to be required to expand its
business. The Company's business plan anticipates spending up to approximately
$200 million to provide D-DTH Reception Systems to the targeted 500,000 initial
subscribers at a price that is significantly decreased by promotional
incentives, in order to drive subscriber penetration. See "Risk Factors--Need
for Additional Financing."
The Company currently charges its D-DTH subscribers an up-front fee of $135,
plus applicable taxes, which includes the D-DTH Reception System rental,
installation, and a one year's subscription for all channels (other than any
premium channels). After the first year of service, subscribers will be required
to pay a quarterly fee expected to be approximately $38 in advance for the
service plus separate amounts to receive premium channels. The Company will
retain ownership of the D-DTH Reception Systems.
PROGRAMMING OVERVIEW
The Company, both directly and through other joint ventures, produces
television programming for distribution. The Company has developed a
multi-channel, primarily Polish-language programming platform under the brand
name Wizja TV. The Company began broadcasting to Poland from its transmission
facilities in Maidstone, United Kingdom and retransmitting Wizja TV across its
cable networks on June 5, 1998 and on its D-DTH system on a limited basis on
July 1, 1998, and it plans to transmit Wizja TV on its D-DTH system on a
full-scale basis starting in September 1998. To promote the launch of Wizja TV,
the Company has commenced a $20 million nationwide marketing campaign which the
Company believes will be the largest single-year product launch expenditure to
date in Poland. Wizja TV's current channel line-up includes three channels,
Atomic TV, Wizja 1, and Wizja Pogoda, that are owned and operated by the
Company, and 11 channels that are produced by third parties, 9 of which are
broadcast under exclusive agreements for pay television in Poland. The Company
expects to expand Wizja TV's initial channel line-up to include additional basic
and premium channels, including the Company's proprietary Wizja Sport channel,
and eventually to introduce tiered packages containing a variety of combinations
of 21 or more channels.
The Company expects to continue to expand its in-house programming
production and to seek out and participate in other programming related
ventures. Costs related to the Company's programming business include costs to
acquire programming produced by third parties, in-house production costs,
selling costs, facilities costs, and personnel costs. The Company currently
distributes Atomic TV and intends to distribute Wizja 1, Wizja Pogoda and Wizja
Sport, to other cable operators in Poland for a per-subscriber
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fee basis. Such distribution agreements would likely include provisions which
would entitle the Company to share in advertising revenue earned from the
transmission of the Company's proprietary programming across cable networks
owned by other cable operators in Poland.
Certain in-house production costs will be capitalized and amortized in
accordance with the guidance established within the Statement of Financial
Accounting Standards No. 53, "Financial Reporting by Producers and Distributors
of Motion Picture Films", as applicable.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
CABLE TELEVISION REVENUE. Revenue increased $5.2 million or 69.3% from $7.5
million for the three months ended March 31, 1997 to $12.7 million for the same
period in 1998. This increase was primarily attributable to a 39.7% increase in
the number of basic subscribers from approximately 484,000 at March 31, 1997 to
approximately 676,000 at March 31, 1998, as well as an increase in monthly
subscription rates. Approximately 68% of this increase in basic subscribers was
the result of acquisitions and the remainder was due to build-out of the
Company's existing cable networks.
Revenue from monthly subscription fees represented 85.4% and 93.5% of cable
television revenue for the three months ended March 31, 1997 and 1998,
respectively. Installation fee revenue for the three months ended March 31,
1998, decreased by 41.1% compared to corresponding period in 1997, from $776,000
to $457,000. During the three months ended March 31, 1998, the Company generated
approximately $0.8 million of additional premium subscription revenue and
approximately $20,000 of additional premium channel installation revenue as a
result of providing the HBO pay movie channel to cable subscribers.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $6.5
million, or 309.5%, from $2.1 million for three months ended March 31, 1997 to
$8.6 million for the three months ended March 31, 1998, principally as a result
of the following: higher levels of technical personnel and increased maintenance
expenses associated with the establishment of its satellite up-link and studio
facility located in Maidstone, United Kingdom, recently acquired cable networks
which have not yet been integrated within the Company's cable system and
standards, the increased size of the Company's cable televisions system, and
costs associated with the lease of three transponders on the Astra satellites
which provide the capability to deliver the Company's Polish-language
programming platform to cable customers in Poland and will provide such
capability for D-DTH customers in Poland. Direct operating expenses increased
from 28% of revenues for the three months ended March 31, 1997 to 68% of
revenues for the three months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $10.4 million or 346.7% from $3.0 million for
the three months ended March 31, 1997 to $13.4 million for the three months
ended March 31, 1998. A portion of this increase was attributable to a $2.5
million increase in sales and marketing expenses incurred in preparation for the
launch of the D-DTH service and Wizja TV, general and administrative costs
associated with newly acquired subsidiaries and cable networks, costs associated
with an agreement relating to the sale of advertising on Atomic TV, an increase
in the number of administrative staff associated with the establishment of the
Maidstone, United Kingdom facility and Wizja TV, as well as an increase in
professional fees associated with obtaining long-term programming contracts and
broadcast/exhibition rights. Compensation expense also increased as the Company
has established a management team of senior executives who have significant
experience in the cable television, programming and satellite broadcasting
businesses.
As a percentage of revenue, selling, general and administrative expenses
increased from 40% for the three months ended March 31, 1997 to approximately
106% for the corresponding period in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses rose
$1.4 million, or 40%, from $3.5 million for the three months ended March 31,
1997 to $4.9 million for the three months ended March 31, 1998, principally as a
result of depreciation of additional cable television networks acquired and
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the continued build-out of the Company's existing cable networks. Depreciation
and amortization expense as a percentage of revenues decreased from 46.0% in the
three months ended March 31, 1997 to 39.0% in the three months ended March 31,
1998.
INTEREST EXPENSE. Interest expense increased $0.4 million, or 12.5%, from
$3.2 million for the three months ended March 31, 1997 to $3.6 million for the
three months ended March 31, 1998. The increase in interest expense was mainly
attributable to new loans assumed by the Company in connection with its
acquisition of two subsidiaries subsequent to March 31, 1997.
INTEREST AND INVESTMENT INCOME Interest and investment income increased
$0.1 million, or 12.5%, from $0.8 million for the three months ended March 31,
1997 to $0.9 million for the three months ended March 31, 1998, primarily due to
the income derived from the investment of a portion of the net proceeds from the
PCI Notes and from the Initial Public Equity Offering in August 1997.
FOREIGN EXCHANGE GAIN (LOSS). For the three months ended March 31, 1998,
foreign exchange gain amounted to $0.1 million as compared to a $0.3 million
loss for the corresponding period in 1997 as a result of the devaluation of the
U.S. dollar against the Polish z$loty during the three months ended March 31,
1998.
MINORITY INTEREST. Minority interest in subsidiary income was $0.1 million
for the first three months of 1998, compared to minority interest in subsidiary
loss of $0.5 million for the compared period in 1997.
NET LOSS. For the three months ended March 31, 1997 and 1998, the Company
had net losses of $3.6 million and $17.3 million, respectively. These losses
were the result of the factors discussed above.
EBITDA. EBITDA decreased by $11.8 million, or 486.6%, from $2.4 million for
the three months ended March 31, 1997 to $(9.4) million. EBITDA consists of net
loss adjusted for interest and investment income, depreciation and amortization,
interest expense, foreign currency gains and loses, equity in losses of
affiliated companies, income taxes, extraordinary items, non-recurring items
(e.g., compensation expense related to stock options), gains and losses from the
sale of assets other than in the normal course of business and minority
interest. The items excluded from EBITDA are significant components in
understanding and assessing the Company's financial performance. The Company
believes that EBITDA and related measures of cash flows 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 flows from operations under U.S. GAAP and should not be
considered as an alternative to net loss as an indicator of the Company's
operating performance or cash flows from operations as a measure of liquidity.
1997 COMPARED TO 1996
CABLE TELEVISION REVENUE. Revenue increased $13.2 million or 53.0% from
$24.9 million in 1996 to $38.1 million in 1997. This increase was primarily
attributable to a 42.6% increase in the number of basic subscribers from
approximately 446,000 at December 31, 1996 to approximately 636,000 at December
31, 1997. Approximately 69.3% of this increase in basic subscribers was the
result of acquisitions and the remainder was due to build-out of the Company's
existing cable networks.
Revenue from monthly subscription fees represented 87.2% and 90.1% of cable
television revenue in 1996 and 1997, respectively. Installation fee revenue for
1997 decreased by 6.3% compared to 1996, from $3.2 million to $3.0 million.
During 1997, the Company generated approximately $56,000 of additional premium
subscription revenue and approximately $941,000 of additional premium channel
installation revenue as a result of providing the HBO pay movie channel to cable
subscribers.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $7.4
million, or 102.8%, from $7.2 million in 1996 to $14.6 million in 1997,
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks which have not
yet been integrated within the Company's networks and standards as well as the
increased size of the Company's
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cable television system, and costs associated with the lease of two transponders
on the Astra 1F satellite which will provide the capability to deliver the
Company's Polish-language programming platform to Polish customers on the
Company's cable television networks and its D-DTH system. Direct operating
expenses increased from 28.9% of revenues for 1996 to 38.3% of revenues for
1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $40.6 million or 436.6% from $9.3 million in
1996 to $49.9 million in 1997. A portion of this increase was due to non-cash
compensation expense of $18.1 million in 1997 related to options to purchase
shares granted to key executives. The remainder of the increase was attributable
to an increase in sales and marketing expenses incurred in newly acquired
networks, costs associated with the agreement relating to sale of advertising on
Atomic TV, described in Note 9 to the Company's consolidated financial
statements included elsewhere in this Offering Memorandum, and costs of
launching the distribution of the HBO premium pay movie channel in Poland.
Compensation expense also increased as the Company has established a management
team of senior executives who have significant experience in the cable
television, programming and satellite broadcasting businesses.
As a percentage of revenue, selling, general and administrative expenses
increased from 37.3% for 1996 to approximately 130.8% for 1997. However, without
considering the non-cash compensation expense related to the stock options
described above, selling, general and administrative expenses as a percentage of
revenues would have been 83.4% in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$6.5 million, or 66.3%, from $9.8 million in 1996 to $16.3 million in 1997,
principally as a result of depreciation of additional cable television systems
acquired and the continued build-out of the Company's networks. Depreciation and
amortization expense as a percentage of revenues increased from 39.3% in 1996 to
42.7% in 1997.
INTEREST EXPENSE. Interest expense increased $9.2 million, or 195.7%, from
$4.7 million in 1996 to $13.9 million in 1997 primarily due to the inclusion of
a full year's interest on the PCI Notes which were issued in October 1996.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased
$4.5 million, or 346.2%, from $1.3 million in 1996 to $5.8 million in 1997,
primarily due to the income derived from the investment of a portion of the net
proceeds from the issuance of PCI Notes in October 1996 and the Initial Public
Equity Offering in August 1997.
FOREIGN CURRENCY LOSS. For 1997 foreign currency loss amounted to $1.0
million as compared to $761,000 for 1996, primarily due to less favorable
exchange rate fluctuations.
MINORITY INTEREST. Minority interest in subsidiaries' income was $3.6
million for 1997, resulting from a fourth quarter adjustment to write off
certain receivable balances that were not recoverable, compared to minority
interest in subsidiary loss of $1.9 million for 1996.
EXTRAORDINARY ITEM. 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 a write
off of $1,566,000 of deferred financing costs.
NET LOSS. For 1996 and 1997, the Company had net losses of $6.6 million and
$54.8 million, respectively. These losses were the result of the factors
discussed above.
EBITDA. EBITDA decreased by $16.7 million, or 198.8%, from $8.4 million for
1996 to $(8.3) million for 1997. EBITDA consists of net loss adjusted for
interest and investment income, depreciation and amortization, interest expense,
foreign currency gains and losses, equity in losses of affiliated companies,
income taxes, extraordinary items, non-recurring items (e.g., compensation
expense related to stock options), gains and losses from the sale of assets
other than in the normal course of business and minority interest. The items
excluded from EBITDA are significant components in understanding and
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assessing the Company's financial performance. The Company believes that EBITDA
and related measures of cash flows 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 flows from
operations under U.S. GAAP and should not be considered as an alternative to net
loss as an indicator of the Company's operating performance or cash flows from
operations as a measure of liquidity. The Company treated the $18.1 million
non-cash compensation expense relating to the grant of stock options in 1997 as
a non-recurring item and it expects that future grants of stock options will not
give rise to compensation expense.
1996 COMPARED TO 1995
CABLE TELEVISION REVENUE. Revenue increased $6.3 million, or 33.9%, 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
39.1% 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 41.2%, 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. Direct operating
expenses increased from 27.6% of revenue in 1995 to 28.9% of revenue in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.6 million, or 97.9%, from $4.7 million in
1995 to $9.3 million in 1996, primarily as a result of an increase in sales and
marketing expenses incurred in newly acquired networks, the introduction of
several remarketing campaigns throughout the areas covered by the Company's
networks, and increased compensation and 1996 bonuses. Selling, general and
administrative expenses increased from 25.2% of revenue in 1995 to 37.3% of
revenue in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses rose
$4.6 million, or 88.5%, 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 6.8%, 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 PCI 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
was primarily attributable to a positive cash position in 1996 resulting from
the issuance of PCI shares and the PCI Notes.
FOREIGN CURRENCY LOSS. Foreign currency loss increased from $17,000 in 1995
to $761,000 in 1996, primarily due to less favorable exchange rate fluctuations.
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MINORITY INTEREST. Minority interest in subsidiaries' loss was $1.9 million
in 1996 resulting from losses incurred in two minority owned subsidiaries
compared to minority interest in subsidiaries' income of $18,000 in 1995. During
1996 the Company completed partial acquisitions which gave rise to the increase
in minority interest in subsidiaries' losses.
EXTRAORDINARY ITEM. 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 a
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.
EBITDA. EBITDA decreased $0.3 million, or 3.4%, 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 certain other acquisitions. The Company's
EBITDA margin decreased from 47.1% to 33.9% over such period. 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 loss as an indicator of the Company's operating performance
or to cash flows from operations as a measure of liquidity.
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, (iii) cash flows from operations,
(iv) the sale of $130 million aggregate principal amount of PCI Notes, and (v)
the sale of approximately $200 million of Common Stock through the Initial
Public Equity Offering in August 1997. The Company had positive cash flows from
operating activities in 1995 and 1996 of $3.8 million and $6.1 million,
respectively, primarily due to the increase of cash received from subscribers
and the deferral of the payment of interest expense.
During 1996, PCI issued common and preferred stock to certain of the
Principal Stockholders for 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. 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.
PCI has entered into an agreement with AmerBank which provides for a credit
facility of approximately $6.5 million. All amounts under this facility were
drawn in June 1998. Interest, based on LIBOR plus 3%, is due quarterly. All
advances under the loan must be repaid by August 20, 1999. @Entertainment is
currently negotiating to enter into an agreement with one or more banks to
provide a larger liquidity facility, though there can be no assurance that such
facility can be established on satisfactory terms.
On October 31, 1996, $130 million aggregate principal amount of PCI Notes
were sold by PCI to the initial purchaser pursuant to a purchase agreement. The
initial purchaser subsequently completed a private placement of the PCI Notes.
The PCI Notes were issued pursuant to the PCI Indenture.
Pursuant to the PCI Indenture, PCI is subject to certain restrictions and
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 PCI Notes upon a change of control; (viii) limitation on sale
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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) consolidations, mergers, and sale of
assets. Pursuant to the AmerBank credit facility, PCI is subject to certain
informational and notice requirements but is not subject to restrictive
covenants. The PCI Indenture limits, but does not prohibit, the payment of
dividends by PCI and the ability of PCI to incur additional indebtedness. PCI
could not pay dividends to the Issuer as of March 31, 1998 because certain
financial ratios did not meet the minimum provided in the PCI Indenture.
In August 1997, the Company raised approximately $200 million through its
Initial Public Equity Offering. At March 31, 1998, on a pro forma basis after
giving effect to the Offering and the application of the net proceeds therefrom
and the drawdown of the $6.5 million AmerBank facility, the Company would have
had, on a consolidated basis, approximately $256 million aggregate principal
amount of indebtedness outstanding.
Pursuant to the Indenture, @Entertainment is subject to certain restrictions
and covenants, including, without limitation, covenants with respect to the
following matters: (i) limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on issuances and sale of capital stock of restricted
subsidiaries; (iv) limitation on transactions with affiliates; (v) limitation on
liens; (vi) limitation on sale of assets; (vii) limitation on dividend and other
payment restrictions affecting restricted subsidiaries; (viii) consolidations,
mergers, and sale of assets; and (ix) limitations on lines of business. See
"Description of the Notes--Certain Covenants."
The Company had negative cash flows from operating activities for the year
ended December 31, 1997 and the three months ended March 31, 1998 of $18.8
million and $11.8 million, respectively, primarily due to the significant
operating costs associated with the development of its D-DTH service and the
Wizja TV programming platform.
Cash used for the purchase and build-out of the Company's cable television
networks and the purchase of other property, plant, and equipment was $16.7
million, $26.6 million, $42.5 million, and $23.1 million in 1995, 1996, 1997 and
the three months ended March 31, 1998, respectively. The increase primarily
relates to the Company's acquisition of additional cable networks and capital
expenditures associated with the build-out of its existing cable networks and
the development of its planned D-DTH service and Wizja TV.
Cash used for the acquisition of subsidiaries, net of cash received, was
$4.1 million, $13.3 million, $18.0 million and $10.5 million in 1995, 1996, 1997
and the three months ended March 31, 1998, respectively. The Company spent
approximately $1.2 million, $3.9 million, $5.9 million and $0.6 million in 1995,
1996, 1997 and the three months ended March 31, 1998, respectively, to upgrade
major acquired networks to meet PCI's technical standards.
Subsequent to March 31, 1998, the Company purchased certain cable television
network assets for approximately $1.0 million, and entered into an agreement to
purchase, for approximately $10.6 million, certain remaining minority interests
in a subsidiary of the Issuer held by unaffiliated third parties.
At July 21, 1998, the Company was committed to pay at least approximately
$380 million in guaranteed payments (including but not limited to payments for
the D-DTH Reception Systems and payments of guaranteed minimum amounts due under
programming agreements and satellite transponder leases) over the next seven
years, of which at least approximately $235 million was committed through the
end of 1999. These payments may increase if the Company enters into additional
programming agreements. If the Company is unable to make these payments, it will
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company intends to use the net proceeds from the sale of the Old Notes,
which were approximately $120 million after deducting offering expenses and the
Initial Purchasers' discount, to fund (i) capital expenditures, operating losses
and working capital primarily related to the launch and development of its D-DTH
business, (ii) the acquisition of cable television networks (approximately $37
million)
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and certain minority interests in subsidiaries of the Issuer held by
unaffiliated third parties (approximately $16 million), and (iii) general
corporate purposes and certain other investments. See "Prospectus
Summary--Recent Developments" and "Use of Proceeds."
The Company believes that, in addition to the net proceeds from the sale of
the Old Notes, cash on hand and cash from operations, it will need additional
funding of at least $150 million to fulfill its current business development
plan through the end of 1999. This additional financing will be required to fund
ongoing development and expansion of the Company's D-DTH business and its
programming business, and such businesses are expected to incur operating losses
and negative cash flow for at least the next two years. The Company expects that
it will also require additional external funding for its business development
plan in years subsequent to 1999 if the Company continues to provide promotional
incentives to subscribers (other than the 500,000 initial subscribers) with
respect to the D-DTH Reception Systems. Future sources of financing for the
Company could include public or private debt or equity offerings or bank
financings or a combination thereof. Moreover, if the Company's plans or
assumptions change, if its assumptions prove inaccurate, if it consummates
unanticipated investments in or acquisitions of other companies, if it
experiences unexpected costs or competitive pressures, or if the net proceeds
from the sale of the Old Notes, existing cash, and projected cash flow from
operations prove to be insufficient, the Company may need to obtain greater
amounts of additional financing. 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. PCI maintains a credit facility of approximately $6.5
million, under which all amounts were drawn in June 1998. @Entertainment is
currently negotiating to enter into an agreement with one or more banks to
provide a larger liquidity facility.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since the fall of Communist rule in 1989, Poland has experienced high levels
of inflation and significant fluctuation in the exchange rate for the zloty. The
Polish government has adopted policies that slowed the annual rate of inflation
from approximately 250% in 1990 to approximately 27% in 1995, approximately 20%
in 1996, approximately 14.9% in 1997. The exchange rate for the zloty has
stabilized and the rate of devaluation of the zloty has generally decreased
since 1991, and the zloty has appreciated against the U.S. Dollar in the three
months ended March 31, 1998. Inflation and currency exchange fluctuations have
had, and may continue to have, a material adverse effect on the business,
financial condition and results of operations of the Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditures are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-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.
YEAR 2000 COMPLIANCE
In January 1997, the Company developed a plan to deal with the Year 2000
problem and to make its computer systems Year 2000 compliant. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. The Company's plan provides for the
Year 2000 related efforts to be completed by the end of 1998. Largely as a
result of its high rate of growth over the past few years, the Company has
entered into an agreement to purchase a new system to replace its current
accounting computer system and an agreement to purchase specialized billing
software
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for the Company's new customer service and billing center. The Company has no
other significant computer systems. The total cost of the purchases is estimated
to be approximately $2,400,000. The Company has obtained confirmations from the
vendors of the systems indicating that such systems are Year 2000 compliant.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
The Company, effective for the year ended December 31, 1997, has adopted
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share." Pursuant to the provisions of the Statement, basic loss per share has
been computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. The
effect of potential common stock (stock options outstanding) is anti-dilutive.
Accordingly, dilutive loss per share does not assume the exercise of stock
options outstanding.
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income/(loss) encompasses all changes in
stockholders' equity (except those arising from transactions with owners) and
includes net income/(loss), net unrealized capital gains or losses on available
for sale securities and foreign currency translation adjustments. The Company's
comprehensive loss differs from net loss applicable to common stockholders only
by the amount of the foreign currency translation adjustment charged to
stockholders' equity.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 131, "Disclosures about Segment of an Enterprise and Related
Information," was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," which requires reporting segment information
by industry and geographic area (industry approach). Under SFAS No. 131,
operating segments are defined as components of a company for which separate
financial information is available and used by management to allocate resources
and assess performance (management approach). This statement is effective for
year-end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company does
not anticipate that this standard will significantly impact the composition of
its current operating segments, which are consistent with the management
approach.
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THE INDUSTRY
GENERAL
With approximately 39 million people and 12.3 million televison households
(as estimated by the Company at December 31, 1997), the Company believes that
Poland represents a highly attractive and dynamic market for the provision of
pay television. Television viewing rates in Poland are among the highest in
Europe with an average television viewing rate in 1996 of approximately 252
minutes per day per adult. This rate compares favorably to the 1996 U.S. and
U.K. average television viewing rates of approximately 240 minutes and 215
minutes per day per adult, respectively. In addition, as there are only
approximately 12 free-to-air television channels generally available in Poland
that contain primarily Polish-language programming, the Company believes that
significant opportunities exist to provide high-quality Polish-language
programming on a multi-channel basis.
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 7.0%, 6.1%, and
6.0% in 1995, 1996, and 1997 respectively, which were the highest growth rates
in Europe for 1995 and one of the highest in Europe in 1996. In recent years,
the government has encouraged foreign private investment, which has risen from
approximately $0.1 billion in 1990 to approximately $6.1 billion in 1996, and
approximately $6.6 billion in 1997. Poland has also successfully reduced its
annual inflation rate from approximately 250% in 1990 to approximately 27% in
1995, approximately 20% in 1996, and approximately 14.9% in 1997, and following
a period of rising unemployment, unemployment in Poland declined to 10.5% at
December 31, 1997. 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%,
7%, and 10% in 1995, 1996, and 1997, respectively. Furthermore, in certain urban
markets where the Company operates its cable networks, including Warsaw, Krakow,
Wroclaw and Katowice, disposable income levels are significantly higher and
unemployment is significantly lower than the national average. For example,
unemployment in Warsaw was approximately 2.8% at December 31, 1997.
THE POLISH MULTI-CHANNEL PAY TELEVISION INDUSTRY
POLISH CABLE MARKET
Poland is the fifth-largest television market in Europe, with approximately
12.3 million television households (as estimated by the Company at December 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 multi-channel 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 1996 Poland had one of the highest television viewing rates in
Europe, with an average of approximately 252 minutes of television viewing per
day per adult as compared with averages of approximately 240 minutes, 195
minutes and 215 minutes of television viewing per day per adult for the United
States, Germany and the United Kingdom, respectively. The Company believes that
several factors contribute to such high television viewing and indicate Polish
consumers' willingness to allocate disposable income for multi-channel pay
television. These factors include limited entertainment alternatives, strong
demand for high-quality programming, a long and generally cold winter season and
a low telephone penetration rate of approximately 15 telephones per 100 persons.
The Company also believes that, as the leading cable operator in Poland, its
subscriber penetration rates and relatively low churn rates are further
indicators of the potential demand for cable television services by large
operators in Poland. There is a relatively low percentage of television homes
for which cable service is available in Poland (based on Company estimates only
approximately 33% of television households were passed by cable at December 31,
1997), which the Company believes provides a
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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, 1998 of approximately 45% for the
Company's cable systems as 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 low churn rates since its
inception. The Company's annual churn rates have historically averaged less than
10%, which compare favorably to other markets such as the U.K. where in 1996
churn rates were approximately three times this figure. 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. In 1997, the Company's annual churn rate increased to
12.2%, though it would have been 9.8% had the Company not disconnected
approximately 17,000 non-paying subscribers in one of its acquired and rebuilt
networks. The Company expects, however, that it may continue to experience
increases in its churn rate above historical levels during the implementation of
the pricing strategy, which commenced in January 1997 and was designed to
increase revenue per subscriber and to achieve real profit margin increases in
U.S. Dollar terms. See "Business--Cable Operations-- 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 for 1996 except where
indicated.
<TABLE>
<CAPTION>
AVERAGE TV
NUMBER OF VIEWING
TELEVISION MINUTES
HOUSEHOLDS PER DAY PER COLOR TV VCR
(IN MILLIONS) ADULT PENETRATION PENETRATION(1)
--------------- ------------- --------------- -------------------
<S> <C> <C> <C> <C>
Poland.............................................. 12.0 252 88% 53%
United States....................................... 97.0 240 99% 81%
United Kingdom...................................... 23.4 215 99% 81%
Germany............................................. 33.7 195 99% 63%
Czech Republic...................................... 4.1 197 93% 32%
Hungary............................................. 3.9 N/A 81% 39%
<CAPTION>
HOMES
PASSED BY
CABLE AS A %
OF TELEVISION
HOUSEHOLDS
-----------------
<S> <C>
Poland.............................................. 23%
United States....................................... 97%(2)
United Kingdom...................................... 35%
Germany............................................. 72%
Czech Republic...................................... 56%
Hungary............................................. 44%
</TABLE>
- ------------------------
(1) VCR households as a percentage of television households.
(2) 1995 figure.
Sources: Baskerville Communications Corp., TV International Sourcebook 1997,
ZenithMedia, European Market and MediaFact (1998) and ZenithMedia, Americas
Market and Mediafact (1997).
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 645 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 approximately $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
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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 twenty years and have optional renewal
periods of five years, though certain of the contracts may be terminated by
either party on relatively short notice. Co-ops are legal entities created under
Polish law which resemble corporations. Co-ops are run by Management Boards
which are appointed, pursuant to their statutes, by either the co-op's
Supervisory Board or its General Assembly of Members. There is no requirement
that a member of the Management Board be a resident of the co-op. Members of the
Management Boards of co-ops are generally university graduates and have some
managerial experience.
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 47 cable television
operators since 1992. These acquisitions have added approximately 350,000 of the
Company's 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
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programming offerings that are often obtained from satellites without paying
full copyright fees to the program producers.
As part of the Polish government's efforts to encourage rapid infrastructure
and economic development, it has begun to establish a regulatory framework for
the cable television industry that is similar, in many respects, to that of the
United States and other Western countries, but without any regulation of prices
charged to subscribers. In 1993, to improve the quality of the country's cable
television systems, Poland began to implement technical and licensing standards
for cable operators that established requirements for such items as signal
quality and radio frequency leakage. In the same year, the Polish government
began to monitor compliance with regulations requiring all cable operators to
obtain government permits and, more recently, has begun to enforce such
regulations. Poland has also ratified the Rome Convention, extending copyright
protection to programs of foreign producers. 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.
GROWTH IN THE CABLE INDUSTRY
(IN THOUSANDS)
[CHART]
[Chart shows the number of basic subscribers plotted against the number of homes
passed demonstrating growth in the Polish cable television industry from 1990 to
1996 from approximately 100,000 basic subscribers and 500,000 homes passed in
1990 to approximately 1,500,000 basic subscribers and 2,700,000 homes passed in
1996.]
Source: Baskerville Communications Corp., TV International Sourcebook 1997.
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Despite the strong recent growth in the cable television industry, the
Company estimates only approximately 33% of the television households in Poland
were passed by cable at May 31, 1998, 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
networks and the provision of cable television services.
A-DTH
The only multi-channel 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 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 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 had 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 multi-channel pay
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, particularly the
larger 36" diameter dishes used for A-DTH.
The chart on the following page outlines the relative market shares of A-DTH
and cable in Poland as measured by the number of subscribers for the years 1991
through 1997.
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MARKET SHARE OF CABLE OPERATORS
VERSUS A-DTH PROVIDERS IN POLAND
[CHART]
[Chart shows the relative market share of cable operators versus A-DTH providers
in Poland from 1991 to 1997 demonstrating that the market share of cable
operators against A-DTH providers has grown from a 20/80% ratio in 1991 to a
70/30% ratio in 1997.]
Source: Baskerville Communications Corp., TV International Sourcebook 1997
(includes 1991-1995 data), AGB Polska (includes 1996 and 1997 data).
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 from a single satellite position, (ii)
less-expensive, smaller 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 launching in
September 1998 a complementary D-DTH broadcasting service for Poland, targeted
at homes that are not subscribers to the Company's cable service. The
programming to be provided will be Wizja TV. The Company completed a limited
launch of its D-DTH service, including Wizja TV, to approximately 250 reception
systems on July 1, 1998. The Company has also received advance orders from
16,000 potential subscribers to its D-DTH service. The Company believes that its
multi-channel Polish-language D-DTH service is the first D-DTH service available
in Poland. The Company believes that significant opportunity exists for a D-DTH
service in Poland. Approximately 8.3 million homes currently are not passed by
cable and approximately 1.6 million homes currently are equipped with an A-DTH
satellite dish. Based on Polish consumers' willingness to spend disposable
income on television entertainment, evidenced in part by the country's 53% VCR
penetration rate at an average cost of $225 per VCR, the Company believes that
its D-DTH service will serve as an attractive and affordable entertainment
alternative. 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 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 service, or that it will not face competition from other D-DTH businesses
in Poland. See "Risk Factors--Limited D-DTH Experience and Uncertainties
Associated with the D-DTH Market."
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<PAGE>
BUSINESS
GENERAL
The Company is the leading provider of pay television in Poland and is
engaged principally in the provision of cable television services and in the
development, packaging and delivery of high-quality programming. The Company is
the largest cable television operator in Poland, with approximately 865,000
total subscribers, which the Company estimates is more than two and a half times
as many subscribers as the next largest cable television operator. Over the past
three years, the Company has experienced rapid growth in revenues and
subscribers, both through acquisitions and through the build-out of its own
cable networks, resulting in an average increase in revenues and total cable
subscribers of 66% and 56% per annum, respectively. The Company also has
increased its average revenue per subscriber by 12% per annum during this same
period. The Company generated operating income of $3.5 million in 1995, but had
operating losses of $1.3 million, $42.7 million and $14.4 million for 1996, 1997
and the first three months of 1998, respectively. On June 5, 1998, the Company
launched the Programming Platform branded Wizja TV, consisting of 11 channels of
primarily Polish language programming, over its cable networks. The Company
believes that Wizja TV will provide it with a significant competitive advantage
for driving subscriber growth and increasing revenue per subscriber. Wizja TV
will also be sold on a wholesale basis to other cable operators in Poland.
In order to reach television households in Poland which it does not expect
to cover with its cable networks, the Company intends to launch in September
1998 a complementary D-DTH service allowing subscribers to receive Wizja TV via
a satellite dish. The Company has completed the testing of its production and
transmission facility and completed a limited launch of its D-DTH service,
including Wizja TV, to approximately 250 reception systems on July 1, 1998. The
Company has also received advance orders from 16,000 potential subscribers to
its D-DTH service. The Company believes that its multi-channel Polish-language
D-DTH service will be the first D-DTH service available in Poland. In connection
with the launch of the Company's D-DTH service, through May 31, 1998 the Company
had received approximately 25,000 preliminary indications of demand from
potential subscribers relating to its D-DTH service and had received more than
350,000 telephone calls relating to the Wizja TV product. Upon the full launch
of the Company's D-DTH system in September 1998, an expanded version of Wizja TV
will be transmitted on both the Company's D-DTH system and cable networks. The
Company has also entered into an agreement with Philips to supply the satellite
dish, digital set top box and related hardware and to distribute the Company's
D-DTH service through more than 1,000 Philips authorized retailers located
throughout Poland.
POTENTIAL MARKET OPPORTUNITY
With approximately 39 million people and 12.3 million television households
(as estimated by the Company at December 31, 1997), the Company believes that
Poland represents a highly attractive and dynamic market for the provision of
pay television. Television viewing rates in Poland are among the highest in
Europe with an average television viewing rate in 1996 of approximately 252
minutes per day per adult. This rate compares favorably to the 1996 U.S. and
U.K. average television viewing rates of approximately 240 minutes and 215
minutes per day per adult, respectively. In addition, as there are only
approximately 12 free-to-air television channels generally available in Poland
that contain primarily Polish-language programming, the Company believes that
significant opportunities exist to provide high-quality Polish-language
programming on a multi-channel basis.
CABLE TELEVISION MARKET. The Company believes the market for cable
television in Poland is attractive with growth opportunities coming both
from homes passed by cable that are not cable subscribers and homes
currently not passed by cable. Of the approximately 4.0 million homes in
Poland currently passed by cable, the Company estimates that approximately
1.0 million households do not subscribe to cable. In addition, approximately
8.3 million homes are currently not passed by cable.
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D-DTH MARKET. The Company believes that significant opportunity exists
for a D-DTH service in Poland. Approximately 8.3 million homes currently are
not passed by cable and approximately 1.6 million homes currently are
equipped with an A-DTH satellite dish. Based on Polish consumers'
willingness to spend disposable income on television entertainment,
evidenced in part by the country's 53% VCR penetration rate at an average
cost of $225 per VCR, the Company believes that its D-DTH service will
represent an attractive and affordable entertainment alternative.
COMPANY OPERATIONS
CABLE TELEVISION. The Company operates the largest cable television system
in Poland with approximately 1,530,000 homes passed and approximately 865,000
total subscribers. The Company's cable subscribers are located in 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 believes additional subscriber
growth can be achieved through a combination of increased penetration, new
network build-out and acquisitions. In addition, the Company believes that its
offering of Wizja TV on its cable networks, which began June 5, 1998, will
increase its number of subscribers and increase revenue per subscriber. At March
31, 1998, the Company had invested more than $121 million to construct
fiber-optic cable networks, which it believes are among the most technologically
advanced in Poland and are comparable to modern cable networks in the United
States. The networks constructed by the Company provide excess channel capacity
and are designed to maximize reliability. It is the Company's policy to upgrade
as rapidly as possible substandard networks that it has acquired.
DIGITAL SATELLITE DIRECT-TO-HOME BROADCASTING. The Company intends to
expand its distribution capacity by launching in September 1998 a complementary
D-DTH broadcasting service for Poland, targeted at homes that are not
subscribers to the Company's cable service. The programming to be provided will
be Wizja TV. The Company completed a limited launch of its D-DTH service,
including Wizja TV, to approximately 250 reception systems on July 1, 1998. The
Company has also received advance orders from 16,000 potential subscribers to
its D-DTH service. The Company believes that its multi-channel Polish-language
D-DTH service is the first D-DTH service available in Poland. The Company's
D-DTH service is being broadcast to Poland from its transmission facilities in
Maidstone, United Kingdom.
Philips, a leading electronics manufacturer and, through its Polish
affiliates, the largest electronics retailer in Poland, has agreed to supply the
Company with D-DTH Reception Systems, for up to 500,000 initial subscribers to
the Company's D-DTH service. Philips has also agreed to distribute, install and
service the Company's D-DTH Reception Systems through more than 1,000 Philips
authorized electronics retailers located throughout Poland. Philips has operated
in Poland since 1991 and has experience introducing new products to the Polish
market through its extensive retail network. In addition, Philips has supplied
an end-to-end product package for MEASAT's D-DTH service in Malaysia, utilizing
CryptoWorks-Registered Trademark- technology similar to that to be used in the
Company's D-DTH service.
Because the Company's D-DTH service will, it believes, be the first D-DTH
service available in Poland, there are likely to be issues of first impression
arising under Polish law with respect to certain aspects of the Company's D-DTH
business and related programming arrangements, and there can be no assurance
that these issues will be decided favorably for the Company. In addition, the
Polish and European and Union broadcasting regulations are part of a developing
regulatory framework that may change adversely to the Company as the Polish
D-DTH market develops. See "Risk Factors--Limited D-DTH Experience and
Uncertainties Associated with the D-DTH Market," "--Polish Regulation of the D-
DTH Market", "--European Union Regulation of D-DTH Business," and "--Dependence
on Philips as Principal Supplier."
PROGRAMMING. The Company began broadcasting to Poland from its transmission
facilities in Maidstone, United Kingdom and retransmitting Wizja TV across its
cable networks on June 5, 1998, and on its D-DTH system on a limited basis on
July 1, 1998, and it plans to transmit Wizja TV on its D-DTH system on a
full-scale basis starting in September 1998. To promote the launch of Wizja TV,
the Company has
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commenced a $20 million nationwide marketing campaign which the Company believes
will be the largest single-year product launch expenditure to date in Poland.
Wizja TV's current channel line-up includes three channels, Atomic TV, Wizja 1,
and Wizja Pogoda, that are owned and operated by the Company, and 11 channels
that are produced by third parties, 9 of which are broadcast under exclusive
agreements for pay television in Poland. Atomic TV is a Polish-language music
television channel, targeting 14 to 29 year olds. Atomic TV began to be
broadcast via satellite in April 1997 across the cable networks of the Company
and other cable operators. Atomic TV is currently distributed to more than
900,000 cable subscribers, and the Company believes that based on distribution
it is the leading music television channel in the Polish market. Wizja 1, a
general entertainment channel showing movies, sports, series and children's
programming, and Wizja Pogoda, a weather channel, were launched on July 1, 1998
and July 21, 1998, respectively, across the Company's cable networks and on its
D-DTH system. The Company expects to expand Wizja TV's initial channel line-up
to include additional basic and premium channels, including the Company's
proprietary Wizja Sport channel, and eventually to introduce tiered packages
containing a variety of combinations of 21 or more channels. Wizja Sport, a
sports channel, is expected to be launched during the fourth quarter of 1998.
Wizja TV includes certain exclusive Polish pay television rights to channels
and events covering what it believes are the most important programming genres
to viewers in the Polish market, including movies, sports, children's
programming, documentaries and music.
The Company has signed a license agreement for the exclusive distribution on
its D-DTH, system and amended its existing agreement for non-exclusive
distribution across its cable networks of, HBO's premium movie channel.
The Company has also entered into long-term exclusive agreements to
broadcast to Poland live coverage of certain sports events, including the Polish
national soccer team's away games, certain European matches of Lech Poznan, a
Polish Premier League soccer team, European soccer matches, including matches
from the Dutch and Portuguese leagues, Polish Speedway League events, European
Grand Prix Speedway events, International Skating Union Champion Series ice
skating, games of three leading teams in the Polish Premier Hockey League, and
certain boxing events including local Polish boxing and fights involving Prince
Naseem. The Company has also entered into an exclusive agreement to broadcast
the Wimbledon tennis tournament to Poland. These events will initially be
carried on Wizja 1, and when it is established, on Wizja Sport. When
established, Wizja Sport will initially provide 12 hours of local and
international sporting events per week. The Company believes that Wizja Sport
will be the first channel in the Polish market principally dedicated to Polish
sports programming.
In addition, the Company has signed license agreements for exclusive pay
television distribution to Poland of the following channels: BET on Jazz, The
Cartoon Network, Turner Classic Movies, Fox Kids Poland, The Hallmark
Entertainment Channel, the National Geographic Channel, QuesTV, Romantica and
Travel. The Company has also signed a license agreement for distribution in
Poland of CNNI, and has entered into a binding heads of agreement for the
exclusive distribution on its D-DTH system of MTV and the non-exclusive
distribution across its cable networks of VH-1. The Company expects to launch
MTV and VH-1 in the third quarter of 1998. The Company is also in the process of
negotiating license agreements for exclusive pay television distribution to
Poland of additional channels.
The Company is also negotiating with Telewizja Polska S.A. ("TVP"), the
Polish state-owned broadcaster, to retransmit TVP's popular channels on Wizja TV
and to establish a joint venture which will develop thematic channels based on
original programming and programming licensed from TVP's extensive archives. Any
agreement with TVP would be subject to Polish regulatory and other approvals,
and there can be no assurance that the Company will be able to enter into an
agreement with TVP on satisfactory terms.
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COMPANY STRENGTHS
The Company has certain strengths that it believes position it to compete
successfully in the Polish pay television market and to take advantage of the
significant viewer demand for multi-channel high-quality Polish-language
programming. These strengths include the following:
LEADING MARKET POSITION. The Company is currently the largest cable
television operator in Poland and estimates that it has more than two and a
half times as many subscribers as the next largest operator in Poland. Its
cable television networks serve approximately 865,000 total subscribers,
representing approximately 29% of all cable subscribers in Poland and
approximately 52% of all cable subscribers in Poland to systems offering
approximately 20 or more channels. 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 to acquire, at attractive prices, or displace these smaller
cable operators. In addition, frequent lack of exclusivity of cable
operators' agreements with co-op authorities facilitates overbuilding of
these smaller cable operators.
Once the Company launches its D-DTH service, its strategy is to achieve
rapid penetration of the Polish market by distributing D-DTH Reception
Systems to 500,000 targeted initial subscribers at a price significantly
decreased by promotional incentives. The Company believes that its service
will be the first Polish-language D-DTH service available in Poland 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 pay television in Poland.
COMPELLING PROGRAMMING. The Company has secured for Wizja TV certain
exclusive Polish pay television rights to channels and events covering what
it believes are the most important programming genres to viewers in the
Polish market, including movies, sports, children's programming,
documentaries and music. The Company currently provides Wizja TV to its
cable subscribers and intends to offer Wizja TV on its D-DTH system. The
Company believes that this selection of high-quality Polish-language
programming will provide it with a significant competitive advantage in
increasing its cable subscriber base and establishing its D-DTH subscriber
base.
ADVANCED TECHNOLOGY. The Company's own 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 incremental channel
capacity as well as additional services such as voice and data transmission.
The Company believes that its multi-channel Polish-language D-DTH service
will be among the first digital television platforms launched in Europe. The
Company also believes that in the future it will be able to provide its
D-DTH customers with additional value-added services, including interactive
television, pay per view, near-video-on-demand, data transfer, and services
related to electronic banking, should the Company decide to pursue such
ancillary sources of revenue.
STRONG D-DTH DISTRIBUTION NETWORK. Philips has agreed to distribute,
install and service D-DTH Reception Systems to up to 500,000 initial
subscribers through more than 1,000 Philips authorized retailers located
throughout Poland. The Company believes this widespread distribution network
through Poland's largest electronics retailer provides the Company with a
competitive advantage for distributing its D-DTH service into the Polish
market.
HIGH CABLE PENETRATION AND LOW CHURN. The Company's cable systems are
currently achieving premise penetration of approximately 57% 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 62%. The Company believes that its
offering of Wizja TV across its cable networks, which began June 5, 1998,
will improve its penetration by expanding its program offering from 10
primarily Polish-language channels not available on terrestrial frequencies
to 18
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channels. In addition, the Company has historically experienced annual churn
rates of less than 10%, which compare favorably to other markets such as the
United Kingdom, where in 1996 churn rates were approximately three times
this figure. In 1997, the Company's churn rate increased to 12.2%, though it
would have been 9.8% had the Company not disconnected approximately 17,000
non-paying subscribers in one of its acquired and rebuilt networks. The
Company expects that it may continue to experience increases in its churn
rate above historical levels during the implementation of its current
pricing strategy, which commenced in January 1997 and is designed to
increase revenue per subscriber and to achieve real profit margin increases
in U.S. Dollar terms.
SUBSTANTIAL INFRASTRUCTURE INVESTMENT. The Company has developed an
advanced production facility in Maidstone, United Kingdom for the production
and transmission of Wizja TV. In addition, the Company has created the Call
Center to handle sales and service for both its cable and D-DTH customers.
The Company believes that the Call Center is among the most sophisticated in
Poland. The Company believes that its facilities provide it with a
competitive advantage in terms of subscriber management services and cost
efficiency.
EXPERIENCED MANAGEMENT. The Company has established a strong management
team, with extensive experience in the television industry. In addition, the
Company has executed consulting agreements with Samuel Chisholm and David
Chance, who were formerly Chief Executive Officer and Deputy Managing
Director, respectively, of BSkyB, which is the leading pay television
broadcasting service in the United Kingdom and Ireland. In addition to
providing consulting services, Messrs. Chisholm and Chance serve on
@Entertainment's Board of Directors.
RECENT DEVELOPMENTS
On April 17, 1998, the Company signed a letter of intent with TKP, a Polish
company that currently operates an A-DTH and terrestrial single channel premium
pay television service in Poland, and the shareholders of TKP, namely, Canal+
S.A., Agora S.A., and PolCom Invest S.A. The letter of intent provided for
bringing together the Company's Wizja TV programming platform and the Canal+
Polska premium pay television channel and for the joint development and
operation of a D-DTH service in Poland. The letter of intent called for the
Company to invest approximately $112 million in TKP, and to sell substantially
all of the Company's D-DTH and programming assets to TKP for approximately $42
million. The TKP joint venture was to be owned 40% by the Company, 40% by Canal+
S.A., 10% by Agora S.A. and 10% by Polcom Invest S.A. The letter of intent also
contained a standstill provision whereby neither the Company nor TKP could, for
a period of 45 days after the execution of the letter of intent, launch any
digital pay television service. As a result, the Company postponed its launch of
the Wizja TV programming platform and its D-DTH service, which was originally
scheduled for April 18, 1998. The establishment of the joint venture was subject
to the execution of definitive agreements, regulatory approvals and certain
other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent. Therefore, the Company terminated the
letter of intent on June 1, 1998. The Company has informed TKP and its
shareholders that the Company remains willing to discuss other joint marketing
arrangements which may include some form of joint venture, investment, or
cooperation in the future. A portion of the net proceeds of the Offering may be
used for such purpose. TKP and its shareholders have informed the Company that
they believe the Company did not have the right to terminate the letter of
intent, and have initiated arbitration proceedings against the Company. The
Company has submitted its answer and counterclaims. See "--Legal Proceedings."
CABLE OPERATIONS
The Company operates the largest cable television system in Poland with
approximately 1,530,000 homes passed and approximately 865,000 total
subscribers. The Company's cable subscribers are located in regional clusters
encompassing eight of the ten largest cities in Poland, including those cities
which the
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Company believes provide the most favorable demographics for cable television in
the country. The Company believes that additional subscriber growth can be
achieved through a combination of increased penetration, new network build-out
and acquisitions. In addition, the Company believes that its offering of Wizja
TV on its cable networks, which began June 5, 1998, will increase its number of
subscribers and increase revenue per subscriber. At March 31, 1998, the Company
had invested more than $121 million to construct fiber-optic cable networks,
which it believes are among the most technologically advanced in Poland and are
comparable to modern cable networks in the United States. The networks
constructed by the Company provide excess channel capacity and are designed to
maximize reliability. It is the Company's policy to upgrade as rapidly as
possible substandard networks that it has acquired.
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.
Having established itself as the leading cable television service 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) provide compelling programming, (ii) increase pricing and maximize revenue
per cable subscriber, (iii) expand its regional clusters, (iv) increase
subscriber penetration, and (v) realize additional operating efficiencies.
PROVIDE COMPELLING PROGRAMMING. The Company currently provides the Wizja TV
programming platform, with its current 14 channel primarily Polish-language
programming, to its cable subscribers. The Company believes that this selection
of high-quality Polish-language programming will provide it with a significant
competitive advantage in increasing its cable subscriber base.
INCREASE PRICING AND MAXIMIZE REVENUE PER CABLE SUBSCRIBER. The Company has
implemented a pricing strategy designed to increase revenue per subscriber and
to achieve real profit margin increases in U.S. Dollar terms. In connection with
this pricing strategy, the Company intends to continue to introduce new program
offerings and to improve its services. As a result, the Company has experienced
and may continue to experience increases in churn rate above historical levels
resulting from the implementation of its pricing strategy. 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. See "Risk Factors--Regulation of the Polish Cable Television
Industry."
EXPAND 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
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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 cable television 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
$20 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 expanding Wizja
TV's channel line-up, and (iii) applying prompt, courteous and professional
customer service standards.
REALIZE ADDITIONAL OPERATING EFFICIENCIES. The Company aggressively seeks
to realize operating efficiencies in both its acquired as well as its existing
cable networks by, among other things, rationalizing headends, combining
customer service offices and reducing administrative personnel. The Company
generally has been able to eliminate personnel in its acquired cable television
systems by managing the systems with experienced personnel from one of its
existing regional clusters. The Company can also generally reduce the technical
personnel necessary to operate acquired systems after connecting them to the
Company's existing headends or, if required, rebuilding them to the Company's
standards. The Company also intends to reduce headcount through consolidation of
its existing clusters of regional operations from eight to four, and through the
centralization of subscriber management and customer support services in the
Call Center. The Call Center is operational for cable customers in the Katowice
regional cluster and for D-DTH customers and is expected to be operational for
all cable customers by the end of 1998. The Call Center is located in Katowice,
a low cost area of Poland, and will consolidate the functions of the Company's
existing regional customer service centers. Moreover, the Company believes the
centralization of service functions will improve the general level of customer
service available to subscribers. The Company is also in the process of
installing an integrated management information system for both its billing and
accounting systems, which is designed to further improve employee productivity
and customer service for both its cable and D-DTH businesses. The Company
believes that its size and market share give it a competitive advantage by
creating economies of scale, including reduced build-out and operating costs per
subscriber and volume price discounts for programming and construction
expenditures. The Company's size also provides it with the operating leverage to
spread certain expenses (such as promotional materials, advertisements, local
programming and sales materials) over its large number of subscribers, 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, which the
Company believes are among those with the strongest economies and most favorable
demographics for cable television in the country. The table on the following
page illustrates certain operating data of each of the Company's existing
regional clusters.
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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........................ 280,000 233,361 148,118 119,943 51.40% $5.87
Szczecin...................... 160,000 65,032 56,741 42,082 64.71% 4.86
Katowice...................... 1,200,000 467,601 210,634 182,963 39.13% 5.68
Krakow........................ 400,000 147,889 78,467 67,287 45.50% 5.30
Warsaw........................ 800,000 228,780 113,738 95,019 41.53% 5.82
Lublin........................ 120,000 79,228 69,750 35,017 44.20% 4.64
Wroclaw....................... 624,000 222,250 136,715 112,237 50.50% 4.06
Bydgoszcz..................... 134,000 86,121 50,751 47,359 54.99% 4.47
------------ ------------ ----------- ------------- ------------- ------
Total..................... 3,718,000 1,530,262 864,914 701,907 45.87% $5.26
------------ ------------ ----------- ------------- ------------- ------
------------ ------------ ----------- ------------- ------------- ------
</TABLE>
- ------------------------
(1) All subscriber data at May 31, 1998.
(2) Includes Basic and Intermediate Tiers. See "--Services and Fees."
(3) Represents a weighted average for the Company based on the total number of
basic subscribers for the four months ended April 30, 1998.
OVERVIEW
The Company has organized its eight regional clusters into four geographic
operating divisions--the Northern, Southern, Central, and National Divisions.
The Northern Division encompasses the Gdansk and Szczecin regional clusters, the
Southern Division encompasses the Katowice and Krakow regional clusters, and the
Central Division encompasses the Warsaw and Lublin regional clusters. The
National Division is comprised of certain of the Company's smaller cable
systems, which are generally under technological development or are not
affiliated with a specific regional cluster. The National Division also contains
the Company's cable operations in which the Company has minority shareholders.
Each operating division has its own management team which is responsible for the
profitability of its respective division. This management structure is designed
to create a goal-oriented culture and to increase efficiency and productivity in
the Company's cable business at the divisional level. The Northern, Southern,
and Central Divisions are managed from the Gdansk, Katowice, and Warsaw regional
clusters, respectively, where there are the largest concentrations of the
Company's cable subscribers.
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.
NORTHERN DIVISION
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 1.5 million. The Gdansk regional cluster accounted for
approximately 34% and 23% of the Company's revenue in 1996 and 1997,
respectively. The Gdansk regional cluster is generally characterized by small,
highly fragmented SMATV systems, many of which the Company expects to either
acquire or overbuild in time. The Company believes that the Gdansk system, which
was first constructed in 1990 and is the oldest and most mature of the Company's
systems, illustrates the significant operating margins available in clustered
operating systems in Poland.
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The Company is expanding in the Gdansk regional cluster primarily through
the continued build-out of MDUs and single family households, and into
contiguous areas. The Company is focusing its marketing efforts in the Gdansk
regional cluster on increasing penetration through remarketing campaigns. The
Gdansk system possesses a number of exclusive agreements with co-op authorities,
and the Company expects to expand the number of such agreements through the
development of its package with the smallest number of non-premium channels
("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.
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 4,500 subscribers
and the exclusive right to build-out approximately 55,000 apartments in MDUs
owned by the Szczecin municipal authorities.
SOUTHERN DIVISION
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% and 30% of the Company's revenue in 1996 and 1997,
respectively. 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 multi-channel
pay television markets in Poland, the Katowice regional cluster offers the
Company significant growth prospects.
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 Krakow regional cluster accounted
for approximately 11% and 12% of the Company's revenue in 1996 and 1997,
respectively.
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.
CENTRAL DIVISION
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 14% and 15% of the Company's revenue in 1996 and 1997,
respectively. The Company began operations in the Warsaw regional cluster in
1991.
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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 two 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 network by building-out single family housing areas in Warsaw, extending
its network into the suburbs and surrounding towns and by continuing to
overbuild a competitor's system in several MDU areas that are adjacent to the
Company's operating areas.
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.
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.
NATIONAL DIVISION
WROCLAW. The Wroclaw regional cluster is located primarily in and around
the county of Wroclaw in the south-west of Poland. The population of the county
of Wroclaw is approximately 1.1 million. The Company commenced operations in the
Wroclaw regional cluster in May 1997 with an acquisition of a small local
operator, followed in June 1997 with the acquisition of a 51% interest in a
cable system with approximately 98,000 total subscribers in approximately twenty
locations throughout the region.
The Company believes that Wroclaw 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 Wroclaw, the acquisitions provided
the Company with a number of other locations in southwest and central Poland,
with combined potential of approximately 624,000 television homes.
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.
ACQUISITIONS
The Company regularly evaluates potential acquisitions of cable networks.
The Company currently has no definitive agreement with respect to any material
acquisition, although from time to time it has
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discussions with other companies and assesses opportunities on an ongoing basis.
The Company may be required to apply for the approval of the Anti-Monopoly
Office with respect to any acquisitions it wishes to consummate. There can be no
assurance as to whether or on what terms definitive agreements with respect to
any material acquisition can be reached or necessary Anti-Monopoly Office
approvals can be obtained.
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, 1998, approximately
77% of the Company's subscribers received the Basic Tier, approximately 4%
received the Intermediate Tier and approximately 19% received the Broadcast Tier
of service.
BASIC TIER. The Company currently delivers approximately thirty to
sixty-two 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, and Wizja TV, including its
proprietary Polish-language channel, Atomic TV. The Basic Tier costs
approximately $4.03 to $6.08 per month (excluding charges for premium channels)
depending on location. The channels currently offered or proposed to be offered
by the Company to its Basic Tier subscribers vary by location and in most of the
Company's major markets include twenty-one primarily Polish-language channels
(including most channels on Wizja TV), thirteen English-language channels
(including certain channels on Wizja TV), twelve German-language channels, five
French-language channels, one Spanish-language channel, one Italian-language
channel, one Russian-language channel, and one Swedish-language channel (though
the Company intends to close some of these channels subsequent to the launch of
Wizja TV across its cable networks) as follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
Wizja TV(1)(2) Programming platform Primarily Polish
TVP1 State-owned terrestrial general entertainment Polish
TVP2 State-owned terrestrial general entertainment Polish
Formula 11 Regional state-owned terrestrial general entertainment Polish
Polsat Terrestrial and satellite general entertainment Polish
TVN Terrestrial and satellite general entertainment Polish
NASZA TV Terrestrial general entertainment Polish
TV Niepokalanow and Other Terrestrial religious and/or general entertainment Polish
Local Stations(3)
TV Polonia State-owned satellite general entertainment Polish
Polsat 2 Satellite general entertainment Polish
Polonia 1 Satellite general entertainment Polish
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
RTL7 Satellite general entertainment Polish
PTK 1(4) Cable information Polish
PTK 2(4) Cable general entertainment Polish
Eurosport Satellite sports English/Polish(6)
Discovery Satellite documentaries English/Polish(5)
Planete Satellite documentaries French/Polish(6)
NBC Satellite general entertainment English
CNBC Satellite general entertainment English
ONYX Satellite music German
TNT Satellite general entertainment English
MTV Satellite music English
Euronews Satellite news English
BBC World Satellite news and information English
BBC Prime Satellite general entertainment English
ARD 1 Satellite general entertainment German
SAT 1 Satellite general entertainment German
RTL Satellite general entertainment German
RTL 2 Satellite general entertainment German
3 SAT Satellite general entertainment German
PRO 7 Satellite general entertainment German
NTV Satellite news and information German
Deutsche Welle Satellite news and information German
DSF Satellite sports German
VIVA 2 Satellite music German
VIVA Satellite music German
M6 Satellite general entertainment French
TV 5 Satellite general entertainment French
MCM(5) Satellite music French/Polish(6)
MUZZIK Satellite music French/Polish(6)
TVE Satellite general entertainment Spanish
RAI UNO Satellite general entertainment Italian
Ostankino Satellite general entertainment Russian
FEM Satellite general entertainment Swedish
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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(1) The channels offered on Wizja TV became available to the Company's cable
subscribers beginning June 5, 1998. As part of the Wizja TV programming
platform for cable, VH-1 is expected to become available to the Company's
cable subscribers in the third quarter of 1998. See "Programming--The Wizja
TV Programming Platform."
(2) Including Atomic TV, which became available as a separate digitally
delivered satellite channel during the second quarter of 1997.
(3) Small terrestrial coverage, available in selected cable systems only.
(4) The Company plans to close these channels subsequent to the launch of Wizja
TV across its cable networks.
(5) Limited amounts of Polish subtitles.
(6) Limited amount (at least three hours per day) of Polish-language commentary,
with audio encryptions.
With the launch of Wizja TV across the Company's cable networks on June 5,
1998, all of the Wizja TV programming became part of the Basic Tier. See
"Programming--The Wizja TV Programming Platform." The Company intends to
increase the monthly price for the Basic Tier service twice in the next six
months. Each increase will vary from region to region and range from
approximately $0.90 to approximately $1.20 per month. The Company intends to
close some of the channels that are currently offered by the Company to its
Basic Tier subscribers subsequent to the launch of Wizja TV across the Company's
cable networks.
INTERMEDIATE TIER. The Intermediate Tier offers approximately 17 to 24
channels for monthly fees of approximately $1.48 to $3.67. 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 Tier subscribers vary by location.
BROADCAST TIER. The Broadcast Tier offers 6 to 12 broadcast channels with
clear reception for monthly fees of up to approximately $0.84. 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 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 networks currently offer three premium television
services--Wizja 1, HBO, and Canal+ Polska--to customers on a monthly basis. The
Company plans to create additional premium channels that will also be offered to
cable customers for an additional 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 $23 to $46 in MDUs and approximately $82 to $144 for single family
dwellings, but such fees may be subject to reductions as a result of promotional
campaigns.
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 experienced annual
churn rates of less than 10%, and has been able to pass on the effects of
inflation through price increases. In 1997, the churn rate increased to 12.2%,
though it would have been 9.8% had the Company
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not disconnected approximately 17,000 non-paying subscribers in one of its
acquired and rebuilt networks. The Company expects that it may continue to
experience increases in its churn rate above historical levels during the
implementation of its current pricing strategy, which commenced in January 1997
and is designed to increase revenue per subscriber and to achieve real profit
margin increases in U.S. Dollar terms. The Company intends to increase the
monthly price for the Basic Tier service twice in the next six months. Each
increase will vary from region to region and range from approximately $0.90 to
$1.20 per month.
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 monthly in advance and, as is
customary in Poland, most of the Company's customers pay their bills 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 in most
networks enables it to promptly shut off service to nonpaying customers and is
designed to reduce non-authorized use of its cable systems. The Company does not
consider bad debt to be material to its operations. 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 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
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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 the
Company's proprietary 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.
The Company generally guarantees service within 24 hours of a subscriber
request. The Company is in the process of establishing a customer service
facility within the Call Center for both the cable and D-DTH businesses. The
Call Center will provide telemarketing and sales and service support and will
include a specialized billing software with on-line real time access to customer
accounts, designed to provide better access to customer information and improve
customer service. The Call Center is operational for cable customers in the
Katowice regional cluster and for D-DTH customers and is expected to be
operational for all cable customers by the end of 1998.
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 subscribers, 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 network as high as 1 GHz. New portions of the networks which are currently
being constructed are being designed to have minimum bandwidths of 860 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 860 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
hybrid-fiber-coax, 500 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-
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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. Most of the Company's cable networks
currently have the ability to carry 40 to 60 television channels. 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 networks 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 as rapidly as possible substandard cable television networks
obtained in acquisitions. The Company is considering teaming arrangements with
certain Western telecommunication companies in order to create one or more
consortia to bid on regional telephony licenses, utilizing excess capacity from
the Company's cable networks.
The Company has been able to avoid constructing its own underground conduit
in certain areas by entering into a series of agreements with regional and local
TPSA branches which permit the Company to use TPSA's conduit infrastructure for
an indefinite period of time or for periods up to 20 years. 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, 1998,
approximately 57% 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 from 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 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, 1998, approximately 69,000, or 8%, 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--Agreements with TPSA" and "Business--Properties."
The Company estimates that at the end of May 1998 it had over 3,774
kilometers of cable television plant constructed and that the fiber-optic
backbone of its networks was substantially complete. The Company expects that
its future capital expenditures for the cable business will consist primarily of
capital needed for the incremental addition of new MDUs and cable television
subscribers to its existing networks for the build-out or rebuilding associated
with the acquisition of new cable television systems, and for other capital
costs in connection with such acquisitions. From its existing infrastructure
base, the Company's incremental build cost to add an adjacent MDU or additional
MDU subscribers to existing networks averages approximately $200 per MDU
subscriber. (MDU subscribers represent more than 95% of the
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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.
D-DTH
The Company intends to expand its distribution capacity by launching in
September 1998 a complementary D-DTH broadcasting service for Poland, targeted
at homes that are not subscribers to the Company's cable service. The
programming to be provided will be Wizja TV. The Company completed a limited
launch of its D-DTH service, including Wizja TV, to approximately 250 reception
systems on July 1, 1998. The Company has also received advance orders from
16,000 potential subscribers to its D-DTH service. The Company believes that its
multi-channel Polish-language D-DTH service is the first D-DTH service available
in Poland. The Company's D-DTH service is being broadcast to Poland from its
transmission facilities in Maidstone, United Kingdom.
D-DTH ROLL OUT STRATEGY
The Company's D-DTH roll out strategy is to lease D-DTH Reception Systems to
up to 500,000 targeted initial subscribers at a price significantly decreased by
promotional incentives. This strategy is designed to achieve high penetration of
the Polish market. The launch of the D-DTH service will be supported by the
Company's development of Wizja TV, which the Company believes will respond to
the strong demand for high-quality Polish-language programming in Poland.
The Company broadcasts digital programming from its Maidstone transmission
facility in the United Kingdom through the Company's uplink facilities to one of
three transponders leased by it on the Astra 1F and 1G satellites, which then
transmit the signals back to the D-DTH Reception Systems of the Polish
subscribers and to the Company's cable networks, and in the future will transmit
the signals to the cable headends of other cable operators, if any, having
distribution agreements with the Company. The Company completed a limited launch
of its D-DTH service, including Wizja TV, to approximately 250 reception systems
on July 1, 1998. The Company has also received advance orders from 16,000
potential subscribers to its D-DTH service.
The Company believes that its multi-channel D-DTH service is among the first
digital television platforms launched in Europe and is the first D-DTH service
available in Poland. 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 a D-DTH
system are: (i) it significantly decreases the cost of transmitting a channel,
because of its ability to transmit more channels from one transponder, (ii) the
additional capacity available from digital compression enables the Company to
offer a much wider range of programming, sports and film channels, which the
Company believes will lead to increased demand for its services, (iii) digital
technology also provides enhanced picture and sound quality and allows
interactive features, such as an EPG, which are not available using A-DTH
technology, and (iv) it allows the Company to reach homes in the Polish market
that are not passed by the Company's cable networks. 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.
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 the Company's D-DTH service to provide
potential subscribers with an attractive alternative to A-DTH services and cable
offerings.
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The Company began broadcasting to Poland from its transmission facilities in
Maidstone, United Kingdom and retransmitting Wizja TV across its cable networks
on June 5, 1998 and on its D-DTH system on a limited basis on July 1, 1998, and
it plans to transmit Wizja TV on its D-DTH system on a full-scale basis in
September 1998. Wizja TV's current channel line-up includes three channels,
Atomic TV, Wizja 1, and Wizja Pogoda, that are owned and operated by the
Company, and 11 channels that are produced by third parties, 9 of which are
broadcast under exclusive agreements for pay television in Poland.
Atomic TV is a Polish-language music television channel, targeting 14 to 29
year olds. Atomic TV began to be broadcast via satellite in April 1997 across
the cable networks of the Company and other cable operators. Atomic TV is
currently distributed to more than 900,000 cable subscribers, and the Company
believes that based on distribution it is the leading music television channel
in the Polish market. Wizja 1, a general entertainment channel showing movies,
sports, series and children's programming, and Wizja Pogoda, a weather channel,
were launched on July 1, 1998 and July 21, 1998, respectively, across the
Company's cable networks and on its D-DTH system. The Company expects to expand
Wizja TV's initial channel line-up to include additional basic and premium
channels, including the Company's proprietary Wizja Sport channel, and
eventually to introduce tiered packages containing a variety of combinations of
21 or more channels. Wizja Sport, a sports channel, is expected to be launched
during the fourth quarter of 1998.
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 continue to secure rights
to high-quality, high-demand programming (either produced by the Company or
obtained 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-- Limited D-DTH Experience and
Uncertainties Associated with the D-DTH Market," "--Dependence on Philips as
Principal Supplier," "--Dependence Upon Satellites," "--Availability of
Programming and Dependence on Third Party Programmers; Program Development
Risk," and "Business--Programming."
The Company expects to be able to offer an event pay per view service to its
D-DTH subscribers by early 1999. The Company expects to offer certain recently
released feature films and sports and other live events on such a service.
The Company expects that its D-DTH services will also include an 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 subscriber magazine, "Twoja
Wizja." See "--Programming--Advertising." 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. The Company believes that in the future it will be
able to provide its D-DTH customers with additional value-added services,
including interactive television, pay per view, near-video-on-demand, data
transfer and services related to electronic banking, should the Company decide
to pursue such ancillary sources of revenue in the future.
PRICING STRATEGY. The Company currently charges its D-DTH subscribers an
up-front fee of $135 plus applicable taxes, which includes the D-DTH Reception
System rental, installation, and a one year's subscription for all channels
(other than any premium channels). After the first year of service, subscribers
will be required to pay a quarterly fee of approximately $38 in advance for the
service plus separate amounts to receive premium channels. The Company will
retain ownership of the D-DTH Reception Systems.
SALES AND MARKETING
To promote the launch of Wizja TV on its D-DTH system, the Company has
commenced a $20 million nationwide marketing campaign, which the Company
believes will be the largest single-year product launch expenditure to date in
Poland. The marketing campaign will take place primarily on terrestrial
television,
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press, radio and outdoor poster sites. The Company's paid advertising spots will
exhibit starting September 1, 1998 and the Company will begin distributing its
D-DTH service on a full-scale basis in September 1998, with an aim to
establishing a base of approximately 500,000 initial subscribers by December 31,
1999. 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.
Philips, a leading electronics manufacturer and, through its Polish
affiliates, the largest electronics retailer in Poland, has agreed to supply the
Company with D-DTH Reception Systems for up to 500,000 initial subscribers to
the Company's D-DTH service. Philips has also agreed to distribute, install and
service the Company's D-DTH Reception Systems through more than 1,000 Philips
authorized electronics retailers located throughout Poland. Philips has operated
in Poland since 1991 and has experience introducing new products to the Polish
market through its extensive retail network. In addition, Philips has supplied
an end-to-end product package for MEASAT's D-DTH service in Malaysia, utilizing
CryptoWorks-Registered Trademark- technology similar to that to be used in the
Company's D-DTH service. See "Risk Factors--Limited D-DTH Experience and
Uncertainties Associated with the D-DTH Market" and "--Dependence on Philips as
Principal Supplier."
The Company has designed a customer service program which is intended to
produce a high level of customer satisfaction and to minimize churn rates. As
part of this strategy, the Company is in the process of establishing a customer
service facility within the Call Center for both its cable and D-DTH businesses.
The Call Center will provide telemarketing and sales and service support. The
Call Center is currently operational for cable customers in the Katowice
regional cluster and for D-DTH customers, and is expected to be operational for
all cable customers by the end of 1998. The Company believes this will allow it
to offer a high level of customer service at relatively low cost to its new
D-DTH subscribers.
The Company's D-DTH service will target homes that are not subscribers to
the Company's cable television service. The Company does not believe that there
would be much incentive for the Company's existing cable subscribers to switch
from the Company's cable service to Company's D-DTH service, because with their
cable service they will be able to enjoy equally good signal quality, access to
the same Wizja TV programming, and more total channels than the Company's D-DTH
service will offer, at a monthly cost that will, in most cases, be comparable to
that of the Company's D-DTH service and without the need for investing any funds
for installation of D-DTH Reception Systems. However, the Company will be
disadvantaged to the extent that any existing cable subscribers switch to the
D-DTH service, to the extent that they are among those subscribers who will
receive promotional incentives from the Company to significantly decrease the
price of the D-DTH Reception Systems, and to the extent that they do not
substantially increase the amount of their monthly fees payable to the Company.
TECHNOLOGY AND INFRASTRUCTURE
The Company's D-DTH service, digital video, audio and data are 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 broadcast from its transmission facilities in
Maidstone, United Kingdom to geosynchronous satellites which receive, convert
and amplify the digital signals and retransmit them to earth in a manner that
allows individual subscribers to receive and be billed for the particular
program services to which they subscribe.
TRANSMISSION AND UPLINK FACILITIES. The channels available on the Company's
D-DTH service include the Company's own proprietary channels and channels from
third parties originating from a number of sources in Poland, the United Kingdom
and elsewhere. Most program localization to be undertaken by the Company, which
will principally consist of adding voiceovers or dubbing into Polish for the
Company's proprietary channels on Wizja TV, will occur in Poland. For most of
the channels on Wizja TV, localization, editorial control and program packaging
will be the responsibility and at the cost of the channel supplier. The channels
provided by third parties will be delivered in tape format, through a landline
or will be
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backhauled (i.e., transmitted via satellite or other medium) to the Company's
transmission facility in Maidstone for broadcasting to Poland.
The Company has a 5 year agreement with British Telecommunications plc
("BT") for the provision and maintenance of uplink equipment at Maidstone. Other
than the BT uplink equipment, the Company owns all the required broadcasting
equipment at its transmission facility in Maidstone. The Company's programming
is currently uplinked to the Company's transponders on Astra satellites 1F and
1G.
The Company's D-DTH signal is beamed by these satellites back to 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 signal is currently received by the Company's own
cable headends, and will also be received by the cable headends of other cable
operators, if any, having distribution agreements with the Company. Once the
D-DTH signal has been received at the headends, the signal is transmitted by
cable to those who have been connected by the Company to its cable service as
subscribers or connected by such other cable operators, if any, to their own
cable systems.
The Company has concluded an agreement 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 service in Poland,
and for Philips not to distribute any other IRDs under the Philips' trademark in
Poland until December 31, 1999 or any earlier date on which the Company has
secured 500,000 initial subscribers to its D-DTH service in Poland. The
Company's agreement with Philips provides that after such period the Company may
license one or two suppliers of IRDs in addition to Philips, and Philips shall
license its CryptoWorks-Registered Trademark- technology to such additional
suppliers for the Polish market. Although the agreement with Philips provides a
means by which the Company could obtain a second and third 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, and there can be no
assurance that the Company will be able to secure such additional suppliers for
all or part of its future D-DTH Reception Systems requirements.
Any new D-DTH broadcaster wishing to commence the operation of an encrypted
pay television service within Poland would need to obtain a license from Philips
to use CryptoWorks-Registered Trademark- (after the exclusive license of
CryptoWorks-Registered Trademark- for Poland granted to the Company ends), 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 license 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 an ODU and IRD, and is decrypted via a smartcard inserted
into a decoder, which is usually integrated with a receiver into the IRD and
connected to a viewer's television set. A smartcard is a plastic card, usually
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. The encryption codes contained in the smartcards
can be updated via over-the-air addressing or physically replaced.
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 IRD's incorporate Philips' CryptoWorks-Registered Trademark-
proprietary encryption technology as part of its conditional access system.
These IRDs use smartcard technology, making it possible in the event of a
security breach to change the conditional access system either through
over-the-air methods by issuing new electronic decryption "keys" over-the-air as
part of the Company's regular D-DTH
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broadcasts or by issuing new smartcards. To the Company's knowledge, there has
not been a breach of CryptoWorks-Registered Trademark- since its introduction in
Malaysia in 1996. To the extent a breach occurs, however, the Company will take
countermeasures, including over-the-air measures, and if necessary the
replacement of smartcards. Although the Company expects its conditional access
system, subscriber management system and smartcard system 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 or maintain contracts for programming services from
unrelated third parties would be adversely affected. See "Risk Factors--Risk of
Signal Theft."
Although the Company believes that the Astra satellites,
CryptoWorks-Registered Trademark- encryption technology and the IRDs together
constitute a reliable, end-to-end cost-effective D-DTH system, 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 and retain 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. See "Risk
Factors--Changes in Technology."
SATELLITES. The Company currently broadcasts and expects to broadcast all
of its proprietary programming and that of third party programmers from its
transmission facility in the United Kingdom by cable to an earth station
transmitting antenna (an "uplink"), which is located at its Maidstone site. The
uplink facility transmits the Company's programming signal over an orbiting
satellite transponder to cable system headend receiving antennae and also to
D-DTH subscribers' reception equipment throughout Poland. The Company has been
studying and discussing with relevant Polish authorities 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 contracts with Societe Europeenne
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 1F and 1G. Although the Company originally leased a
transponder on the Astra 1E satellite, SES has exercised its right to provide
the Company with a transponder on another Astra satellite provided the
replacement transponder has the same polarization, bandwidth and uplink and
downlink frequencies. Accordingly, the Company believes the change from the
transponder on Astra 1E to Astra 1G will have no material effect on its
business. The leases for the two transponders on the Astra 1F satellite and the
transponder on the Astra 1G satellite will expire in 2007. All three
transponders are currently operational and available to the Company. Aggregate
charges for each transponder are capped at $6.75 million per year for each
transponder and approximately $182 million for all three transponders for the
remaining 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. "Targeted the Polish DTH Market"
means the Company has a license or permit for its D-DTH activity and is actively
promoting D-DTH reception by ensuring availability in Poland of IRDs. If all of
the leases had been so terminated at December 31, 1997, the aggregate charges
under the leases would have approximated $8.7 million. However, the Company
expects to satisfy these criteria with the launch of its D-DTH service
throughout Poland in September 1998. 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 a broadcaster which has pre-emption rights
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permitting it to gain access to additional transponders in preference to certain
other Astra 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 D-DTH
service and to add approximately 10 additional channels to its initial Wizja TV
channel line-up on the three transponders to which it currently has access, the
ability of the Company to add channels to its D-DTH programming platform beyond
that point will depend upon its ability to obtain access to additional
transponder capacity on the Astra satellites or other favorably positioned
satellites or an improvement in the digital compression techniques. See "Risk
Factors--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 Programming Platform. See "Risk Factors-- Limited Insurance
Coverage."
PROGRAMMING
The Company believes that there is significant unsatisfied demand in the
Polish market for high-quality Polish-language programming and that the quality
and variety of Polish-language programming offered is a critical factor in
building and maintaining successful multi-channel pay television systems in
Poland. The principal programming objective of the Company is to develop and
acquire high-quality Polish-language programming that can be commercially
exploited throughout Poland through D-DTH and cable television exhibition and
advertising sales. The Company intends to use Wizja TV to increase the
penetration rate for its cable television networks and its D-DTH system and to
increase per subscriber revenue from its cable systems. The Company also expects
to distribute Wizja TV on a wholesale basis to other cable operators in Poland.
The Polish television industry, like those in many emerging markets,
currently relies primarily on programming from foreign sources (translated or
dubbed into Polish) and limited local broadcasting alternatives.
PROGRAMMING STRATEGY
The Company's programming strategy is focused on the development and
acquisition of high-quality Polish-language programming. The Company's
programming strategy is based upon four elements.
ESTABLISH AND EXPAND PROGRAMMING PLATFORM. The Company began broadcasting
to Poland from its transmission facilities in Maidstone, United Kingdom and
retransmitting Wizja TV across its cable networks on June 5, 1998, and on its
D-DTH system on a limited basis on July 1, 1998, and it plans to transmit Wizja
TV on its D-DTH system on a full-scale basis starting in September 1998. Wizja
TV's current channel line-up includes three channels, Atomic TV, Wizja 1, and
Wizja Pogoda, that are owned and operated by the Company, and 11 channels that
are produced by third parties, 9 of which are broadcast under exclusive
agreements for pay television in Poland. The Company expects to expand Wizja
TV's initial channel line-up to include additional basic and premium channels,
including the Company's proprietary Wizja Sport channel, and eventually to
introduce tiered packages containing a variety of combinations of 21 or more
channels. See "--The Wizja TV Programming Platform."
DEVELOP AND EXPAND PROPRIETARY CHANNELS. Wizja TV's current channel line-up
includes three channels, Atomic TV, Wizja 1, and Wizja Pogoda, that are owned
and operated by the Company. Atomic TV is a Polish-language music television
channel, targeting 14 to 29 year olds. Atomic TV began to be broadcast via
satellite in April 1997 across the cable networks of the Company and other cable
operators. Wizja 1, a general entertainment channel showing movies, sports,
series and children's programming, and Wizja
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Pogoda, a weather channel, were launched on July 1, 1998 and July 21, 1998,
respectively, across the Company's cable networks and on its D-DTH system. The
Company also intends to add Wizja Sport, a sports channel, during the fourth
quarter of 1998. The Company intends to develop and expand its sports
programming through Wizja Sport. In addition, to develop additional proprietary
programming, the Company has entered into and intends to enter into joint
ventures and other similar arrangements with other programming companies.
CONTROL CONTENT. The Company believes that the programming on Wizja TV will
provide it with a significant advantage over competitors, and therefore the
Company's strategy is to secure exclusive rights to as much high-quality
Polish-language programming as is commercially feasible. The Company has secured
certain exclusive Polish pay television rights to channels and events covering
what it believes are the most important programming genres to viewers in the
Polish market, including movies, sports, children's programming, documentaries
and music. See "--The Wizja TV Programming Platform." The Company intends to
continue to use exclusive agreements, where practicable, in expanding the
programming available on Wizja TV, which the Company is currently distributing
across its cable networks and its D-DTH systems, and which the Company intends
to distribute on a wholesale basis to other cable operators in Poland.
USE PROGRAMMING TO DRIVE DISTRIBUTION. The Company intends to use its
programming to increase penetration of its cable distribution business. Wizja TV
is intended to be the primary selling point of the Company's D-DTH service. The
Company believes that its programming will be a significant factor in increasing
the penetration of its cable and D-DTH systems and in increasing per-subscriber
revenue from its cable networks.
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THE WIZJA TV PROGRAMMING PLATFORM
The channels to be offered to the Company's D-DTH and cable subscribers with
the September 1998 launch of Wizja TV include the following:*
<TABLE>
<CAPTION>
TERMS OF
CHANNEL DESCRIPTION LANGUAGE HOURS PER DAY DISTRIBUTION**
- ------------------------- ---------------------- ---------------------- -------------- ----------------------
<S> <C> <C> <C> <C>
Wizja 1*** General entertainment Polish(1) 20 Proprietary channel
channel including (Sunday to
movies, series, Thursday)
exclusive sport and 24
documentaries (Friday and
Saturday)
Atomic TV Music Polish(1) 24 Proprietary channel
HBO*** Premium movie channel Polish(11) 18 Exclusive D-DTH in
Poland
- 7 year term.
Non-exclusive cable
in Poland
- 7 year term
BET on Jazz Music Polish/English(2) 12 Exclusive in Poland -
5 year term
Cartoon Network Cartoons and other Polish/English(3) 18 Exclusive in Poland -
programming 5 year term
Turner Classic Movies(4) Films and other Polish/English(5) 6 Exclusive in Poland -
programming 5 year term
Fox Kids Poland Children's programming Polish(6) 14 Exclusive in Poland -
5 year term
Hallmark Entertainment Movies and Mini Series Polish(1) 24 Exclusive in Poland -
Channel 5 year term
National Geographic Documentary Polish/English(7) 12 Exclusive in Poland -
Channel Programming 5 year term
QuesTV Documentary Polish/English(8) 16 Exclusive in Poland -
programming with 5 year term
themes of speed,
action, and
adventure
Romantica Channel Latin American Polish(9) 12 Exclusive in Poland -
romantic series 5 year term
Travel Travel related and Polish/English(10) 12 Exclusive in Poland -
vacation programming 5 year term
CNN International International news and English 24 Non-exclusive in
feature programming Poland - 5 year term
MTV: Music Television Music and youth- English 24 Exclusive D-DTH in
oriented Poland. Non-
entertainment Exclusive cable in
Poland
- 5 years term(12)
Wizja Pogoda Weather channel Polish(1) 8 Proprietary channel
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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(1) The Company is responsible for localizing programming into Polish.
(2) The Company is responsible for localizing a minimum of 30% of the
programming into Polish.
(3) The channel supplier is contractually required to localize a minimum of 14
hours per day of programming.
(4) TNT has been rebranded as Turner Classic Movies.
(5) The channel supplier is contractually required to localize an average of
three films per night or two films where the films are longer than two hours
and film related programs which must be a minimum of 6 hours of programming
content per day.
(6) The channel supplier is contractually required to have the programming
content completely localized into Polish beginning on June 6, 1998.
(7) The channnel supplier is contractually required to localize 50% of the
programming content into Polish until October 1998, 75% of the program
content into Polish beginning in October 1998 and 85% of the program content
beginning in January 1999.
(8) The channel supplier is contractually required to have a minimum of 50% of
the programming content localized into Polish until July 1998, 75% of the
programming content into Polish beginning on July 19, 1998, and a minimum of
95% of the programming content into Polish beginning in January 1999.
(9) The channel supplier is contractually required to localize all programming
into Polish.
(10) The channel supplier is contractually required to use its reasonable
endeavours to localize a minimum of 50% of the qualifying programming into
Polish until October 18, 1998, to localize a minimum of 80% of the
qualifying programming into Polish beginning October 18, 1998 and to
localize a minimum of 85% of the qualifying programming into Polish
beginning January 18, 1999.
(11) The channel supplier is contractually required to localize a substantial
amount of the programming into Polish.
(12) The Company expects to launch MTV by the third quarter of 1998.
* The information contained in this chart summarizes only some of the
contractual terms and is not a complete description of the agreements with
the channel suppliers. The Company is continuing to negotiate license
agreements for distribution to Poland of additional channels.
** Exclusive in Poland means exclusive DTH distribution rights and exclusive
cable distribution and agency rights in Poland
*** Premium channel
Wizja TV includes certain exclusive Polish pay television rights to channels
and events covering what it believes are the most important programming genres
to viewers in the Polish market, including movies, sports, children's
programming, documentaries and music.
The Company has signed a license agreement for the exclusive distribution on
its D-DTH system, and amended its existing agreement for non-exclusive
distribution across its cable networks, of HBO's premium movie channel.
The Company has also entered into long-term exclusive agreements to
broadcast to Poland live coverage of certain sports events, including the Polish
national soccer team's away games, certain European matches of Lech Poznan, a
Polish Premier League soccer team, European soccer matches, including matches
from the Dutch and Portuguese leagues, Polish Speedway League events, European
Grand Prix Speedway events, International Skating Union Champion Series ice
skating games of three leading teams in the Polish Premier Hockey League, and
certain boxing events including local Polish boxing and fights involving Prince
Naseem. The Company has also entered into an exclusive agreement to broadcast
the Wimbledon tennis tournament to Poland. These events will initially be
carried on Wizja 1, and when it is established, on Wizja Sport. When
established, Wizja Sport will initially provide 12 hours of local and
international sporting events per week. The Company believes that Wizja Sport
will be the first channel in the Polish market principally dedicated to Polish
sports programming.
In addition, the Company has signed license agreements for exclusive pay
television distribution to Poland of the following channels: BET on Jazz, The
Cartoon Network, Turner Classic Movies, Fox Kids Poland, The Hallmark
Entertainment Channel, the National Geographic Channel, QuesTV, Romantica and
Travel. The Company has also signed a license agreement for distribution in
Poland of CNNI, and has entered into a binding heads of agreement for the
exclusive distribution on its D-DTH system of MTV and the non-exclusive
distribution across its cable networks of VH-1. The Company expects to launch
MTV and VH-1 in the third quarter of 1998. The Company is also in the process of
negotiating license agreements for exclusive pay television distribution to
Poland of additional channels.
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The Company has purchased exclusive rights from third parties for
programming on 9 of the current 14 channels on Wizja TV. In some of the
agreements, however, the channel supplier may terminate the agreement and/or
eliminate the exclusivity rights if the Company does not achieve specified
milestones for subscriber numbers by certain specified dates. In addition, most
of the agreements impose certain restrictions on the tiering of the particular
channel, which will limit the flexibility of the Company in determining program
tiering in the future, and also include provisions whereby the Company agrees to
indemnify the channel supplier against any claims, including claims made by
governmental authorities, resulting from the exclusive nature of the rights
granted or from the tiering restrictions. Some of the agreements require
payments based on a guaranteed minimum number of subscribers, and some require
payments at the time of execution. At July 21, 1998, the Company was committed
to pay approximately $156 million in guaranteed minimum payments over the next
seven years in respect of broadcasting and programming agreements, of which
approximately $39 million was committed through the end of 1999. In addition,
the Company is continuing to negotiate additional agreements with channel
suppliers and sports rights organizations, which agreements if consummated may
require the Company to pay additional guaranteed minimum payments and/or
payments at the time of execution. In most of the Company's programming
agreements, the channel supplier, at its own expense, must localize its
programming into the Polish language prior to the launch of Wizja TV. In most of
its programming agreements, the Company is required to make payments to the
channel supplier on a monthly basis based on the number of subscribers to whom
the programming is made available.
In some of the agreements, the channel supplier may terminate the agreement
and/or eliminate the exclusivity rights if the Company does not achieve
specified subscriber numbers by certain specified dates. In addition, some of
the agreements impose certain limitations, including: (i) the channel must be
received by 100% of subscribers to the Company's D-DTH service and by all
subscribers in the Basic Tier of the Company's cable system or by most of the
Company's cable subscribers; (ii) the channel must be provided, under certain
restricted circumstances, on a stand alone basis as well as part of a package of
programming in certain situations; (iii) the programming which the Company may
purchase for Wizja TV may be restricted; (iv) distribution of other channels as
part of the Company's programming package may be limited (Consequently, the
consummation of an agreement with one channel supplier has had, and will in the
future continue to have, the effect of precluding the Company from entering into
agreements with other potential channel suppliers); (v) suppliers of programming
to a channel supplier may require the Company, in certain circumstances, to
assume the channel supplier's obligations to license the programming on
financial terms which are more favorable to the program provider than those
under the Company's existing agreement with the channel supplier; (vi) the
Company may be required to install encryption decoder-based technology in homes
of cable subscribers receiving premium services; and (vii) if the Company
undertakes certain investments or enters into certain transactions, certain
minimum guarantees payable under the agreement would increase and the Company
would lose certain rights.
As opportunities permit, the Company intends to expand the channel offerings
on Wizja TV. One option under consideration by the Company is adding more
thematic channels to its programming platform. Such channels may be based on
such themes as sports, movies, news, weather, lifestyle, gameshows or childrens'
programming. The Company expects that certain of the additional thematic
channels will be proprietary. See "--Proprietary Programming."
The Company is also negotiating with TVP, the Polish state-owned
broadcaster, to retransmit TVP's popular channels on Wizja TV and to establish a
joint venture which will develop thematic channels based on original programming
and programming licensed from TVP's extensive archives. Any agreement with TVP
would be subject to Polish regulatory and other approvals, and there can be no
assurance that the Company will be able to enter into an agreement with TVP on
satisfactory terms. See "Risk Factors-- Availability of Programming and
Dependence on Third Party Programmers; Program Development Risk" and
"Regulation--United Kingdom--Broadcasting Regulation."
PROPRIETARY PROGRAMMING
Wizja TV contains three channels, Atomic TV, Wizja 1 and Wizja Pogoda, that
are owned and operated by the Company. The Company intends to create additional
proprietary channels, including Wizja Sport, to be added to the Wizja TV
line-up. In addition, the Company has established and intends to
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continue to establish entities to engage in the production of programming either
to be included on the Company's proprietary channels, or to be licensed to the
Company for distribution as part of the Wizja TV line-up.
The Company has established entities to engage in the development and
production outside of Poland of Polish-language thematic television channels.
Those entities plan to develop programming designed to drive subscriber growth
on the Company's cable television networks and on its D-DTH system and increase
revenue per cable subscriber. In December 1996, the Company acquired 45% of
Ground Zero Media Sp. z o.o. ("GZM"), a joint venture with Polygram, the
recording company, Atomic Entertainment LLC, and Planet 24 Production Limited,
an independent production company. In February and March 1998, the Company
acquired the remaining 55% interest from the GZM stockholders. GZM's only
business is the development and production of Atomic TV, a Polish-language music
television channel aimed at the 14-29 year old audience. Atomic TV began to be
broadcast via satellite on April 7, 1997 across the cable systems of the Company
and other cable operators. Atomic TV is currently distributed to more than
900,000 cable subcribers, and the Company believes that based on distribution it
is the leading cable television channel in the Polish market.
In addition, the Company is developing Wizja 1 as the primary channel for
entertainment and Wizja Pogoda as the weather channel and intends to develop
Wizja Sport as the sports channel for its programming platform. Wizja 1 offers a
wide range of Polish-language programming, including full-length feature films,
music, lifestyle and childrens' programs, and sports events.
The Company has also concluded for exhibition on Wizja 1 program license
agreements for high-quality programming from leading international film
production companies, including Channel 4 International, Minotaur, Capitol,
Eaton, Itel, IMP, and BBC Worldwide for exclusive first run pay television
rights in Poland to films, mini-series and documentaries. The Company is also
acquiring local Polish programming and is in negotiations to purchase rights for
other high-quality programming.
The Company intends to develop its sports programming through Wizja Sport.
The Company has entered into long-term exclusive agreements to broadcast to
Poland on Wizja TV certain sports events, including live coverage of the Polish
national soccer team's away games, certain European matches of Lech Poznan, a
Polish Premier League soccer team, European soccer matches, including matches
from Dutch and Portuguese leagues, Polish Speedway League events, European Grand
Prix Speedway events, International Skating Union Champion Series ice skating,
games of three leading teams in the Polish Premier Hockey League, and certain
boxing events including local Polish boxing and fights involving Prince Naseem.
The Company has also entered into an exclusive agreement to broadcast the
Wimbledon tennis tournament to Poland. These events will be carried on Wizja 1,
and when it is established, on Wizja Sport. When established, Wizja Sport will
initially provide 12 hours of local and international sporting events per week.
The Company believes that Wizja Sport will be the first channel in the Polish
market principally dedicated to Polish sports programming.
Several of the agreements entered into by the Company to secure broadcast
rights to sports events give the Company the ability to obtain additional
seasons of those sports events, either by way of a right of first refusal or a
right of first offer. Most of the sports rights agreements grant the Company
exclusive rights to broadcast the sports events live in Poland. The exclusivity
in some cases is subject to the ability of the rights owner to grant limited
rights to other broadcasters to show the events on a delayed basis. The Company
is currently in negotiations with other sports rights holders to purchase the
rights to additional local and international sports events.
In November 1997, the Company purchased 50% of WPTS Sp. z o.o. ("Twoj
Styl"), a Polish company producing, among others, the leading Polish lifestyle
magazine, for the purpose of producing Polish lifestyle programming. The Company
believes that the combination of its television expertise and Twoj Styl's
experience will result in the production of high quality lifestyle television
programming, targeting primarily female audiences.
In February 1998, the Company purchased, for approximately $500,000, an
option to buy a 50% plus one share interest in "Polonia" Sportowa S.A., a soccer
club in Poland. The purchase option will expire in February 1999. If the Company
exercises the option, the purchase price will approximate $4.4 million.
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As opportunities arise in the rapidly developing pay television market in
Poland, the Company intends to consider adding more thematic channels to its
Programming Platform. In particular, the Company currently intends to create
additional 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.
The Company will use Wizja 1 as an anchor channel to introduce entertainment and
sports programming to the Polish market. Concepts that are well received may
become the basis for new channels. For example, Atomic TV, which debuted on a
Company-owned proprietary cable channel in the spring of 1996, had generated
substantial cable television viewer and advertising interest, and it began to be
offered as a separate channel in April 1997.
In certain instances, the Company has acquired an equity interest in the
programming that is produced by third parties and included on Wizja TV. Such an
equity investment allows the Company access to the programming in exchange for
the Company sharing the costs incurred in the creation of the Polish-language
version of the programming. For example, the Company purchased an equity
interest in Fox Kids Poland, a children's entertainment channel aimed at an
audience in the 4 to 12 age group. The Company expects to continue this
practice, and intends to acquire equity interests in a number of programming
providers in order to secure additional proprietary programming.
PREMIUM TELEVISION CHANNELS. The Company has introduced its own premium
channel as well as premium channels supplied by third parties. On July 1, 1998
the Company introduced Wizja 1, a general entertainment channel showing movies,
sports, series and children's programming, as a premium channel. The Company has
also introduced a Polish-language version 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 7,800 subscribers to the Canal+ service.
The Company has signed agreements with Polska Programming B.V., an HBO
broadcasting entity for Poland, for the exclusive distribution on its D-DTH
system and non-exclusive distribution across its cable networks of the Polish
language version of HBO's premium movie channel. HBO currently has exclusive
rights to movies from Warner Bros, Columbia TriStar and Buena Vista
International Television.
The HBO service was launched on the Company's cable network 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. To date, the service has
generated significant subscriber interest at these price levels. At April 30,
1998, the service had achieved a penetration rate of 6.2% across the Company's
cable networks. The Company began distribution of the HBO service in Warsaw in
April and in Gdansk and Krakow in May 1997, and had rolled out such service to
most of the Company's remaining cable systems by the end of 1997. The HBO
service was launched on the Company's D-DTH system on July 22, 1998.
ADVERTISING. The Company expects to attract significant advertising to its
channels as part of the Polish television advertising market, which the Company
believes is still relatively underdeveloped, with television advertising
expenditures on a per capita basis being lower than in comparable European
markets. According to the TV International Sourcebook, the current size of the
Polish television advertising market was approximately $795 million in 1995. The
Company believes that this market is dominated by TVP and Polsat. The Company
expects that its channels will provide 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 anticipated subscribers, the focus of the
Company on large, high economic growth areas, and the opportunity to target
viewers of particular thematic channels with advertisements for goods and
services. Furthermore, the Company's channels will give advertisers local
customer access that cannot easily be replicated through any other advertising
media. In the majority of the programming agreements, the Company is entitled to
at least a 50% share of the net advertising revenue generated in connection with
the particular channel, and the channel supplier is required to contribute to
the cost of marketing its channel in Poland. The Company is responsible for
selling the advertising for most of the channels. This arrangement will enable
the Company
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to market a package of channels to advertisers in the Polish market and offer
them a selection of advertising opportunities for different market segments. In
most of the agreements with the channel suppliers, the Company has the right to
include on that particular channel, for at least one minute per hour, segments
promoting the Wizja TV platform and the other Wizja TV channels. This will
enable the Company to implement a comprehensive promotional strategy across the
Programming Platform reinforcing the Wizja TV brand. In addition, the Company
will produce and mail to its subscribers a monthly subscriber magazine,
announcing channel line-ups, programming schedules and special events, and
providing further opportunities for promoting Wizja TV and for obtaining
revenues from commercial advertisers.
COMPETITION
The multi-channel pay 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
multi-channel pay television services are competitive with alternative delivery
systems depends, 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 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 multi-channel pay television industry in Poland. See "The Industry--The
Polish Multi-Channel Pay Television Industry" and "Regulation."
The Company believes that competition in the cable television industry is
primarily based upon price, program offerings, customer service, and quality and
reliability of cable networks. Small SMATV operators are active throughout
Poland, and they pose a competitive threat to the Company because they often
incur lower capital expenditures and operating costs and therefore have the
ability to charge lower fees to subscribers than does the Company. While such
operators often do not 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. In addition,
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
Bresnan Communications, which owns three cable systems aggregating an estimated
329,000 subscribers (including Aster City Cable Sp. z o.o.) and Multimedia
Polska S.A., a Polish entity, with an estimated 115,000 subscribers. In
addition, the Company understands that a number of cable operators in Poland
(led by Bresnan Communications) have formed, or are in the process of forming, a
consortium for the joint creation and production of Polish-language programming.
The Company's cable television business also competes 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 MMDS systems and D-DTH services (including the
Company's D-DTH service).
The Company's D-DTH business will compete with traditional cable systems,
including its own, and terrestrial broadcast and A-DTH services as well as other
potential D-DTH and MMDS services. TKP, which is partially owned by Canal+ S.A.,
currently offers a single channel Polish-language pay television service
(including A-DTH) and has announced plans to introduce thematic D-DTH channels
in Poland in September 1998. 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
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of the Company's current and potential competitors have significantly greater
financial, managerial and operational resources and more experience in the DTH
business than the Company. If competing D-DTH services are successfully launched
in Poland, they could have a material adverse impact on the Company. There can
be no assurance that the Polish market for D-DTH services will be sufficiently
large to support competing D-DTH businesses.
Pay television services also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
video cassette recorders. The extent of such competition depends upon, among
other things, the price, variety and quality of programming offered by pay
television services and the popularity of television itself.
With respect to its programming business, the Company competes with other
television companies, both free-to-air and pay television (including Canal+ and
HBO), for the acquisition of sports rights and most other programming, including
the rights to feature films and television series and the right to participate
in joint ventures with other creators of programming. With respect to the
creation of its proprietary programming, the Company competes with other
programming creators for the hiring of personnel with creative and production
talent. To the extent that the Company is precluded from creating or obtaining
programming due to exclusive agreements entered into between programming
creators and the Company's competitors, the Company will face difficulty in
creating or acquiring sufficient high-quality programming to attract and retain
subscribers and commercial advertising customers for its cable and D-DTH
services. To the extent that the Company is unable to negotiate exclusive
agreements with suppliers of its programming or such agreements become
unenforceable, the Company will not be able to preclude its competitors from
obtaining access to such programming, which would make the Company's programming
line-up less unique and less attractive to subscribers. There can be no
assurance that in the future the Company will be able to continue to create or
acquire sufficient high-quality programming, either through exclusive or
non-exclusive arrangements.
PROPERTIES
At May 31, 1998, the Company owned equipment used for its cable television
business, including 109 headends, and approximately 3,774 kilometers of cable
plant. The Company has approximately 187 lease agreements for offices, storage
spaces and land adjacent to the buildings. The total area leased amounts to
approximately 28,100 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 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--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.
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In connection with the establishment of its D-DTH service and the
development of its programming business, the Company has leased additional
office space and premises providing backhauling, production, post-production and
program packaging facilities. This space is in aggregate approximately 6,500
square meters and is located in Maidstone, United Kingdom. The Company has been
studying and discussing with relevant Polish authorities the feasibility of
locating its uplink and production facilities in Poland and applying for Polish
broadcasting licenses necessary to engage in such activities. 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 may be needed in the future for the
Company's programming production activities.
TRADEMARKS
The Company, either itself or through its subsidiaries, has filed or is in
the process of filing for registration of its various trademarks. The PTK logo
was registered for use in connection with television and programming services in
July 1997. Trademark applications are pending in Poland for other variations of
PTK trademarks. Also, numerous trademark applications have been filed in Poland
for the various Wizja trademarks, including but not limited to Wizja, Wizja TV
and Wizja 1 logos. Additional applications for other Wizja trademarks and
related trademarks will be filed in Poland in the near future.
The Company has also filed a U.K. application for Wizja TV logo and intends
to file additional applications for the Wizja trademarks and other related
trademarks in the United Kingdom and other jurisdictions if applicable. The
United Kingdom Trademark Office has raised a preliminary objection to the
application for Wizja TV based on a European Community trademark application for
a logo mark which incorporates the words "TELEWIZJA WISLA". Applications for
similar marks have been filed in Poland by the same entity. The word "Wizja"
means "vision" in Polish, while the word "Wisla" refers to the longest river in
Poland. The Company believes that it will be able to overcome such objection by
the United Kingdom Trademark Office, though there can be no assurance that such
will be the case.
EMPLOYEES
At May 31, 1998, the Company had approximately 1,081 permanent full-time
employees and approximately 72 part-time employees. In addition, as of such date
the Company employed approximately 53 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. In connection with the establishment of
its D-DTH business and the development of its programming business, the Company
expects to hire a further 259 employees by the end of 1998, the majority of whom
will be administrative, post-production and technical personnel located at the
Company's facility in the United Kingdom and customer service representatives in
the Call Center in Poland. 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 business, financial condition or results of operations.
Two of the Company's cable television subsidiaries, Telewizja Kablowa
Gosat-Service Sp. z o.o. and PTK S.A., and four unrelated Polish cable operators
and HBO Polska Sp. z o.o. ("HBO Polska") have been made defendants in a lawsuit
instituted by Polska Korporacja Telewizyjna Sp. z o.o., an indirect
partially-owned subsidiary of Canal+ S.A. The lawsuit was filed in the
Provincial Court in Warsaw, XX Economic Division (Sad Wojewodzki w Warszawie,
Wydzial XX Gospodarczy) (the "Court"). The main defendant in the proceedings is
HBO Polska which is accused of broadcasting the HBO television program in Poland
without a license from the Council as required by the Television Act and thereby
undertaking an activity constituting an act of unfair competition. The plaintiff
has asked the Court to order HBO Polska to cease broadcasting of its programming
in Poland until it has received a broadcasting license from the
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Council, and that the defendant cable operators be ordered (i) to cease carrying
the HBO Polska programming on their cable networks in Poland until HBO Polska
has received a broadcasting license from the Council, (ii) not to use their
current filters for the purpose of unscrambling the HBO Polska programming, and
(iii) in the future, to use effective endcoding systems and systems of
controlled access to the HBO Polska programming. The Company does not believe
that the lawsuit will have a material adverse effect on its business operations.
On April 17, 1998, the Company signed a letter of intent with TKP, a Polish
company that currently operates an A-DTH and terrestrial single channel premium
pay television service in Poland, and the shareholders of TKP, namely, Canal+
S.A., Agora S.A., and PolCom Invest S.A. The letter of intent provided for
bringing together the Company's Wizja TV programming platform and the Canal+
Polska premium pay television channel and for the joint development and
operation of a D-DTH service in Poland. The letter of intent called for the
Company to invest approximately $112 million in TKP, and to sell substantially
all of the Company's D-DTH and programming assets to TKP for approximately $42
million. The TKP joint venture was to be owned 40% by the Company, 40% by Canal+
S.A., 10% by Agora S.A. and 10% by PolCom Invest S.A. The letter of intent also
contained a standstill provision whereby neither the Company nor TKP could for a
period of 45 days after the execution of the letter of intent, launch any
digital pay television service. As a result, the Company postponed its launch of
the Wizja TV programming platform and its D-DTH service, which was originally
scheduled for April 18, 1998. The establishment of the joint venture was subject
to the execution of definitive agreements, regulatory approvals and certain
other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent (the "Signature Date"). Therefore, the
Company terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed the Company that they believe the Company did not
have the right to terminate the letter of intent.
Under the terms of the letter of intent, TKP is obligated to pay the Company
a $5 million break-up fee within 10 days of the Signature Date if the definitive
agreements were not executed by the Signature Date, unless the failure to obtain
such execution was caused by the Company's breach of any of its obligations
under the letter of intent. If there was any such breach by the Company, the
Company would be obligated to pay TKP $10 million. However, if any breach of the
letter of intent by TKP caused the definitive agreements not to be executed, TKP
would be obligated to pay the Company a total of $10 million (including the $5
million break-up fee). In the event that TKP fails to pay the Company any of the
above-referenced amounts owed to the Company, TKP's shareholders are responsible
for the payment of such amounts.
The Company has demanded monies from TKP as a result of the failure to
execute the definitive agreements by the Signature Date. While the Company was
waiting for the expiration of the 10-day period for payment of the break-up fee,
TKP initiated arbitration proceedings before a three-member arbitration panel in
Geneva, Switzerland. In their claim, TKP and its shareholders have alleged that
the Company breached its obligations to negotiate in good faith and to use its
best efforts to agree and execute the definitive agreements and claimed the
Company is obligated to pay TKP $10 million pursuant to the letter of intent.
The Company has submitted its answer and counterclaims against TKP and its
shareholders. The Company does not believe that the arbitration proceedings will
have a material adverse effect on the Company's business, financial condition or
results of operations.
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REGULATION
GENERAL
The operation of cable and D-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 that regulate international
transmission and retransmission of television programs. The operation of a D-DTH
service in Poland uplinked from facilities in the United Kingdom also will be
subject to regulation in the United Kingdom and 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 and
D-DTH 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 and D-DTH operators in Poland also
are subject to the Copyright Act, which provides intellectual property rights
protection to 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.
Because the Company's D-DTH service will, it believes, be the first D-DTH
service available in Poland, there are likely to be issues of first impression
not addressed under Polish law with respect to certain aspects of the Company's
D-DTH business and related programming arrangements. In addition, the Polish
D-DTH market is subject to a developing regulatory framework that may change as
the market develops. There can be no assurances that regulatory changes will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
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
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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."
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, to
anti-monopoly restrictions 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, or companies in which foreign persons hold no more
than 49% of the share capital, ownership interests and voting rights. In
addition, a majority of the management and supervisory board of any cable
television operator holding Permits must be comprised of Polish citizens
residing in Poland. These restrictions do not apply to any Permits issued prior
to July 7, 1995.
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. At May 31, 1998,
approximately 23% 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."
PTK S.A. will own all cable network assets and operate in the areas covered
by Grandfathered Permits. To comply with foreign ownership requirements for
Permits for networks not covered by Grandfathered Permits, the Company intends
to enter into contractual arrangements with PTK Operator, a Polish entity of
which 49% is expected to be owned by PCI and the remaining 51% is expected to be
owned by a Polish entity of which 49% is expected to be owned by PCI and the
remaining 51% is expected to be owned by a Polish financial institution. See
"Corporate Organizational Structure." In the case of existing cable networks not
covered by Grandfathered Permits or the acquisition or construction of cable
networks not covered by Grandfathered Permits, the Company intends to own,
through PTK S.A., all of the cable network assets and intends to lease the
assets to PTK Operator, which is expected to operate the networks. In the
Company's contemplated leasing arrangements with PTK Operator, it is expected
that PTK Operator will hold the Permits to operate the cable networks, receive
all of the revenues from subscribers, pay all operating expenses relating to the
operation of the networks, and through the lease
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arrangements pay PTK S.A. rent equal to substantially all of the cash flow
generated by the networks. The Company believes that this ownership and
operating structure does not contradict the requirements of Polish law. PAR has
granted several permits to the Company and the Company's competitors, based on
the lease of assets, for networks using an ownership and operating structure
substantially similar to the one 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 networks and could
result in the denial or loss of Permits applied for or 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. See "Risk
Factors--Limitations on Foreign Ownership of Multi-Channel Pay Television
Operators and Broadcasters."
THE COMPANY'S PERMITS. Subsidiaries of PCI have received approximately 109
Permits from PAR, covering approximately 625,200 of the Company's approximately
701,900 basic subscribers at May 31, 1998, including approximately 16,000
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 76,600 basic subscribers at May 31, 1998 located
in areas for which subsidiaries of PCI do not currently have Valid Permits,
approximately 76% are located in areas serviced by recently acquired or
constructed 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 and satisfying foreign ownership limitations), and approximately
24% are located in areas serviced by networks for which subsidiaries of the
Company have Permit applications pending. These subsidiaries of the Company have
12 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 action by PAR to
restrict or revoke the Permits of, or to refuse to grant Permits to, such
subsidiaries or similar action by PAR would have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors--Regulation of the Polish Cable Television Industry."
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 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.
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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 and European 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 of a program for any of the same reasons for which it is entitled
to refuse to register programming, or if the cable television operator violates
the "must carry" provisions of the Television Act that require cable operators
to transmit programming broadcast by public broadcasters nationwide or
regionally.
The relevant subsidiaries of the 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
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 (including
the programming that the Company intends to transmit on Wizja TV, the initial
programming for which an application for registration has been filed) 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. Any such action could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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, and minimum
Polish and European content, and whether the applicant will be able to secure
the required investments and financing for the planned broadcasting operations.
Even if the foregoing criteria were satisfied in a broadcasting license
application, there can be no assurance that such a license would be granted. In
November 1997 the Council issued a regulation, effective January 1, 1998,
requiring the share of European works in the broadcast of Polish broadcasters to
be not less than 50% of the yearly broadcast. See "--Requirements Concerning
Programs Broadcast From Outside of Poland."
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
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
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broadcasting license or of the restrictions on foreign ownership of broadcasters
described below. See "--Restrictions on Foreign Ownership of Broadcasters."
RESTRICTIONS ON FOREIGN OWNERSHIP OF BROADCASTERS. 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, ownership
interest and voting rights. 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. In December 1997 the
Polish government proposed an amendment to the Television Act by which the
maximum foreign ownership interest in a Polish broadcasting company would be
increased to 49%, but there can be no assurance that the Polish parliament will
accept this proposal.
The Company has established and intends to continue to establish entities to
engage in the development and production of Polish-language thematic television
programming outside of Poland. The Company plans to distribute Wizja TV via
satellite systems from outside of Poland and the Company believes that the
ownership structure of such entities is not subject to Poland's regulatory
restrictions on foreign ownership. There can be no assurance that Polish
regulatory authorities will not determine that all or part of this ownership or
distribution structure, or the ownership or distribution structure to be
established for the Company's future subsidiaries or joint entities, violates
Polish regulatory restrictions on foreign ownership. If the ownership or
distribution structure for such entities or such future entities 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
also be forced to dispose of its ownership interests in such entities or such
future entities. These regulatory restrictions may materially adversely affect
the Company's ability to enter into relationships with such future entities, 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.
REQUIREMENTS CONCERNING PROGRAMS BROADCAST FROM OUTSIDE OF POLAND. 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 directed to a Polish audience if the uplink for the
broadcasting of such program is made by a foreign broadcaster from outside of
Poland. The Company believes that the Television Act does not apply to such
broadcasting and that such activity is not subject to Polish broadcasting
requirements. The Council has not officially adopted an interpretation of this
issue and there have been no court rulings on this issue. As different
interpretations of the application of the Television Act to broadcasting from
outside of Poland have been made, there can be no assurance that the Company's
interpretation will not be challenged or that the Company's D-DTH broadcasts
from outside of Poland will not be required to comply, and, if so, that it will
be able to comply, with requirements of the Television Act, which, among other
things, requires a broadcasting license and imposes foreign ownership
restrictions. 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. While the Company believes that its activities in
producing programs in and outside of Poland, transmitting the programs to the
Company's transmission facility in the United Kingdom and distributing the
programs to 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 has
been studying and discussing with relevant Polish authorities the feasibility of
locating its transmission 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 license would be granted if applied for and
failure to have any required broadcasting license would have a
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material adverse effect on the Company's business, financial condition and
results of operations. See
"-- Limitation on Foreign Ownership of Multi-Channel Pay Television Operations
and Broadcasters."
Currently Poland has not sought to regulate foreign DTH broadcasters who
uplink outside of Poland. There can be no assurances, however, 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.
Poland is a party to the 1989 European Convention on Transfrontier
Television (the "Convention"), which requires the Polish authorities to
guarantee freedom of reception and retransmission on Polish territory of program
services which meet the requirements of the Convention. The Company believes
that the content of its Programming Platform will comply with the terms of the
Convention. "See--European Union--Broadcasting Regulation."
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 distribution of programs on cable networks. The Council has not
issued any regulations that would be applicable to Wizja TV programming
broadcast from outside of Poland (though it has issued regulations relating to
Polish broadcasters), 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.
COPYRIGHT PROTECTION
PROTECTION OF RIGHTS OF POLISH AUTHORS AND PRODUCERS OF
PROGRAMMING. Television operators, including cable and D-DTH operators, in
Poland are subject to the provisions of the Copyright Act, which governs, inter
alia, enforcement of intellectual property rights. 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 or the system of a D-DTH
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 also 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 or D-DTH operator. Most of the
Company's cable subsidiaries operate under a contract with ZASP and all of them
under a contract with ZAIKS. In the event that a cable or D-DTH 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 of the operator's Permits. See "--Communications Act."
PROTECTION OF RIGHTS OF FOREIGN AUTHORS AND PRODUCERS OF
PROGRAMMING. Foreign authors of programming 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
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adopted by Poland in 1994. In addition, foreign programming producers 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. The Berne Convention, however, does not grant any protection to
foreign producers of programming.
Poland has adopted the Rome Convention, which extends copyright protection
to programs of foreign producers. Poland became bound by its terms on June 13,
1997. The Company currently makes copyright payments to the foreign programmers
requiring such payments, such as CNN, Eurosport and the Cartoon Network.
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, D-DTH and programming industries is not well established, and the
Anti-Monopoly Office has not articulated comprehensive standards that may be
applied in an antitrust review in such industries. As a general rule, the
Anti-Monopoly Act prohibits, among other things, monopolistic agreements, abuse
of dominant market position, price-fixing arrangements, division of market
arrangements, and the creation of market entry barriers. The Anti-Monopoly Act
may deem any such agreements null and void. Although the Anti-Monopoly Act does
not preclude an enterprise from occupying a dominant market position, any
activities by such enterprise face detailed scrutiny by the Anti-Monopoly
Office. Market dominance is often defined as a company's ability to act
independently of competitors, contractors, and consumers. Companies that obtain
control of 40% or more of the relevant market are usually deemed to have market
dominance, and therefore face greater scrutiny from the Anti-Monopoly Office.
There is no assurance that the exclusivity clauses in the Company's programming
agreements will not be scrutinized by the Anti-Monopoly Office. Although such
exclusivity clauses are not prohibited under the Anti-Monopoly Act, such
agreements may be found unlawful, and therefore unenforceable, if they restrict
or hinder competition or otherwise involve the abuse of a dominant position. The
Company does not believe such agreements have anti-competitive effect, though
there can be no guarantee that the Anti-Monopoly Office would reach the same
conclusion.
The Anti-Monopoly Office recently issued a decision that PCI had achieved a
dominant position and abused that dominant position in one of the areas in which
it operates by moving certain satellite channels to the hyperband frequency. As
a result, a number of subscribers, whose television sets are not equipped to
receive the hyperband frequency, received several different channels to replace
the channels which had been moved. The Company has appealed both the finding of
dominance and the finding that it acted improperly by moving certain channels to
the hyperband frequency.
Several types of concentrations between undertakings, including acquisitions
of privately held stock and also stock that is traded on a stock exchange, 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 (up to 1% of revenue as defined in the Copyright
Act) on members of their governing bodies. The Company believes that it may be
required to obtain the Anti-Monopoly Office's approval for future acquisitions.
In addition, the Anti-Monopoly Office can review a company's past and present
activities, including its pricing policies, for potential anti-competitive
behavior. The Company receives inquiries from and is subject to review by
various divisions of the Anti-Monopoly Office from time to time. 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. There can be no assurance that the
Anti-Monopoly Office will approve the Company's future acquisitions and
dispositions or that a review of the Company's past, present or future
operations will not otherwise adversely impact the Company's business, strategy,
financial condition or results of operations.
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UNITED KINGDOM
BROADCASTING REGULATION
Most of the channels to be included as part of the D-DTH services to be
launched by the Company are or will be regulated by the ITC as satellite
transmission services ("STS"). The ITC is the body responsible for regulation of
substantially all commercial television in the United Kingdom. Under the
Broadcasting Act, as amended by the Satellite Television Service Regulations, a
satellite television broadcaster will be licensed as an STS if certain criteria
are satisfied. The principal criteria are that the broadcaster is established in
the United Kingdom or, if the broadcaster is not established in the United
Kingdom or in any other member state of the EU, it makes use of a frequency or
satellite capacity granted by the ITC or its signal is transmitted from the
United Kingdom. On July 18, 1997, @EL was granted an STS license for the
Company's Atomic TV channel.
The Company understands that the ITC follows the "establishment" test set
out in the recently adopted revision to the Directive (the "New Directive") to
determine whether a broadcaster falls within its jurisdiction.
The New Directive became effective in June 1997. The New Directive provides
that each EU broadcaster should be regulated primarily by the authorities in the
member state of the EU where it is established, without regard to the country or
countries 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 (or, if this is not the case, the country which
grants the broadcast frequency or satellite capacity to the broadcaster) has
jurisdiction over that broadcaster, but the Convention is expected to be amended
to bring it into conformity with the Directive's establishment test in the fall
of 1998. 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.
The Company has received an STS license from the ITC in the United Kingdom
for Atomic TV, Wizja 1, Wizja Sport, and Wizja Pogoda. For most of the other
channels on Wizja TV, the relevant channel supplier is under a contractual
obligation with the Company to obtain an STS license from the ITC. Under the
terms of the Company's Astra transponder agreements, the Company will be
prohibited from carrying on Wizja TV programming for which a channel supplier
does not have a valid license. The ITC has wide discretion to vary the
conditions of licenses issued under the Broadcasting Act or amend the codes
(such as the code on advertising time limits and EPGs) with which all U.K.
licensed broadcasters must comply. There is no assurance that the Company or its
channel suppliers will be able to secure the necessary STS licenses it requires,
or if obtained, that the Company or its channel suppliers will be able to meet
the ongoing requirements of such STS licenses. Failure to obtain in a timely
manner and maintain such licenses would have a material adverse effect on the
Company's ability to roll out 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.
The STS license permits 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 are granted for a period of ten
years and are renewable for one or more further 10 year periods. The ITC has the
authority to impose fines, shorten the license period or revoke licenses if the
licensee fails to remedy a breach of any license condition or fails to comply
with any direction which the ITC lawfully gives to the STS licensee. Where the
broadcaster has breached the license condition prohibiting the broadcast of
programs likely to encourage crime or lead to disorder which the ITC believes
justifies revocation of the STS license, the ITC may immediately suspend such
license prior to considering any representations from the 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
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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 STS licenses. The ITC has wide discretion to vary the
conditions of licenses issued under the Broadcasting Act. License conditions can
be varied by the ITC only with the consent of the licensee except where there is
a change to the license period, unless such license period is being shortened
because the licensee has breached a license condition or failed to comply with a
direction of the ITC. In the case of any other license variation, the ITC may
amend the license after considering any representations from the licensee.
In common with all television licenses issued by the ITC, any licenses
awarded to the Company would impose on the Company 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 pay per view
services), the Code of Advertising and Sponsorship, the Code on Sports and Other
Listed Events, the ITC Code of Conduct on Electronic Program Guides and the
Rules on Advertising Breaks. These codes include, among other things,
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 U.K. commercial terrestrial 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 March 31, 1998) 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 ITC has issued a direction (the "Direction") to all STS licence holders
following its investigation into competition issues relating to the practice of
channel bundling in the retail pay television market in the United Kingdom. The
ITC has concluded that a number of anti-competitive factors exist in the current
market which restrict viewer choice. The Direction prohibits STS licensees, in
specified circumstances, from maintaining or entering into certain agreements
which contain minimum carriage guarantees (whereby the licensee imposes an
obligation to carry the channel to a minimum percentage of subscribers) or
maintaining certain tiering obligations (such as a licensee requiring a channel
to be included in a certain tier, such as the basic tier) or arrangements with
similar effects. The ITC has not prohibited per se the buying through to premium
channels from basic channels, however, it is requiring licensees to make buy-
through to premium channels available from any basic package. The focus of the
ITC's investigations was on the effect of these practices in the pay television
market in the United Kingdom. The ITC has stated that its interest lies in the
choice available to viewers in the United Kingdom and it is not seeking to
regulate the terms on which channels are provided to distributors for
broadcasting in overseas markets, including Poland, where the range of different
services, competitive structure of the market, competitive behavior and
practices may be different from those in the United Kingdom pay television
market. The Company believes that the Direction will not be applied by the ITC
in relation to the channels in the Wizja TV package which are provided under STS
licenses. There is no guarantee, however, that the ITC will not change its
position and that the impact of the Direction will not have a material adverse
impact on the Company's operations. If the Direction is applied by the ITC to
the channels distributed by the Company in the future it could affect the
Company in the wholesale market (including the sale of Wizja TV to third party
cable operators), have an adverse impact on its agreement with certain channel
providers and have an adverse impact on its sale of Wizja TV to subscribers.
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. There are no foreign ownership
restrictions which apply to STS licensees.
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The Broadcasting Act sets forth rules to prevent certain media companies
from accumulating interests in persons licensed under the Broadcasting Act and
other media companies. Among other 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, another STS
license, certain foreign services or digital program services (to provide
digital terrestrial television programs in the United Kingdom) 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 @Entertainment's issued
capital stock 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 (i.e., a disqualified person), or if @Entertainment or any
person with an interest in capital stock of @Entertainment (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
@Entertainment's entitlement to continue 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 ("Fair Trading Act"), and unilateral
anti-competitive practices through the Competition Act of 1980 (the "CA"). 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. The Company has
filed with the OFT certain of its exclusive programming license agreements, and
these have been deemed not registrable.
There are no current proceedings relating to competition law involving the
Company before the courts, nor are any investigations which involve the Company
underway before any authority exercising powers under the RTPA, CA or Fair
Trading Act.
In August 1997, the Department of Trade and Industry published a
consultation document and draft Competition Bill (the "Bill") setting out the
Government's proposals for the reform of U.K. competition law. The Bill was
introduced into the House of Lords in November 1997 and, if passed, could become
law in the fall of 1998. Under the provisions of the Bill as currently drafted,
companies would then have a further period of up to 12 months to prepare for the
new regime to come into effect. The new regime takes a prohibition approach and
is based on Articles 85 (which prohibits agreements which have the effect of
preventing, restricting or distorting competition) and 86 (a prohibition dealing
with abuse of a dominant market position) of the EC Treaty. The Company believes
that the Bill is likely to be passed into law, though there can be no assurance
that this will be the case. The Company envisages that this will provide a
stronger framework than hitherto for addressing anti-competitive behavior by
dominant firms.
EUROPEAN UNION
BROADCASTING REGULATION
The Directive sets forth 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 is regarded as the Company's "home member state" for the
purposes of its D-DTH services because
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the Company's license holding subsidiary, @EL, is established in the United
Kingdom, has 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, teleshopping 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
United Kingdom regulates compliance with the European program content
requirements administratively for STS licensees but other U.K. licensed services
(e.g., Channel 3 licensees) are required to comply with such quotas by means of
a condition set forth in their license.
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, teleshopping 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-language programming produced or
commissioned by the Company will be counted for the purposes of determining
whether any service broadcast by the Company complies with these quotas.
European programming consists broadly of programs that (i) originate from an EU
member state or a Convention country that is party to the Convention or from
another eligible European country, (ii) are written and staffed mainly by
European residents and (iii) are produced or co-produced mainly by European
producers.
The Directive also imposes restrictions on advertising including
restrictions on the timing and frequency of commercial breaks, restrictions on
the content of advertising, limitations or prohibitions on tobacco,
non-prescription drug and alcohol advertising and restrictions limiting
commercials to a maximum of 20% of transmission time per hour, subject to an
overall limit of 15% per day. In addition, the Directive restricts the content
of programs to the extent necessary to protect minors and to prevent the
incitement of hatred on the grounds of race, sex, religion or nationality.
Certain amendments have been 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 the promulgation of the 1992 European Community ("EC") 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 organization
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 the Company believes it is unlikely to be adopted,
though there can be no assurance that such will be the outcome.
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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
Convention provides that the country in which a broadcaster uplinks its
programming to the satellite (or, if this is not the case, the country which
grants the broadcast frequency or satellite capacity to the broadcaster) has
jurisdiction over that broadcaster. Neither the Directive nor the Convention
contains any requirements or restrictions regarding foreign ownership of
broadcasters. 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, or to
impose restrictions on foreign ownership of broadcasters.
The Company understands that a change (the "Amendment") has been largely
agreed by members of the Convention. The Amendment would, if ratified by the
appropriate number of member states, become effective with respect to those
member states that ratify it, and would have three significant effects. First,
it would bring the Convention into conformity with the Directive's establishment
test, providing that a broadcaster should be regulated primarily by the
authorities in the Convention country in which the broadcaster is established.
Second, the Amendment would provide that where a broadcaster's channel is
wholly or principally directed at a country, other than that where it is
established, for the purpose of evading the laws in the areas covered by the
Convention which would have otherwise applied to it in the country of reception,
this shall constitute an "abuse of rights." Where such an abuse is alleged,
representatives from the country where the broadcaster is established and from
the country of reception would meet to attempt to resolve the dispute. If they
are unable to do so, a dispute resolution process (which would eventually
involve arbitration) could be invoked. The country of reception could not take
measures against the broadcaster unless and until the arbitration procedure has
been completed in favor of the country of reception. The Company believes that
the broadcasting of its channels into Poland from the United Kingdom would not
constitute an "abuse of rights" under the Amendment, though there can be no
assurance that the relevant authority would so decide. An adverse decision on
this issue, if the Amendment is adopted and Poland ratifies it and decides to
invoke it against the Company's broadcasts emanating from the United Kingdom,
would have a material adverse effect on the Company's ability to broadcast its
Programming Platform and its business, financial condition and results of
operations.
Third, the Amendment would allow parties to the Convention to designate that
certain important events (e.g., major sporting events) cannot be broadcast
exclusively by a single television station so as to deprive a large proportion
of the public of that Convention country from seeing the event live or on a
deferred coverage basis on free-to-air television, and also to ensure that
broadcasters under the jurisdiction of one Convention country cannot purchase
exclusive rights to major events specified by another Convention country which
would deprive a large proportion of the public in such Convention countries from
seeing the specified event on a live or deferred coverage basis on free-to-air
television. In this regard, the Amendment would be consistent with changes
recently made to the Directive. If the Amendment is ratified and becomes
applicable to the Polish pay television rights to certain sporting events
purchased on an exclusive basis by the Company, it could eliminate the Company's
right to broadcast such events in Poland on an exclusive basis and could have an
adverse effect on the ability of the Company to acquire the exclusive Polish pay
television rights to such events and to similar events in the future.
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While the Amendment was expected to be adopted during the summer of 1998,
the Company understands that two countries have raised objections to the text of
the Amendment--one country to the "abuse of rights" amendment and the other
country to the legal effect of the "exclusive rights" regime. The Company
understands that further revisions to the Convention will be considered by all
parties to the Convention in the fall of 1998, and, if agreement is reached on
the proposed revisions, the Amendment would be adopted at that time. If adopted,
the Company believes that it will be ratified by both Poland and the United
Kingdom, though there can be no assurance that such will be the case.
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-European) ownership restrictions
on broadcasters or regulate digital television services in a way which may be
detrimental to the Company (such as requiring (i) a common interface for all
encryption services used within a particular pay television market, (ii) that
all conditional access providers must allow simulcrypt of their programming or
(iii) that third parties must be given access to the Company's subscriber
management service, 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. See "Risk Factors--European Union Regulation of D-DTH
Business."
The Convention currently provides that where a broadcaster under the
jurisdiction of one Convention country transmits advertisements which are
directed specifically at audiences in another Convention country, such
advertisements must comply with the advertising rules of the receiving member
state. This rule will require advertisements inserted in the channels
distributed by the Company as part of Wizja TV to comply with both Polish
advertising rules as well as the rules applicable in the jurisdiction in which
the broadcaster is licensed.
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
License ("CAC License") which are enforced by the U.K. Office of
Telecommunications ("Oftel"). The CAC License addresses several issues relating
to digital television, including pricing of conditional access services and set
top box subsidies, how EPGs can be made competively neutral, and potential
operation of more than one smartcard by competing broadcasters. Although the
Directive and the CAC License do not currently apply to the DTH broadcasting
services planned by the Company as they are not to be transmitted to viewers in
the EU, Poland would be required to implement the provisions of that Directive
if it joined the EU. In addition, as the Company's license-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 assert
jurisdiction over the activities of @EL in these areas including in relation to
conditional access services.
In July 1997, the European Commission issued a draft directive on the Legal
Protection of Conditional Access Services which, among other things, aims to
protect legitimate pay television services against abusive practice, such as pay
television piracy. If adopted, EU member states would be required to prohibit
the sale, marketing, or use of devices designed to allow illicit access to such
services. If Poland joins the EU, it would also have to implement such
protections.
REGULATION OF COMPETITION
EC 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 EC Treaty.
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 European Community/ European Economic Area
("EC/EEA") collectively). Article 85(2) makes offending provisions, if severable
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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 EC Treaty.
The European Commission is entrusted with the principal enforcement powers
relating to Articles 85 and 86, 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 European 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.
Article 86 prohibits undertakings from abuse of a dominant market position
in the EC 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, distributors, or
consumers is likely to raise issues under Article 86. The European 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 an exemption.
It is possible that a third party, which suffers loss as a result of the
performance by an entity of an agreement that infringes Article 85(1), could
claim damages against such entity to compensate it for its quantifiable loss or
could seek an injunction. The position in relation to infringement of Article 86
is similar.
The Company does not believe that any of its current agreements infringe
Article 85(1) or Article 86 and therefore does not intend to notify them to the
European Commission. There can be no assurance that the European Commission
would consider that the agreements do not infringe Article 85(1) or Article 86.
If the European Commission were to find the agreements infringed Article 85(1)
or Article 86, the agreements would be void and unenforceable. The parties could
also be fined and liable to damages to third parties.
POLAND'S EU MEMBERSHIP APPLICATION
In 1994 Poland made an official application for membership of the EU.
Negotiations on the terms of Poland's proposed admission to the EU commenced in
March 1998. If Poland joins the EU, it would be required to implement and obey
all of the laws and regulations emanating from the European Commission,
including the Directive and EC competition law in their then current versions.
There can be no assurance that the Company would be able to comply with any such
laws and regulations. The burden of complying with any such laws and regulations
or any failure to so comply could have a material adverse effect on the
Company's business, financial condition and results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --------- -----------------------------------------------------------
<S> <C> <C>
David T. Chase(1)............................ 69 Chairman of the Board of Directors
Robert E. Fowler, III(1)(2).................. 39 Chief Executive Officer and Director
Arnold L. Chase(1)........................... 46 Director
Samuel Chisholm.............................. 58 Director
David Chance................................. 41 Director
Agnieszka Holland............................ 49 Director
Scott A. Lanphere(3)......................... 32 Director
Jerzy Z. Swirski(3).......................... 41 Director
Donald Miller-Jones.......................... 53 Chief Financial Officer, Vice President and Treasurer
Dorothy E. Hansberry......................... 45 Vice President and General Counsel of PCI
David Keefe.................................. 49 Chief Executive Officer of PCI
Przemyslaw A. Szmyt.......................... 35 Vice President, General Counsel and Secretary
David Warner................................. 51 Chief Operating Officer of @EL
</TABLE>
- ------------------------
(1) Appointed as a director by the Chase Group (as hereinafter defined) under
the Stockholders' Agreement (as hereinafter defined) which terminated upon
the completion of the Initial Public Equity Offering. 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, which terminated upon the completion of the Initial Public Equity
Offering, 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,
which terminated upon the completion of the Initial Public Equity Offering.
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. He has been a director of PCI since its
inception in 1990, and was the Chairman of the Board of Directors of PCI from
March 1996 until December 1997. 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. 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 has served as a director of
@Entertainment since its inception and of PCI since March 1996. Mr. Fowler has
served as Chairman of the Board of Directors of PCI since December 1997, and he
served as its Chief
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Executive Officer from December 1996 to December 1997, its Vice President 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. From March 1995 to late 1996, Mr. Fowler served as a director
of ACCEL. Since April 1, 1998, Mr. Fowler has served on the Supervisory Board of
Twoj Styl. 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 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 has been a director of
International Bancorp, Inc. (the parent company of First National Bank of New
England) since 1985, and has been a director of First National Bank of New
England since 1972.
SAMUEL CHISHOLM has served as a director of @Entertainment since January
1998. From September 1990 to November 1997, Mr. Chisholm served as the Chief
Executive and Managing Director of BSkyB. Mr. Chisholm has also been an
Executive Director of The News Corporation Limited since December 1993, a
director of Star Television since July 1993, a director of BSkyB (U.K.) since
1990, and a director of Sky New Zealand since 1997. Previously, he was chief
executive of the Nine Network Australia.
DAVID CHANCE has served as a director of @Entertainment since January 1998.
From January 1994 to December 1997, Mr. Chance served as the Deputy Managing
Director of BSkyB. From 1989 to January 1994, he served as Marketing
Distribution Manager of BSkyB. From 1987 until 1989, Mr. Chance served as the
U.K. Marketing Manager for the Astra System for SES. Mr. Chance has also been a
director of BSkyB (U.K.) since February 1995 and Modern Times Group Stockholm
since March 1998.
AGNIESZKA HOLLAND has served as a director of @Entertainment since January
1998. Since October 1995, Ms. Holland has also served as President and as a
director of the Lato Productions Company, a company providing writing and
directing services for the motion picture and television industry. Prior to
October 1995, Ms. Holland worked as an internationally known feature film writer
and director.
SCOTT A. LANPHERE has served as a director of @Entertainment since its
inception and of PCI since March 1996. He served as a Managing Director of PCBV
from May 1996 to October 1997. Mr. Lanphere has been a Director of Investments
for Advent International plc since December 1994, and from May 1991 to December
1994 served as an Investment Manager of Advent International plc.
JERZY Z. SWIRSKI has served as a director of @Entertainment since its
inception and of PCI since October 1996. Mr. Swirski has served as an Investment
Director for Advent International plc 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.
DONALD MILLER-JONES has served as Chief Financial Officer of @Entertainment
since June 1998, and as Vice President and Treasurer of @ Entertainment since
July 1998. From November 1995 through January 1998 Mr. Miller-Jones served as
the Finance Director of United Philips Communications N.V. From January 1988
through October 1995, Mr. Miller-Jones served as the Vice President of Treasury
and Investor Relations of PolyGram N.V.
DOROTHY E. HANSBERRY has served as Vice President and General Counsel of PCI
since January 1998. Since May 1996, Ms. Hansberry has served as the President of
Hansberry Consultants, Inc. From July 1997 to January 1998, she worked as an
attorney at Dewey Ballantine Sp. z o.o., a Warsaw law firm. From May 1996 to
July 1997, Ms. Hansberry was an attorney at Beata Gessel and Partners, a Warsaw
law firm, and was of-counsel to Bondurant, Mixson & Elmore, an Atlanta, Georgia
law firm. From December 1991 to October 1996, she served as legal advisor to
Eastern European anti-monopoly offices. From March 1994
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to August 1995, Ms. Hansberry acted as resident legal advisor to the Polish
Anti-Monopoly Office. From October 1980 to May 1996, she worked as a senior
trial attorney in the Antitrust Division of the U.S. Department of Justice.
DAVID KEEFE has served as Chief Executive Officer and director of PCI since
January 1998. From December 1995 to December 1997, Mr. Keefe was Chief Executive
Officer of Kabelkom Hungary, a Hungarian cable company. From January 1994 to
December 1995, Mr. Keefe served as Cable Operations Director and a member of the
Board of Directors of Wharf Cable, a cable company in Hong Kong.
PRZEMYSLAW A. SZMYT has served as Vice President, General Counsel and
Secretary of @Entertainment since its inception, and as Vice President and
General Counsel of PCI from February 1997 until December 1997. Mr. Szmyt has
served as director of PCI since December 1997 and as a member of the Supervisory
Board of Twoj Styl since April 1998. From September 1995 to February 1997, Mr.
Szmyt was a director for Poland of MeesPierson EurAmerica, an investment banking
firm and affiliate of MeesPierson N.V., a Dutch merchant bank. From early 1992
to August 1995, Mr. Szmyt was a senior associate at Soltysinski, Kawecki &
Szlezak, a law firm in Warsaw. From October 1994 to late 1996, Mr. Szmyt served
on the Management Board of TKP, a holding company of Canal+ Polska. Mr. Szmyt is
also a Board Member of United Way Poland and of Litewska Childrens' Hospital
Foundation.
DAVID WARNER has served as the Chief Operating Officer of @EL since April
1997. He was a Vice President of @Entertainment from its inception until March
1998. 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 to and a board member of the
Ravensbourne Communication College.
BOARD OF DIRECTORS
@Entertainment's Bylaws (the "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 eight. All of the current
members of the Board of Directors, except for Messrs. Chisholm and Chance and
Ms. Holland, were elected pursuant to the Stockholders' Agreement, which
automatically terminated upon the successful completion of the Initial Public
Equity Offering. Under the Stockholders' Agreement, the ECO Group (as
hereinafter defined) had the right to designate two directors and the Chase
Group (as hereinafter defined) had the right to designate the remaining three
directors, one of whom was to 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 consisted of ECO, any limited partner of
ECO to whom ECO permissibly transferred shares of stock of @Entertainment and
any Affiliate (as hereinafter defined). Pursuant to the Stockholders' Agreement,
the Chase Group consisted 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 were made by David T. Chase. David T.
Chase, Arnold L. Chase and Robert E. Fowler, III were 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 were designated as directors by the ECO Group. See "Certain
Relationships and Related Transactions-- Stockholders' Agreement" and "Certain
Relationships and Related Transactions--Voting Agreement." Messrs. Chisholm and
Chance and Ms. Holland were appointed as directors, pursuant to the Bylaws, by
the Board of Directors in connection with the expansion of the Board of
Directors from five to eight members.
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@Entertainment's Certificate of Incorporation (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. The first class of directors consists of two directors (Messrs.
Swirski and A. Chase) whose terms shall expire at the annual meeting of
stockholders to be held in the first year following the effective date of the
Initial Public Equity Offering ("Effective Date"); the second class consists of
three directors (Messrs. D. Chase and Lanphere and Ms. Holland) whose terms
shall expire at the annual meeting of stockholders to be held in the second year
following the Effective Date; and the third class consists of three directors
(Messrs. Fowler, Chisholm and Chance), whose terms 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
to be 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 defined in the Certificate) vote to
recommend to the stockholders the removal of a director with or without cause
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 elected Messrs. Chisholm and Chance
(the "Business Independent Directors") and Ms. Holland (the "Artistic
Independent Director") to serve as three 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 Board of Directors of @Entertainment currently maintains an Audit
Committee and a Compensation Committee.
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The Audit Committee is comprised of Messrs. Chisholm and Chance. The Audit
Committee's function is to recommend to the Board of Directors the independent
public accountants to be employed by @Entertainment, to confer with the
independent public accountants concerning the scope of their audit, to review
the accountants' findings and recommendations and to review the adequacy of
@Entertainment's internal accounting controls. KPMG Polska Sp. z o.o. presently
serves as the independent public accountants of @Entertainment. The Audit
Committee meets as necessary, but at least once a year. The Audit Committee was
formed in January 1998 and therefore did not meet in 1997.
The Compensation Committee is comprised of Messrs. Fowler, D. Chase,
Lanphere, Chisholm and Chance. The Compensation Committee's function is to
approve, and in some instances to recommend to the Board of Directors of
@Entertainment, compensation arrangements involving the executive officers and
certain other employees of the Company. The Compensation Committee meets as
necessary. The composition of the Compensation Committee was not finalized until
December 31, 1997, so it did not meet in 1997.
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. Each Business Independent Director receives $5,000 for
attendance at each of the five regular meetings of the Board of Directors, and
an additional $5,000 for attendance at any special meetings of the Board of
Directors. Each Artistic Independent Director receives $5,000 for attendance at
each of the five regular meetings of the Board of Directors.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer, each of the other four most highly compensated executive officers of
the Company and a former executive officer who would have been one of the four
most highly compensated executive officers at the end of the fiscal year 1997
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company for the last three fiscal years, to the extent that
those officers were in the employ of the Company. Columns relating to long-term
compensation have been omitted from the table as the Company did not have
capital stock-related award plans and there has been no compensation arising
from long-term incentive plans during the years reflected in the table.
<TABLE>
<CAPTION>
SECURITIES ALL OTHER
SALARY BONUS OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION($) OPTIONS/SAR ($)
- ------------------------------- --------- ------------ ----------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Fowler, III ......... 1997 337,500 381,250 25,872(1) 1,268,000 --
Chief Executive Officer and 1996 66,000(2) 66,000(2) -- -- --
Director 1995 66,000(2) 66,000(2) -- -- --
Richard B. Steele(3)........... 1997 207,595 -- -- -- 156,000(4)
1996 356,000(2) 250,000(2) -- -- 5,000(5)
1995 356,000(2) -- -- -- 7,500(5)
John S. Frelas(10) 1997 155,746 350,000(6) 39,000(7) -- --
1996 46,153(8) -- 6,000(7) 241,000 --
1995 -- -- -- -- --
George Z. Makowski(11) 1997 156,000 175,000(6) 68,400(9) 385,000 --
1996 -- -- -- -- --
1995 -- -- -- -- --
David Warner .................. 1997 120,708 248,500(6) -- 131,000 --
Chief Operating Officer of 1996 -- -- -- -- --
@EL 1995 -- -- -- -- --
Przemyslaw Szmyt .............. 1997 146,667 70,000(6) -- 131,000 --
Vice President, General 1996 -- -- -- -- --
Counsel, Secretary 1995 -- -- -- -- --
</TABLE>
- ------------------------
(1) Represents amounts paid or reimbursed by the Company for personal travel
related expenses.
(2) 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.
(3) Mr. Steele was the President of PCI. He resigned on June 23, 1997.
(4) Represents amounts earned as deferred compensation.
(5) Represents portion of 401(k) plan paid pursuant to matching contribution.
(6) Represents one-time bonus paid upon completion of @Entertainment's Initial
Public Equity Offering.
(7) Represents amounts paid pursuant to housing allowance.
(8) Represents compensation for partial year of service beginning in September
1996.
(9) Represents amounts paid pursuant to housing and tuition allowances.
(10) Mr. Frelas was the Chief Financial Officer, Vice President and Treasurer of
@Entertainment and Chief Financial Officer and Treasurer of PCI. Mr. Frelas
resigned effective as of June 8, 1998.
(11) Mr. Makowski was the Chief Operating Officer of PCI. Mr. Makowski's
employment with PCI has been terminated, effective as of May 1998.
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COMPENSATION PLANS
EMPLOYMENT AGREEMENTS
@Entertainment has employment agreements with each of Messrs. Fowler, Szmyt,
Warner and Miller-Jones. PCI has employment agreements with each of Mr. Keefe
and Ms. Hansberry. @Entertainment has entered into consultancy arrangements with
Messrs. Chisholm and Chance and Ms. Holland.
Mr. Fowler entered into a three-year employment agreement with PCI effective
at January 1, 1997. The employment agreement was assigned to @Entertainment in
June 1997 in connection with the Reorganization, as defined herein. Pursuant to
such agreement, Mr. Fowler serves as the Chief Executive Officer of
@Entertainment. Mr. Fowler receives a base annual salary of $325,000, plus a
travel allowance of approximately $30,000 per annum and an unspecified annual
incentive bonus. 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's written notice (with an obligation to pay
Mr. Fowler an additional two months' base salary). In addition, @Entertainment
may terminate the agreement immediately without further obligation to Mr. Fowler
for cause (as defined in the employment agreement).
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 and was amended effective January 1, 1998. Pursuant to such
agreement, Mr. Szmyt serves as Vice President, General Counsel and Secretary of
@Entertainment. Pursuant to an employment agreement with Wizja TV Sp. z o.o. and
a services agreement with PCI, Mr. Szmyt receives annual remuneration totaling
$180,000. He is eligible to receive an annual performance-based bonus of $40,000
per year. 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. In addition, @Entertainment may
terminate the contract without further obligation for cause (as defined in the
agreement). Mr. Szmyt's employment agreement with Wizja TV Sp. z o.o. may be
terminated by either party upon one month's written notice.
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 and was amended effective January 1, 1998.
Pursuant to such agreement, Mr. Warner serves as Chief Operating Officer of @EL.
Mr. Warner receives an annual salary of L115,000 (approximately $193,200, based
on the exchange rate of L1.00 =$1.68 at March 31, 1998), and receives an annual
performance-based bonus of up to L45,000 (approximately $75,600 based on the
exchange rate of L1.00 = $1.68 at March 31, 1998). Mr. Warner and @Entertainment
may terminate the contract at any time with six months' written notice. In
addition, @Entertainment may terminate the contract without further obligation
for cause (as defined in the agreement).
Mr. Miller-Jones entered into a three-year employment agreement with
@Entertainment effective at June 8, 1998. Pursuant to such agreement, Mr.
Miller-Jones serves as the Chief Financial Officer of @Entertainment and
receives a base annual remuneration of L122,700 (approximately $200,000 based on
the exchange rate of L1.00=$1.63 at June 8, 1998), and an allowance of L30,000
(approximately $48,900 based on the exchange rate of L1.00=$1.63 of June 8,
1998) for the purchase of an automobile. Mr. Miller-Jones is also eligible to
receive an annual performance based bonus during his first year of up to L30,500
(approximately $50,000, based on the exchange rate of L1.00=$1.63 at June 8,
1998). Of such amount, Mr. Miller-Jones is guaranteed to receive at least
L18,300 (approximately $30,000, based on the exchange
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rate of L1.00=$1.63 at June 8, 1998). In subsequent years, Mr. Miller-Jones will
be eligible to receive a discretionary performance bonus, the amount of which
shall be determined by the Board of Directors of the Company.
Mr. Keefe entered into a two-year employment agreement with PCI effective at
January 1, 1998. Pursuant to such agreement, Mr. Keefe serves as the Chief
Executive Officer of PCI. Mr. Keefe receives a base annual salary of
approximately $220,000, a monthly allowance for additional housing and cost of
living expenses of $5,000, an allowance for relocation expenses of up to
$20,000, and reimbursement of educational and tax planning expenses of up to an
aggregate amount of $23,000 per year. Mr. Keefe also receives a guaranteed bonus
of $100,000 in the first year of his employment and unspecified incentive
bonuses thereafter. He received an additional bonus of $200,000 upon the signing
of the employment agreement. Mr. Keefe may terminate the employment agreement at
any time upon three months' written notice, and PCI may terminate the agreement
at any time upon one month's written notice (with an obligation to pay Mr. Keefe
an additional five months' salary). In addition, PCI may terminate the agreement
immediately without further obligation to Mr. Keefe for cause (as defined in the
employment agreement). Mr. Keefe has been granted options to purchase up to
250,000 shares of Common Stock at a price of $12 per share, subject to the terms
and conditions of a stock option agreement with @Entertainment. Options to
purchase 31,250 shares of Common Stock shall vest at the end of each fiscal
quarter on March 31, June 30, September 30 and December 31 of 1998 and 1999,
provided that the options shall vest in full on the date of a change in control
(as defined in the employment agreement) in @Entertainment or PCI.
Ms. Hansberry entered into a two-year employment agreement with PCI
effective at January 1, 1998. Pursuant to such agreement, Ms. Hansberry serves
as Vice President and General Counsel of PCI and receives an annual remuneration
totaling $150,000. She is eligible to receive annual performance-based bonuses
of up to $40,000 per year. Ms. Hansberry's initial year bonus of $40,000 is
guaranteed. Ms. Hansberry or PCI may terminate the agreement at any time upon
six months' written notice. In addition, PCI may terminate the agreement without
further obligation to Ms. Hansberry for cause (as defined in the agreement).
The Company has entered into a two-year consultancy arrangement with Samuel
Chisholm and David Chance (each individually a "Consultant"), pursuant to which
the Company will pay to a Consultant a fee of $10,000 per consultancy day, which
shall be a single day of at least seven hours during which a Consultant provides
consulting services to the Company ("Consultancy Day"), based on a minimum, on
average over each 12 month period, of a total of 4 Consultancy Days per month,
and the Company will pay an additional fee of $10,000 to a Consultant for any
additional days in any month on which a Consultant provides consulting services
to the Company. The consultancy agreement is not subject to cancellation by
either party except as a result of a breach of the consultancy agreement.
The Company has entered into a two-year consultancy arrangement with
Agnieszka Holland, pursuant to which the Company will pay to Ms. Holland a fee
of $25,000 per year, in 12 equal prorated amounts, for artistic consultancy
services.
1997 STOCK OPTION PLAN
@Entertainment's 1997 Stock Option Plan, as amended (the "1997 Plan") was
adopted on May 22, 1997 and approved by a majority of the stockholders. The 1997
Plan provides for the grant to employees of the Company (including officers,
employee directors, and non-employee directors) of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and for the grant of qualified stock options to employees
and consultants of the Company (collectively, the "Options"). The 1997 Plan is
currently administered by the Board of Directors 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. The Board of
Directors may also appoint a Stock
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Option Committee to perform such functions in the future. Currently,
approximately 11 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, Messrs. Szmyt and
Warner, whose option agreements became subject to the 1997 Plan pursuant to a
resolution of the Board of Directors of @Entertainment, and Messrs. Chisholm,
Chance, Keefe and Miller-Jones) participate in the 1997 Plan.
In addition, the Board of Directors has the authority to interpret the 1997
Plan and to prescribe, amend and rescind rules and regulations relating to the
1997 Plan. The Board of Directors' interpretation of the 1997 Plan and
determinations pursuant to the 1997 Plan are 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 4,436,000 shares,
subject to adjustment in accordance with the terms of the 1997 Plan. At June 8,
1998 options for 3,924,000 shares had been granted and 512,000 shares remained
available for future grants (subject to stockholder approval). 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 options granted under the 1997 Plan may not exceed ten
years. Options become exercisable at such times as determined by the Board of
Directors 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 Board of Directors, 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 outstanding Options 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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The following table lists all grants of Options under the 1997 Plan to the
Named Executive Officers during 1997 and contains certain information about
potential value of these Options based upon certain assumptions as to the
appreciation of the Common Stock over the life of the Options.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR (%) ($) DATE ($)(1)
- ------------------------------------------- ------------- --------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert E. Fowler, III...................... 1,286,000 55.12% 3.707 1/1/07 16,576,540
Richard B. Steele.......................... -- -- -- -- --
John S. Frelas............................. -- -- -- -- --
George Z. Makowski......................... 385,000 16.50% 3.70808 1/1/07 2,964,500
David Warner............................... 131,000 5.62% 15.24 6/23/07 652,380
Przemyslaw Szmyt........................... 131,000 5.62% 15.24 6/23/07 652,380
</TABLE>
- ------------------------
(1) Calculated based upon a variation of the Black-Scholes option pricing model
in which the following assumptions were used: the expected volatility of the
Common Stock was 39.0%; the risk-free rate of return was 6.25%, 6.25%,
6.31%, and 6.31% for Messrs. Fowler, Makowski, Warner and Szmyt,
respectively; the dividend yield was 0.0%; and the expected time of exercise
was four (4) years from the month of the grant.
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding Options held by the Named
Executive Officers at December 31, 1997. Also reported are the values for
"in-the-money" options which represent the position spread between the exercise
price of any such existing stock options and the price of the Common Stock at
December 31, 1997.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FISCAL AT FISCAL
ACQUIRED ON VALUE YEAR-END (#) YEAR-END ($)
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------- ----------------- ------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Robert E. Fowler, III.................. -- -- 1,286,000/0 9,539,548/--
Richard B. Steele...................... -- -- -- --
John S. Frelas......................... -- -- 48,000/193,000 430,398/1,762,727
George Z. Makowski..................... -- -- 385,000/-- 2,855,514/--
David Warner........................... -- -- --/131,000 --
Przemyslaw Szmyt....................... -- -- --/131,000 --
</TABLE>
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of @Entertainment's capital stock at June 8, 1998 and 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 Exchange Act.
At June 8, 1998, the Principal Stockholders beneficially owned in the
aggregate approximately 58.3% of the outstanding Common Stock. As a result, the
Principal Stockholders, acting together, are able to elect all of
@Entertainment's directors and otherwise control the Company's operations. See
"Risk Factors--Control by Existing Stockholders."
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING(1)
- --------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Arnold L. Chase(2)
One Commercial Plaza
Hartford, Connecticut 06103.................................................... 10,303,000 29.2%
Chase Polish Enterprises, Inc(2)
One Commercial Plaza
Hartford, Connecticut 06103.................................................... 10,303,000 29.2%
Cheryl A. Chase(2)(3)
One Commercial Plaza
Hartford, Connecticut 06103.................................................... 11,036,000 31.3%
Polish Investments Holding L.P.(2)
One Commercial Plaza
Hartford, Connecticut 06103.................................................... 10,303,000 29.2%
ECO Holdings III Limited Partnership(4)
c/o Advent International Corp.
101 Federal Street
Boston, MA 02110............................................................... 9,524,000 27.0%
Goldman, Sachs & Co.(16)
85 Broad Street
New York, NY 10004............................................................. 2,630,706 7.5%
The Goldman Sachs Group, L.P.(16)
85 Broad Street
New York, NY 10004............................................................. 2,630,706 7.5%
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase................................................................... -- --
Robert E. Fowler, III(5)(6)...................................................... 1,286,000 3.6%
Arnold L. Chase(7)............................................................... 10,303,000 29.2%
Scott A. Lanphere(8)............................................................. -- --
Jerzy Z. Swirski(9).............................................................. -- --
Samuel Chisholm(10).............................................................. -- --
David Chance(11)................................................................. -- --
Agnieszka Holland................................................................ -- --
Przemyslaw Szmyt(6)(13).......................................................... 26,200 *
David Warner(6)(14).............................................................. 26,200 *
Donald Miller-Jones(12).......................................................... -- --
ALL DIRECTORS AND OFFICERS AS A GROUP (14 PERSONS(15)):.......................... 13,251,000 37.6%
</TABLE>
- ------------------------
* less than 1%.
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(1) Based on a total number of outstanding shares of 35,236,400, which includes
33,310,000 shares outstanding at June 8, 1998 and 1,926,400 shares subject
to options which were exercisable within sixty days of July 8, 1998.
(2) Pursuant to Schedules 13G filed on February 13, 1998 by PIHLP, Chase Polish
Enterprises, Inc. ("CPEI"), Arnold L. Chase and Cheryl A. Chase. This amount
includes 10,303,000 shares of Common Stock owned directly by PIHLP. As a
result of their control over the management of PIHLP, Arnold L. Chase, CPEI
and Cheryl A. Chase may be deemed to beneficially own the 10,303,000 shares
of Common Stock owned by PIHLP. CPEI is the sole general partner of PIHLP.
As general partner, CPEI manages PIHLP, which includes directing the voting
and disposition of shares of Common Stock owned by PIHLP. Arnold L. Chase
and Cheryl A. Chase each own 50% of the outstanding capital stock of CPEI
and are its sole directors and executive officers.
(3) Pursuant to the Schedule 13G filed on February 13, 1998 by Cheryl A. Chase.
This amount includes 733,000 shares of Common Stock owned by the Cheryl Anne
Chase Marital Trust, a trust of which Cheryl A. Chase is a trustee. Cheryl
A. Chase may be deemed to be a beneficial owner, as defined by Rule 13d-3(a)
under the Exchange Act, of the shares of Common Stock owned by the Cheryl
Anne Chase Marital Trust.
(4) 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.
(5) Mr. Fowler has been granted options 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. All of Mr. Fowler's options are exercisable.
(6) Messrs. Fowler, Frelas, Makowski, Szmyt and Warner, in connection with the
Initial Public Equity Offering, entered into an agreement with Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated that
during the two year period beginning July 30, 1997, such individuals 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. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
(7) Includes 10,303,000 shares of Common Stock owned by PIHLP which may be
deemed to be beneficially owned by Arnold Chase.
(8) Mr. Lanphere disclaims beneficial ownership of the shares held by ECO.
(9) Mr. Swirski disclaims beneficial ownership of the shares held by ECO.
(10) Mr. Chisholm has been granted options to purchase 500,000 shares of Common
Stock, vesting ratably over a two year period, at an exercise price of
$12.00 per share. None of Mr. Chisholm's options are exercisable within 60
days of July 8, 1998.
(11) Mr. Chance has been granted options to purchase 500,000 shares of Common
Stock, vesting ratably over a two year period, at an exercise price of
$12.00 per share. None of Mr. Chance's options are exercisable within 60
days of July 8, 1998.
(12) Mr. Miller-Jones has been granted options to purchase 200,000 shares of
Common Stock at a price of $14.30 per share, subject to the terms and
conditions of a stock option agreement, which options vest ratably over a
three year period. None of Mr. Miller-Jones' options are exercisable within
60 days of July 8, 1998.
(13) Mr. Szmyt has been granted options 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. Additionally, on January 26, 1998, Mr. Szmyt was granted
options to purchase 75,000 shares of Common Stock at a price of $12.2375 per
share, which options vest ratably over a three year period. Mr. Szmyt's
options with respect to 26,200 shares have vested and are immediately
exercisable as of July 8, 1998.
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(14) Mr. Warner has been granted options 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. Additionally, on January 26, 1998, Mr. Warner was granted options to
purchase 75,000 shares of Common Stock at a price of $12.2375 per share,
which options vest ratably over a three year period. Mr. Warner's options
with respect to 26,200 shares have vested and are immediately exercisable as
of July 8, 1998.
(15) Includes 1,129,000 shares held by Steele LLC and beneficially owned by
Richard B. Steele, who resigned as President of PCI on June 23, 1997. Also
includes 96,000 Shares beneficially owned by John S. Frelas. Mr. Frelas
resigned as Chief Financial Officer, Vice President and Treasurer of
@Entertainment effective as of June 8, 1998. Also includes 385,000 shares
beneficially owned by George Z. Makowski. Mr. Makowski was the Chief
Operating Officer of PCI. Mr. Makowski's employment has been terminated,
effective as of May 1998.
(16) Pursuant to a Schedule 13G jointly filed on February 13, 1998 by Goldman
Sachs & Co. and The Goldman Sachs Group, L.P., Goldman Sachs & Co. and The
Goldman Sachs Group, L.P. may be deemed to share the power to direct the
vote and disposition of 2,630,706 shares of Common Stock, beneficially owned
by Goldman Sachs & Co. and The Goldman Sachs Group, L.P.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS
David T. Chase, the Chairman of the Board of Directors of @Entertainment, is
the father of Arnold L. Chase, a director of @Entertainment. No other family
relationship exists between any of the directors and executive officers of
@Entertainment.
THE REORGANIZATION
In June 1997, the Company effected a reorganization (the "Reorganization")
to facilitate the development of its D-DTH business and the expansion of its
cable television and programming businesses. All the holders of shares of PCI's
common stock and @Entertainment entered into a Contribution Agreement dated at
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 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 2,500 outstanding shares of
Series B Preferred Stock automatically converted into 4,862,000 shares of Common
Stock of @Entertainment upon the closing of the Initial Public Equity Offering
(the "Automatic Conversion").
On June 20, 1997, PIHLP transferred all the outstanding shares of PCI's
Series C Preferred Stock to the Chase Entity, 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 the Purchase Agreement.
Pursuant to the Purchase Agreement, @Entertainment purchased 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 Initial Public Equity Offering (the "Cash Purchases"). 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
equaled the aggregate redemption price of such shares as set forth in PCI's
certificate of incorporation. The Cash Purchases were funded with a portion of
the net proceeds of the Initial Public Equity Offering.
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 by PCI (the "Assignment"). 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 "Compensation Plans-- Employment Agreements."
In June 1997, @Entertainment subscribed for all of the outstanding stock of
@EL, a corporation organized under the laws of England and Wales (the "@EL
Incorporation"). @EL is responsible for the Company's D-DTH business.
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 100% of the outstanding shares of voting
stock of PCI and @EL. After giving effect to the Reorganization and after
completion of the Initial Public Equity Offering, the Chase Family and ECO
beneficially own approximately 31.3% and 27.0%, respectively, of the outstanding
shares of Common Stock of @Entertainment. As a result, the Principal
Stockholders, acting together, are able to elect all of @Entertainment's
directors and
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otherwise control the Company's operations. See "Risk Factors--Control by
Existing Stockholders" and "Principal Stockholders."
STOCKHOLDERS' AGREEMENT
In connection with the Reorganization, at June 22, 1997, a stockholders'
agreement (the "Stockholders' Agreement") was entered into by and among ECO,
PIHLP, Roger Freedman, Steele LLC, The AESOP Fund L.P. ("AESOP"), Cheryl Anne
Chase Marital Trust ("CACMT") and @Entertainment in order to govern the conduct
of the business of @Entertainment and relations among its stockholders. ECO,
PIHLP, Mr. Freedman, Steele LLC, AESOP and CACMT were the holders of all of the
outstanding shares of capital stock of @Entertainment prior to the Initial
Public Equity Offering. Parties to the Stockholders' Agreement, other than
@Entertainment, are hereinafter referred to as the "Stockholders."
@Entertainment currently has an eight-member Board of Directors. Pursuant to
the Stockholders' Agreement, the ECO Group had the right to designate two
directors, and the Chase Group had the right to designate two directors in
addition to a Chief Executive Officer acceptable to the ECO Group, who was also
a member of the Board of Directors. The ECO Group consisted of ECO. The Chase
Group consisted of PIHLP, Mr. Freedman, the Cheryl Anne Chase Marital Trust and
Steele LLC. The ECO Group chose Scott Lanphere and Jerzy Swirski as its
designated directors of @Entertainment. Pursuant to the Stockholders' Agreement
and a voting agreement, the Chase Group chose David T. Chase, @Entertainment's
Chairman, as the Chase Group Representative, and thereafter chose David Chase
and Arnold Chase as its designated directors of @Entertainment, and selected
Robert Fowler as Chief Executive Officer and director of @Entertainment, which
selection was accepted by the ECO Group. Both the Stockholders' Agreement and
the voting agreement terminated at the successful completion of the Initial
Public Equity Offering.
@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") on June 22, 1997. ECO, PIHLP, Mr. Freedman, Steele LLC, AESOP
and CACMT are the holders of all of the outstanding shares of capital stock of
@Entertainment prior to the Initial Public Equity Offering. 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. In addition, if @Entertainment proposes to register any of
its securities under the Securities Act (other than registrations in connection
with employee stock ownership plans, offerings of debt securities and certain
shelf registrations), all of the Rightsholders will have the right 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, a wholly owned subsidiary of @Entertainment, 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 46.8% of the
issued and outstanding capital stock of PTK Operator, as well as approximately
98% of the issued and outstanding capital stock of PTK S.A.
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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 Minority Stockholders own the 7.7% of outstanding PCBV
capital stock that is not owned by PCI. 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,
though there can be no assurance that an agreement can be reached with any of
the Minority Stockholders on satisfactory terms.
SERVICE AGREEMENTS
PCI, a wholly owned subsidiary of @Entertainment, has entered into service
agreements with PCBV and other of its direct and indirect subsidiaries (the
"Service Agreements"), including Poltelkab Sp. z o.o. ("Poltelkab"), Telkat Sp.
z o.o. ("Telkat"), PTK-Szczecin Sp. z o.o. ("PTK-Szczecin"), PTK-Lublin S.A.
("PTK-Lublin"), ETV Sp. z o.o. ("ETV"), PTK S.A., PTK-Operator, 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
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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, a wholly owned subsidiary of @Entertainment, entered into management
agreements with certain of its direct or indirect subsidiaries, namely
Poltelkab, Telkat, PTK-Szczecin, PTK-Lublin, ETV, PTK S.A., PTK-Operator,
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 $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, a wholly owned subsidiary of @Entertainment, entered into a Corporate
Overhead Allocation Agreement, dated January 1, 1996 (the "Allocation
Agreement"), with certain of its direct or indirect subsidiaries, namely PTK
S.A., PTK-Warsaw, PTK-Operator, PTK-Krakow, PTK-Szczecin, PTK-Lublin, ETV,
Telkat and Poltelkab (collectively the "PTK Companies"), and PCBV. The
Allocation Agreement provides that costs incurred by PCI or PCBV, acting as
PCI's agent, with regard to the Service Agreements and as otherwise requested by
the PTK Companies shall be allocated and charged to particular PTK Companies in
the event they are directly attributable to such subsidiaries, and shall
otherwise be allocated equally among each of the PTK Companies. With regard to
services rendered and costs incurred by subsidiaries for the benefit of some or
all of the PTK Companies, which include costs associated with maintaining a
central office in Warsaw, legal expenses, expenses relating to governmental
relationships and approvals, programming services, accounting, management
information systems services, and salaries associated with personnel whose
duties clearly benefit other PTK Companies, the Allocation Agreement provides
that such expenses shall be allocated between 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, the Chief Executive Officer and a director of @Entertainment, 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
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(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.
CONSULTING ARRANGEMENTS
The Company has entered into a two-year consultancy arrangement with Samuel
Chisholm and David Chance (each individually a "Consultant"), pursuant to which
the Company will pay to a Consultant a fee of $10,000 per consultancy day, based
on a minimum, on average over each 12 month period, of a total of 4 Consultancy
Days per month, and the Company will pay an additional fee of $10,000 to a
Consultant for any additional days in any month on which a Consultant provides
consulting services to the Company. The consultancy agreement is not subject to
cancellation by either party except as a result of a breach of the consultancy
agreement.
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DESCRIPTION OF INDEBTEDNESS
PCI NOTES OFFERING
On October 31, 1996, $130 million aggregate principal amount of PCI Notes
were sold by PCI to an initial purchaser pursuant to a purchase agreement. The
initial purchaser subsequently completed a private placement of the PCI Notes.
In June 1997 substantially all of the outstanding PCI Notes were exchanged for
an equal aggregate principal amount of publicly-registered PCI Notes. The PCI
Notes were issued pursuant to the PCI Indenture.
The PCI Notes have an interest rate of 9 7/8% and have a maturity date at
November 1, 2003. Interest is paid on the PCI Notes on May 1 and November 1 of
each year. Prior to November 1, 1999, PCI may redeem up to a maximum of 33% of
the initially outstanding aggregate principal amount of the PCI Notes with some
or all of the net proceeds of one or more public equity offerings at a
redemption price equal to 109.875% of the principal amount thereof, plus accrued
and unpaid interest, if any to the date of redemption; provided that immediately
after giving effect to such redemption, at least $87 million aggregate principal
amount of the PCI Notes remains outstanding. Upon the occurrence of a change in
control (as defined in the PCI Indenture), each holder of the PCI Notes shall
have the right to require that PCI purchase such holder's PCI Notes, in whole or
in part, at a purchase price in cash in an amount equal to 101% of the principal
amount of such PCI Notes, plus accrued and unpaid interest, if any, to the date
of purchase. PCI may be required to use the net cash proceeds of certain asset
sales to make an offer to purchase all or a portion of the outstanding PCI Notes
at a price of 100% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to date of redemption. PCI has pledged to State Street
Bank, the trustee for the PCI Notes, for the benefit of the holders of the PCI
Notes intercompany notes issued by PCBV, of a minimum aggregate principal amount
together with cash and cash equivalents of PCI, equal to at least 110% of the
outstanding principal amount of the PCI Notes and that, in the aggregate,
provide cash collateral or bear interest and provide for principal repayments,
as the case may be, in amounts sufficient to pay interest on the PCI Notes.
Pursuant to the PCI 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 PCI 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) consolidations, mergers and sale of
assets.
CREDIT AGREEMENTS WITH THE AMERBANK IN POLAND, S.A.
PTK-Warsaw has entered into two agreements with the AmerBank which
established a zloty-denominated revolving loan facility of up to $897,000 (the
"1995 Facility"), and a U.S. Dollar denominated $1.5 million loan (the "1995
Loan"). The principal outstanding on the 1995 Facility and 1995 Loan was repaid
during 1996. In addition, in August 1996, PCI entered into a credit agreement
establishing a revolving loan facility (the "1996 Facility") which allowed PCI
to borrow up to a maximum principal amount of $6.5 million in multiple
disbursements on or before December 31, 1998. PCI repaid the balance of 1996
Facility with a portion of the proceeds of the offering of the PCI Notes. All
amounts under the 1996 Facility were fully drawn in June 1998.
Amounts outstanding under the 1995 Facility bear interest at the Warsaw
Interbank Offering Rate plus 3.5%. The 1995 Loan bears interest at the
three-month London Interbank Offering Rate ("LIBOR") plus 3.0%. There is a 1%
prepayment penalty on amounts outstanding under the 1995 Loan.
In addition to an arrangement fee of approximately $50,000 and an annual
charge of 0.25% of the undrawn funds, @Entertainment is required to pay interest
on any outstanding principal amount under the 1996 Facility at a rate equal to
the three-month LIBOR on the date of disbursement plus 3%. The
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outstanding principal amount under the 1996 Facility and accrued interest
thereon amount is due in full on August 20, 1999. Acceleration of repayment of
amounts outstanding under the 1996 Facility may be triggered by certain
conditions of default, which include customary terms associated with revolving
loan facilities. In the event of a default, @Entertainment shall pay an
additional penalty of 15% per annum on the outstanding principal amount under
the 1996 Facility.
Amounts outstanding under the 1996 Facility are secured by promissory notes
en blanc from PTK-Warsaw, PTK-Krakow, PTK-Lublin, and pledges of up to all of
the shares of PTK-Warsaw and PTK-Krakow owned by PCBV and all of the shares of
PTK-Lublin owned by Poltelkab.
CREDIT AGREEMENT WITH POLSKI BANK ROZWOJU
One of the Company's subsidiaries, Szczecinska Telewizja Kablowa Sp. z o.o.
("SzTK"), has entered into two agreements with Polski Bank Rozwoju S.A. (the
"Bank") which established a zloty-denominated loan facility in the amount of PLN
500,000 (approximately $145,000 based on an exchange rate of PLN 1.00 = $.29, at
May 31, 1998) (the "Polish Zloty Facility") and a Deutsche-Mark denominated
facility in the amount of DM 3,948,615 (approximately $2,132,252 based on an
exchange rate of DM 1.00 = $.56 at May 31, 1998) (the "Foreign Currency
Facility", and together with the Polish Zloty Facility, the "Loan Facilities").
The Loan Facilities are to be used for the development of two cable television
networks operated by SzTK. The Loan Facilities are secured by a mortgage on real
estate owned by two housing cooperatives, their bank accounts and insurance
policies. The cooperatives' mortgage is secured by a pledge of SzTK shares owned
by PTK-Szczecin Sp. z o.o. The Loan Facilities must be repaid by December 27,
2002.
The Polish Zloty Facility bears interest at the Warsaw Interbank Offering
Rate for 3 months deposits plus 3%. The Foreign Currency Facility currently
bears interest at the London Interbank Rate for 1 month deposits plus 2.5%. The
total amount payable with respect to the Polish Zloty Facility at May 31, 1998
was PLN 261,000 (approximately $74,568 based on an exchange rate of PLN 1.00 =
$.29 at May 31, 1998). The total amount payable with respect to the Foreign
Currency Facility at May 31, 1998 was DM 3,554,000 (approximately $1,993,439
based on an exchange rate of DM 1.00 = $.56 at May 31, 1998).
INTER-COMPANY INDEBTEDNESS
@Entertainment has entered into a loan agreement pursuant to which at March
31, 1998, it had loaned approximately $8.3 million to @EL. The loan agreement
between @Entertainment and @EL, a credit facility which calls for the borrower
to pay 10% interest, payable quarterly, contains standard events of default for
related-party indebtedness.
PCI has entered into a series of grid notes pursuant to which, at March 31,
1998 it had loaned approximately $137.5 million to PCBV, $7.9 million to
PTK-Szczecin and $12.1 million to Poltelkab (the "Grid Notes"). The Grid Notes
between PCI and PCBV are revolving credit facilities which call for the borrower
to pay 10% interest, payable monthly, on the outstanding principal amount and
contain standard events of default for related-party indebtedness. All of the
Grid Notes between PCI and PCBV mature before December 31, 1999. The Grid Notes
between PCI and PTK-Szczecin, the Grid Note between PCI and Poltelkab are
revolving credit facilities on which 10% interest compounds monthly and which
mature on June 30, 1999. The Grid Notes between PCI and PCBV have been pledged
for the benefit of holders of the PCI Notes.
PCBV, in turn, entered into a series of 10% grid notes pursuant to which, at
March 31, 1998, PCBV had loaned approximately $108.3 million to PTK S.A.,
PTK-Warsaw, PTK-Operator and PTK-Krakow (the "PCBV Grid Notes"). The PCBV Grid
Notes are revolving credit facilities which call for the borrower to pay
interest of 10% per annum, payable monthly, on the outstanding principal amount
and contain standard events of default for related-party indebtedness. One of
these PCBV Grid Notes will become due on June 10, 1999, the other is due on
demand on June 30, 1999. The PCBV Grid Notes between PCBV and PTK-Operator,
PTK-Warsaw and PTK-Krakow all become due on June 30, 1999.
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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 are preferred
stock of which 2,500 shares have been designated Series B Preferred Stock, par
value of $0.01 per share. The 2,500 shares of Series B Preferred Stock were
converted into 4,862,000 shares of Common Stock at the completion of the Initial
Public Equity Offering.
At March 31, 1998, there were 33,310,000 shares of Common Stock outstanding
and fully paid and no Shares of preferred stock outstanding.
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 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--Control by Existing Stockholders" and "Risk Factors--Antitakeover
Provisions; Possible Future Issuances of Preferred Stock."
CERTAIN VOTING PROVISIONS
Stockholders' rights and related matters are governed by the DGCL, 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-- Control by Existing Stockholders."
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
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(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.
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
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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
provisions exceed the usual majority vote requirement of the DGCL 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-- Control by Existing Stockholders."
CERTAIN CHANGE OF CONTROL PROVISIONS
In addition to the above provisions, as a Delaware corporation the Company
is subject to Section 203 of the DGCL, 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
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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--Control by Existing Stockholders."
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DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an indenture to be dated as of
July 14, 1998 (the "Indenture") between the Issuer, as issuer, and Bankers Trust
Company, as trustee (the "Trustee"). Upon the issuance of the Exchange Notes, if
any, or the effectiveness of the Shelf Registration Statement, the Indenture
will be subject to the Trust Indenture Act of 1939, as amended (the "TIA"). The
following summary of certain provisions of the Notes and the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Notes and the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture through the incorporation by reference of the TIA. Copies of the
Indenture are available upon request from the Issuer or the Trustee. For
definitions of certain capitalized terms used in this summary, see "-- Certain
Definitions" below.
GENERAL
The Notes will mature on July 15, 2008, will be limited to $252 million
aggregate principal amount at maturity and will be general unsecured obligations
of the Issuer. The Notes will be issued at a discount to their aggregate
principal amount at maturity and will generate gross proceeds of approximately
$120 million. Based on the issue price thereof, the yield of the Notes is
14 1/2% (computed on a semiannual bond equivalent basis) calculated from July
14, 1998. Although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
holder as such discount accrues from the Issue Date, no interest will be payable
on the Notes prior to January 15, 2004. Each Note will bear interest at the rate
set forth on the cover page hereof from July 15, 2003 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable on January 15, 2004 and semiannually thereafter on each Interest Payment
Date and until the principal thereof is paid or duly provided for to the Person
in whose name the Note (or any predecessor Note) is registered at the close of
business on the January 1 or July 1 next preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. The circumstances under which the Issuer may be required to pay
additional interest in cash on the Notes are described below under "--Exchange
Offer; Registration Rights."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Issuer in the City of New York maintained for such purposes (which initially
will be the corporate trust office of the Trustee located at Four Albany Street,
New York, New York 10006); PROVIDED, HOWEVER, that, at the option of the Issuer,
interest on the Notes may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear on the security register. The
Notes will be issued only in fully registered form without coupons and only in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. No service charge will be made for any registration of transfer or
exchange or redemption of Notes, but the Issuer may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Issuer ranking PARI
PASSU in right of payment with all other existing and future unsubordinated
obligations of the Issuer and senior in right of payment to any existing and
future obligations of the Issuer expressly subordinated in right of payment to
the Notes. As of March 31, 1998, the Issuer had no subordinated indebtedness
outstanding. The Issuer is a holding company with limited assets of its own that
conducts substantially all of its business through subsidiaries. The Notes will
be effectively subordinated to all indebtedness for money borrowed by and trade
payables of the subsidiaries of the Issuer. At March 31, 1998, on a pro forma
basis after giving effect to the Offering and the application of the net
proceeds therefrom and the drawdown of the AmerBank facility, the Issuer
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and its subsidiaries, on a consolidated basis, would have had $256 million of
outstanding indebtedness, approximately $139 million of which would have been
obligations of subsidiaries of the Issuer (including approximately $130 million
of PCI Notes). For a discussion of certain adverse consequences of the Issuer
being a holding company and of the terms of certain existing and potential
future indebtedness of the Issuer and its subsidiaries, see "Risk
Factors--Holding Company Structure and Restrictions on Payment of Dividends."
Subject to certain limitations, the Issuer and its subsidiaries may incur
additional indebtedness in the future. See "--Certain Covenants."
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
The Notes will be redeemable at the option of the Issuer, in whole or in
part, at any time on or after July 15, 2003 on not less than 30 or more than 60
days' prior notice at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, together with accrued interest,
if any, to the redemption date, if redeemed during the 12-month period beginning
on July 15 of the years indicated below (subject to the right of holders of
record on relevant record dates to receive interest due on a relevant interest
payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2003................................................................................. 107.250%
2004................................................................................. 104.833
2005................................................................................. 102.417
2006 and thereafter.................................................................. 100.000
</TABLE>
At any time or from time to time prior to July 15, 2001 the Issuer may
redeem up to a maximum of 25% of the initially outstanding aggregate principal
amount at maturity of the Notes with some or all of the net cash proceeds of one
or more Public Equity Offerings at a redemption price equal to 114.5% of the
Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on relevant record dates
to receive interest due on relevant interest payment dates); PROVIDED that
immediately after giving effect to such redemption, at least 75% of the
originally issued aggregate principal amount at maturity of the Notes remains
outstanding. Any such redemption shall be effected upon not less than 30 nor
more than 60 days' notice given within 30 days after the consummation of a
Public Equity Offering.
In addition, (a) upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Issuer purchase such holder's
Notes, in whole or in part in integral multiples of $1,000, at a purchase price
of 101% of the Accreted Value thereof plus accrued and unpaid interest, if any,
to the date of purchase of the Notes (subject to the right of holders of record
on relevant record dates to receive interest due on relevant interest payment
dates), and (b) upon the occurrence of an Asset Sale, the Issuer may be
obligated to make an offer to purchase all or a portion of the outstanding Notes
at a purchase price of 100% of the Accreted Value thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates). See "--Certain Covenants--Purchase of Notes upon a
Change of Control" and "--Limitation on Sale of Assets," respectively.
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If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the applicable Trustee by such method as such Trustee shall deem fair and
appropriate; PROVIDED, HOWEVER, that no such partial redemption will reduce the
principal amount at maturity of a Note not redeemed to less than $1,000. Notice
of redemption will be mailed, first-class postage prepaid, at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note will state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note.
CERTAIN COVENANTS
The Indentures will contain, among others, the following covenants:
LIMITATION ON ADDITIONAL INDEBTEDNESS. (a) The Issuer will not, and will
not permit any Restricted Subsidiary, directly or indirectly, to incur,
contingently or otherwise, any Indebtedness, except for Permitted Indebtedness;
PROVIDED that the Issuer will be permitted to incur Indebtedness if after giving
pro forma effect to such incurrence (including the application of the net
proceeds therefrom), the ratio of (x) Total Consolidated Indebtedness
outstanding as of the date of such incurrence to (y) Annualized Pro Forma
Consolidated Operating Cash Flow would be greater than zero and less than or
equal to 6 to 1.
(b) The Issuer will not incur any Subordinated Indebtedness unless such
Indebtedness by its terms expressly prohibits the payment by the Issuer of any
assets or securities (including Common Stock) to the holders of such
Subordinated Indebtedness prior to the payment in full of the Notes in the event
of a bankruptcy or reorganization.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Issuer will not take, and will
not permit any Restricted Subsidiary to, directly or indirectly, take any the
following actions:
(i) declare or pay any dividend or any other distribution on Capital
Stock of the Issuer or any payment made to the direct or indirect holders
(in their capacities as such) of Capital Stock of the Issuer (other than
dividends or distributions payable solely in Capital Stock (other than
Redeemable Capital Stock) of the Issuer);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Issuer (other than any such Capital Stock owned by the
Issuer or a Restricted Subsidiary) or any Affiliate of the Issuer (other
than any Restricted Subsidiary);
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness of
the Issuer (other than any Subordinated Indebtedness held by a Restricted
Subsidiary);
(iv) make any Investment (other than a Permitted Investment) in any
Person (other than an Investment by the Issuer or a Restricted Subsidiary in
either (1) a Restricted Subsidiary or (2) a Person that becomes a Restricted
Subsidiary as a result of such Investment);
(v) create or assume any guarantee of Indebtedness of any Affiliate of
the Issuer (other than (1) guarantees of any Indebtedness of any Restricted
Subsidiary by the Issuer or (2) guarantees of the Notes by any Restricted
Subsidiary); or
(vi) declare or pay any dividend or any other distribution on any
Capital Stock of any Restricted Subsidiary to any Person (other than (1)
dividends or distributions paid to the Issuer or a Restricted Subsidiary or
(2) PRO RATA dividends or distributions on Common Stock of Restricted
Subsidiaries held
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by minority stockholders, provided that such dividends or distributions do
not in the aggregate exceed the minority stockholders' PRO RATA share of
such Restricted Subsidiaries' net income from the first day of the fiscal
quarter beginning immediately following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Issuer would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso to the
covenant "LIMITATION ON ADDITIONAL INDEBTEDNESS"; and (3) the aggregate amount
of all Restricted Payments declared or made after the Issue Date would not
exceed an amount equal to the sum of:
(A) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) the product of (I)
1.5 and (II) the cumulative Consolidated Interest Expense of the Issuer
determined for the period commencing on the Issue Date and ending on the
last day of the latest fiscal quarter for which consolidated financial
statements of the Issuer are available preceding the date of such Restricted
Payment (or if such difference shall be a negative number, minus 100% of
such number), PLUS (B) the aggregate Net Cash Proceeds received by the
Issuer from the issue or sale (other than to a Restricted Subsidiary) of
Capital Stock of the Issuer (other than Redeemable Capital Stock) on or
after the Issue Date, excluding any Net Cash Proceeds that are, promptly
following receipt, invested in accordance with clause (ii), (iii) or (v) of
clause (b) hereof and except to the extent such Net Cash Proceeds are used
to incur Indebtedness pursuant to clause (m) of the definition of Permitted
Indebtedness, PLUS (C) the aggregate Net Cash Proceeds received by the
Issuer on or after the Issue Date from the issuance or sale (other than to a
Restricted Subsidiary) of debt securities or Redeemable Capital Stock of the
Issuer that have been converted into or exchanged for Capital Stock (other
than Redeemable Capital Stock) of the Issuer to the extent such securities
were originally sold for cash, together with the aggregate net cash proceeds
received by the Issuer (other than from a Restricted Subsidiary) at the time
of such conversion or exchange, plus (D) in the case of the disposition or
repayment of any Investment (other than through share leasing arrangements)
constituting a Restricted Payment made after the Issue Date (other than in
the case contemplated by clause (E) hereof) an amount equal to the lesser of
the return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such
Investment, plus (E) in the case of Investments (other than through share
leasing arrangements) made in any Person other than a Restricted Subsidiary,
the total amount of such Investments constituting Restricted Payments if and
when such Person becomes a Restricted Subsidiary less any amounts previously
credited pursuant to clause (D).
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
(b) The provisions of this covenant shall not prohibit, so long as, with
respect to clauses (ii) through (ix) below, no Default or Event of Default shall
have occurred and be continuing (i) the payment of any dividend or other
distribution within 60 days after the date of declaration thereof if at such
date of declaration such payment complied with the provisions of the Indenture;
(ii) the purchase, redemption, retirement or other acquisition of any shares of
Capital Stock of the Issuer in exchange for, or out of the net cash proceeds of
the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, shares of Capital Stock of the Issuer (other than Redeemable
Capital Stock); (iii) the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness made by exchange for, or out of the net
cash proceeds of, a substantially concurrent issue or sale (other than to a
Restricted Subsidiary) of (1) Capital Stock (other than Redeemable Capital
Stock) of the Issuer or (2) other Subordinated Indebtedness so long as (A) the
principal amount of such new Indebtedness does not exceed the principal amount
(or, if such Subordinated Indebtedness being refinanced provides for an amount
less
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than the principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or
retired, PLUS the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or the amount of any premium reasonably determined
by the Issuer as necessary to accomplish such refinancing, plus, in either case,
the amount of expenses of the Issuer incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes
to the same extent as such Subordinated Indebtedness so purchased, redeemed,
defeased, acquired or retired and (C) such new Subordinated Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the Stated Maturity of principal of the Notes;
(iv) the extension by the Issuer and the Restricted Subsidiaries of trade credit
to Unrestricted Subsidiaries, represented by accounts receivable, extended on
usual and customary terms in the ordinary course of business; (v) Investments
(other than through share leasing arrangements) in any Person promptly made with
the proceeds of a substantially concurrent issue or sale of Capital Stock (other
than Redeemable Capital Stock) of the Issuer; (vi) payments made pursuant to the
Shareholder Registration Rights Agreement; (vii) the payment of reasonable and
customary regular compensation and fees to directors of the Issuer or any
Restricted Subsidiary who are not employees of the Issuer or any Restricted
Subsidiary; (viii) any "Restricted Payment" as defined in and permitted by the
PCI Indenture made by PCI or any Subsidiary thereof in accordance with the terms
of the PCI Indenture and (ix) any other Restricted Payments in an aggregate
amount not to exceed $1.0 million (or, if non-U.S. Dollar denominated, the U.S.
Dollar Equivalent thereof) at any one time outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (vi), (vii), (viii) and (ix)
above shall be included as Restricted Payments.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. (a) The Issuer will not and will not permit any Restricted
Subsidiary to issue or sell any shares of Capital Stock of a Restricted
Subsidiary (other than to the Issuer or a Restricted Subsidiary); PROVIDED,
HOWEVER, that this covenant shall not prohibit (i) the issuance and sale of all,
but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary in compliance with the other provisions of the Indenture,
(ii) issuances or sales of Common Stock of a Restricted Subsidiary if (x) the
proceeds of such issuance or sale are applied in accordance with the "LIMITATION
ON SALE OF ASSETS" covenant and (y) immediately after giving effect thereto, the
Issuer and its other Restricted Subsidiaries own no less than 51% of the
outstanding Voting Stock of such Restricted Subsidiary, (iii) issuances or sales
of Capital Stock of Restricted Subsidiaries that are subsidiaries of PCI that
are permitted by the terms of the PCI Indenture or (iv) the ownership by
directors of directors' qualifying shares or the ownership by foreign nationals
of Capital Stock of any Restricted Subsidiary, to the extent mandated by
applicable law.
(b) The Issuer will not permit the direct or indirect ownership of the
Issuer or any Restricted Subsidiary in the Capital Stock of any Management
Company to fall below the lesser of (i) the maximum ownership percentage
permitted by applicable law and (ii) 51% of the outstanding Capital Stock of
such Management Company, PROVIDED that any increase in such ownership of the
Capital Stock of any Management Company required by any change in applicable law
shall not be required to be completed prior to 365 days from the effective date
of such change in applicable law, PROVIDED FURTHER that the Issuer and the
Restricted Subsidiaries may sell all, but not less than all, of their Capital
Stock of any Management Company in accordance with the provisions of the
"LIMITATION ON SALE OF ASSETS" covenant.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Issuer will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Issuer (other than
the Issuer or a Majority Owned Restricted Subsidiary) unless (i) such
transaction or series of related transactions is on terms that are no
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less favorable to the Issuer or such Restricted Subsidiary, as the case may be,
than those that could have been obtained in an arm's-length transaction with
unrelated third parties who are not Affiliates, (ii) with respect to any
transaction or series of related transactions involving aggregate consideration
equal to or greater than $10 million, the Issuer shall have delivered an
officers' certificate to the Trustees certifying that such transaction or series
of related transactions complies with clause (i) above and such transaction or
series of related transactions has been approved by a majority of the Directors
of the Board of Directors of the Issuer, or the Issuer has obtained a written
opinion from a nationally recognized investment banking firm to the effect that
such transaction or series of related transactions is fair to the Issuer or such
Restricted Subsidiary, as the case may be, from a financial point of view and
(iii) with respect to any transaction or series of related transactions
including aggregate consideration in excess of $20 million, the Issuer shall
have delivered an officers' certificate to the Trustees certifying that such
transaction or series of related transactions complies with clause (i) above and
such transaction or series of related transactions has been approved by a
majority of the Disinterested Directors of the Board of Directors, or in the
event no members of the Board of Directors of the Issuer are Disinterested
Directors with respect to any transaction or series of transactions included in
this clause (iii), the Issuer shall obtain an opinion from a nationally
recognized investment banking firm as described above; PROVIDED, HOWEVER, that
this provision will not restrict (1) any transaction by the Issuer or any
Restricted Subsidiary with an Affiliate directly related to the purchase, sale
or distribution of products in the ordinary course of business, including,
without limitation, transactions related to the purchase, sale or distribution
of programming, subscriber management services, transmission services and
services related to the publication of programming guides, (2) the Issuer from
paying reasonable and customary regular compensation and fees to directors of
the Issuer or any Restricted Subsidiary who are not employees of the Issuer or
any Restricted Subsidiary, including, without limitation, any such fees which
the Issuer has agreed to pay to any director pursuant to an agreement in effect
on the Issue Date and listed on a schedule to the Indenture, (3) the payment of
compensation (including stock options and other incentive compensation) to
officers and other employees the terms of which are approved by the Board of
Directors, (4) any transactions pursuant to a Management Agreement, (5) the
Issuer or any Restricted Subsidiary from making any Restricted Payment in
compliance with the "LIMITATION ON RESTRICTED PAYMENTS" covenant, (6) (x)
transactions pursuant to any Management Contract, Overhead Agreement or Service
Agreement that is entered into prior to the Issue Date and is listed in an
exhibit to the Indenture; or (y) transactions pursuant to any Organizational
Contract, Overhead Agreement or Service Agreement that is entered into after the
Issue Date and has substantially identical terms as, and is no less favorable to
the Issuer or any Restricted Subsidiary than, the Organizational Contracts,
Overhead Agreements or Service Agreements, as the case may be, listed in the
exhibit to the Indenture, or (7) amendments, modifications or alterations of
Management Agreements, Organizational Contracts, Overhead Agreements and Service
Agreements under (b) below.
(b) The Issuer will not, and will not permit any Restricted Subsidiary to,
amend, modify, or in any way alter the terms of any Management Agreement,
Organizational Contract, Overhead Agreement or Service Agreement in a manner
materially adverse to the Issuer other than (i) by adding new Restricted
Subsidiaries to a Management Agreement, (ii) substituting one Restricted
Subsidiary in place of another Restricted Subsidiary under a Organizational
Contract, (iii) amendments, modifications or alterations required by applicable
law, (iv) amendments, modifications or alterations made to increase the Issuer's
control over, or interest in, any Management Company or (v) amendments,
modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of the Issuer as not
materially adverse to the Issuer.
LIMITATION ON LIENS. The Issuer will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind, except for Permitted Liens, on or with
respect to any of its property or assets, whether owned at the date of the
Indentures or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Notes are
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secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien and (y) in the case of any other Lien, the Notes are
equally and ratably secured.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES. (a) The Issuer will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Issuer unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Notes by such Restricted
Subsidiary on a basis senior to any guarantee of Subordinated Indebtedness or at
least PARI PASSU with any guarantee of Pari Passu Indebtedness; PROVIDED that
this paragraph (a) shall not be applicable to (i) any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary or (ii) any guarantee of any Restricted Subsidiary of Senior Bank
Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person who is not
an Affiliate of the Issuer, of all of the Issuer's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release by
the holders of the Indebtedness of the Issuer described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness, except
by or as a result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Issuer has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Issuer purchase such holder's Notes, in whole or in part in integral
multiples of $1,000 principal amount at maturity, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
Accreted Value of the Notes, plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Issuer shall notify the
Trustees thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the address of such
holder appearing in the security register, stating, among other things, (a) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act;
(b) that any Note not tendered will continue to accrue interest or accrete
original issue discount, as applicable; (c) that, unless the Issuer defaults in
the payment of the purchase price, any Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest or accrete original
issue discount, as applicable, after the Change of Control Purchase Date; and
(d) certain other procedures that a holder of Notes must follow to accept a
Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the Issuer
to make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due would result in an Event of Default and would give the
Trustees and the holders of the Notes the rights described under "Events of
Default."
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One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Issuer's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Issuer to purchase the Notes
and the Issuer elects to contest such election, there can be no assurance as to
how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Issuer to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Issuer in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Issuer to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Issuer's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Issuer (including, in certain circumstances, an
acquisition of the Issuer by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "--Certain Definitions" for the definition of "Change
of Control." A transaction involving the Issuer's management or its affiliates,
or a transaction involving a recapitalization of the Issuer, would result in a
Change of Control if it is the type of transaction specified by such definition.
The Issuer will comply with the applicable tender offer rules including Rule
l4e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Issuer will not enter into any agreement that would prohibit the Issuer
from making a Change of Control Offer to purchase the Notes or if such Change of
Control Offer is made, to pay for the Notes tendered for purchase.
LIMITATION ON SALE OF ASSETS. (a) The Issuer will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (i) the consideration received by the Issuer or such Restricted
Subsidiary for such Asset Sale is not less than the Fair Market Value of the
shares or assets sold (as determined by the Board of Directors of the Issuer,
whose determination shall be conclusive and evidenced by a Board Resolution) and
(ii) the consideration received by the Issuer or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or Cash
Equivalents. Notwithstanding the preceding sentence, the Issuer and its
Restricted Subsidiaries may consummate an Asset Sale without complying with
clause (ii) of the immediately preceding sentence if at least 75% of the
consideration for such Asset Sale consists of any combination of cash, Cash
Equivalents and those items described in clause (b)(ii) or (b)(iii) below.
(b) If the Issuer or any Restricted Subsidiary engages in an Asset Sale, the
Issuer may use the Net Cash Proceeds thereof, within 12 months after the later
of such Asset Sale or the receipt of such Net Cash Proceeds, (i) to permanently
repay or prepay any then outstanding Senior Bank Indebtedness of the Issuer or a
Restricted Subsidiary, any then outstanding Indebtedness of a Restricted
Subsidiary or any other then outstanding unsubordinated Indebtedness of the
Issuer, (ii) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection with
a Permitted Investment made under clause (g), (h) or (i) of the definition
thereof), make capital expenditures (including lease payments for one or more
capital assets) or invest in other tangible assets of the Issuer or any
Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of the Issuer and its Restricted Subsidiaries
(or enter into a legally binding agreement to do so within six months of the
date on which such agreement is executed) or (iii) to invest in properties or
assets that replace the properties and assets that are the subject to such Asset
Sale (or enter into a legally binding agreement to do so within six months of
the date on which such agreement
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is executed). If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Issuer may, within 90 days of such termination
or within 12 months of such Asset Sale, whichever is later, apply or invest such
Net Cash Proceeds as provided in clause (ii) or (iii) (without regard to the
parenthetical contained in clauses (ii) or (iii)) above. The amount of such Net
Cash Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15 million the
Issuer shall, within 30 business days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes, on a PRO RATA basis, in accordance
with the procedures set forth below, the maximum Accreted Value of Notes that
may be purchased with the Excess Proceeds less the amount of Excess Proceeds, if
any, required to be applied under the PCI Indenture for the repurchase of PCI
Notes. The offer price shall be payable in cash in an amount equal to 100% of
the Accreted Value of the Notes, plus accrued and unpaid interest, if any (the
"Offered Price"), to the date such Excess Proceeds Offer is consummated (the
"Offer Date"). To the extent that the aggregate Accreted Value of Notes tendered
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, the Issuer may use such additional Excess Proceeds for general
corporate purposes. If the Accreted Value of Notes validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased
will be selected on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset to zero.
(d) If the Issuer becomes obligated to make an Offer pursuant to clause (c)
above, the Notes shall be purchased by the Issuer, at the option of the holder
thereof, in whole or in part in integral multiples of $1,000 on a date that is
not earlier than 30 days and not later than 60 days from the date the notice is
given to holders, or such later date as may be necessary for the Issuer to
comply with the requirements under the Exchange Act, subject to proration in the
event the amount of Excess Proceeds is less than the aggregate Offered Price of
all Notes tendered.
(e) The Issuer will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, in connection with an Excess Proceeds Offer.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions to the Issuer or any Restricted Subsidiary on or
in respect of its Capital Stock, (b) pay any Indebtedness owed to the Issuer or
any other Restricted Subsidiary, (c) make Investments in the Issuer or any other
Restricted Subsidiary, (d) transfer any of its properties or assets to the
Issuer or any other Restricted Subsidiary or (e) guarantee any Indebtedness of
the Issuer or any other Restricted Subsidiary, except in all such cases for such
encumbrances or restrictions existing under or by reason of (i) any agreement or
instrument in effect on the Issue Date and listed on Schedule A attached to the
Indenture, (ii) applicable law or regulation (including corporate governance
provisions required by applicable law and regulations of the National Bank of
Poland), (iii) customary non-assignment provisions of any lease governing a
leasehold interest of the Issuer or any Restricted Subsidiary, (iv) any
agreement or other instrument of a Person acquired by the Issuer or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (v) any
mortgage or other Lien on real property acquired or improved by the Issuer or
any Restricted Subsidiary after the Issue Date that prohibits transfers of the
type described in (d) above with respect to such real property, (vi) with
respect to a Restricted Subsidiary, an agreement that has been entered into for
the sale or disposition of all or substantially all of the Issuer's Capital
Stock in, or substantially all the assets of, such Restricted Subsidiary, (vii)
the refinancing of Indebtedness incurred under the agreements listed on Schedule
A attached to the Indenture or described in clause (v) above, so long as such
encumbrances or restrictions are no less favorable in any material respect to
the Issuer or any Restricted Subsidiary than
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those contained in the respective agreement as in effect on the date of the
Indenture, (viii) any such customary encumbrance or restriction contained in a
security document creating a Lien permitted under the Indenture to the extent
relating to the property or asset subject to such Lien, (ix) any agreement or
instrument governing or relating to Senior Bank Indebtedness (an "Indebtedness
Instrument") if such encumbrance or restriction applies only (x) to amounts
which at any point in time (other than during such periods as are described in
the following clause (y)) (1) exceed amounts due and payable (or which are to
become due and payable within 30 days) in respect of the Notes or the Indenture
for interest, premium and principal (after giving effect to any realization by
the Issuer under any applicable Currency Agreement), or (2) if paid, would
result in an event described in the following clause (y) of this sentence, or
(y) during the pendency of any event that causes, permits or, after notice or
lapse of time, would cause or permit the holder(s) of the Senior Bank
Indebtedness governed by the Indebtedness Instrument to declare any such
Indebtedness to be immediately due and payable or require cash collateralization
or cash cover for such Indebtedness for so long as such cash collateralization
or cash cover has not been provided, or (z) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness and that do not
individually, or together with all such encumbrances or restrictions, detract
from the value of property or assets of the Issuer or any Restricted Subsidiary
in any manner material to the Issuer or any Restricted Subsidiary and (d) with
respect to clause (d) above, any license agreement entered in the ordinary
course of business whereby the Issuer or any other Restricted Subsidiary grants
a license of programming or other intellectual property to any other Person and
such license agreement prohibits or encumbers the transfer of the licensed
property.
LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Issuer will not
make, and will not permit any of its Restricted Subsidiaries to make, any
Investments in Unrestricted Subsidiaries (other than Permitted Investments) if,
at the time thereof, the amount of such Investment would exceed the amount of
Restricted Payments then permitted to be made pursuant to the "LIMITATION ON
RESTRICTED PAYMENTS" covenant. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (a) will be treated as the making
of a Restricted Payment in calculating the amount of Restricted Payments made by
the Issuer or a Restricted Subsidiary (without duplication under the provisions
of clause (a) of paragraph (iv) of the "LIMITATION ON RESTRICTED PAYMENTS"
covenant) and (b) may be made in cash or property (if made in property, the Fair
Market Value thereof as determined by the Board of Directors of the Issuer
(whose determination shall be conclusive and evidenced by a Board Resolution)
shall be deemed to be the amount of such Investment for the purpose of clause
(a)).
LIMITATION ON LINES OF BUSINESS. The Issuer will not, and will not permit
any Restricted Subsidiary of the Issuer to, engage in any business other than
the Cable/Telecommunications Business, the Entertainment/Programming Business or
the DTH Business or any business or activity reasonably related thereto,
including the operation of a subscriber management or service business.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS. Whether or not the Issuer is
subject to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, the Issuer shall file with the Commission (if permitted by
Commission practice and applicable law and regulations) the annual reports,
quarterly reports and other documents which the Issuer would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if the Issuer were so required, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Issuer would have been required so to file such
documents if the Issuer were so required. The Issuer shall also in any event (a)
within 15 days of each Required Filing Date (whether or not permitted or
required to be filed with the Commission (i) transmit (or cause to be
transmitted) by mail to all holders of Notes, as their names and addresses
appear in the applicable Note register, without cost to such holders, and (ii)
file with the Trustee copies of the annual reports, quarterly reports and other
documents which the Issuer is required to file with the Commission pursuant to
the preceding sentence, or, if such filing is not so permitted, information and
data of a similar nature, and
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(b) if, notwithstanding the preceding sentence, filing such documents by the
Issuer with the Commission is not permitted by Commission practice or applicable
law or regulations, promptly upon written request supply copies of such
documents to any holder of Notes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer will not in a single transaction or a series of related
transactions consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any Person or Persons, and the
Issuer will not permit any Restricted Subsidiary to enter into any such
transaction, or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Issuer and its Restricted Subsidiaries on a
consolidated basis to any Person or Persons, unless: (a) either (i) the Issuer
shall be the surviving corporation or (ii) the Person (if other than the Issuer)
formed by such consolidation or into which the Issuer or the Issuer and its
Restricted Subsidiaries is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially all of
the properties and assets of the Issuer or the Issuer and its Restricted
Subsidiaries, as the case may be, (the "Surviving Entity") (x) shall be a
corporation organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and (y) shall
expressly assume, by an indenture supplemental to the Indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, the Issuer's
obligations for the due and punctual payment of the principal of (or premium, if
any, on) and interest on all the Notes and the performance and observance of
every covenant of the Indenture on the part of the Issuer to be performed or
observed; (b) immediately before and after giving effect to such transaction or
series of transactions on a PRO FORMA basis (and treating any obligation of the
Issuer or any Restricted Subsidiary in connection with or as a result of such
transaction as having been incurred at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing; (c) immediately after
giving effect to such transaction or series of transactions on a PRO FORMA basis
(on the assumption that the transaction or series of transactions occurred on
the first day of the latest fiscal quarter for which consolidated financial
statements of the Issuer are available prior to the consummation of such
transaction or series of transactions with the appropriate adjustments with
respect to the transaction or series of transactions being included in such PRO
FORMA calculation), the ratio of Total Consolidated Indebtedness to Annualized
Pro Forma Consolidated Operating Cash Flow of the Issuer (or the Surviving
Entity if the Issuer is not the continuing obligor under the Indenture) would be
less than or equal to such ratio of the Issuer immediately before such
transaction; (d) if any of the property or assets of the Issuer or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "LIMITATION ON LIENS" covenant are complied with; and (e) the
Issuer or the Surviving Entity shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, conveyance, transfer, lease or other disposition and
such supplemental indenture comply with the terms of the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Issuer in accordance with the immediately preceding
paragraph in which the Issuer is not the continuing obligor under the Indenture,
the Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Issuer under the Indenture, with the same effect
as if such successor had been named as the Issuer therein. When a successor
assumes all the obligations of its predecessor under the Indenture and the
Notes, the predecessor shall be released from those obligations; PROVIDED that
in the case of a transfer by lease, the predecessor shall not be released from
the payment of principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
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(a) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(c) default in the performance, or breach, of the provisions described
in "Consolidation, Merger and Sale of Assets," the failure to make or
consummate a Change of Control offer in accordance with the provisions of
the "PURCHASE OF NOTES UPON A CHANGE OF CONTROL" covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the "LIMITATION ON SALE OF ASSETS" covenant;
(d) default in the performance, or breach, of any covenant or agreement
of the Issuer contained in the Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in the Indenture) and continuance of such default or
breach for a period of 30 days after written notice shall have been given to
the Issuer by the Trustee or to the Issuer and the Trustee by the holders of
at least 25% in aggregate principal amount at maturity of the Notes, as the
case may be, then outstanding;
(e) (i) one or more defaults in the payment of principal of or premium,
if any, on Indebtedness of the Issuer or any Significant Subsidiary
aggregating $15 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured or
waived or (ii) Indebtedness of the Issuer or any Significant Subsidiary
aggregating $15 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
(f) any holder or holders (or any Person acting on any such holder's
behalf) of any Indebtedness in excess of $15 million in the aggregate of the
Issuer or any Significant Subsidiary shall, subsequent to the occurrence of
a default with respect to such Indebtedness, notify the Trustee of the
intended sale or disposition of any assets of the Issuer or any Restricted
Subsidiary that have been pledged to or for the benefit of such Person to
secure such Indebtedness or shall commence proceedings, or take action to
retain in satisfaction of any such Indebtedness, or to collect on, seize,
dispose of or apply, any such assets of the Issuer or any Restricted
Subsidiary pursuant to the terms of any agreement or instrument evidencing
any such Indebtedness of the Issuer or any Restricted Subsidiary or in
accordance with applicable law;
(g) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Issuer or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $15 million and either
(i) an enforcement proceeding shall have been commenced by any creditor upon
such judgment or order or (ii) there shall have been a period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, was not in effect; and
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Issuer or any Significant Subsidiary.
If an Event of Default (other than an Event of Default arising from an event
of bankruptcy, insolvency or reorganization with respect to the Issuer or any
Significant Subsidiary) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Issuer (and to the Trustee if such notice
is given by the holders), may, and the Trustee upon the written request of such
holders, shall declare the principal of, premium, if any, and accrued interest
on all of the outstanding Notes immediately due and payable, and upon any such
declaration all such amounts payable in respect of the Notes shall become
immediately due and payable. If an Event of Default arising from an event of
bankruptcy, insolvency or reorganization with respect to the
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Issuer or any Significant Subsidiary occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of either Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes by written notice to the Issuer and the Trustee, may rescind
such declaration and its consequences if (a) the Issuer has paid or deposited
with the Trustee a sum sufficient to pay (i) all overdue interest on all
outstanding Notes, (ii) all unpaid principal of and premium, if any, on any
outstanding Notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by such Notes, (iii) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by such Notes, (iv) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
(b) all Events of Default, other than the non-payment of amounts of principal
of, premium, if any, or interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Notes may, on behalf of the holders of all the Notes
waive any past defaults under the Indenture, except a default in the payment of
the principal of, premium, if any, or interest on any such Note, or in respect
of a covenant or provision which under the Indenture can not be modified or
amended without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of Notes, notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of
such Notes.
The Issuer is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Issuer of its obligations under the
Indenture and as to any default in such performance. The Issuer is also required
to notify the Trustee within five business days of the occurrence of any
Default.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
The Issuer may, at its option and at any time, elect to have the obligations
of the Issuer upon the Notes discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Issuer will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and to have satisfied all its other obligations under such Notes and the
Indenture insofar as such Notes are concerned, except for (a) the rights of
holders of outstanding Senior Notes or Senior Discount Notes, as the case may
be, to receive payments in respect of the principal of (and premium, if any, on)
and interest on such Notes when such payments are due, (b) the Issuer's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold such payments
in trust, (c) the rights, powers, trusts, duties and immunities of the Trustee
and (d) the defeasance provisions of the Indenture. In addition, the Issuer may,
at its option and at any time, elect to have the obligations of the Issuer
released with respect to certain covenants set forth in the Indenture, and any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the related Notes ("Covenant Defeasance").
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In order to exercise either defeasance or covenant defeasance, (a) the
Issuer must irrevocably deposit or cause to be deposited with the applicable
Trustee, as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Notes, cash in United
States dollars, or U.S. Government Obligations (as defined in the Indenture), or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the relevant outstanding Notes on the Stated
Maturity (or upon redemption, if applicable) of such principal, premium, if any,
or installment of interest; (b) no Default or Event of Default with respect to
the relevant Notes will have occurred and be continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (h) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Issuer
is a party or by which it is bound; (d) in the case of defeasance, the Issuer
shall have delivered to the Trustee an Opinion of Counsel in the United States
stating that the Issuer has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the effective date of the
Registration Statement, there has been a change in applicable federal income tax
law, in either case to the effect that, and based thereon such opinion shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance had not
occurred; (e) in the case of covenant defeasance, the Issuer shall have
delivered to the Trustee an Opinion of Counsel in the United States to the
effect that the holders of the Notes outstanding will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (f) in the case of defeasance or covenant
defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel
in the United States to the effect that after the 91st day following the deposit
or after the date such opinion is delivered, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (g) the Issuer shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by the Issuer with the intent of preferring the holders of the
applicable Notes over the other creditors of the Issuer with the intent of
hindering, delaying or defrauding creditors of the Issuer; and (h) the Issuer
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture and the rights, powers, trusts, duties and
immunities of the Trustee) and the Trustee, at the request and expense of the
Issuer, will execute proper instruments acknowledging satisfaction and discharge
of the Indenture when (a) either (i) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid) have been delivered to the Trustee for cancellation or (ii) all Notes
not theretofore delivered to the Trustee for cancellation (x) have become due
and payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Issuer, and the Issuer has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for such purpose an amount sufficient to pay and discharge the entire
Indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on such Notes to
the date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be; (b)
the Issuer
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has paid or caused to be paid all sums payable under the Indenture by the
Issuer; and (c) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent provided
in the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture may
be made by the Issuer and the Trustee with the consent of the holders of a
majority in aggregate outstanding principal amount at maturity of the Notes;
PROVIDED, HOWEVER, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, or reduce the Accreted Value thereof or the rate of interest thereon or
any premium payable upon the redemption thereof, or change the coin or currency
in which any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date); (b) reduce the percentage in principal amount at maturity of
outstanding Notes, the consent of whose holders is required for any waiver of
compliance with certain provisions of, or certain defaults and their
consequences provided for under, the Indenture; (c) modify any provisions
described under "--Amendments and Waivers" or "--Events of Default," except to
increase the percentage of outstanding Notes required for such actions or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the holder of each outstanding Note; or (d) amend,
change or modify the redemption provisions of the Indenture or the Notes or the
obligation of the Issuer to make and consummate a Change of Control Offer in the
event of a Change of Control or an Excess Proceeds Offer in connection with any
Asset Sale or modify any of the provisions or definitions with respect thereto.
The holders of a majority in aggregate principal amount at maturity of the
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; PROVIDED, HOWEVER, that if it acquires any conflicting
interest (as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York.
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CERTAIN DEFINITIONS
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of the Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ---------------------- -------------
<S> <C>
Issue Date............ $ 496.43
January 15, 1999...... 532.63
July 15, 1999......... 571.24
January 15, 2000...... 612.66
July 15, 2000......... 657.08
January 15, 2001...... 704.72
July 15, 2001......... 755.81
January 15, 2002...... 810.60
July 15, 2002......... 869.37
January 15, 2003...... 932.40
July 15, 2003......... $ 1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the
sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately
preceding the Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semi-Annual Accrual Date less the
Accreted Value for the immediately preceding Semi-Annual Accrual Date and (y) a
fraction, the numerator of which is the number of days actually elasped from the
immediately preceding Semi-Annual Accrual Date to the Specified Date and the
denominator of which is 180: and
(iii) if the Specified Date is after July 15, 2003, $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; PROVIDED THAT, for
purposes of the "LIMITATION ON ADDITIONAL INDEBTEDNESS", covenant, such
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Voting Stock
or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Issuer are available multiplied by four. For
purposes of calculating "Consolidated Operating Cash Flow" for any fiscal
quarter for purposes of this definition, (a) all Restricted Subsidiaries of the
Issuer on the date of the transaction giving rise to the need to calculate
"Annualized Pro Forma Consolidated Operating Cash Flow" (the
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"Transaction Date") shall be deemed to have been Restricted Subsidiaries at all
times during such fiscal quarter and (b) any Unrestricted Subsidiary of the
Issuer on the Transaction Date shall be deemed to have been an Unrestricted
Subsidiary at all times during such fiscal quarter. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
Operating Cash Flow" shall be calculated after giving effect on a PRO FORMA
basis for the applicable fiscal quarter to, without duplication, any Asset Sales
or Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of the Issuer or a
Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness) occurring during the period commencing on the
first day of such fiscal quarter to and including the Transaction Date (the
"Reference Period"), as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period.
"Asset Acquisition" means (a) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Issuer or any
Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Issuer or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be merged with or into the Issuer or any Restricted Subsidiary or (b)
any acquisition by the Issuer or any Restricted Subsidiary of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
the Issuer or a Restricted Subsidiary in one transaction or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary, (b) any
material governmental license or other governmental authorization of the Issuer
or any Restricted Subsidiary pertaining to a Cable/ Telecommunications Business,
a DTH Business or an Entertainment/Programming Business, (c) any assets of the
Issuer or any Restricted Subsidiary which constitute substantially all of an
operating unit or line of business of the Issuer and its Restricted Subsidiaries
or (d) any other property or asset of the Issuer or any Restricted Subsidiary
outside of the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include (a) any disposition of properties and
assets of the Issuer that is governed under "Consolidation, Merger and Sale of
Assets", (b) sales of property or equipment that have become worn out, obsolete
or damaged or otherwise unsuitable for use in connection with the business of
the Issuer or the Restricted Subsidiary, as the case may be, (c) for purposes of
the covenant "LIMITATION ON SALE OF ASSETS," any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one transaction
or a series of related transactions, either (i) involving assets with a Fair
Market Value not in excess of $500,000 (or, if non-U.S. Dollar denominated, the
U.S. Dollar Equivalent thereof) or (ii) as part of a Capitalized Lease
Obligation, and (d) any transfer by the Issuer or a Restricted Subsidiary of
property or equipment to a Person who is not an Affiliate of the Issuer in
exchange for property or equipment that has a fair market value at least equal
to the fair market value of the property or equipment so transferred; PROVIDED
THAT, in the event of a transfer described in this clause (d), the Issuer shall
deliver to the Trustee an Officer's Certificate certifying that such exchange
complies with this clause (d).
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
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"Cable Television Newco" means any Person (i) of whom the Issuer or a
Restricted Subsidiary owns the greater of 49% of the outstanding Capital Stock
or the maximum amount of the outstanding Capital Stock the Issuer of such
Restricted Subsidiary may own under applicable law and (ii) that holds Capital
Stock in a Management Company.
"Cable/Telecommunications Business" means any business operating a cable or
telephone or telecommunications or broadcasting system (other than an
Entertainment/Programming Business or a DTH Business), including, without
limitation, any business (other than an Entertainment/ Programming Business or a
DTH Business) conducted by the Issuer or any Restricted Subsidiary on the Issue
Date and any programming guide or telephone directory business.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries
on a consolidated basis under a lease of (or other agreement conveying the right
to use) any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (b) certificates of deposit or acceptances with a maturity of 180 days
or less of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
of not less than $500,000,000; (c) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the Issuer and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-l by Moody's; and (d) any
Capital Stock of any mutual funds at least 95% of the assets of which are
invested in the foregoing.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and l3d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total outstanding Voting Stock of the Issuer; (b) the Issuer
consolidates with, or merges with or into another Person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with or merges with or into the Issuer, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Issuer is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Issuer is not converted or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Issuer) or is converted into or exchanged for (A) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (B)
Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation and cash, securities and other property (other than
Capital Stock of the Surviving Entity) in an amount that could be paid by the
Issuer as a Restricted Payment as described under the "LIMITATION ON RESTRICTED
PAYMENTS" covenant and (ii) immediately after such transaction, no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than Permitted Holders, is the
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"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
surviving or transferee corporation; (c) during any consecutive two year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Issuer (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
Issuer, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Issuer then in office; or
(d) the Issuer is liquidated or dissolved or a special resolution is passed by
the shareholders of the Issuer approving the plan of liquidation or dissolution
other than in a transaction which complies with the provisions described under
"Consolidation, Merger and Sales of Assets."
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock or ordinary shares.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of the Issuer and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Issuer and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
original issue discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Issuer and the Restricted Subsidiaries,
PROVIDED that such amount will be limited for purposes of this definition to the
amount that would have been obtained if such interest had been capitalized at
the interest rate for the Notes and (vi) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, PLUS (b) the interest component of Capitalized Lease Obligations of
the Issuer and its Restricted Subsidiaries paid, accrued or scheduled to be paid
or accrued during such period, in each case as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Issuer and all Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (in each case less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (in each
case less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business, (c) the portion of
net income (or loss) of any Person (other than the Issuer or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Issuer or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Issuer or any
Restricted Subsidiary in cash dividends or distributions during such period, (d)
net income (or loss) of any Person combined with the Issuer or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination, (e) except with respect to any encumbrance or
restriction described in clause (ii) of the "Limitation on Dividend and Other
Payment Restrictions" covenant, the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary or its stockholders and (f)
any non-cash items of the Issuer and any Restricted Subsidiary (including
monetary corrections)
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increasing or decreasing Consolidated Net Income for such period (other than
items that will result in the receipt or payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of the Issuer and its Restricted Subsidiaries for such
period increased by (in each case to the extent included in computing
Consolidated Net Income) the sum of (a) the Consolidated Income Tax Expense of
the Issuer and its Restricted Subsidiaries accrued according to GAAP for such
period (other than taxes attributable to extraordinary, unusual or non-recurring
gains or losses); (b) Consolidated Interest Expense for such period; (c)
depreciation of the Issuer and its Restricted Subsidiaries for such period and
(d) amortization of the Issuer and its Restricted Subsidiaries for such period,
including, without limitation, amortization of capitalized debt issuance costs
for such period, all determined on a consolidated basis in accordance with GAAP
PROVIDED that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated Operating Cash Flow shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (i) the amount
of Consolidated Net Income attributable to such Restricted Subsidiary multiplied
by (ii) the quotient of (1) the number of shares of outstanding Common Stock of
such Restricted Subsidiary not owned on the last day of such period by the
Issuer or any of its Restricted Subsidiaries divided by (2) the total number of
shares of outstanding Common Stock of such Restricted Subsidiary on the last day
of such period.
"Cumulative Available Cash Flow" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Issuer is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
"Default" means any event that after notice or passage of time or both would
be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under the Indenture, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"DTH Business" means the business of (i) developing, managing, operating or
providing services relating to direct to home satellite systems for the
distribution of subscription programming services directly to homes and cable
systems in areas covered by the "footprint" of the satellites utilized by the
Issuer and its Restricted Subsidiaries, and activities to accomplish the
foregoing (other than the Cable/ Telecommunications Business or the
Entertainment/Programming Business) or (ii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified above.
"Entertainment/Programming Business" means a business engaged primarily in
the management, ownership, operation, acquisition, development, production,
distribution or syndication of general entertainment, sports, movies, children's
or other programming or publishing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer, as determined by the Board of Directors of the Issuer and evidenced by a
resolution therof.
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"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the Issue Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements) incurred in the ordinary course of business (whether or not
evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of the covenants "LIMITATION ON
ADDITIONAL INDEBTEDNESS" and "LIMITATION ON RESTRICTED PAYMENTS" and the
definition of "EVENTS OF DEFAULT," in determining the principal amount of any
Indebtedness to be incurred by the Issuer or a Restricted Subsidiary or which is
outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accredited
value thereof at the date of determination and (y) effect shall be given to the
impact of any Currency Agreement with respect to such Indebtedness.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors,
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collars and similar agreements) designed to protect against or manage exposure
to fluctuations in interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to such
Person (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock
(including ownership of Capital Stock through share leasing arrangements),
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by the Issuer in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Majority Owned Restricted Subsidiary" means a Restricted Subsidiary (a) at
least 66.66% of the outstanding Capital Stock of which is beneficially owned
directly or indirectly by the Issuer or PCBV and one or more Wholly Owned
Restricted Subsidiaries and (b) no outstanding Capital Stock of which is owned,
directly or indirectly (except through the Issuer), by any shareholder or
Affiliate of a shareholder of the Issuer.
"Management Agreement" means (a) any agreement between the Issuer or a
Restricted Subsidiary and a Management Company pursuant to which the Management
Company shall lease or otherwise employ assets of the Issuer or a Restricted
Subsidiary to operate a Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business and (b) any agreement or instrument (i)
governing Indebtedness of a Management Company to the Issuer or a Restricted
Subsidiary or (ii) governing corporate procedures or control of a Management
Company.
"Management Company" means any Person, a portion of whose Capital Stock is
held by the Issuer or a Restricted Subsidiary, that (i) holds or has applied for
a license or permit to operate a Cable/ Telecommunications Business, a DTH
Business or an Entertainment/Programming Business in the Republic of Poland or
elsewhere in Continental Europe and (ii) manages the operations of a Restricted
Subsidiary pursuant to a Management Agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations or escrowed funds, but only when received in the
form of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Issuer or any Restricted Subsidiary), net of (i) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment banks) related to such Asset Sale,
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(ii) provisions for all taxes payable as a result of such Asset Sale, (iii)
payments made to retire Indebtedness where payment of such Indebtedness is
secured by the assets or properties the subject of such Asset Sale, (iv) amounts
required to be paid to any Person (other than the Issuer or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale
and (v) appropriate amounts to be provided by the Issuer or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Issuer or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee and (b) with
respect to any capital contribution or issuance or sale of Capital Stock as
referred to under the "LIMITATION ON RESTRICTED PAYMENTS" covenant and the
definition of Permitted Indebtedness, the proceeds of such capital contribution,
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Issuer or
any Restricted Subsidiary of the Issuer), net of attorney's fees, accountant's
fees and brokerage, consultation, underwriting and other fees and expenses
actually incurred in connection with such capital contribution, issuance or sale
and net of taxes paid or payable as a result thereof.
"Organizational Contract" means any agreement to which the Issuer or any
Restricted Subsidiary is a party pursuant to which, among other things, fees are
paid to the Issuer or a Restricted Subsidiary in exchange for organizational,
consulting or similar services, including, without limitation, the agreements
listed on a schedule to the Indenture under the subheading "Organizational
Contracts."
"Overhead Agreement" means any agreement to which the Issuer or any
Restricted Subsidiary is a party pursuant to which, among other things, costs
are allocated among the parties thereto, including, without limitation, the
agreements listed on a schedule to the Indenture under the subheading "Overhead
Agreements."
"Pari Passu Indebtedness" means Indebtedness of the Issuer that is PARI
PASSU in right of payment to the Notes.
"PCI" means Poland Communications, Inc., a New York corporation and a Wholly
Owned Subsidiary of the Issuer.
"PCI Indenture" means the Indenture dated as of October 31, 1996 between PCI
and State Street Bank and Trust Company, as trustee, as in effect on the Issue
Date.
"Permitted Holders" means, as of the date of determination, (a) David T.
Chase, Arnold L. Chase and Cheryl A. Chase (b) the family members, estates and
heirs of David T. Chase Arnold L. Chase and Cheryl A. Chase and any trust,
partnership, corporation, limited liability company or other investment vehicle
principally for the benefit of any such persons or their respective family
members or heirs (including, without limitation, Polish Investments Holding LP
for so long as beneficial ownership thereof is held by Persons meeting the
requirements of clause (a) and (b) of this definition), (c) ECO Holdings III
Limited Partnership ("ECO II") and any successor thereto that is owned by the
Persons who beneficially own, directly and indirectly, Eco II on the Issuance
Date; (d) Advent International Corp. and (e) any Person that is controlled by
the Persons, individually or as a group, described in clauses (a) through (d)
above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Notes (or any guarantee thereof) and the
Indenture;
(b) Indebtedness of the Issuer or any Restricted Subsidiary outstanding
on the Issue Date and listed on a schedule to the Indenture;
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(c) Indebtedness of PCI and any subsidiary of PCI that is a Restricted
Subsidiary to the extent such Indebtedness constitutes "Permitted
Indebtedness" as defined in the PCI Indenture;
(d) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Issuer or a Restricted Subsidiary and (ii) Indebtedness of the Issuer
owed to and held by any Restricted Subsidiary that is Subordinated
Indebtedness; PROVIDED that an incurrence of Indebtedness shall be deemed to
have occurred upon (x) any sale or other disposition (excluding assignments
as security to financial institutions) of any Indebtedness of the Issuer or
Restricted Subsidiary referred to in this clause (e) to a Person (other than
the Issuer or a Restricted Subsidiary) or (y) any sale or other disposition
of Capital Stock of a Restricted Subsidiary which holds Indebtedness of the
Issuer or another Restricted Subsidiary such that such Restricted
Subsidiary, in any such case, ceases to be a Restricted Subsidiary;
(e) Obligations under any Interest Rate Agreement of the Issuer or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Issuer or such Restricted Subsidiary, as the case may be (which Indebtedness
(x) bears interest at fluctuating interest rates and (y) is otherwise
permitted to be incurred under the "LIMITATION ON ADDITIONAL INDEBTEDNESS"
covenant), or (ii) Indebtedness for which a lender has provided a commitment
in an amount reasonably anticipated to be incurred by the Issuer or a
Restricted Subsidiary in the following 12 months after such Interest Rate
Agreement has been entered into, but only to the extent that the notional
principal amount of such Interest Rate Agreement does not exceed the
principal amount of the Indebtedness (or Indebtedness subject to
commitments) to which such Interest Rate Agreement relates;
(f) Indebtedness of the Issuer or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the Issuer
or a Restricted Subsidiary (which Indebtedness is otherwise permitted to be
incurred under the "LIMITATION ON ADDITIONAL INDEBTEDNESS" covenant) or (ii)
obligations to purchase assets, properties or services incurred in the
ordinary course of business of the Issuer or any Restricted Subsidiary;
provided that such Currency Agreements do not increase the Indebtedness or
other obligations of the Issuer and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates or
by reason of fees, indemnities and compensation payable thereunder;
(g) Indebtedness of the Issuer or any Restricted Subsidiary in respect
of performance bonds of the Issuer or any Restricted Subsidiary or surety
bonds provided by the Issuer or any Restricted Subsidiary incurred in the
ordinary course of business in connection with the construction or operation
of a Cable/ Telecommunications Business, a DTH Business or an
Entertainment/Programming Business;
(h) Indebtedness of the Issuer or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Issuer or of any Restricted Subsidiary
incurred or outstanding pursuant to clause (b) of this definition or the
proviso of the covenant "LIMITATION ON ADDITIONAL INDEBTEDNESS"; PROVIDED
that (i) Indebtedness of the Issuer may not be replaced, renewed, refinanced
or extended to such extent under this clause (i) with Indebtedness of any
Restricted Subsidiary and (ii) any such replacement, renewal, refinancing or
extension (x) shall not result in a lower Average Life of such Indebtedness
as compared with the Indebtedness being replaced, renewed, refinanced or
extended, (y) shall not exceed the sum of the principal amount (or, if such
Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof, an amount no greater than such lesser
amount) of the Indebtedness being replaced, renewed, refinanced or extended
plus the amount of accrued interest thereon and the amount of any reasonably
determined prepayment premium necessary to accomplish such replacement,
renewal, refinancing or extension and such reasonable fees and expenses
incurred in connection therewith, and (z) in the case of any replacement,
renewal, refinancing or extension by the Issuer of Pari Passu Indebtedness
or Subordinated Indebtedness, such new Indebtedness is made PARI PASSU
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with or subordinate to the Notes, at least to the same extent as the
Indebtedness being replaced, renewed, refinanced or extended;
(i) Indebtedness of the Issuer having an aggregate principal amount not
to exceed, at any one time outstanding, two times (i) the Net Cash Proceeds
received by the Issuer after the Issue Date from the issuance and sale of
its Capital Stock (other than Redeemable Capital Stock) to a Person that is
not a Subsidiary, to the extent such Net Cash Proceeds have not been used
pursuant to clause (a)(3)(B), (b)(ii), (b)(iii) or (b)(v) of the "Limitation
on Restricted Payments" covenant to make a Restricted Payment and (ii) 80%
of the Fair Market Value of property (other than cash or Cash Equivalents)
received by the Issuer after the Issue Date from a sale of its Capital Stock
(other than Redeemable Capital Stock) to a Person that is not a Subsidiary,
the extent such sale of Capital Stock has not been used pursuant to clause
(b)(ii), (b)(iii) or (b)(v) of the "Limitation on Restricted Payments"
covenant to make a Restricted Payment; PROVIDED, HOWEVER, that in
determining the Fair Market Value of property, if the estimated Fair Market
Value of such property exceeds $10.0 million, the Company will deliver to
the Trustee a written appraisal as to the fair market value of such property
prepared by an internationally recognized investment banking or public
accounting firm (or, if no such investment banking or public accounting firm
is qualified to prepare such an appraisal, by an internationally recognized
appraisal firm) and; PROVIDED FURTHER that such Indebtedness does not mature
prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes;
(j) Subordinated Indebtedness of the Issuer not to exceed $150 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) at
any one time outstanding; and
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of the Issuer having an aggregate principal amount not
to exceed $125 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any time outstanding less the aggregate principal
amount of any outstanding Indebtedness incurred after the Issue Date under
clause (c) of this definition of Permitted Indebtedness.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to directors or employees made in the ordinary course of business; (d)
Interest Rate Agreements and Currency Agreements; (e) bonds, notes, debentures
or other securities received as a result of Asset Sales permitted under the
covenant "LIMITATION ON SALE OF ASSETS," PROVIDED that the Issuer or the
Restricted Subsidiaries, as the case may be, have received at least 75% of the
aggregate consideration therefrom in cash or Cash Equivalents; (f) Investments
made in the ordinary course of business as partial payment for constructing a
network relating principally to a Cable/Telecommunications Business or for
supplying equipment used or useful in the Cable/Telecommunications Business or
the DTH Business; (g) Investments (other than through share leasing
arrangements) in any Person engaged in any business in which the Issuer or any
Restricted Subsidiary is engaged on the Issue Date not to exceed $90 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
outstanding at any time; PROVIDED that immediately after giving effect to any
Investment made under this clause (g), the Issuer and its Restricted
Subsidiaries shall own at least 25% of the outstanding Capital Stock of the
Person in which the Investment was made; (h) Investments (other than through
share leasing arrangements) in any Person engaged in any business in which the
Issuer or any Restricted Subsidiary is engaged on the Issue Date not to exceed
$10 million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent
thereof) outstanding at any time; (i) Investments (other than through share
leasing programs) in the Capital Stock of any Person to the extent the
consideration therefor paid by the Issuer or any Restricted Subsidiary consists
of a lease or other right to use the capacity of a cable television network of
the Issuer or such Restricted Subsidiary and so long as the capacity leased or
used is used by such Person solely to provide telephony or Internet access
services; provided that the Board of Directors of the Issuer shall have
determined (as evidenced by a Board Resolution) that any such capacity is in
excess of the cable television network capacity required to operate the
Cable/Telecommunications Business of the Issuer or
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such Restricted Subsidiary in the area in which such cable television network is
located; and (j) to the extent not covered in clauses (a) through (i) above, any
"Permitted Investment" as defined in the PCI Indenture made by PCI or any
subsidiary thereof in accordance with the terms of the PCI Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Issuer or any Restricted Subsidiary;
(b) Liens securing the Notes;
(c) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Issuer or any Restricted Subsidiary; PROVIDED that such Lien does not
extend to any property or assets of the Issuer or any Restricted Subsidiary
other than the assets acquired in connection with the incurrence of such
Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Issuer or any Restricted Subsidiary and
with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
the Issuer or any Restricted Subsidiary incurred in the ordinary course of
business;
(g) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (i); PROVIDED that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI incurred
after the Issue Date under clause (c) of the definition of Permitted
Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of the Issuer incurred pursuant to
clause (i) of the definition of Permitted Indebtedness in an amount having
an aggregate principal amount not to exceed, at any one time outstanding,
100% of the Net Cash Proceeds received by the Issuer after the Issue Date
from the issuance and sale of its Capital Stock;
(m) Liens in favor of Polish governmental fiscal authorities created
without the knowledge of and without fault on the part of the Issuer;
(n) Liens existing on the Issue Date and listed on a schedule to the
Indenture;
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(o) Liens in favor of the Screen Actors Guild, the Writers Guild of
America, the Directors Guild of America or any other unions, guilds or
collective bargaining units under collective bargaining agreements, which
Liens are incurred in the ordinary course of business solely to secure the
payment of residuals and other collective bargaining obligations required to
be paid by the Issuer or any of its Restricted Subsidiaries under any such
collective bargaining agreement;
(p) Liens arising in connection with completion guarantees entered into
in the ordinary course of business and consistent with then current industry
practices, securing obligations (other than Indebtedness for borrowed money)
of the Issuer or any of its Restricted Subsidiaries not yet due and payable;
(q) Liens in favor of suppliers and/or producers of any programming that
are incurred in the ordinary course of business solely to secure the
purchase or license price of such programming and such directly related
rights or the rendering of services necessary for the production of such
programming; PROVIDED, HOWEVER, that no such Lien shall extend to or cover
any property or assets other than the programming or license and the rights
directly related thereto being so acquired or produced; and PROVIDED FURTHER
that any payment obligations secured by such Liens shall by their terms be
payable solely from the revenues that are derived directly from the
exhibition, syndication, exploitation, distribution or disposition of such
item of programming and/or such directly related rights;
(r) Liens on assets of PCI or any subsidiary of PCI securing the PCI
Notes; and
(s) Liens on assets or Capital Stock of a Special Purpose Vehicle.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, S.A., Sp. z o.o.,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of Common Stock
(which is Qualified Capital Stock) of the Issuer for cash pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Issuer).
"Purchase Money Obligation" means Indebtedness of the Issuer or any
Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of the Issuer or any Restricted Subsidiary or (b)
secured by a Lien on any assets of the Issuer or any Restricted Subsidiary where
the lender's sole recourse is to the assets so encumbered, in either case to the
extent the purchase or construction prices for such assets are or should be
included in "addition to property, plan or equipment" in accordance with GAAP.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final
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Stated Maturity; PROVIDED, HOWEVER, that Redeemable Capital Stock shall not
include any Common Stock the holder of which has a right to put to the Issuer
upon certain terminations of employment.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Senior Bank Indebtedness" means Indebtedness of the Issuer or any
Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of the Issuer or any Restricted Subsidiary.
"Service Agreement" means any agreement to which the Issuer or any
Restricted Subsidiary is a party pursuant to which, among other things, the
Issuer or a Restricted Subsidiary provides various services, which may include
administrative, technical, managerial, financial, operational and marketing
services, to the other party or parties thereto, including, without limitation,
the agreements listed on a schedule to the Indenture under the subheading
"Service Agreements."
"Shareholder Registration Rights Agreement" means the Registration Rights
Agreement dated as of June 27, 1997 among PIHLP, ECO, Mr. Freedman, Steele LLC,
AESOP and CACMT (as such terms are defined herein) in the form existing on the
Issue Date.
"Significant Subsidiary" means, at any particular time, any Subsidiary that,
together with the subsidiaries of such Subsidiary, (a) accounted for more than
5% of the consolidated revenues of the Issuer and its Subsidiaries for their
most recently completed fiscal year or (b) is or are the owner(s) of more than
5% of the consolidated assets of the Issuer and its Subsidiaries as at the end
of such fiscal year, all as calculated in accordance with GAAP and as shown on
the consolidated financial statements of the Issuer and its Subsidiaries for
such fiscal year.
"Special Purpose Vehicle" means a Person which is, or was, established: (i)
with separate legal identity and limited liability; and (ii) for the sole
purpose of a single transaction, or series of related transactions, and which
has no assets and liabilities other than those directly acquired or incurred in
connection with such transaction(s).
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Issuer that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means (a) any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Issuer or by one or more other Subsidiaries or by the Issuer and one or more
other Subsidiaries and (b) Poltelkab, PTK Operator Sp. z o.o., Cable Television
Newco and any other Management Company.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Issuer and its
Restricted Subsidiaries outstanding as of the date of determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Issuer, as provided below) and
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(b) any subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Issuer, subject to the foregoing, may designate any newly acquired or newly
formed Subsidiary (other than a Management Company) to be an Unrestricted
Subsidiary so long as (i) neither the Issuer nor any Restricted Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Issuer or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as result of
designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES"
covenant, (iv) neither the Issuer nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Issuer and (v) neither the
Issuer nor any Restricted Subsidiary has any obligation (1) to subscribe for
additional shares of Capital Stock or other equity interest in such Subsidiary
or (2) to maintain or preserve such Subsidiary's financial condition or to cause
such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Issuer shall be evidenced to the
Trustee by filing a board resolution with the Trustee giving effect to such
designation. The Board of Directors of the Issuer may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under the Indentures
and the Issuer could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "LIMITATION ON ADDITIONAL INDEBTEDNESS"
covenant.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such foreign currency involved in
such computation into U.S. Dollars at the spot rate for the purchase of U.S.
Dollars with the applicable foreign currency as quoted by the National Bank of
Poland at approximately noon (New York City time) on the date two business days
prior to such determination.
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Restricted Subsidiary, such
Restricted Subsidiary if all the outstanding Capital Stock of such Restricted
Subsidiary (other than any directors' qualifying shares) is owned directly by
the Issuer or PCBV and one or more Wholly Owned Restricted Subsidiaries.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Issuer has entered into a registration rights agreement with the Initial
Purchasers (the "Registration Rights Agreement") pursuant to which the Issuer
agreed, for the benefit of the holders of the Old Notes, at the Issuer's cost,
(a) to use its best efforts to file the Exchange Offer Registration Statement of
which this Prospectus is a part within 60 days after the Issue Date with the
Commission with respect to the Exchange Offer for the Exchange Notes, which will
have terms identical in all material respects to the Old Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions or
interest rate increases as described below) and (b) to use its best efforts to
cause this Registration Statement to be declared effective under the Securities
Act within 90 days after the Issue Date. As soon as practicable, but in no event
more than one week, after this Registration Statement is declared effective, the
Issuer will offer to the holders of Transfer Restricted Securities (as defined
below) who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Transfer
Restricted Securities for the Exchange Notes. The Issuer will keep the Exchange
Offer open for not less than 30 calendar days (or longer if required by
applicable law) after the date notice
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of the Exchange Offer is mailed to the holders of the Notes. For each Old Note
surrendered to the Issuer pursuant to the Exchange Offer, the holder of such Old
Note will receive an Exchange Note having a principal amount at maturity equal
to that of the surrendered Old Note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (a) it is not an affiliate of the Issuer, (b) any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business and (c) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. If the holder is not a
broker-dealer, it will be required to represent that it is not engaged in, and
does not intend to engage in, the distribution of the Exchange Notes. If the
holder is a broker-dealer (a "Participating Broker-Dealer") who acquired the Old
Notes for its own account as a result of market-making or other trading
activities, it will be required to acknowledge that it must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Issuer is required to allow Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes.
In the event that (a) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Issuer to effect the Exchange
Offer; (b) if for any reason the Exchange Offer is not consummated by November
11, 1998; (c) any holder of Notes notifies the Issuer within a specified time
period that (i) due to a change in law or Commission policy it is not entitled
to participate in the Exchange Offer, (ii) due to a change in law or Commission
policy it may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the prospectus contained in
this Registration Statement is not appropriate or available for such resales by
such holder or
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(iii) it is a broker-dealer and owns Notes acquired directly from the Issuer or
an affiliate of the Issuer; or (d) the holders of a majority of the Notes may
not resell the Exchange Notes acquired by them in the Exchange Offer to the
public without restriction under the Securities Act and without restriction
under applicable blue sky or state securities laws, the Issuer will, at its
cost, as promptly as practicable, file the Shelf Registration Statement covering
resales of Transfer Restricted Securities by such holders who satisfy certain
conditions relating to, among other things, the provision of information in
connection with the Shelf Registration Statement. For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Note until (a) such Old Note has
been exchanged for a freely transferable Exchange Note upon consummation of the
Exchange Offer, (b) such Old Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (c) such Note is sold to the public pursuant to Rule 144(k) (or any
similar provision, but not Rule 144A) under the Securities Act. The Issuer will
use its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act by November 11, 1998 and use its best efforts
to keep effective (except in certain limited periods) the Shelf Registration
Statement until two years after its effective date (or until one year after such
effective date if such Shelf Registration Statement is filed at the request of
an Initial Purchaser pursuant to clause (c)(iii) above). The Company will, in
the event of the filing of a Shelf Registration Statement, provide to each
holder of the Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Notes has become effective and take certain other actions as
are required to generally permit unrestricted resales of the Notes. A holder of
Notes that sells such Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Notes will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Notes included in the Shelf Registration Statement and to
benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
In the event that (a) the Exchange Offer Registration Statement is not filed
with the Commission on or prior to September 12, 1998, (b) the Exchange Offer
Registration Statement is not declared effective on or prior to October 12,
1998, (c) the Exchange Offer is not consummated on or prior to November 11,
1998, or, as the case may be, a Shelf Registration Statement with respect to the
Notes is not declared effective on or prior to the November 11, 1998 or (d) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable (except in
certain limited periods) (each such event referred to in clauses (a) through (d)
above, a "Registration Default"), then the Issuer will be required to pay
additional interest in cash on each Interest Payment Date in an amount equal to
one-half of one percent (0.5%) per annum of the applicable Accreted Value with
respect to the first 90-day period following such Registration Default. The
amount of such additional interest will increase by an additional one-half of
one percent (0.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured, up to a maximum of one and one-half percent
(1.5%) per annum. Upon the cure of all applicable Registration Defaults, such
additional interest will cease to accrue.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Issuer.
168
<PAGE>
BOOK ENTRY; DELIVERY AND FORM
The certificates representing the Notes were issued in fully registered form
without interest coupons. Except as described in the next paragraph, the Notes
which were offered and sold to "qualified institutional buyers" ("QIBs") in
reliance on Rule 144A under the Securities Act are represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the
"Global Note") which was registered in the name of a nominee of DTC and
deposited on behalf of purchasers of the Old Notes represented thereby with a
custodian for DTC for credit to the respective accounts of the purchasers (or to
such other accounts as they may direct) at DTC. Exchange Notes which will be
issued in exchange for the Old Notes represented by the Global Note will be
issued in the form of one Global Note (the "Global Exchange Note") and deposited
with a custodian for DTC for credit to the respective accounts of the purchasers
(or such other accounts as they may direct) at DTC.
Old Notes held by QIBs which elect to take physical delivery of their
certificates instead of holding their interest through a Global Note (and which
are thus ineligible to trade through DTC) (referred to herein as the "Non-Global
Purchasers"), will be issued in registered form without interest coupons
("Certificated Notes"). Upon transfer of such Certificated Notes to another QIB,
such Certificated Notes will, unless the Global Notes have previously been
exchanged in whole for certificated Notes or unless the transferee, if a QIB,
requests otherwise, be exchanged for an interest in a Global Note upon delivery
of the appropriate certifications to the Trustee.
THE GLOBAL EXCHANGE NOTE. The Issuer expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Exchange Note, DTC or its
custodian will credit on its internal system portions of the Global Exchange
Note which shall be comprised of the corresponding respective principal amount
of the Global Exchange Note to the respective accounts of persons who have
accounts with such depositary and (b) ownership of the Exchange Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of persons
other than Participants (as defined below)). Such accounts initially will be
designated by or on behalf of the Exchange Agent and ownership of beneficial
interests in the Global Exchange Note will be limited to persons who have
accounts with DTC ("Participants") or persons who hold interests through
Participants. QIBs may hold their interests in the Global Exchange Note directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system.
So long as DTC or its nominee is the registered owner or holder of any Old
Notes or Exchange Notes, DTC or such nominee will be considered the sole owner
or holder of the Notes represented by the Global Note or the Global Exchange
Note for all purposes under the Indenture and the Notes. No beneficial owner of
an interest in the Global Note or the Global Exchange Note will be able to
transfer such interest except in accordance with the applicable procedures of
DTC, Euroclear and Cedel, in addition to those provided for under the Indenture.
Payments of the principal of (or premium, if any, on) and interest on the
Global Note or the Global Exchange Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Issuer, the
Trustee or any Paying Agent under the Indenture has any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
the principal of (or premium, if any, on) and interest on the Global Exchange
Note, will credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Exchange Note as shown on the records of DTC or its nominee. The Issuer also
expects that payments by Participants to owners of beneficial interests in the
Global Exchange Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with
169
<PAGE>
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Exchange Note in accordance with the normal procedures of DTC and
in accordance with the procedures set forth in the Indenture.
DTC has advised the Issuer that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Exchange Note are credited and only in
respect of the aggregate principal amount of Exchange Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global
Exchange Note for Certificated Notes, which it will distribute to its
Participants.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Exchange
Note among Participants of DTC, Euroclear and Cedel, they are under no
obligation to follow such procedures, and such procedures may be discontinued at
any time. Neither the Issuer nor the Trustee or any paying agent has any
responsibility for the performance by DTC Euroclear or Cedel or the Participants
or Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES. Subject to certain conditions, any person having a
beneficial interest in the Global Exchange Notes may, upon request to the
Trustee, exchange such beneficial interest for Notes in the form of Certificated
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Notes in the name of, and cause the same to be delivered to, such
person or persons (or any nominee thereof). In addition, interests in the Global
Exchange Notes will be exchangeable or transferable, as the case may be, for
Certificated Notes, if (i) DTC notifies the Issuer that it is unwilling or
unable to continue as depositary for such Global Exchange Notes, or DTC ceases
to be a "Clearing Agency" registered under the Exchange Act, and a successor
depositary is not appointed by the Issuer within 90 days or (ii) an Event of
Default has occurred and is continuing with respect to such Global Exchange
Notes. Upon the occurrence of any of the events described in the preceding
sentence, the Issuer will cause the appropriate Certificated Notes to be
delivered. Certificated Notes may only be transferred on the books and records
of the transfer agent.
170
<PAGE>
UNITED STATES INCOME TAX CONSIDERATIONS
It is the opinion of Baker & McKenzie, counsel to the Issuer, that the
material United States federal income tax consequences to holders of the
exchange of Old Notes for Exchange Notes in the Exchange Offer are as described
herein, subject to the limitations and qualifications set forth below. Because
the Exchange Notes will not be considered to differ materially either in kind or
in extent from the Old Notes, the exchange of the Old Notes for the Exchange
Notes pursuant to the Exchange Offer will not be treated as a taxable "exchange"
for federal income tax purposes pursuant to Section 1001 of the United States
Internal Revenue Code of 1986, as amended (the "Code"). As a result, no material
United States federal income tax consequences will result to holders exchanging
Old Notes for Exchange Notes, and the holders' respective tax bases in and
holding periods for the Old Notes will continue to be their tax bases in and
holding periods for the Exchange Notes.
The foregoing opinion is based upon the current provisions of the Code,
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practice. Subsequent legislative, judicial or
administrative changes or interpretations could alter or modify the statements
or conclusions set forth herein, possibly with retroactive effect. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and individuals who are not
citizens or residents of the United States) may be subject to special rules not
discussed herein. AS A RESULT, EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING HIS OR HER OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Issuer has agreed that for a period of 180 days
after the Expiration Date, it will make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any such resale.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
any broker-dealer. Exchange Notes received by brokers-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the Issuer's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
171
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Issuer by
Baker & McKenzie, Washington, District of Columbia and New York, New York with
respect to matters of United States law. Certain matters of Polish law will be
passed upon for the Issuer by Baker & McKenzie, Warsaw, Poland.
EXPERTS
The consolidated financial statement of @Entertainment, Inc. as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997 have been included herein and in the Registration Statement in
reliance upon the report of KPMG Polska Sp. z o.o., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
172
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Interim Consolidated Financial Statements
Consolidated Balance Sheet.............................................................................. F-2
Consolidated Statements of Operations................................................................... F-4
Consolidated Statements of Cash Flows................................................................... F-5
Notes to Consolidated Financial Statements.............................................................. F-6
Audited Consolidated Financial Statements
Independent Auditors' Report............................................................................ F-11
Consolidated Balance Sheets............................................................................. F-12
Consolidated Statements of Operations................................................................... F-14
Consolidated Statements of Changes in Stockholders' Equity.............................................. F-15
Consolidated Statements of Cash Flows................................................................... F-16
Notes to Consolidated Financial Statements.............................................................. F-17
</TABLE>
F-1
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
(IN
THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents........................................................................ $ 58,589
Accounts receivable, net of allowance for doubtful accounts of $732,000.......................... 4,152
Other current assets............................................................................. 10,084
-------------
Total current assets........................................................................... 72,825
-------------
Property, plant and equipment:
Cable television system assets................................................................... 147,893
Construction in progress......................................................................... 19,956
Vehicles......................................................................................... 2,103
Other............................................................................................ 7,107
-------------
177,059
Less accumulated depreciation.................................................................... (37,828)
-------------
Net property, plant and equipment.............................................................. 139,231
Inventories for construction....................................................................... 10,471
Intangibles, net (note 6).......................................................................... 44,593
Investments in affiliated companies................................................................ 21,976
Other assets (note 7).............................................................................. 14,698
-------------
Total assets................................................................................... $ 303,794
-------------
-------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-2
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
(IN
THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................ $ 20,626
Accrued interest................................................................................. 5,492
Deferred revenue................................................................................. 1,189
Income taxes payable............................................................................. 1,388
Other current liabilities........................................................................ 114
-------------
Total current liabilities...................................................................... 28,809
-------------
Notes payable...................................................................................... 132,297
-------------
Total liabilities.............................................................................. 161,106
-------------
Minority interest.................................................................................. 4,862
Commitments and contingencies (note 8)
Stockholders' equity:
Preferred stock, $.01 par value; 20,002,500 shares authorized; no shares issued and
outstanding.................................................................................... --
Common stock, $.01 par value; 70,000,000 shares authorized, 33,310,000 shares issued and
outstanding.................................................................................... 333
Paid-in capital.................................................................................. 230,339
Cumulative translation adjustment................................................................ 2,549
Accumulated deficit.............................................................................. (95,395)
-------------
Total stockholders' equity..................................................................... 137,826
-------------
Total liabilities and stockholders' equity..................................................... $ 303,794
-------------
-------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-3
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
<S> <C> <C>
1997 1998
--------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Cable television revenue.................................................................... $ 7,508 $ 12,686
Operating expenses:
Direct operating expenses................................................................. 2,100 8,648
Selling, general and administrative expenses.............................................. 2,974 13,447
Depreciation and amortization............................................................. 3,450 4,949
--------- ----------
Total operating expenses.................................................................... 8,524 27,044
--------- ----------
Operating loss............................................................................ (1,016) (14,358)
Interest and investment income.............................................................. 750 850
Interest expense............................................................................ (3,205) (3,649)
Equity in losses of affiliated companies.................................................... -- 270
Foreign exchange (loss) gain................................................................ (305) 73
--------- ----------
Loss before income taxes and minority interest............................................ (3,776) (16,814)
Income tax expense.......................................................................... (271) (333)
Minority interest........................................................................... 476 (149)
--------- ----------
Net loss.................................................................................... (3,571) (17,296)
Accretion of redeemable preferred stock..................................................... (980) --
--------- ----------
Net loss applicable to holders of common stock.............................................. $ (4,551) $ (17,296)
--------- ----------
--------- ----------
Basic and diluted loss per common share..................................................... $ (0.24) $ (0.52)
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-4
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net loss................................................................................ $ (3,571) $ (17,296)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest..................................................................... (476) 149
Depreciation and amortization......................................................... 3,450 4,949
Other................................................................................. 204 1,338
Changes in operating assets and liabilities:
Accounts receivable................................................................. (15) (911)
Other current assets................................................................ (696) (5,006)
Other assets........................................................................ -- (2,937)
Accounts payable.................................................................... (2,498) 5,856
Income taxes payable................................................................ (749) (377)
Accrued interest.................................................................... 3,209 3,317
Deferred revenue.................................................................... 35 (88)
Other current liabilities........................................................... (549) (826)
---------- ----------
Net cash used in operating activities............................................. (1,656) (11,832)
---------- ----------
Cash flows from investing activities:
Construction and purchase of property, plant and equipment.......................... (4,867) (23,085)
(Issuance)/repayment of notes receivable from affiliates............................ (2,412) 779
Investment in affiliated companies.................................................. -- (176)
Other investments................................................................... (383) (2,072)
Purchase of intangibles............................................................. -- (230)
Purchase of subsidiaries, net of cash received...................................... -- (10,523)
---------- ----------
Net cash used in investing activities............................................. (7,662) (35,307)
---------- ----------
Cash flows from financing activities:
Costs to obtain loans............................................................... (107) --
Repayment of notes payable.......................................................... (550) 37
---------- ----------
Net cash (used in)/provided by financing activities............................... (657) 37
---------- ----------
Net decrease in cash and cash equivalents......................................... (9,975) (47,102)
Cash and cash equivalents at beginning of period.......................................... 68,483 105,691
---------- ----------
Cash and cash equivalents at end of period................................................ $ 58,508 $ 58,589
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash paid for interest.................................................................. $ 3 $ 25
---------- ----------
---------- ----------
Cash paid for income taxes.............................................................. $ 1,005 $ 176
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-5
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The information furnished by @ Entertainment, Inc. and subsidiaries ("@
Entertainment" or the "Company") has been prepared in accordance with United
States generally accepted accounting principles and the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The accompanying consolidated
balance sheets, statements of operations and statements of cash flows are
unaudited but in the opinion of management reflect all adjustments (consisting
only of items of a normal recurring nature) which are necessary for a fair
statement of the Company's consolidated results of operations and cash flows for
the interim periods and the Company's financial position as of March 31, 1998.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's 1997 Annual Report on Form 10-K filed with the
SEC (the "1997 Annual Report"). The interim financial results are not
necessarily indicative of the results of the full year.
2. RECLASSIFICATIONS
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statements to conform to the 1998 unaudited consolidated
financial statement presentation.
3. ADOPTION OF NEW ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income/(loss) generally encompasses
all changes in stockholders' equity (except those arising from transactions with
owners) and includes net income/(loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
The Company's comprehensive loss differs from net loss applicable to common
stockholders only by the amount of the foreign currency translation adjustment
charged to stockholders' equity for the period. Comprehensive loss for the
three-month periods ended March 31, 1997 and 1998 was approximately $4,769,000
and $14,747,000, respectively.
4. FOREIGN CURRENCY TRANSLATION
Effective January 1, 1998, Poland was no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for its Polish subsidiaries for non-monetary items
in accordance with guidelines established within EITF Issue 92-4, "Accounting
for a Change in Functional Currency When an Economy Ceases to Be Considered
Highly Inflationary." That basis is computed by translating the historical
reporting currency amounts of nonmonetary items into the local currency at
current exchange rates.
5. LOSS PER SHARE
As noted in the 1997 Annual Report, the Company adopted the provision of
SFAS No. 128, "Earnings Per Share". The statement required that all prior period
earnings per share calculations including interim financial statements be
restated to conform with the provisions of this statement. The previously
reported 1997 loss per ordinary share has been restated to comply with the
provisions of this new standard. Basic
F-6
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
5. LOSS PER SHARE (CONTINUED)
and diluted loss per ordinary share is based on the weighted average number of
ordinary shares outstanding of 18,948,000 and 33,310,000 for the three-month
periods ended March 31, 1997 and 1998, respectively.
6. ACQUISITIONS
During February 1998, Poland Communications, Inc. ("PCI"), the Company's
subsidiary, acquired approximately 95% of Szczecinska Telewizja Kablowa Sp. z
o.o.'s ("SzTK") cable television system assets and subscriber lists for an
aggregate consideration of approximately $1,574,000. The acquisition was
accounted for using the purchase method with the purchase price allocated among
the assets and liabilities acquired based upon their fair values at the date of
acquisition and any excess to goodwill. The purchase price exceeded the fair
value of the net liabilities acquired by approximately $2,041,000. In
association with this acquisition, the Company assumed a $2,150,000 loan from
Polski Bank Rozwoju S.A. Interest is based on LIBOR for monthly DM deposits plus
2.5% and is due monthly. The loan is secured by a mortgage on real estate owned
by two housing cooperatives, their bank accounts and insurance policies. The
cooperatives' mortgage is secured by a pledge of SzTK shares owned by PTK
Szczecin Sp. z o.o. All advances under the loan must be repaid by December 27,
2002.
In February and March 1998, the Company acquired the remaining interest in
Ground Zero Media Sp. z o.o. from the other remaining stockholders for
approximately $9,389,000. The acquisition was accounted for under the purchase
method, whereby the purchase price was allocated to the underlying assets and
liabilities based upon their proportionate share of fair values at the date of
acquisition and any excess to goodwill. The purchase price exceeded the fair
value of the net liabilities acquired by approximately $9,945,000.
7. WORLD SHOPPING NETWORK INVESTMENT
Included in other non-current assets at December 31, 1997 was a prepayment
of approximately $1,200,000 toward the formation of a programming-related joint
venture with World Shopping Network Plc. Subsequent to December 31, 1997, the
Company decided not to complete the investment in the joint venture with World
Shopping Network. As a result, the prepayment was expensed in the first quarter
of 1998.
8. COMMITMENTS AND CONTINGENCIES
BROADCAST/EXHIBITION RIGHT COMMITMENTS
The Company has entered into long-term contracts for the purchase of certain
exhibition or broadcast rights for its digital direct-to-home ("D-DTH") and
cable systems. The contracts have terms which range from one to five years and
require that the license fees be paid based upon a fixed amount. At March 31,
1998, the Company has an aggregate minimum commitment of approximately
$25,177,000 over the next 5 years, approximating $10,148,000 for the remainder
of 1998, $4,864,000 in 1999, $5,133,000 in 2000, $2,531,000 in 2001 and
$2,501,000 in 2002. For the periods ended March 31, 1998 and 1997 the Company
did not incur any amortization expense relating to these broadcast/exhibition
rights pursuant to these agreements as such rights were not available for
broadcast.
F-7
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PROGRAMMING COMMITMENTS
The Company has entered into long-term programming agreements with a number
of third party content providers for its D-DTH and cable systems. The
programming agreements have terms which range from one to five years and require
that the license fees be paid either at a fixed amount payable at the time of
execution or based upon a guaranteed minimum number of subscribers connected to
the system each month. At March 31, 1998, the Company has an aggregate minimum
commitment of approximately $56,282,000 over the next 5 years, approximating
$7,552,000 for the remainder of 1998, $10,514,000 in 1999, $11,867,000 in 2000,
$12,855,000 in 2001 and $13,494,000 in 2002 and thereafter. For the period ended
March 31, 1998, the Company incurred programming fees of approximately $18,000.
The Company incurred no programming fees pursuant to these agreements for the
period ended March 31, 1997.
Subsequent to March 31, 1998, the Company entered into additional long term
programming agreements with third party content providers for its D-DTH and
cable systems which require that license fees be paid based upon a guaranteed
minimum number of subscribers connected to the system each month. The Company
has aggregate minimum commitments related to these additional agreements of
approximately $71,724,000 over the next seven years, approximating $1,651,000
for the remainder of 1998, $4,919,000 in 1999, $7,956,000 in 2000, $10,855,000
in 2001, and $46,344,000 in 2002 and thereafter.
CAPITAL COMMITMENTS
As of March 31, 1998, the Company had entered into agreements to purchase
capital assets including certain technical equipment associated with
establishing its D-DTH facilities, for approximately $2,281,000.
LITIGATION AND CLAIMS
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 current knowledge and
facts, 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. STOCK OPTIONS
On January 26, 1998, certain employees were granted options to purchase
150,000 shares of common stock (subject to stockholder approval) at a price of
$12.2375 per share, vesting ratably over a three-year period. The exercise price
of such options exceeded the quoted market price for the Company's shares on the
date of grant.
10. SUBSEQUENT EVENTS
LETTER OF INTENT WITH TKP (CANAL+)
On April 17, 1998, the Company signed a binding letter of intent with
Telewizyna Korporacja Partycypacyjna ("TKP"), the parent company of Canal+
Polska, to form a joint venture for the purpose of bringing together @
Entertainment's Wizja TV programming service and the Canal+ Polska premium
pay-television channel and providing for the joint development and operation of
a digital direct-to-home television service in Poland.
F-8
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
10. SUBSEQUENT EVENTS (CONTINUED)
The letter of intent called for the Company to invest approximately $112
million in cash and shareholder loans in TKP, and to sell substantially all of
the Company's D-DTH and programming assets to TKP for approximately $42 million.
The TKP joint venture was to be owned 40% by the Company, 40% by Canal+ S.A, 10%
by Agora S.A. and 10% by PolCom Invest S.A.
The letter of intent also contained a standstill provision whereby neither
the Company nor TKP could, for a period of 45 days after the execution of the
letter of intent, launch any digital pay television service. As a result, @
Entertainment postponed its planned launch of the Wizja TV programming platform
and its D-DTH service, which was originally scheduled for April 18, 1998. The
establishment of the joint venture was subject to the execution of definitive
agreements, regulatory approvals and certain other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent (the "Signature Date"). Therefore, the
Company terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed the Company that they believe the Company did not
have the right to terminate the letter of intent.
Under the terms of the letter of intent, TKP is obligated to pay the Company
a $5 million break-up fee within 10 days of the Signature Date if the definitive
agreements were not executed by the Signature Date, unless the failure to obtain
such execution was caused by the Company's breach of any of its obligations
under the letter of intent. If there were any such breach by the Company, the
Company would be obligated to pay TKP $10 million. However, if any breach of the
letter of intent by TKP caused the definitive agreements not to be executed, TKP
would be obligated to pay the Company a total of $10 million (including the $5
million break-up fee). In the event that TKP fails to pay the Company any of the
above-referenced amounts owed to the Company, TKP's shareholders are responsible
for the payment of such amounts.
The Company has demanded monies from TKP as a result of the failure to
execute the definitive agreements by the Signature Date. While the Company was
waiting for the expiration of the 10-day period for payment of the break-up fee,
TKP initiated arbitration proceedings before a three-member arbitration panel in
Geneva Switzerland. In their claim, TKP and its shareholders have alleged that
the Company breached its obligations to negotiate in good faith and to use its
best efforts to agree and execute the definitive agreements and claimed the
Company is obligated to pay TKP $10 million pursuant to the letter of intent.
The Company has submitted its answer and counterclaims against TKP and its
shareholders. The Company does not believe that the arbitration proceedings will
have a material adverse effect on the Company's business, financial condition or
results of operations.
The Company began broadcasting to Poland from its transmission facilities in
Maidstone, United Kingdom and retransmitting the Wizja TV programming platform,
which currently consists of 14 channels of primarily Polish-language
programming, across its cable networks on June 5, 1998, and on its D-DTH system
on a limited basis on July 1, 1998, and it plans to transmit Wizja TV on its
D-DTH system on a full-scale basis starting in September 1998. The Company
estimates that the delay of its planned April 1998 Wizja TV launch resulted in
approximately $7.2 million of additional out-of-pocket expenditures as of July
8, 1998, including a $5 million payment to Philips to compensate it for costs it
incurred as a result of the suspension of the production process for the D-DTH
Reception Systems.
F-9
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
10. SUBSEQUENT EVENTS (CONTINUED)
@ Entertainment has entered into an agreement with East Services S.A. ("East
Services") under which @ Entertainment paid $1,000,000 for investment banking
services and will further be obligated to pay to East Services, contingent upon
the consummation of an acquisition, merger or combination between @
Entertainment and Canal+ S.A. or one of its affiliates, $9,998,000 in exchange
for a claim held by an East Services affiliate against subsidiaries of TKP
(which claim is itself contingent upon such subsidiaries satisfying certain
operational performance criteria), and an additional amount equaling 2.5 percent
of the aggregate amount of the transactions or investments involved in such
acquisition, merger or combination. As the letter of intent with TKP was
terminated on June 1, 1998, the Company believes it has no current obligation to
East Services under the aforementioned agreement.
ACQUISITION
Subsequent to March 31, 1998, the Company purchased the remaining minority
interest in a subsidiary of the Company which was held by unaffiliated third
parties as well as certain cable television system assets for an aggregate
purchase price of approximately $11,572,000. The acquisitions were accounted for
under the purchase method, whereby the purchase price was allocated to the
underlying assets and liabilities based upon their estimated fair values and any
excess to goodwill. The acquisitions are not expected to have a material effect
on the Company's results of operations in 1998.
CREDIT FACILITY
Subsequent to March 31, 1998, the Company drew down on its AmerBank Facility
in the full amount of $6.5 million. The Facility is secured by a pledge of the
shares of certain subsidiaries of the Company.
UNITS OFFERING
On July 14, 1998, the Company sold 252,000 units (collectively, the "Units")
to initial purchasers purusant to a purchase agreement, each Unit consisting of
$1,000 principal amount at maturity of 14 1/2% Senior Discount Notes (the
"Notes") due 2008 and four warrants (each a "Warrant"), each Warrant initially
entitling the holder thereof to purchase 1.81 shares of common stock, par value
$0.01 per share at an exercise price of $13.20 per share.
The Notes were issued at a discount to their aggregate principal amount at
maturity and, together with the Warrants generated gross proceeds to the Company
of approximately $125,100,000 of which $117,500,000 has been allocated to the
initial accreted value of the Notes and approximately $7.6 million has been
allocated to the Warrants.
The initial purchasers subsequently completed a private placement of the
Units, and the Company is currently in the process of performing an exchange
offer of the Notes.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
@Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1996, 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,
1997. 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 generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles in the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
March 19, 1998
F-11
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 68,483 $ 105,691
Investment securities (note 4).......................................................... 25,115 --
Accounts receivable, net of allowances for doubtful accounts of $545,000 in 1996 and
$766,000 in 1997 (note 5)............................................................. 1,215 4,544
Other current assets (note 8)........................................................... 2,247 4,998
---------- ----------
Total current assets.................................................................. 97,060 115,233
---------- ----------
Property, plant and equipment:
Cable television system assets.......................................................... 99,700 134,469
Construction in progress................................................................ 410 6,276
Vehicles................................................................................ 1,199 2,047
Other................................................................................... 2,667 7,940
---------- ----------
103,976 150,732
Less accumulated depreciation......................................................... (19,143) (33,153)
---------- ----------
Net property, plant and equipment..................................................... 84,833 117,579
Inventories for construction.............................................................. 7,913 8,153
Intangibles, net (note 7)................................................................. 18,492 33,440
Notes receivable from affiliates (note 14)................................................ 2,491 691
Investments in affiliated companies (note 9).............................................. 748 21,800
Other assets (note 8)..................................................................... 6,000 10,200
---------- ----------
Total assets.......................................................................... $ 217,537 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses................................................... $ 6,281 $ 13,781
Accrued interest (note 12).............................................................. 2,175 2,175
Deferred revenue........................................................................ 1,102 1,257
Income taxes payable.................................................................... 4,472 1,765
Other current liabilities (note 11)..................................................... 2,175 940
---------- ----------
Total current liabilities............................................................. 16,205 19,918
---------- ----------
Notes payable (note 12)................................................................... 130,074 130,110
---------- ----------
Total liabilities..................................................................... 146,279 150,028
---------- ----------
Minority interest......................................................................... 5,255 4,713
Redeemable preferred stock (liquidation value $85,000,000. Authorized 8,500 shares; 8,500
issued and outstanding in 1996, none issued and outstanding in 1997) (note 1)........... 34,955 --
Commitments and contingencies (notes 17 and 18)
Stockholders' equity (note 1):
Preferred stock, $.01 par value. Authorized 20,002,500 shares; none issued and
outstanding........................................................................... -- --
Common stock, $.01 par value. Authorized 50,000,000 shares in 1996 and 70,000,000 shares
in 1997; issued and outstanding 18,948,000 shares in 1996 and 33,310,000 shares in
1997.................................................................................. 189 333
Paid-in capital......................................................................... 54,134 230,339
Cumulative translation adjustment....................................................... -- (218)
Accumulated deficit..................................................................... (23,275) (78,099)
---------- ----------
Total stockholders' equity............................................................ 31,048 152,355
---------- ----------
Total liabilities and stockholders' equity............................................ $ 217,537 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cable television revenue...................................................... $ 18,557 $ 24,923 $ 38,138
Operating expenses:
Direct operating expenses................................................... 5,129 7,193 14,621
Selling, general and administrative expenses (notes 9 and 16)............... 4,684 9,289 49,893
Depreciation and amortization............................................... 5,199 9,788 16,294
---------- ---------- ----------
Total operating expenses................................................ 15,012 26,270 80,808
---------- ---------- ----------
Operating income/(loss)................................................. 3,545 (1,347) (42,670)
Interest and investment income................................................ 174 1,274 5,754
Interest expense (note 12).................................................... (4,373) (4,687) (13,902)
Equity in losses of affiliated companies...................................... -- -- (368)
Foreign currency loss......................................................... (17) (761) (1,027)
---------- ---------- ----------
Loss before income taxes, minority interest and extraordinary item........ (671) (5,521) (52,213)
Income tax (expense)/benefit (note 10)........................................ (600) (1,273) 975
Minority interest............................................................. (18) 1,890 (3,586)
---------- ---------- ----------
Loss before extraordinary item................................................ (1,289) (4,904) (54,824)
Extraordinary item--loss on early extinguishment of debt (note 12)............ -- (1,713) --
---------- ---------- ----------
Net loss.................................................................. (1,289) (6,617) (54,824)
Accretion of redeemable preferred stock (note 1).............................. -- (2,870) (2,436)
Preferred stock dividends (note 1)............................................ -- (1,738) --
Deficit/(excess) of consideration paid for preferred stock under/(over)
carrying amount (note 1).................................................... -- 3,549 (33,806)
---------- ---------- ----------
Net loss applicable to holders of common stock $ (1,289) $ (7,676) $ (91,066)
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted loss per common share:
Loss before extraordinary item.............................................. $ (0.10) $ (0.34) $ (3.68)
Extraordinary item.......................................................... -- (0.10) --
---------- ---------- ----------
Net loss (note 15).......................................................... $ (0.10) $ (0.44) $ (3.68)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
---------------------- ----------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
----------- --------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance January 1, 1995.......... 985 $ 10,311 11,037 $ 4,993 $ 1,544 $ -- $ (15,369)
Net loss..................... -- -- -- -- -- -- (1,289)
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1995........ 985 10,311 11,037 4,993 1,544 -- (16,658)
Net loss..................... -- -- -- -- -- -- (6,617)
Stock dividend............... 166 1,738 -- -- (1,738) -- --
Proceeds from issuance of
common and preferred stock
(note 1)................... -- -- 7,911 (4,992) 87,021 -- --
Cost of issuance (note 1).... -- -- -- -- (1,028) -- --
Allocation of proceeds to
preferred (note 1)......... -- -- -- -- (32,156) -- --
Preferred stock redemption
(note 1)................... (1,151) (12,049) -- -- 3,549 -- --
Accretion of redeemable
preferred stock (note 1)... -- -- -- -- (2,870) -- --
Reorganization (note 1)...... -- -- 18,929,052 188 (188) -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1996........ -- -- 18,948,000 189 54,134 -- (23,275)
Translation adjustment....... -- -- -- -- -- (218) --
Net loss..................... -- -- -- -- -- -- (54,824)
Net proceeds from initial
public offering (note 1)... -- -- 9,500,000 95 183,197 -- --
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. -- -- -- -- (33,806) -- --
Accretion of redeemable
preferred stock (note 1)... -- -- -- -- (2,436) -- --
Conversion of series B
redeemable preferred stock
(note 1)................... -- -- 4,862,000 49 11,148 -- --
Stock option compensation
expense (note 16).......... -- -- -- -- 18,102 -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1997........ -- $ -- 33,310,000 $ 333 $ 230,339 $ (218) $ (78,099)
----------- --------- ---------- ----------- --------- ----------- ------------
----------- --------- ---------- ----------- --------- ----------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance January 1, 1995.......... $ 1,479
Net loss..................... (1,289)
-----------
Balance December 31, 1995........ 190
Net loss..................... (6,617)
Stock dividend............... --
Proceeds from issuance of
common and preferred stock
(note 1)................... 82,029
Cost of issuance (note 1).... (1,028)
Allocation of proceeds to
preferred (note 1)......... (32,156)
Preferred stock redemption
(note 1)................... (8,500)
Accretion of redeemable
preferred stock (note 1)... (2,870)
Reorganization (note 1)...... --
-----------
Balance December 31, 1996........ 31,048
Translation adjustment....... (218)
Net loss..................... (54,824)
Net proceeds from initial
public offering (note 1)... 183,292
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. (33,806)
Accretion of redeemable
preferred stock (note 1)... (2,436)
Conversion of series B
redeemable preferred stock
(note 1)................... 11,197
Stock option compensation
expense (note 16).......... 18,102
-----------
Balance December 31, 1997........ $ 152,355
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (1,289) $ (6,617) $ (54,824)
Adjustments to reconcile net loss to net cash provided by/(used in) operating
activities:
Minority interest............................................................. 18 (1,890) 3,586
Depreciation and amortization................................................. 5,199 9,788 16,294
Amortization of notes payable discount and issue costs........................ -- 166 1,040
Non-cash portion of extraordinary item........................................ -- 1,566 --
Gain on sale of investment securities......................................... -- -- (358)
Non-cash stock option compensation expense.................................... -- -- 18,102
Interest expense added to notes payable to affiliates......................... 2,379 -- --
Equity in losses of affiliated companies...................................... -- -- 368
Changes in operating assets and liabilities:
Accounts receivable......................................................... (785) (796) (3,191)
Other current assets........................................................ 6 (1,862) (2,995)
Accounts payable and accrued expenses....................................... 1,003 3,186 7,846
Income taxes payable........................................................ 600 334 (2,707)
Accrued interest............................................................ -- 2,175 --
Deferred revenue............................................................ 152 (131) 155
Other current liabilities................................................... (3,444) 193 (2,089)
--------- --------- ---------
Net cash provided by/(used in) operating activities....................... 3,839 6,112 (18,773)
--------- --------- ---------
Cash flows from investing activities:
Purchases and construction of property, plant and equipment..................... (16,715) (26,581) (42,454)
Repayment of notes receivable from affiliates................................... -- -- 2,521
Issuance of notes receivable from affiliates.................................... -- (2,491) (721)
Purchase of investment securities............................................... (1,207) (25,940) --
Proceeds from maturity of investment securities................................. -- -- 25,473
Purchase of other assets........................................................ -- (6,000) (10,200)
Investments in affiliated companies............................................. -- (580) (21,420)
Purchase of subsidiaries, net of cash received.................................. (4,063) (13,269) (18,041)
--------- --------- ---------
Net cash used in investing activities..................................... (21,985) (74,861) (64,842)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock............................................. -- 81,001 183,292
Redemption of preferred stock................................................... -- (8,500) (60,000)
Costs to obtain loans........................................................... (1,036) (6,513) (1,749)
Proceeds from notes payable..................................................... 14,533 136,074 --
Repayment of notes payable...................................................... -- (27,893) (720)
Borrowings from/(Repayments to) affiliates...................................... 4,499 (39,280) --
--------- --------- ---------
Net cash provided by financing activities................................. 17,996 134,889 120,823
--------- --------- ---------
Net (decrease)/increase in cash and cash equivalents...................... (150) 66,140 37,208
Cash and cash equivalents at beginning of year.................................... 2,493 2,343 68,483
--------- --------- ---------
Cash and cash equivalents at end of year.......................................... $ 2,343 $ 68,483 $ 105,691
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Cash paid for interest.......................................................... $ 1,992 $ 2,338 $ 12,873
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes...................................................... $ -- $ 1,184 $ 1,732
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY
@Entertainment, Inc. ("@Entertainment") was established as a Delaware
corporation in May 1997. @Entertainment succeeded Poland Communications, Inc.
("PCI") as the group holding company to facilitate an initial public offering of
stock in the United States and internationally (the "IPO"). PCI was founded in
1990 by David T. Chase, a Polish-born investor.
@Entertainment, Inc. and its subsidiaries (the "Company") offers pay
television services to business and residential customers in Poland. Its
revenues are derived primarily from installation fees and monthly basic and
premium service fees for cable television services provided primarily to
residential, rather than business, customers. The Company intends to launch a
digital satellite direct-to-home ("D-DTH") broadcasting service throughout
Poland during the first half of 1998. In addition to developing and acquiring
programming for distribution on its cable television networks, the Company
intends to expand its programming by launching, simultaneously with its D-DTH
launch, a branded digital encrypted platform of Polish-language programming
under the brand name Wizja TV.
At December 31, 1997, @Entertainment wholly owns PCI, At Entertainment
Limited ("@EL") and Sereke Holding B.V. ("Sereke") which are United States,
United Kingdom and Netherlands corporations, respectively. PCI owns 92.3% of the
capital stock of Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands
corporation and first-tier subsidiary of PCI. @Entertainment, PCI and PCBV are
holding companies that directly or indirectly hold controlling interests in a
number of Polish cable television companies, collectively referred to as the
"PTK Companies". @EL and Sereke were established during 1997 to develop and
operate, in association with other subsidiaries, a D-DTH broadcasting service
and Polish-language programming under the brand name Wizja TV. As of December
31, 1997, substantially all of the assets and operating activities of the
Company were located in Poland and the United Kingdom.
The following is a description of the events leading up to the formation of
@Entertainment.
PCI had outstanding at December 31, 1995, 985 shares of preferred stock,
which was convertible into 812 shares of Class A common stock. PCI 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, PCI issued to certain stockholders an additional 2,437
shares of Class A common stock in accordance with the provisions of the
Shareholder Agreement dated June 27, 1991. The shares were issued at a nominal
value of $.01 each. Also during February 1996, PCI issued a stock dividend of
166 shares of series A preferred stock to the preferred stock stockholder.
During March 1996, PCI 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 PCI 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 shares of Class A
and Class B common stock 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 retained voting
rights and only holders of common stock were entitled to receive dividends. Each
series of preferred stock has redemption provisions; the series B preferred
stock was also convertible into common stock.
F-17
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY (CONTINUED)
During March 1996, PCI 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 ("ECO") 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 Limited Partnership ("PIHLP") in exchange for
$17,029,000.
The PCI 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 PCI
series A, series B and series C preferred stock may be redeemed at any time in
whole or in part at a redemption price per share of $10,000. Prior to the
mandatory redemption of the PCI series B preferred stock, the holders of any
shares of PCI series B preferred stock had the option to convert their shares to
4,862 shares of PCI common stock. The preferred stock was recorded at its
mandatory redemption value on October 31, 2004, discounted at 12%, of
$32,156,000.
On June 22, 1997, all the holders of shares of PCI's common stock and
@Entertainment entered into a 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 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. 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's series B preferred stock. @Entertainment's series B
preferred stock has identical rights and preferences to those of PCI's 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's series B preferred
stock automatically converted into 4,862,000 shares of common stock of
@Entertainment upon the closing of the IPO. The formation of @Entertainment has
been accounted for at historical cost in a manner similar to pooling of interest
accounting.
On June 20, 1997, 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 June 22, 1997
(the "Purchase Agreement"). Among other matters, the Purchase Agreement
obligated @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 IPO. The aggregate purchase
price of $60,000,000 for PCI's series A preferred stock and series C preferred
stock equaled the aggregate redemption price of such shares as set forth in
PCI's certificate of incorporation. The purchase resulted in a loss applicable
to common stockholders of $33,806,000 representing the excess of the
consideration paid for the preferred stock over the carrying amount of those
shares as of the date of the Reorganization (as defined hereinafter). The
aforementioned purchase was funded with a portion of the net proceeds of the
IPO.
The Company periodically accreted, until the date of the purchases described
above, from paid-in capital an amount that would provide for the redemption
value of the PCI series A, B and C preferred shares at October 31, 2004. The
total amounts recorded for accretion for the years ended December 31, 1996 and
1997 were $2,870,000 and $2,436,000, respectively.
F-18
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY (CONTINUED)
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").
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 @Entertainment's 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 100% of the outstanding shares of common
stock and preferred stock of PCI and 100% of @EL.
On August 5, 1997, the Company consummated an initial public offering of
9,500,000 shares of common stock at a price of $21 per share. Net proceeds to
the Company were approximately $183,292,000 after deduction of the underwriting
discount and other expenses of the offering.
2. FINANCIAL POSITION AND BASIS OF ACCOUNTING
These consolidated financial statements have been prepared on a going
concern basis which contemplates the continuation and expansion of trading
activities as well as the realization of assets and liquidation of liabilities
in the ordinary course of business. Cable television operators typically
experience losses and negative cash flow in their initial years of operation due
to the large capital investment required for the construction or acquisition of
their cable networks and the administrative costs associated with commencing
operations. Consistent with this pattern, the Company has incurred substantial
operating losses since inception. The Company expects to experience substantial
operating losses and negative cash flows for at least the next two years in
association with the expansion of the D-DTH and programming businesses.
Additionally, the Company is currently and is expected to continue to be highly
leveraged. 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 to support the planned
expansion.
Management of the Company believes that significant opportunities exist for
pay television providers capable of delivering high quality, Polish-language
programming on a multi-channel basis. As such, the Company has focused its
financial and business efforts toward its position in the cable, D-DTH and
programming markets. The Company's business strategy is designed to increase its
market share and subscriber base and to maximize revenue per subscriber. To
accomplish its objectives and to capitalize on its competitive advantages, the
Company intends to (i) control content on its cable and D-DTH systems; (ii) grow
its distribution capabilities; (iii) control its own subscriber management with
advanced integrated management information systems; and (iv) establish Wizja TV
as the leading brand name in the Polish pay television industry. The Company is
dependent on obtaining new financing to achieve this business strategy and is
currently exploring methods of raising additional capital. If not successful,
the Company will be required to reduce the scope of its presently anticipated
expansion of operations, reduce capital and operating expenditures, including
invoking cancellation rights under certain agreements, and as a result the
business, results of operations and prospects of the Company could be adversely
affected. Management
F-19
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
2. FINANCIAL POSITION AND BASIS OF ACCOUNTING (CONTINUED)
believes that cash on hand and cash from operations will be sufficient to fund
its reduced plan for the next twelve months assuming the Company is not
successful in raising additional capital and, accordingly, consider it
appropriate to prepare the consolidated financial statements on a going concern
basis.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP").
The consolidated financial statements include the financial statements of
@Entertainment, Inc. and its wholly owned and majority owned subsidiaries. Also
consolidated is a 49% owned subsidiary for which the Company maintains control
of operating activities and has the ability to influence the appointment of
members to the Managing Board. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and other short-term investments
with original maturities of less than three months.
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 U.S. GAAP. Actual results could differ from those estimates.
REVENUE RECOGNITION
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.
In association with the launch of the Company's D-DTH broadcasting service
and branded digital encrypted platform of Polish-language programming under the
brand name Wizja TV during the first half of 1998, the Company intends to begin
distributing its own programming on both its D-DTH and cable television
networks. Such distribution of programming will provide two sources of revenue
for the Company: subscriber-based programming fees and advertising revenue. As
of December 31, 1997, no programming or advertising revenue related to the
D-DTH/Wizja TV launch has been earned or recognized.
F-20
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
U.S. TAXATION:
The Company and PCI are subject to U.S. federal income taxation on its
worldwide income. The PTK Companies and PCBV are foreign corporations, which
are not 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.
FOREIGN TAXATION:
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.
INVESTMENT SECURITIES
Investment securities outstanding at December 31, 1996, consist of
short-term investments with original maturities ranging from four to six months.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES", 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 consolidated balance sheet.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes assets used in the development of the
D-DTH system. As of December 31, 1997, all of the Company's investment in D-DTH
television systems was recorded as construction in progress. Accordingly, such
investment will commence depreciation upon the expected substantial completion
of such systems during the first half of 1998.
Property, plant and equipment also includes assets 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
F-21
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cable television systems. When material, the Company capitalizes interest costs
incurred during the period of construction in accordance with SFAS No. 34,
"CAPITALIZATION OF INTEREST COST". Interest is not capitalized for short-term
construction projects. During 1995, 1996 and 1997, no interest costs were
capitalized.
Cable subscriber related costs and the Company's 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--10 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 ten years.
INTANGIBLES
During 1997, the Company entered into contracts for the purchase of certain
exhibition or broadcast rights. Broadcast or exhibition rights consist
principally of rights to broadcast syndicated programs, sports and feature films
and are accounted for as a purchase of rights by the licensee. The asset and
liability for the rights acquired and obligations incurred under a license
agreement are reported by the Company, at the gross amount of the liability,
when the license period begins and certain specified conditions have been met,
in accordance with the guidelines established within SFAS No. 63, "FINANCIAL
REPORTING BY BROADCASTERS".
Broadcast rights that have limited showings will be generally amortized
using an accelerated method as programs are aired based on the estimated number
of showings. Capitalized costs relating to broadcast rights with unlimited
showings will be amortized on a straight-line basis over the contract period.
As the broadcast rights were purchased to correspond with the Company's
launch of its D-DTH and Wizja TV programming platform during the first half of
1998, all of the costs incurred as of year end, approximately $894,000, were
recorded as a prepayment within other current assets at December 31, 1997 and
such rights will become available for broadcast during 1998.
Through its subsidiaries, the Company has entered into lease agreements with
the Polish national 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
F-22
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Costs incurred to obtain financing have been deferred and amortized over the
life of the loan using the effective interest method.
INVESTMENTS IN AFFILIATED COMPANIES AND JOINT VENTURES RELATING TO THIRD
PARTY PROGRAMMING
In some instances, the Company purchases an equity interest in the
programming it distributes, typically by investing in the entity which produces
that particular programming for distribution in Poland, and by sharing the costs
and expenses incurred in the creation of the Polish-language version of that
particular programming. In these cases, the investment is accounted for under
the equity method in accordance with guidance established within Accounting
Principles Board ("APB") Opinion No. 18.
MINORITY INTEREST
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION", 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 APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", with pro
forma disclosure of net loss and loss per share as if the fair value method had
been applied. The Company has elected to apply APB Opinion No. 25 and related
interpretations for stock options and other stock-based awards.
FOREIGN CURRENCIES
Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are remeasured at rates of exchange at consolidated balance sheet
date. Gains and losses on foreign currency transactions are included in the
consolidated statement of operations.
Translation of the financial statements of the Polish subsidiaries 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 1994, 1995 and 1996 inflation was 33.3%, 26.8% and 19.9%,
respectively, yielding a three-year cumulative inflation rate of 102.7%.
Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company will establish
a new functional currency basis for non-monetary items in accordance with
guidelines established within EITP Issue 92-4, "ACCOUNTING FOR A CHANGE IN
F-23
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUNCTIONAL CURRENCY WHEN AN ECONOMY CEASES TO BE CONSIDERED HIGHLY
INFLATIONARY." That basis is computed by translating the historical reporting
currency amounts of non-monetary items into the local currency at current
exchange rates.
BASIC AND DILUTED NET LOSS PER SHARE
The Company, effective for the year ended December 31, 1997, adopted SFAS
No. 128 "EARNINGS PER SHARE". Accordingly, 1995 and 1996 per share calculations
have been restated to conform with this statement. Pursuant to the provisions of
the statement, basic loss per share has been computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding during the period. The effect of potential common shares is
antidilutive, accordingly, dilutive loss per share is the same as basic loss per
share.
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 and cash equivalents,
accounts receivable, notes receivable from affiliates, accounts payable and
accrued expenses, other current liabilities, and notes payable.
At December 31, 1997, the carrying value of cash and cash equivalents,
investment securities, accounts receivable, accounts payable and accrued
expenses, and other current liabilities on the accompanying consolidated balance
sheets approximates fair value due to the short maturity of these instruments.
At December 31, 1997, the fair value of the Company's notes payable balance
approximates $128,420,000, based on the last trading price of the notes payable
in 1997. 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 assesses the recoverability of long-lived assets (mainly
property, plant and equipment, intangibles and certain other assets) by
determining whether the carrying value of the assets can be recovered over the
remaining lives through projected undiscounted future operating cash flows,
expected to be generated by such assets. If an impairment in value is estimated
to have occurred, the assets carrying value is reduced to its estimated fair
value. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved.
COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment can
be reasonably estimated.
F-24
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
All advertising costs of the Company are expensed as incurred.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements to conform to the 1997 consolidated financial statement
presentation.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", was issued in June 1997 and
establishes standards for the reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive income
encompasses all changes in stockholders' equity (except those arising from
transactions with owners) and includes net income, net unrealized capital gains
or losses on available for sale securities and foreign currency translation
adjustments. As this new standard only requires additional information in
financial statements, it will not affect the Company's financial position or
results of operations. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. The Company is
currently evaluating the presentation alternatives permitted by the statement.
SFAS No. 131, "DISCLOSURES ABOUT A SEGMENT OF AN ENTERPRISE AND RELATED
INFORMATION", was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes SFAS No. 14, "FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE," which requires reporting segment information
by industry and geographic area (industry approach). Under SFAS No. 131,
operating segments are defined as components of a company for which separate
financial information is available and used by management to allocate resources
and assess performance (management approach). This statement is effective for
year end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company does
not anticipate that this standard will significantly impact the composition of
its current operating segments, which are consistent with the management
approach.
4. INVESTMENT SECURITIES
At December 31, 1996, investment securities consisted of short-term
corporate bonds with original maturities ranging from four to six months. As of
December 31, 1996, the aggregate securities balance consisted of securities with
an amortized cost of $25,115,000, unrealized holding gains of $227,000, and a
fair value of $25,342,000. All such investment securities matured during 1997,
and as of December 31, 1997, certain amounts previously invested in investment
securities are invested in cash and cash equivalents.
F-25
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
5. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS AMOUNTS
BALANCE AT CHARGED TO WRITTEN BALANCE AT
JANUARY 1 EXPENSE OFF DECEMBER 31
------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1995
Allowance for Doubtful Accounts............................... $ 132 $ 385 $ 7 $ 510
1996
Allowance for Doubtful Accounts............................... $ 510 $ 358 $ 323 $ 545
1997
Allowance for Doubtful Accounts............................... $ 545 $ 494 $ 273 $ 766
</TABLE>
6. ACQUISITIONS
Effective January 1, 1997, the Company acquired the remaining 51% of a
subsidiary company for aggregate consideration of approximately $9,927,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess to goodwill. The purchase price
exceeded the fair value of the net assets acquired by approximately $5,556,000.
In May 1997, the Company acquired a 54.75% ownership interest in a cable
television company for aggregate consideration of approximately $10,925,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess as goodwill. The results of the
acquired company have been included with the Company's results since the date of
acquisition. The purchase price exceeded the fair value of the net assets
acquired by approximately $9,910,000. Included in minority interest at December
31, 1997 is approximately $450,000 relating to the acquisition of this
subsidiary.
Had these acquisitions occurred on January 1, 1996, the Company's pro-forma
consolidated results for the years ended December 31, 1996 and 1997, would have
been as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenue................................................................ $ 29,750 $ 40,550
Net loss............................................................... (7,614) (54,914)
Net loss applicable to common stockholders............................. (8,673) (91,156)
Net loss per share..................................................... $ (0.49) $ (3.68)
</TABLE>
Additionally, during 1997 the Company acquired certain cable television
system assets for aggregate consideration of approximately $3,200,000. The
acquisitions have been accounted for as fixed asset purchases with the purchase
price allocated among the fixed assets acquired based upon their fair values at
the dates of acquisition and any excess to goodwill. The purchase prices
exceeded the fair value of the assets acquired by approximately $548,000.
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
F-26
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
6. ACQUISITIONS (CONTINUED)
have been accounted for as purchases with the purchase price allocated among the
assets acquired and liabilities assumed based upon the fair values at the 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.
The purchase prices exceeded the fair value of the net assets acquired by
approximately $5,800,000.
During December 1996, the Company entered into a purchase agreement for a
cable television system operating in the Opole area for approximately
$1,400,000, which is included in property, plant and equipment in the
accompanying consolidated balance sheet at December 31, 1996.
During 1995, the Company acquired four cable television companies for
aggregate consideration of approximately $4,075,000. The acquisitions have been
accounted for as purchases with the purchase price allocated among the assets
acquired and liabilities assumed based upon the fair values at the date of
acquisition and any excess as goodwill. The results of the acquired companies
have been included with the Company's results since January 1, 1995. The
purchase prices approximated the fair value of the net assets acquired.
7. INTANGIBLES
Intangible assets are carried at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Conduit and franchise agreements........................................ $ 5,391 $ 5,391
Goodwill................................................................ 6,730 22,744
Deferred financing costs................................................ 6,463 8,212
Other................................................................... 1,262 1,543
--------- ---------
19,846 37,890
Less accumulated amortization........................................... (1,354) (4,450)
--------- ---------
Net intangible assets................................................... $ 18,492 $ 33,440
--------- ---------
--------- ---------
</TABLE>
8. OTHER CURRENT AND NON-CURRENT ASSETS
Included in other current assets are $1,203,000 and $1,322,000 of VAT
receivables as of December 31, 1996 and 1997, respectively.
As described in Note 3, also included in other current assets is
approximately $894,000 related to certain broadcast rights purchased as of
December 31, 1997 but not yet available for exhibition.
Included in other non-current assets at December 31, 1997 is a prepayment of
$9,000,000 to Philips Business Electronics B.V. ("Philips") toward the supply of
certain critical components and services used in the Company's D-DTH satellite
transmission system ("Reception Systems"). See Note 18 for further details.
Also included in other non-current assets at December 31, 1997 is a
prepayment of approximately $1,200,000 toward the formation of a
programming-related joint venture with World Shopping Network
F-27
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
8. OTHER CURRENT AND NON-CURRENT ASSETS (CONTINUED)
Plc. Although the agreement has not yet been finalized, the Company's intent is
to invest in a new joint venture created to produce shopping television network
programming for distribution in Poland, and share the costs and expenses
incurred in the creation of the Polish-language version of that particular
programming. There can be no assurance that the agreement with World Shopping
Network will be finalized, in which case the $1,200,000 payment will be
expensed.
Included in other non-current assets at December 31, 1996 is a prepayment of
approximately $6,000,000 to the 51% shareholder of one of the PTK Companies
pursuant to an agreement for the purchase of his interest in the PTK Company.
This prepayment was subsequently offset against the purchase price upon the
transfer of all of his 51% interest in the PTK Company to the Company effective
January 1, 1997.
9. INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 20% of the common stock of
Fox Kids Poland Ltd, 50% of the common stock of Twoj Styl Sp. z o.o. ("Twoj
Styl"), 33% of the common stock of ProCable Sp. z o.o. and 45% of the common
stock of Ground Zero Media Sp. z o.o. ("GZM"), all of which are accounted for
using the equity method.
On September 25, 1997, the Company signed a share purchase agreement for a
50% interest in Twoj Styl. Twoj Styl publishes a Polish-language lifestyle
magazine. In addition, the Company agreed to provide additional future financing
to Twoj Styl, either debt or equity, of up to $7,700,000 to develop Polish-
language programming and ancillary services.
In December 1997, the Company entered into a joint venture with Saban
International N.V. ("SINV") for a 20% equity interest in Fox Kids Poland Ltd.
for the purpose of producing "Fox Kids" programming for distribution in Poland.
Under the terms of the agreement, the joint venture partners will share the
costs and expenses incurred in the creation of the Polish language version of
the programming.
The aggregate consideration paid for investments in affiliated companies
during 1997 was $21,420,000.
In April 1997, PCI reached an agreement in principle with GZM whereby PCI
assumed responsibility for selling all advertising to be aired on Atomic TV for
a period of one year commencing April 1997. Atomic TV is a Polish-language music
television channel owned by GZM, which began to be broadcast via satellite to
Poland on April 7, 1997. Under the terms of the agreement, PCI has the right to
receive all of the funds generated from advertising sales, and in exchange, PCI
pays GZM $4,950,000. During 1997, $3,700,000 was charged to selling, general and
administrative expenses with respect to this contract of which $450,000 is
accrued at December 31, 1997. The fees charged to the Company for these rights
are set at the level of fees that GZM would charge to unrelated parties.
Subsequent to year end, the Company acquired the remaining shares of GZM.
It was not practicable to estimate the market value of the investments in
affiliate companies due to the nature of these investments, the relatively short
existence of the investee companies, and the absence of quoted market prices for
the investee companies.
F-28
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES
Income tax benefit/(expense) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Year ended December 31, 1995:
U.S. Federal.................................................................... $ (587) $ -- $ (587)
State and local................................................................. (13) -- (13)
Foreign......................................................................... -- -- --
--------- --- ---------
$ (600) $ -- $ (600)
--------- --- ---------
--------- --- ---------
Year ended December 31, 1996:
U.S. Federal.................................................................... $ (714) $ -- $ (714)
State and local................................................................. (531) -- (531)
Foreign......................................................................... (28) -- (28)
--------- --- ---------
$ (1,273) $ -- $ (1,273)
--------- --- ---------
--------- --- ---------
Year ended December 31, 1997:
U.S. Federal.................................................................... $ 1,438 $ -- $ 1,438
State and local................................................................. -- -- --
Foreign......................................................................... (463) -- (463)
--------- --- ---------
$ 975 $ -- $ 975
--------- --- ---------
--------- --- ---------
</TABLE>
Sources of (loss)/income before income taxes and minority interest are
presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic loss................................................ $ (1,115) $ (2,602) $ (20,628)
Foreign income/(loss)........................................ 444 (4,632) (31,585)
--------- --------- ----------
$ (671) $ (7,234) $ (52,213)
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-29
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES (CONTINUED)
Income tax (expense)/benefit was $(600,000), $(1,273,000), and $975,000 for
the years ended December 31, 1995, 1996, and 1997, respectively, and differed
from the amounts computed by applying the U.S. federal income tax rate of 34
percent to pretax loss as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Computed "expected" tax benefit..................................................... $ 228 $ 2,460 $ 17,752
Non-deductible expenses............................................................. (69) (17) (101)
Change in valuation allowance....................................................... (667) (3,504) (15,424)
Adjustment to deferred tax asset for enacted changes in tax rates................... -- -- (789)
Foreign tax rate differences........................................................ (65) (184) (463)
Other............................................................................... (27) (28) --
--------- --------- ---------
$ (600) $ (1,273) $ 975
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation....................................................................... $ 377 $ --
Foreign net operating loss carryforward..................................................... 2,015 6,471
Interest income............................................................................. 1,867 1,946
Service revenue............................................................................. 2,368 1,948
Accrued liabilities......................................................................... 1,935 2,964
Deferred costs.............................................................................. -- 2,001
Stock options............................................................................... -- 2,950
Unrealized foreign exchange losses.......................................................... -- 5,614
Other....................................................................................... 104 139
--------- ---------
Total gross deferred tax assets............................................................... 8,666 24,033
Less valuation allowance...................................................................... (8,609) (24,033)
--------- ---------
Net deferred tax assets....................................................................... $ 57 $ --
--------- ---------
--------- ---------
Deferred tax liabilities:
Prepaid expenses............................................................................ $ (57) $ --
--------- ---------
Total gross deferred liabilities............................................................ $ (57) $ --
--------- ---------
Net deferred tax liability.................................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The net increase in the valuation allowance for the years ended December 31,
1995, 1996 and 1997 was $667,000, $3,504,000, and $15,424,000, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of
F-30
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES (CONTINUED)
future taxable income during the periods in which those temporary differences
become deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will not realize the benefits of these
deductible differences, net of the existing valuation allowances at December 31,
1997.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1997 will be reported in the consolidated
statement of operations.
Foreign 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. For losses incurred in U.S. taxable years
prior to 1998, loss carryforwards can be applied against taxable income three
years retroactively and fifteen years into the future.
At December 31, 1997, the Company has foreign net operating loss
carryforwards of approximately $19,019,000 which will expire as follows:
<TABLE>
<CAPTION>
(IN
YEAR ENDING DECEMBER 31, THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 4,677
1999........................................................................... 4,030
2000 and thereafter............................................................ 10,312
-------------
$ 19,019
-------------
-------------
</TABLE>
11. OTHER CURRENT LIABILITIES
Included in other current liabilities at December 31, 1996 and 1997 is
approximately $726,000 and $577,000, respectively, related to accrued
programming fees.
During 1996, the Company had 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 as of
December 31, 1996, and the deferred compensation expense associated with these
agreements was $357,000 for the year ended December 31, 1996. The Company had no
such agreements in 1997.
F-31
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
PCI Notes, net of discount............................................ $ 129,524 $ 129,578
American Bank in Poland S.A. ("AmerBank") revolving credit loan....... 550 --
$1,200,000 note payable to Polski Bank Rozwoju S.A. ("PBR")........... -- 32
$500,000 note payable to PBR.......................................... -- 500
---------- ----------
Total notes payable................................................... $ 130,074 $ 130,110
---------- ----------
---------- ----------
</TABLE>
PCI NOTES
On October 31, 1996, PCI sold $130,000,000 aggregate principal amount of
Senior Notes ("PCI Notes") to an initial purchaser pursuant to a purchase
agreement. The initial purchaser subsequently completed a private placement of
the PCI Notes. In June, 1997 substantially all of the outstanding PCI Notes were
exchanged for an equal aggregate principal amount of publicly-registered PCI
Notes.
The PCI Notes have an interest rate of 9 7/8% and a maturity date of
November 1, 2003. Interest is paid on the PCI Notes on May 1 and November 1 of
each year. As of December 31, 1996 and 1997 the Company accrued interest expense
of $2,175,000 and $2,175,000, respectively. Prior to November 1, 1999, PCI may
redeem up to a maximum of 33% of the initially outstanding aggregate principal
amount of the PCI Notes with some or all of the net proceeds of one or more
public equity offerings at a redemption price equal to 109.875% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption; provided that immediately after giving effect to such redemption, at
least $87,000,000 aggregate principal amount of the PCI Notes remains
outstanding.
The PCI Notes are net of unamortized discount of $476,000 and $422,000 at
December 31, 1996 and 1997, respectively. At December 31, 1997, the effective
interest rate was 11.44%.
PCI has pledged to State Street Bank and Trust Company, the trustee for the
PCI Notes (for the benefit of the holders of the PCI Notes) intercompany notes
issued by PCBV, of a minimum aggregate principal amount (together with cash and
cash equivalents of PCI), equal to at least 110% of the outstanding principal
amount of the PCI Notes, and that, in the aggregate, provide cash collateral or
bear interest and provide for principal repayments, as the case may be, in
amounts sufficient to pay interest on the PCI Notes. Notes payable from PCBV to
PCI were $107,891,000 and $134,509,000 at December 31, 1996 and 1997,
respectively.
Pursuant to the PCI Indenture, PCI is subject to certain restrictions and
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 PCI Notes upon a change of control; (viii) limitation on sale of
assets; (ix) limitation on dividends and other payment restrictions affecting
subsidiaries; (x) limitation
F-32
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. NOTES PAYABLE (CONTINUED)
on investments in unrestricted subsidiaries; (xi) limitation on lines of
business; and (xii) provision of financial statements and reports. As of
December 31, 1997, the Company was in compliance with such covenants.
Condensed parent only financial statements of @Entertainment, Inc. are
provided in Note 13 in compliance with the requirements of Rules 5-04 and 12-04
of the Securities and Exchange Commission's Regulation S-X.
PBR
A subsidiary of the Company which was acquired during 1997 entered into two
agreements with PBR for notes of approximately $500,000 and $1,200,000. Interest
is based on LIBOR plus 2.5% (8.31% in aggregate at December 31, 1997) and LIBOR
plus 4% (9.81% in aggregate at December 31, 1997), respectively, and is due
monthly. The loans are secured by the subsidiary's cable television networks up
to a value of approximately PLN 3.5 million (approximately $995,000 at December
31, 1997). All advances under the $500,000 loan must be repaid by December 10,
2000, and all advances under the $1,200,000 loan must be repaid by January 10,
1998. Subsequent to year end, the remaining balance of the $1,200,000 loan was
repaid.
AMERBANK
In October 1995, the Company entered into an agreement with AmerBank 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.
In August 1996, the Company entered into a $6,500,000 revolving credit loan
agreement with AmerBank of which $550,000 was outstanding at December 31, 1996.
This balance was repaid during 1997. 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.
OVERSEAS PRIVATE INVESTMENT CORPORATION
In January 1994, 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 such 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.
BANK OF BOSTON CONNECTICUT
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.
Interest expense relating to the aforementioned notes payable was
approximately $4,373,000, $4,687,000 and $13,902,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-33
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT
The following parent only condensed financial statements were prepared in
accordance with generally accepted accounting principles in the United States of
America in a manner consistent with the consolidated financial statements except
that all subsidiaries have been accounted for under the equity method. The
parent only condensed financial statements as of and for periods prior to the
Reorganization represent those of PCI.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
(IN THOUSANDS)
Operating costs and expenses:
Selling, general and administrative expenses........................................ $ 1,061 $ 14,662
---------- ----------
Operating loss...................................................................... (1,061) (14,662)
Interest and investment income........................................................ 1,076 2,489
Interest expense...................................................................... (2,612) --
Equity in losses of affiliated companies.............................................. (2,775) (42,651)
---------- ----------
Loss before income taxes............................................................ (5,372) (54,824)
Income tax expense.................................................................... (1,245) --
---------- ----------
Net loss............................................................................ (6,617) (54,824)
Accretion of redeemable preferred stock............................................... (2,870) (2,436)
Preferred stock dividends............................................................. (1,738) --
Deficit/(excess) of consideration paid for preferred stock under/(over) carrying
amount.............................................................................. 3,549 (33,806)
---------- ----------
Net loss applicable to holders of common stock........................................ $ (7,676) $ (91,066)
---------- ----------
---------- ----------
</TABLE>
F-34
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................. $ 55,044 $ 71,565
Investment securities..................................................................... 25,115 --
Accounts receivable, net.................................................................. 148 290
Other current assets...................................................................... 188 74
---------- ----------
Total current assets...................................................................... 80,495 71,929
Intangible assets, net.................................................................... 6,361 --
Other assets.............................................................................. 6,000 11,252
Net investment in restricted net assets of wholly-owned subsidiaries...................... 89,821 121,977
Net investment in unrestricted net assets of wholly-owned subsidiaries.................... 22,486 (51,822)
---------- ----------
Total assets.............................................................................. $ 205,163 $ 153,336
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses..................................................... $ 2,989 $ 981
Accrued interest.......................................................................... 2,175 --
Income taxes payable...................................................................... 4,472 --
Notes payable............................................................................. 129,524 --
---------- ----------
Total liabilities......................................................................... 139,160 981
Redeemable preferred stock (liquidation value $85,000,000; Authorized 8,500 shares. 8,500
issued and outstanding in 1996; none issued and outstanding in 1997).................... 34,955 --
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000 shares in 1996 and 70,000,000 shares
in 1997; issued and outstanding 18,948,000 shares in 1996 and 33,310,000 shares in
1997.................................................................................. 189 333
Paid-in capital......................................................................... 54,134 230,339
Cumulative translation adjustment....................................................... -- (218)
Accumulated deficit..................................................................... (23,275) (78,099)
---------- ----------
Total stockholders' equity................................................................ 31,048 152,355
---------- ----------
Total liabilities and stockholders' equity................................................ $ 205,163 $ 153,336
---------- ----------
---------- ----------
</TABLE>
F-35
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PRFERRED STOCK COMMON STOCK CUMULATIVE
---------------------- ----------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
----------- --------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1995........ 985 $ 10,311 11,037 $ 4,993 $ 1,544 $ -- $ (16,658)
Net loss..................... -- -- -- -- -- -- (6,617)
Stock dividend............... 166 1,738 -- -- (1,738) -- --
Proceeds from issuance of
common and preferred
stock...................... -- -- 7,911 (4,992) 87,021 -- --
Cost of issuance............. -- -- -- -- (1,028) -- --
Allocation of proceeds to
preferred.................. -- -- -- -- (32,156) -- --
Preferred stock redemption... (1,151) (12,049) -- -- 3,549 -- --
Accretion of redeemable
preferred stock............ -- -- -- -- (2,870) -- --
Reorganization (note 1)...... -- -- 18,929,052 188 (188) -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1996........ -- -- 18,948,000 189 54,134 -- (23,275)
Translation adjustment....... -- -- -- -- -- (218) --
Net loss..................... -- -- -- -- -- -- (54,824)
Net proceeds from public
offering (note 1).......... -- -- 9,500,000 95 183,197 -- --
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. -- -- -- -- (33,806) -- --
Accretion of redeemble
preferred stock (note 1)... -- -- -- -- (2,436) -- --
Conversion of series B
redeemable preferred stock
(note 1)................... -- -- 4,862,000 49 11,148 -- --
Stock option compensation
expense.................... -- -- -- -- 18,102 -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1997.... -- $ -- 33,310,000 $ 333 $ 230,339 $ (218) $ (78,099)
----------- --------- ---------- ----------- --------- ----------- ------------
----------- --------- ---------- ----------- --------- ----------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance December 31, 1995........ $ 190
Net loss..................... (6,617)
Stock dividend............... --
Proceeds from issuance of
common and preferred
stock...................... 82,029
Cost of issuance............. (1,028)
Allocation of proceeds to
preferred.................. (32,156)
Preferred stock redemption... (8,500)
Accretion of redeemable
preferred stock............ (2,870)
Reorganization (note 1)...... --
-----------
Balance December 31, 1996........ 31,048
Translation adjustment....... (218)
Net loss..................... (54,824)
Net proceeds from public
offering (note 1).......... 183,292
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. (33,806)
Accretion of redeemble
preferred stock (note 1)... (2,436)
Conversion of series B
redeemable preferred stock
(note 1)................... 11,197
Stock option compensation
expense.................... 18,102
-----------
Balance December 31, 1997.... $ 152,355
-----------
-----------
</TABLE>
F-36
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss............................................................. $ (6,617) $ (54,824)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization of notes payable discount and issue costs........... 164 1,040
Equity in losses of affiliated companies......................... 12,862 42,651
Gain on sale of investment securities............................ -- (358)
Non-cash stock option compensation expense....................... -- 8,677
Changes in operating assets and liabilities:
Accounts receivable.............................................. (35) (142)
Other current assets............................................. (1,300) 114
Accounts payable and accrued expenses............................ 3,900 (2,008)
Income taxes payable............................................. 4,472 (4,472)
Other current liabilities........................................ (1,045) --
---------- ----------
Net cash provided by (used in) operating activities.......... 12,401 (9,322)
---------- ----------
Cash flows from investing acitivities:
Proceeds from maturity of investment securities...................... (25,115) 25,473
Investment in, and loans and advances to affiliated companies........ (122,337) (111,670)
Purchase of other assets............................................. (8,200) (11,252)
---------- ----------
Net cash used in investing activities........................ (155,652) (97,449)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of stock.............................. 81,001 183,292
Redemption of preferred stock.................................... (8,500) (60,000)
Costs to obtain loans............................................ (6,513) --
Proceeds from notes payable...................................... 136,074 --
Repayment of notes payable....................................... (10,000) --
---------- ----------
Net cash provided by financing activities.................... 192,062 123,292
---------- ----------
Net increase in cash and cash equivalents.................... 48,811 16,521
Cash and cash equivalents at beginning of year......................... 6,233 55,044
---------- ----------
Cash and cash equivalents at end of year............................... $ 55,044 $ 71,565
---------- ----------
---------- ----------
Supplemental cash flow information:....................................
Cash paid for interest........................................... $ 2,338 $ --
---------- ----------
---------- ----------
Cash paid for income taxes....................................... $ 1,184 $ --
---------- ----------
---------- ----------
</TABLE>
F-37
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
14. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into transactions
with affiliated parties. The principal related party transactions are described
below.
NOTES RECEIVABLE FROM AFFILIATES
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 accrued at 10%
per annum beginning January 1, 1997. The loan was repaid during 1997.
The Company signed an agreement to loan up to $750,000 to GZM to cover
certain operating and capital expenses. Under the terms of the loan, interest is
accrued at 10% per annum. The loan was due June 30, 1997, but under the terms of
the agreement, the Company has agreed not to seek current repayment of the
balance until GZM generates sufficient cash flow or liquidity to support such
repayment.
The Company incurred advertising costs associated with a separate agreement
with GZM. Refer to note 9 for further detail.
PROGRAMMING
An affiliate of the Company provides programming to PCI and its
subsidiaries. The Company incurred programming fees from this affiliate of
$186,000, $412,000 and $559,000 for the years ended December 31, 1995, 1996 and
1997, respectively.
15. 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.
The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Net loss attributable to common stockholders (in thousands)...................... $ (1,289) $ (7,676) $ (91,066)
--------- --------- ----------
--------- --------- ----------
Weighted average number of common shares outstanding (in thousands).............. 11,037 17,271 24,771
Nominal issuance (in thousands).................................................. 2,437 346 --
--------- --------- ----------
Basic weighted average number of common shares outstanding (in thousands)........ 13,474 17,617 24,771
--------- --------- ----------
--------- --------- ----------
Loss per share--basic and diluted................................................ $ (0.10) $ (0.44) $ (3.68)
--------- --------- ----------
--------- --------- ----------
</TABLE>
16. STOCK OPTION PLAN
On June 22, 1997, the Company adopted a stock option plan (the "1997 Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers, key employees and consultants of the Company. The 1997 Plan authorizes
grants of options to purchase up to 4,436,000 shares (of which
F-38
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
16. STOCK OPTION PLAN (CONTINUED)
2,000,000 remain subject to stockholders approval), subject to adjustment in
accordance with the 1997 Plan. At December 31, 1997, options for 2,574,000
shares had been granted (of which 138,000 remain subject to stockholders
approval) and 1,862,000 shares remained available for future grants (subject to
stockholders approval). Of this amount, 1,671,000 options became exercisable
upon the IPO but cannot be sold for a period of two years from July 30, 1997.
Subsequent to December 31, 1997, options for a further 1,150,000 shares had
been granted which are all also subject to stockholder approval.
The Company granted 1,671,000 stock options in January 1997 at a price
substantially below the IPO price of $21.00 per share. Such options vested in
full upon the completion of the IPO. In accordance with generally accepted
accounting principles, the Company recognized approximately $18,102,000 of
compensation expense included in selling, general, and administrative expenses
for these options in 1997 representing the difference between the exercise price
of the options and their fair market value of the shares on the date of grant.
All other stock options were granted with exercise prices at or below the fair
market value of the shares on the date of grant.
Future stock options are granted with an exercise price that must be at
least equal to the stock's fair market value at 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 the Company, 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
Board of Directors and as set forth in the individual stock option agreements.
Generally, all stock options vest ratably over 2 to 5 years commencing one year
after the date of grant.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at December 31, 1995.............................................................. -- --
Granted................................................................................... 241,000 $ 1.99
----------
Balance at December 31, 1996 (none exercisable)........................................... 241,000 $ 1.99
Granted (138,000 subject to stockholders approval)........................................ 2,333,000 $ 6.63
----------
Balance at December 31, 1997 (1,719,000 exercisable)...................................... 2,574,000 $ 6.19
----------
----------
</TABLE>
No options were exercised or forfeited during 1996 or 1997. The exercise
prices range from $1.99 to $15.24 per share and the weighted average remaining
contractual life is 9.2 years.
The per share weighted-average fair value of stock options granted during
1997 was $9.65 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected volatility 39.0%,
expected dividend yield 0.0%, risk-free interest rate of 6.0%, and an expected
life of 4 years.
F-39
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
16. STOCK OPTION PLAN (CONTINUED)
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net loss--as reported.................................................................... $ (6,617) $ (54,824)
Net loss--pro forma...................................................................... $ (6,617) $ (56,607)
Basic and diluted net loss per share--as reported........................................ $ (0.44) $ (3.68)
Basic and diluted net loss per share--pro forma.......................................... $ (0.44) $ (3.75)
</TABLE>
17. LEASES
BUILDING LEASES
The Company leases several offices and warehouses within Poland under
cancelable operating leases. The Company has a noncancelable operating lease for
a building in Great Britain which houses the majority of its technical equipment
relating to the D-DTH network. The noncancelable lease expires in 2002, and
contains a renewal option for an additional five years. Future minimum lease
payments as of December 31, 1997 are $1,649,000 in 1998, $1,649,000 in 1999,
$1,649,000 in 2000, $1,649,000 in 2001 and $1,649,000 in 2002.
D-DTH TECHNICAL EQUIPMENT LEASE
The Company has an eight year agreement with British Telecommunications plc
("BT") for the lease and maintenance of certain satellite uplink equipment. The
agreement requires the payment of equal monthly installments of $50,000
approximating future minimum commitments of $600,000 in 1998, $600,000 in 1999,
$600,000 in 2000, $600,000 in 2001, $600,000 in 2002 and $1,800,000 in 2003 and
thereafter. Other than the BT uplink equipment, the Company owns all of the
required broadcasting equipment at its transmission facility in the United
Kingdom.
CONDUIT LEASES
The Company also leases space within various telephone duct systems from
TPSA under cancelable operating leases. The TPSA leases expire at various times,
and 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. Refer to Note 19 for further detail. 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 and then
remains fixed through the tenth year of the lease.
F-40
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
17. LEASES (CONTINUED)
Minimum future lease commitments for the aforementioned conduit leases
relate to 1998 only, as all leases are cancelable in accordance with the
aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $466,000 for the year ending December 31, 1998.
TRANSPONDER LEASES
During 1997, the Company entered into certain operating leases pursuant to
which the Company is liable for charges associated with each of its three
transponders on the Astra satellites, which can amount to a maximum of
$6,750,000 per year for each transponder and up to $200 million for all three
transponders for the term of their leases. The future minimum lease payments
applicable to the transponders approximate $$6,791,000 in 1998, $7,940,000 in
1999, $7,940,000 in 2000, $7,940,000 in 2001, $7,940,000 in 2002 and $33,745,000
in 2003 and thereafter. The leases for the two transponders on the Astra 1F
satellite and the transponder on the Astra 1G satellite will expire in 2007.
Either party to the transactions may terminate any or all of the transponder
leases with 6 months notice if the Company has not targeted the Polish D-DTH
market prior to January 1, 1999. If all of the leases had been terminated at
December 31, 1997, the maximum aggregate charges under the leases would have
approximated $8,700,000. The Company's transponder leases provide that the
Company's rights are subject to termination in the event that the lessor's
franchise is withdrawn by the Luxembourg Government.
Total rental expense associated with the aforementioned operating leases for
the years ended December 31, 1995, 1996 and 1997 was $711,000, $892,000 and
$3,696,000, respectively.
18. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has concluded an agreement with Philips, whereby Philips would
supply Reception Systems, as well as retail, installation and support services
in connection with the launch of the Company's D-DTH business in Poland. Philips
will be the exclusive supplier to the Company of the first 500,000 D-DTH
Reception Systems and will not distribute any other digital integrated receiver
decoders under the Philips trademark in Poland until September 1, 1999 or any
earlier date on which the Company has secured 500,000 initial subscribers to its
D-DTH service in Poland. Philips has granted the Company an exclusive license of
its CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which will terminate when the Company has purchased 500,000 D-DTH
Reception Systems from Philips, unless terminated earlier in accordance with the
terms of the agreement or extended by mutual consent of Philips and the Company.
The aggregate cost of the agreement with Philips is estimated to approximate
$200,000,000 or up to $400 per Reception System for the first 500,000
subscribers. As of December 31, 1997, the Company had paid $9,000,000 to Philips
as a prepayment toward the purchase of the Reception Systems which has been
included in other assets. The Reception Systems will be capitalized and included
as part of property, plant and equipment and leased to subscribers under
operating lease arrangements.
BROADCAST/EXHIBITION RIGHT COMMITMENTS
The Company has entered into long-term contracts for the purchase of certain
exhibition or broadcast rights for its D-DTH and cable systems. The contracts
have terms which range from one to five years and require that the license fees
be paid based upon a fixed amount. The Company has an aggregate minimum
F-41
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
commitment of approximately $17,437,000 over the next 5 years, approximating
$6,590,000 in 1998, $2,580,000 in 1999, $4,185,000 in 2000, $2,488,000 in 2001
and $1,594,000 in 2002. For the year ended December 31, 1997, the Company
incurred no amortization expense relating to these broadcast/exhibition rights
pursuant to these agreements since all balances were recorded as other current
assets as of December 31, 1997. The Company did not incur any amortization
expense relating to broadcast/exhibition rights during 1995 or 1996.
Subsequent to December 31, 1997, the Company entered into additional
exhibition or broadcast rights under which the Company has a minimum commitment
of approximately $2,846,000 in 1998, $2,226,000 in 1999, $949,000 in 2000, and
$43,000 in 2001.
PROGRAMMING COMMITMENTS
The Company has entered into long-term programming agreements with a number
of third party content providers for its D-DTH and cable systems. The
programming agreements have terms which range from one to five years and require
that the license fees be paid either at a fixed amount payable at the time of
execution or based upon a guaranteed minimum number of subscribers connected to
the system each month. The Company has an aggregate minimum commitment of
approximately $74,327,000 over the next 5 years, approximating $9,303,000 in
1998, $11,591,000 in 1999, $15,349,000 in 2000, $17,910,000 in 2001 and
$20,174,000 in 2002. The Company is in the process of negotiating additional
long-term programming agreements with other third party content providers. For
the years ended December 31, 1995, 1996 and 1997, the Company incurred
programming fees of approximately $1,318,000, $1,758,000 and $1,895,000,
respectively, pursuant to these agreements.
Subsequent to December 31, 1997, the Company entered into additional
long-term programming agreements under which the Company has a minimum
commitment of approximately $792,000 in 1998, $1,659,000 in 1999, $2,171,000 in
2000, $2,409,000 in 2001 and $1,446,000 in 2002. The Company is in the process
of negotiating additional long-term programming agreements with other third
party content providers, which agreements if consummated, may require the
Company to pay additional guaranteed minimum payments and/or payments at the
time of execution. Management estimated any additional commitments resulting
from these negotiations will be approximately $1,609,000 in 1998, $3,112,000 in
1999, $3,816,000 in 2000, $2,300,000 in 2001, $1,116,000 in 2002, and $565,000
in 2003 and thereafter.
CUSTOMER SERVICE CENTER COMMITMENT
The Company intends to establish a centralized customer service center. The
call center function of the customer service center will be operational for
D-DTH customers in April 1998 and for the majority of cable customers by the end
of 1998. The billing center function of the Customer Service center will be
operational for D-DTH customers in May 1998 and for the majority of cable
customers by the end of 1998. Management estimates capital expenditures
associated with the establishment of the center will approximate $7,880,000. The
center will be located in a low-cost area of Poland and will consolidate the
functions of the Company's existing regional customer service centers, and the
Company believes the centralization of service functions in one location will
improve the general level of customer service available to subscribers.
F-42
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CAPITAL COMMITMENTS
As of December 31, 1997, the Company entered into commitments to purchase
capital assets of approximately $6,179,000 for 1998.
CONSULTING AGREEMENTS
Subsequent to December 31, 1997, the Company has entered into consulting
agreements with two of its directors pursuant to which the Company is committed
to pay a minimum of $960,000 in each of 1998 and 1999. During 1997, the Company
incurred no expenses relating to these agreements.
REGULATORY APPROVALS
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2,000,000 (approximately
$569,000 at the December 31, 1997 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed capital increases, the non-recognition of the capital
increases by the Polish courts means that the contribution could be treated as
income in the hands of the PTK Company. As a result, part or all of the
contribution could be subject to corporate income tax of 40%. The PTK Company
had enough tax net operating loss in 1995 to offset any additional taxable
income resulting from an unfavorable treatment. The Company has not recorded any
amounts related to this in the accompanying consolidated financial statements
due to the tax net operating loss and uncertainties involved.
LITIGATION AND CLAIMS
Two of the Company's cable television subsidiaries and four other unrelated
Polish cable operators and HBO Polska Sp. z o.o., have been made defendants in a
lawsuit instituted by Polska Korporacja Telewizyjna Sp. z o.o., a subsidiary of
Canal+. The primary defendant in the proceedings is HBO Polska Sp. z o.o. which
is accused of broadcasting the HBO television program in Poland without a
license from the Council as required by the Radio and Television Act of 1992, as
amended, and thereby undertaking an activity constituting an act of unfair
competition. The Company does not believe that the final disposition of the
lawsuit will have a material adverse effect on its consolidated financial
position or results of operations.
Several of the minority stockholders of PCBV have claimed that the behavior
of PCBV and its majority stockholder, PCI, have prejudiced them, and that PCI
has (through its direct and indirect ownership interests in a number of entities
that engage in certain aspects of the cable television business in Poland)
violated certain covenants against competition in the PCBV Stockholders'
agreement, and that under the circumstances, they can no longer be expected to
remain shareholders of PCBV. The PCBV Stockholders' Agreement includes certain
covenants against competition that limit the ability of each
F-43
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
shareholder to engage directly or indirectly in any aspect of the cable
television business in Poland for a period ending ten years after such
stockholder ceases to be a 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 Stockholders' Agreement, the minority
stockholders of PCBV have a claim against 7.7% of the profits and equity of such
entities. Under a supplemental agreement, PCI has agreed to share the future
profits of the competing cable companies on a pro rata basis. As at December 31,
1997, no amounts have been incurred.
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 current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
D-DTH BUSINESS
The Company expects that its D-DTH business will incur substantial operating
losses for at least two years of operation while it is developed and expanded.
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 and
maintain a successful programming platform for the Polish market and its ability
to control other costs which do not vary with the number of subscribers. The
Company may require additional external funding for its business development
plans if it continues to provide promotional incentives to subscribers with
respect to the cost of the D-DTH Reception Systems to subscribers other than the
500,000 initial subscribers. 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.
SUPPLIER AGREEMENT
Although the agreement with Philips to supply the Company's satellite
transmission system provides a means by which the Company could obtain a second
and third 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 integrated receiver decoders
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. Additionally, 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.
F-44
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
ASTRA SATELLITES
The Company's D-DTH business will depend on its ability to broadcast using
certain transponders. Satellites are subject to significant risks that may
prevent or impair proper commercial operations, including satellite defects,
destruction and damage. 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 a broadcaster which has
pre-emption rights permitting it to gain access to additional transponders in
preference to certain other Astra customers. The Company, however, 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. The ability of the
Company to transmit its programming following termination of the Company's
leases of the transponders (and following the expiration of the expected useful
lives of the Astra satellites in approximately 2015) 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.
USE OF TPSA CONDUITS
The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television networks depends on,
among other things, the Company's continued ability to design and obtain access
to network routes, and to 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 December 31, 1997, approximately 60%
of the Company's cable 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 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.
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 televisions networks. Accordingly, any
catastrophe affecting a significant portion of the Company's cable television
networks could result in substantial uninsured losses and could have a material
adverse effect on the Company.
YEAR 2000
In January 1997, the Company developed a plan to deal with the Year 2000
problem to make its computer systems Year 2000 compliant. The plan provides for
the Year 2000 related efforts to be completed by the end of 1998. Largely as a
result of its high rate of growth over the past few years, the Company has
entered into an agreement to purchase a new system to replace its current
accounting computer system and an agreement to purchase specialized billing
software for the Company's new customer service and billing center. The Company
has no other significant computer systems. The total
F-45
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
cost of the purchases is estimated to be approximately $2,400,000. The Company
has obtained confirmations from the vendors of the systems indicating that such
systems are Year 2000 compliant.
CREDIT WORTHINESS
All of the Company's customers are located in Poland. As is typical in this
industry, no single customer accounted for more than five percent of the
Company's sales in 1996 or 1997. The Company estimates an allowance for doubtful
accounts based on the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
effect the Company's estimate of its bad debts.
20. FOURTH QUARTER RESULTS
During the fourth quarter of 1997 circumstances came to the attention of
management which led to the determination that certain receivable balances from
minority interests were not recoverable. The Company has recorded an adjustment
to minority interest of approximately $5,800,000 relating to this write-off, of
which approximately $3,300,000 related to prior years.
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The previously reported 1997 third quarter results failed to include the
adjustment recorded to stockholders' equity for the purchase of the PCI series A
and C redeemable preferred stock as an increase
F-46
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
to the net loss applicable to common stockholders. The quarterly data set forth
below presents the 1997 third quarter results as previously reported and as
adjusted to correct for this omission.
<TABLE>
<CAPTION>
1996 PERIOD ENDING
-----------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
----------- --------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cable television revenue................................ $ 24,923 $ 6,608 $ 6,090 $ 6,604 $ 5,621
Operating (loss) income................................. (1,347) (2,454) (1,459) 1,821 745
Minority interest....................................... 1,890 754 1,116 69 (49)
Income tax benefit/(expense)............................ (1,273) 178 2 (948) (505)
Net loss................................................ (6,617) (4,909) (1,119) 875 (1,464)
Accretion of redeemable preferred stock................. (2,870) (957) (956) (957) --
Preferred stock dividends............................... (1,738) (1,738) -- -- --
Deficit of consideration paid for preferred stock under
carrying value........................................ 3,549 3,549 -- -- --
Net loss applicable to common stockholders.............. $ (7,676) $ (4,055) $ (2,075) $ (82) $ (1,464)
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
Basic and diluted loss per common share................. $ (0.44) $ (0.21) $ (0.11) -- $ (0.12)
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 PERIOD ENDING
----------------------------------------------------------------------
THIRD
THIRD QUARTER AS
TOTAL FOURTH QUARTER AS PREVIOUSLY SECOND FIRST
AS ADJUSTED QUARTER ADJUSTED REPORTED QUARTER QUARTER
----------- --------- ----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cable television revenue................................ $ 38,138 $ 11,337 $ 10,390 $ 10,390 $ 8,903 $ 7,508
Operating loss.......................................... (42,670) (14,044) (15,293) (15,293) (12,317) (1,016)
Minority interest....................................... (3,586) (5,842) (343) (343) 2,123 476
Income tax benefit/(expense)............................ 975 1,233 (246) (246) 259 (271)
Net loss................................................ (54,824) (21,244) (16,844) (16,844) (13,165) (3,571)
Accretion of redeemable preferred stock................. (2,436) (2,436) 2,028 2,028 (1,048) (980)
Excess of consideration paid for preferred stock over
carrying value........................................ (33,806) -- (33,806) -- -- --
Net loss applicable to common stockholders.............. $ (91,066) $ (23,680) $ (48,622) $ (14,816) $ (14,213) $ (4,551)
----------- --------- ----------- ----------- --------- ---------
----------- --------- ----------- ----------- --------- ---------
Basic and diluted loss per common share................. $ (3.68) $ (0.71) $ (1.75) $ (0.53) $ (0.75) $ (0.24)
----------- --------- ----------- ----------- --------- ---------
----------- --------- ----------- ----------- --------- ---------
</TABLE>
22. SUBSEQUENT EVENTS (UNAUDITED)
GROUND ZERO MEDIA SP. Z O.O. PURCHASE
In February and March 1998, the Company acquired the remaining interest in
GZM from the remaining stockholders for approximately $9,100,000. The
acquisition will be accounted for under the purchase method, whereby the
purchase price will be allocated to the underlying assets and liabilities based
upon their estimated fair values. The acquisition is not expected to have a
material effect on the Company's results of operations in 1998.
F-47
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
CABLE TELEVISION ACQUISITIONS
The Company entered into agreements subsequent to December 31, 1997 to
purchase during 1998 certain cable television system assets for approximately
$783,000, and 94.74% of a cable television company for approximately $770,000.
The acquisition of the fixed assets will be accounted for as fixed asset
purchases with the purchase price allocated among the fixed assets acquired
based upon their fair values at the dates of acquisition and any excess to
goodwill. The acquisition of the Company will be accounted for under the
purchase method, whereby the purchase price will be allocated to the underlying
assets and liabilities based upon their estimated fair values and any excess to
goodwill. The acquisitions are not expected to have a material effect on the
Company's results of operations in 1998.
"POLONIA" SOCCER CLUB PURCHASE
In February 1998, the Company purchased, for approximately $500,000 the
option to buy a 50% plus one share interest in "Polonia", a soccer club in
Poland. The purchase option will expire in February 1999. If the Company
exercises the option, the purchase price will approximate $4,400,000, and the
transaction will be accounted for as a purchase, with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess to goodwill.
F-48
<PAGE>
ANNEX A
GLOSSARY
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 Offering Memorandum, Central Europe refers
to the region comprised by Poland, the Czech Republic, the Slovak Republic,
Austria and Hungary.
CHURN RATE: The discontinuance of cable television service to a basic
subscriber, either voluntarily or involuntarily, commonly measured as a rate
from period to period. The Company calculates its churn rate by dividing the
number of disconnected basic cable television subscribers during a period by the
number of basic subscribers (including basic subscribers in networks acquired by
the Company) at the end of that period.
COAXIAL CABLE: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
cable, but less channel capacity than is allowed by fiber-optic cable.
DISH: An antenna shaped like a dish used to receive line-of-sight
terrestrial signals or television signals from a satellite.
DTH (DIRECT-TO-HOME): A satellite multi-channel pay 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>
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 when
compared to a basic tier package of 17 to 24 channels.
MMDS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION SYSTEM): A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
MULTIPLE DWELLING UNIT (MDU): A housing estate, cooperative apartment
building or other residence consisting of multiple apartment units.
OVER-BUILD: The construction and operation of cable systems in the same
geographic location or area by more than one cable operator which compete for
the same subscribers.
PREMIUM SERVICE: Cable programming service available only for additional
subscription fees over and above fees for the basic service.
REVENUE PER SUBSCRIBER: Total revenue derived from a cable television
system during a given period divided by the system's average number of
subscribers for that period.
SMATV (SATELLITE MASTER ANTENNA TELEVISION): A television delivery system
to multiple dwelling units that utilizes one or more satellite dishes and a
distribution network linking MDUs.
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.
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE ISSUER SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information..........................
Prospectus Summary............................. 1
Summary Consolidated Financial Data............ 13
Summary Operating Data......................... 14
Risk Factors................................... 15
The Exchange Offer............................. 39
Use of Proceeds................................ 47
Exchange Rate Data............................. 47
Capitalization................................. 48
Selected Consolidated Financial Data........... 49
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 51
The Industry................................... 62
Business....................................... 68
Regulation..................................... 100
Management..................................... 114
Executive Compensation......................... 119
Compensation Plans............................. 120
Principal Stockholders......................... 124
Certain Relationships and Related
Transactions................................. 127
Description of Indebtedness.................... 132
Description of the Notes....................... 138
Book Entry; Delivery and Form.................. 169
United States Income Tax
Considerations............................... 171
Plan of Distribution........................... 171
Legal Matters.................................. 172
Experts........................................ 172
Index to Consolidated Financial
Statements................................... F-1
Glossary....................................... A-1
</TABLE>
$252,000,000
@ENTERTAINMENT, INC.
14 1/2% SERIES B SENIOR DISCOUNT NOTES
DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 Purchase Agreement filed as Exhibit 1.1 to this Registration Statement
provides for indemnification by the Initial Purchasers of the Registrant and its
officers and directors for certain liabilities arising under the Securities Act
of 1933 or otherwise.
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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement dated as at July 8, 1998 between and among @Entertainment and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"), ECO Holdings Limited
Partnership ("ECO"), Roger M. Freedman, Steele LLC, the AESOP Fund LP, the Cheryl Anne Chase Marital
Trust (the "CACMT") and @Entertainment, dated as at June 22, 1997. (Incorporated by reference to
Exhibit 2.1 of @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
2.2 Purchase Agreement among ECO, @Entertainment, and L. Ciesla International, Inc., dated as at June 22,
1997. (Incorporated by reference to Exhibit 2.2 of @Entertainment's Registration Statement on Form
S-1, Registration No. 333-29869)
3.1 Amended and Restated Certificate of Incorporation of @Entertainment dated as at June 22, 1997.
(Incorporated by reference to Exhibit 3.1 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)
3.2 Bylaws of @Entertainment. (Incorporated by reference to Exhibit 3.2 of @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
3.3 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele, LLC, the CACMT, the AESOP Fund,
LP, and the CACMT, dated as at June 22, 1997. (Incorporated by reference to Exhibit 3.3 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.4 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele LLC, the AESOP Fund, LP, and
the CACMT, dated as at June 22, 1997. (Incorporated by reference to Exhibit 3.4 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
3.5 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger Freedman, Steele LLC, the AESOP
Fund, LP, and the CACMT, dated as at June 22, 1997. (Incorporated by reference to Exhibit 3.5 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
4.1 Form of Note. (Contained in Indenture filed as Exhibit 4.11)
4.2 Form of Exchange Note. (Contained in Indenture filed as Exhibit 4.11)
4.11 Indenture dated as at July 14, 1998 between the Issuer and Bankers Trust Company relating to the
Company's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior Discount Notes due
2008.
5 Opinion of Baker & McKenzie with respect to the legality of the securities being registered.
8 Opinion of Baker & McKenzie with respect to certain tax matters.
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC, and the CACMT and David Chase,
dated as at June 22, 1997. (Incorporated by reference to Exhibit 9.1 of @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
9.2 Side Letter, dated as at June 22, 1997, regarding the Voting Agreement. (Incorporated by reference to
Exhibit 9.2 of @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.1 Registration Rights Agreement, dated as at July 14, 1998 among @Entertainment and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.
10.2 Indenture dated as 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 Registration Statement on Form S-4, Registration No. 333-20307).
10.3 Form of Management Agreement among PCI and subsidiaries.
10.4 Form of Service Agreement among PCI and subsidiaries.
10.5 Corporate Overhead Allocation Agreement among PCI and subsidiaries. (Incorporated by reference to
Exhibit 10.4 of PCI's Registration Statement on Form S-4, Registration No.333-20307).
10.6 Amendment to Service Agreement. (Incorporated by reference to Exhibit 10.5 of PCI's Registration
Statement on Form S-4, Registration No. 333-20307).
10.7 Side Letter regarding Service Agreement. (Incorporated by reference to Exhibit 10.6 of PCI's
Registration Statement on Form S-4, Registration No. 333-20307).
10.8 Employment Agreement, dated as at January 1, 1997, between PCI and Robert E. Fowler, III, including
Stock Option Agreement. Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by
reference to Exhibit 10.7 of PCI's Registration Statement on Form S-4, Registration No. 333-20307).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.9 Deferred Compensation Agreement, dated as 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 10.32 and 10.33). (Incorporated by reference to Exhibit 10.8 of PCI's
Registration Statement on Form S-4, Registration No. 333-20307)
10.10 Employment Agreement, dated as at February 7, 1997, between PCI and Przemyslaw A. Szmyt, as amended.
Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by reference to Exhibit
10.11 to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.11 Form of Stock Option Agreement dated as at June 23, 1997 between @Entertainment and Przemyslaw A.
Szmyt, as amended March 31, 1998.
10.12 Form of Addendum to Employment Agreement between @Entertainment and Przemyslaw A. Szmyt, dated as at
January 1, 1998.
10.13 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and Przemyslaw A.
Szmyt.
10.14 Employment Agreement, dated April 7, 1997, between PCI and David Warner. Assigned to @Entertainment
(See Exhibit 10.32). (Incorporated by reference to Exhibit 10.14 of @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
10.15 Form of Stock Option Agreement, dated as at June 23, 1997, between @Entertainment and David Warner,
as amended March 31, 1998.
10.16 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and David Warner.
10.17 Employment Agreement, dated January 1, 1998, between PCI and David Keefe.
10.18 Stock Option Agreement dated as at January 1, 1998 between @Entertainment and David Keefe.
10.19 Employment Agreement dated as at January 1, 1998, between PCI and Dorothy Hansberry.
10.20 Form of Employment Agreement, dated as at June 8, 1998, between @Entertainment and Donald
Miller-Jones.
10.21 Form of Stock Option Agreement dated as at June 8, 1998 between @Entertainment and Donald
Miller-Jones.
10.22 Consultancy Agreement dated November 17, 1997, between @Entertainment and Samuel Chisholm and David
Chance.
10.23 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and Samuel
Chisholm.
10.24 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and David Chance.
10.25 Form of Consultancy Agreement dated as at January 23, 1998 between @Entertainment and Agnieszka
Holland.
10.26 Stock Option Plan of @Entertainment, as amended.
10.27 Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.28+ 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 as at March 26,1997. (Incorporated by reference to Exhibit 10.19
to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.29+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA1F Satellite)
dated as at March 26, 1997. (Incorporated by reference to Exhibit 10.20 to @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
10.30+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA 1E Satellite)
dated as at March 27, 1997. (Incorporated by reference to Exhibit 10.21 to @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
10.31++ Commercial Cooperation Agreement between At Entertainment Limited and Philips Business Electronics
B.V.
10.32 Form of Assignment and Assumption Agreement related to employment contracts with certain of the
executive officers of @Entertainment.
10.33 Form of Assignment and Assumption Agreement related to stock option agreements with certain of the
executives of @Entertainment.
10.34 Advisory Services Agreement between @Entertainment and Handlowy Investments S.ar.l. dated as at July
29, 1997. (Incorporated by reference to Exhibit 10.25 to @Entertainment's Registration Statement on
Form S-1, Registration No. 333-29869)
11.1 Statement Regarding Calculation of Per Share Earnings.
21 List of subsidiaries of @Entertainment.
23.1 Consent of KPMG Polska Sp. z o.o. with respect to @Entertainment.
23.2 Consent of Baker & McKenzie with respect to the legality of the securities being registered
(contained in Exhibit 5).
23.3 Consent of Baker & McKenzie with respect to the certain tax matters (contained in Exhibit 8).
24 Power of Attorney (included on the signature page in Part II of this Registration Statement).
25 Statement of Eligibility of Bankers Trust Company; Form T-1.
27 Financial Data Schedule.
99.1 Letter of Transmittal relating to the Exchange Offer.
99.2 Letter To Brokers, Dealers, Commerial Banks, Trust Companies and Other Nominees relating to the
Exchange Offer.
99.3 Letter to Clients relating to the Exchange Offer.
99.4 Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ------------------------
+ Confidential treatment requested and granted. Confidential Portions of
Schedule VI of Exhibits 10.26, 10.27 and 10.28 (noted by "*") have been
omitted pursuant to request for confidential treatment and filed separately
with the Commission.
++ Confidential treatment requested. Confidential Portions of Exhibit 10.31
(noted by "*") have been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
II-4
<PAGE>
(b) Financial Statement Schedules.
The following is included in Note 5 to Notes to Consolidated Financial
Statements (December 31, 1995, 1996 and 1997) contained in this Registration
Statement:
Schedule II-- Valuation and Qualifying Accounts
- @Entertainment, Inc.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Issuer hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 under the Securities Act, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Issuer hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned Issuer hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Issuer hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference
II-5
<PAGE>
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned Issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of Prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Issuer pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed part of the registration
statement as of the time it was declared effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in city of Maidstone, England on the 4th
day of August, 1998.
<TABLE>
<S> <C> <C>
@ENTERTAINMENT, INC.
BY: /S/ ROBERT E. FOWLER, III
-----------------------------------------
Robert E. Fowler, III
CHIEF EXECUTIVE OFFICER
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature to this
Registration Statement appears below hereby appoints Robert E. Fowler, III as
his attorney-in-fact to sign on his behalf, individually and in the capacities
stated below, and to file any and all amendments and post-effective amendments
to this Registration Statement, which amendment or amendments may make such
changes and additions as such attorney-in-fact may deem necessary or
appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT E. FOWLER, III Chief Executive Officer
- ------------------------------ and Director (Principal August 4, 1998
Robert E. Fowler, III Executive Officer)
Chief Financial Officer
/s/ DONALD MILLER-JONES (Principal Financial and
- ------------------------------ Principal Accounting August 4, 1998
Donald Miller-Jones Officer)
/s/ DAVID T. CHASE
- ------------------------------ Director August 4, 1998
David T. Chase
/s/ ARNOLD L. CHASE
- ------------------------------ Director August 4, 1998
Arnold L. Chase
/s/ DAVID CHANCE
- ------------------------------ Director August 4, 1998
David Chance
/s/ SAMUEL CHISHOLM
- ------------------------------ Director August 4, 1998
Samuel Chisholm
/s/ AGNIESZKA HOLLAND
- ------------------------------ Director August 4, 1998
Agnieszka Holland
/s/ SCOTT A. LANPHERE
- ------------------------------ Director August 4, 1998
Scott A. Lanphere
- ------------------------------ Director August 4, 1998
Jerzy Z. Swirski
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------- ------------------------------------------------------------------------------------------ -----------
<C> <S> <C>
1.1 Purchase Agreement dated as at July 8, 1998 between and among @Entertainment and Merrill,
Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.................
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"), ECO Holdings
Limited Partnership ("ECO"), Roger M. Freedman, Steele LLC, the AESOP Fund LP, the Cheryl
Anne Chase Marital Trust (the "CACMT") and @Entertainment, dated as at June 22, 1997.
(Incorporated by reference to Exhibit 2.1 of @Entertainment's Registration Statement on
Form S-1, Registration No. 333-29869).....................................................
2.2 Purchase Agreement among ECO, @Entertainment, and L. Ciesla International, Inc., dated as
at June 22, 1997. (Incorporated by reference to Exhibit 2.2 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)...........................
3.1 Amended and Restated Certificate of Incorporation of @Entertainment dated as at June 22,
1997. (Incorporated by reference to Exhibit 3.1 of @Entertainment's Registration Statement
on Form S-1, Registration No. 333-29869)..................................................
3.2 Bylaws of @Entertainment. (Incorporated by reference to Exhibit 3.2 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)...........................
3.3 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele, LLC, the CACMT, the
AESOP Fund, LP, and the CACMT, dated as at June 22, 1997. (Incorporated by reference to
Exhibit 3.3 of @Entertainment's Registration Statement on Form S-1, Registration No.
333-29869)................................................................................
3.4 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele LLC, the AESOP
Fund, LP, and the CACMT, dated as at June 22, 1997. (Incorporated by reference to Exhibit
3.4 of @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)...
3.5 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger Freedman, Steele
LLC, the AESOP Fund, LP, and the CACMT, dated as at June 22, 1997. (Incorporated by
reference to Exhibit 3.5 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)...............................................................
4.1 Form of Note. (Contained in Indenture filed as Exhibit 4.11)..............................
4.2 Form of Exchange Note. (Contained in Indenture filed as Exhibit 4.11).....................
4.11 Indenture dated as at July 14, 1998 between the Issuer and Bankers Trust Company relating
to the Company's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior
Discount Notes due 2008...................................................................
5 Opinion of Baker & McKenzie with respect to the legality of the securities being
registered................................................................................
8 Opinion of Baker & McKenzie with respect to certain tax matters...........................
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC, and the CACMT and
David Chase, dated as at June 22, 1997. (Incorporated by reference to Exhibit 9.1 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)..........
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------- ------------------------------------------------------------------------------------------ -----------
<C> <S> <C>
9.2 Side Letter, dated as at June 22, 1997, regarding the Voting Agreement. (Incorporated by
reference to Exhibit 9.2 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)...............................................................
10.1 Registration Rights Agreement, dated as at July 14, 1998 among @Entertainment and Merrill,
Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.................
10.2 Indenture dated as 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 Registration Statement on Form
S-4, Registration No. 333-20307)..........................................................
10.3 Form of Management Agreement among PCI and subsidiaries...................................
10.4 Form of Service Agreement among PCI and subsidiaries......................................
10.5 Corporate Overhead Allocation Agreement among PCI and subsidiaries. (Incorporated by
reference to Exhibit 10.4 of PCI's Registration Statement on Form S-4, Registration
No.333-20307).............................................................................
10.6 Amendment to Service Agreement. (Incorporated by reference to Exhibit 10.5 of PCI's
Registration Statement on Form S-4, Registration No. 333-20307)...........................
10.7 Side Letter regarding Service Agreement. (Incorporated by reference to Exhibit 10.6 of
PCI's Registration Statement on Form S-4, Registration No. 333-20307).....................
10.8 Employment Agreement, dated as at January 1, 1997, between PCI and Robert E. Fowler, III,
including Stock Option Agreement. Assigned to @Entertainment (See Exhibits 10.32 and
10.33). (Incorporated by reference to Exhibit 10.7 of PCI's Registration Statement on Form
S-4, Registration No. 333-20307)..........................................................
10.9 Deferred Compensation Agreement, dated as 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 10.32 and 10.33). (Incorporated by
reference to Exhibit 10.8 of PCI's Registration Statement on Form S-4, Registration No.
333-20307)................................................................................
10.10 Employment Agreement, dated as at February 7, 1997, between PCI and Przemyslaw A. Szmyt,
as amended. Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by
reference to Exhibit 10.11 to @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)...............................................................
10.11 Form of Stock Option Agreement dated as at June 23, 1997 between @Entertainment and
Przemyslaw A. Szmyt, as amended March 31, 1998............................................
10.12 Form of Addendum to Employment Agreement between @Entertainment and Przemyslaw A. Szmyt,
dated as at January 1, 1998...............................................................
10.13 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and
Przemyslaw A. Szmyt.......................................................................
10.14 Employment Agreement, dated April 7, 1997, between PCI and David Warner. Assigned to
@Entertainment (See Exhibit 10.32). (Incorporated by reference to Exhibit 10.14 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)..........
10.15 Form of Stock Option Agreement, dated as at June 23, 1997, between @Entertainment and
David Warner, as amended March 31, 1998...................................................
</TABLE>
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<TABLE>
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EXHIBIT NUMBERED
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10.16 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and
David Warner..............................................................................
10.17 Employment Agreement, dated January 1, 1998, between PCI and David Keefe..................
10.18 Stock Option Agreement dated as at January 1, 1998 between @Entertainment and David
Keefe.....................................................................................
10.19 Employment Agreement dated as at January 1, 1998, between PCI and Dorothy Hansberry.......
10.20 Form of Employment Agreement, dated as at June 8, 1998, between @Entertainment and Donald
Miller-Jones..............................................................................
10.21 Form of Stock Option Agreement dated as at June 8, 1998 between @Entertainment and Donald
Miller-Jones..............................................................................
10.22 Consultancy Agreement dated November 17, 1997, between @Entertainment and Samuel Chisholm
and David Chance..........................................................................
10.23 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and
Samuel Chisholm...........................................................................
10.24 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and
David Chance..............................................................................
10.25 Form of Consultancy Agreement dated as at January 23, 1998 between @Entertainment and
Agnieszka Holland.........................................................................
10.26 Stock Option Plan of @Entertainment, as amended...........................................
10.27 Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.............
10.28+ 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 as at March 26,1997.
(Incorporated by reference to Exhibit 10.19 to @Entertainment's Registration Statement on
Form S-1, Registration No. 333-29869).....................................................
10.29+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA1F
Satellite) dated as at March 26, 1997.(Incorporated by reference to Exhibit 10.20 to
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)..........
10.30+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA 1E
Satellite) dated as at March 27, 1997. (Incorporated by reference to Exhibit 10.21 to
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)..........
10.31++ Commercial Cooperation Agreement between At Entertainment Limited and Philips Business
Electronics B.V...........................................................................
10.32 Form of Assignment and Assumption Agreement related to employment contracts with certain
of the executive officers of @Entertainment...............................................
10.33 Form of Assignment and Assumption Agreement related to stock option agreements with
certain of the executives of @Entertainment...............................................
</TABLE>
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10.34 Advisory Services Agreement between @Entertainment and Handlowy Investments S.ar.l. dated
as at July 29, 1997. (Incorporated by reference to Exhibit 10.25 to @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)...........................
11.1 Statement Regarding Calculation of Per Share Earnings.....................................
21 List of subsidiaries of @Entertainment....................................................
23.1 Consent of KPMG Polska Sp. z o.o. with respect to @Entertainment..........................
23.2 Consent of Baker & McKenzie with respect to the legality of the securities being
registered (contained in Exhibit 5).......................................................
23.3 Consent of Baker & McKenzie with respect to the certain tax matters (contained in Exhibit
8)........................................................................................
24 Power of Attorney (included on the signature page in Part II of this Registration
Statement)................................................................................
25 Statement of Eligibility of Bankers Trust Company; Form T-1...............................
27 Financial Data Schedule...................................................................
99.1 Letter of Transmittal relating to the Exchange Offer......................................
99.2 Letter To Brokers, Dealers, Commerial Banks, Trust Companies and Other Nominees relating
to the Exchange Offer.....................................................................
99.3 Letter to Clients relating to the Exchange Offer..........................................
99.4 Notice of Guaranteed Delivery relating to the Exchange Offer..............................
</TABLE>
- ------------------------
+ Confidential treatment requested and granted. Confidential Portions of
Schedule VI of Exhibits 10.26, 10.27 and 10.28 (noted by "*") have been
omitted pursuant to request for confidential treatment and filed separately
with the Commission.
++ Confidential treatment requested. Confidential Portions of Exhibit 10.31
(noted by "*") have been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Exhibit 1.1
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
(a Delaware corporation)
252,000 Units Consisting of
14 1/2% Senior Discount Notes due 2008 and
1,008,000 Warrants to Purchase an Aggregate of
1,824,514 Shares of Common Stock
PURCHASE AGREEMENT
Dated: July 8, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
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PURCHASE AGREEMENT......................................................................................1
SECTION 1. Representations and Warranties.............................................................3
(a) Representations and Warranties by the Company....................................................3
(i) Similar Offerings......................................................................3
(ii) Offering Memorandum....................................................................3
(iii) Independent Accountants................................................................3
(iv) Financial Statements...................................................................3
(v) No Material Adverse Change in Business.................................................4
(vi) Good Standing of the Company...........................................................4
(vii) Corporate Standing of Designated Subsidiaries..........................................4
(viii) Restrictions on Payments of Dividends..................................................5
(ix) Capitalization.........................................................................5
(x) Authorization of Agreement.............................................................6
(xi) Authorization of the Registration Rights Agreement.....................................6
(xii) Authorization of the Indenture.........................................................6
(xiii) Authorization of the Notes.............................................................6
(xiv) Authorization of the Warrant Agreement.................................................6
(xv) Authorization of the Warrants..........................................................7
(xvi) Authorization of the Warrant Shares....................................................7
(xvii) Authorization of the Warrant Registration Rights
Agreement..............................................................................7
(xviii) Description of the Registration Rights Agreement,
Warrant Registration Rights Agreement, the Units,
the Notes, the Warrants, the Common Stock, the
Warrant Agreement and the Indenture....................................................8
(xix) Absence of Defaults and Conflicts......................................................8
(xx) Absence of Labor Dispute...............................................................9
(xxi) Absence of Proceedings.................................................................9
(xxii) Possession of Intellectual Property....................................................9
(xxiii) Absence of Further Requirements.......................................................10
(xxiv) Possession of Licenses and Permits....................................................10
(xxv) No Additional Documents...............................................................11
(xxvi) Management Agreements.................................................................11
(xxvii) Title to Property.....................................................................11
(xxviii) Tax Returns...........................................................................11
(xxix) Environmental Laws....................................................................12
(xxx) Investment Company Act................................................................12
(xxxi) Internal Controls.....................................................................12
(xxxii) Taxes on Subsidiary Indebtedness......................................................13
(xxxiii) Insurance.............................................................................13
</TABLE>
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<TABLE>
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(xxxiv) Rule 144A Eligibility.................................................................13
(xxxv) No General Solicitation...............................................................13
(xxxvi) No Registration Required..............................................................13
(xxxvii) Reporting Company.....................................................................14
(b) Officers' Certificates..........................................................................14
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.........................................14
(a) Securities......................................................................................14
(b) Payment.........................................................................................14
(c) Qualified Institutional Buyer...................................................................15
(d) Denominations; Registration.....................................................................15
SECTION 3. Covenants of the Company.................................................................15
(a) Offering Memorandum.............................................................................15
(b) Notice and Effect of Material Events............................................................15
(c) Amendment to Offering Memorandum and Supplements................................................16
(d) Qualification of Securities for Offer and Sale..................................................16
(e) Rating of Securities............................................................................16
(f) DTC and PORTAL..................................................................................16
(g) Use of Proceeds.................................................................................16
(h) Restriction on Sale of Securities...............................................................16
SECTION 4. Payment of Expenses......................................................................17
(a) Expenses........................................................................................17
(b) Termination of Agreement........................................................................17
SECTION 5. Conditions of Initial Purchasers' Obligations............................................17
(a) Opinions of Counsel for Company.................................................................17
(b) Opinion of United States Counsel for Initial Purchasers.........................................18
(c) Opinion of Polish Counsel for Initial Purchasers................................................18
(d) Officers' Certificate...........................................................................18
(e) Accountants' Comfort Letter.....................................................................18
(f) Bring-down Comfort Letter.......................................................................19
(g) Maintenance of Rating...........................................................................19
(h) PORTAL..........................................................................................19
(i) Additional Documents............................................................................19
(j) Execution of Agreements.........................................................................19
(k) Termination of Agreement........................................................................19
SECTION 6. Subsequent Offers and Resales of the Securities..........................................20
(a) Offer and Sale Procedures.......................................................................20
(i) Offers and Sales only to Qualified Institutional Buyers...............................20
(ii) No General Solicitation...............................................................20
</TABLE>
ii
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<TABLE>
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(iii) Purchases by Non-Bank Fiduciaries.....................................................20
(iv) Subsequent Purchaser Notification.....................................................20
(v) Restrictions on Transfer..............................................................21
(b) Covenants of the Company........................................................................21
(i) Due Diligence.........................................................................21
(ii) Integration...........................................................................21
(iii) Rule 144A Information.................................................................21
(iv) Restriction on Repurchases............................................................22
(c) Resale Pursuant to Rule 144A....................................................................22
(d) Offers and Sales in Poland and The Netherlands..................................................22
(e) Offers and Sales in the United Kingdom..........................................................23
(f) Representation and Warranty of Initial Purchasers...............................................23
SECTION 7. Indemnification..........................................................................23
(a) Indemnification of Initial Purchasers...........................................................23
(b) Indemnification of Company, Directors and Officers..............................................24
(c) Actions Against Parties; Notification...........................................................24
(d) Settlement Without Consent if Failure to Reimburse..............................................25
SECTION 8. Contribution.............................................................................25
SECTION 9. Representations, Warranties and Agreements to Survive Delivery...........................27
SECTION 10. Termination of Agreement.................................................................27
(a) Termination; General............................................................................27
(b) Liabilities.....................................................................................27
SECTION 11. Default by One or More of the Initial Purchasers.........................................27
SECTION 12. Notices..................................................................................28
SECTION 13. Parties..................................................................................28
SECTION 14. GOVERNING LAW AND TIME...................................................................28
SECTION 15. Effect of Headings.......................................................................28
SECTION 16. Counterparts.............................................................................29
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - Form of Registration Rights Agreement....................................................A-1
Exhibit B - Form of Warrant Agreement................................................................B-1
Exhibit C - Form of Warrant Registration Rights Agreement............................................C-1
Exhibit D - Form of United States Law Opinion of Company's Counsel...................................D-1
Exhibit E - Form of Polish Law Opinion of Company's Counsel..........................................E-1
Exhibit F - Form of Dutch Law Opinion of Company's Counsel...........................................F-1
Exhibit G - Form of English Law Opinion of Company's Counsel.........................................G-1
</TABLE>
iv
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@ENTERTAINMENT, INC.
(a Delaware corporation)
252,000 Units Consisting of
14 1/2% Senior Discount Notes due 2008 and
1,008,000 Warrants to Purchase an Aggregate of
1,824,514 Shares of Common Stock
PURCHASE AGREEMENT
July 8, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and J.P. Morgan Securities Inc. (collectively,
the "Initial Purchasers", which term shall also include any initial purchaser
substituted as hereinafter provided in Section 11 hereof), with respect to the
issue and sale by the Company and the purchase by the Initial Purchasers, acting
severally and not jointly, of 252,000 of the Company's units (the "Units"), each
Unit consisting of $1,000 aggregate principal amount at maturity of the
Company's 14 1/2% Senior Discount Notes due 2008 (the "Notes") and four warrants
(each a "Warrant" and collectively, the "Warrants" and, together with the Units
and the Notes, the "Securities"), each Warrant entitling the holder thereof to
purchase 1.81 shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company. The Units, Notes and Warrants are more fully described
in Schedule C hereto. The Notes are to be issued pursuant to an indenture dated
as of July 14, 1998 (the "Indenture") between the Company and Bankers Trust
Company, as trustee (the "Trustee") and the Warrants are to be issued pursuant
to a warrant agreement dated as of July 14, 1998 (the "Warrant Agreement"),
between the
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Company and Bankers Trust Company, as warrant agent (the "Warrant Agent") in
substantially the form attached hereto as Exhibit B. Securities issued in
book-entry form will be issued to Cede & Co. as nominee of The Depository Trust
Company ("DTC") pursuant to a letter agreement, to be dated as of the Closing
Time (as defined in Section 2(b)) (the "DTC Agreement"), among the Company, the
Trustee and DTC.
The holders of Securities will be entitled to the benefits of a Registration
Rights Agreement, in substantially the form attached hereto as Exhibit A with
such changes as shall be agreed to by the parties hereto (the "Registration
Rights Agreement"), pursuant to which the Company will file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering the Securities or the Exchange Notes
referred to in the Registration Rights Agreement under the Securities Act of
1933, as amended (the "1933 Act").
The holders of Warrants will be entitled to the benefits of a Warrant
Registration Rights Agreement in substantially the form attached hereto as
Exhibit C, with such changes as shall be agreed to by the parties hereto (the
"Warrant Registration Rights Agreement") which provides for the registration of
the Warrants under the 1933 Act under certain circumstances set forth therein.
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchasers without being registered
under the 1933 Act, in reliance upon exemptions therefrom. Pursuant to the terms
of the Securities and the Indenture, investors that acquire Securities may only
resell or otherwise transfer such Securities if such Securities are hereafter
registered under the 1933 Act or if an exemption from the registration
requirements of the 1933 Act is available (including the exemption afforded by
Rule 144A ("Rule 144A") of the rules and regulations promulgated under the 1933
Act by the Commission).
The Company has prepared and delivered to each Initial Purchaser copies of a
preliminary offering memorandum dated June 12, 1998 (the "Preliminary Offering
Memorandum") and has prepared and will deliver to each Initial Purchaser, on the
date hereof or the next succeeding day, copies of a final offering memorandum
dated July 8, 1998 (the "Final Offering Memorandum"), each for use by such
Initial Purchaser in connection with its solicitation of purchases of, or
offering of, the Securities. "Offering Memorandum" means, with respect to any
date or time referred to in this Agreement, the most recent offering memorandum
(whether the Preliminary Offering Memorandum or the Final Offering Memorandum
and including any amendment or supplement to either such document), including
exhibits thereto and any documents incorporated therein by reference, which has
been prepared and delivered by the Company to the Initial Purchasers in
connection with their solicitation of purchases of, or offering of, the
Securities.
2
<PAGE>
All references in this Agreement to financial statements and schedules and
other information which are "contained," "included" or "stated" in the Offering
Memorandum (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information, if
any, which are incorporated by reference in the Offering Memorandum.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Initial Purchasers as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and agrees with the Initial
Purchasers as follows:
(i) Similar Offerings. The Company and its Affiliates (as defined in
Section 1(a)(xxxv)) have not, directly or indirectly, solicited any offer to
buy or offered to sell, and will not, directly or indirectly, solicit any
offer to buy or offer to sell, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the
sale of the Securities in a manner that would require the Securities to be
registered under the 1933 Act.
(ii) Offering Memorandum. As of their respective dates, neither the
Preliminary Offering Memorandum nor the Final Offering Memorandum, including
any amendment or supplement thereto, nor as of the Closing Time, the Final
Offering Memorandum including any amendment or supplement thereto included
or will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by the Initial Purchasers
through Merrill Lynch expressly for use in the Preliminary Offering
Memorandum or the Final Offering Memorandum, including any amendment or
supplement thereto.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of Regulation S-X under the
1933 Act.
(iv) Financial Statements. The financial statements, together with the
related schedules and notes, of the Company included in the Offering
Memorandum present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
3
<PAGE>
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any, included
in the Offering Memorandum present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Offering Memorandum
present fairly the information shown therein and have been compiled on a
basis consistent with that of the audited financial statements included in
the Offering Memorandum.
(v) No Material Adverse Change in Business. Since the respective dates
as of which information is given in the Offering Memorandum, except as
otherwise stated therein, (A) there has been no material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect"), whether or not arising in the
ordinary course of business, (B) there have been no transactions entered
into by the Company or any of its subsidiaries, other than transactions
entered into in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one enterprise,
and (C) there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Delaware and has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under this
Agreement, the Warrant Agreement, the Registration Rights Agreement, the
Warrant Registration Rights Agreement, the Indenture and the Securities; and
the Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect.
(vii) Corporate Standing of Designated Subsidiaries. Each subsidiary of
the Company that (i) is a "significant subsidiary" (as that term is defined
in Regulation S-X under the 1933 Act) or (ii) that holds any valid permits
or licenses to operate the cable television business in Poland or a digital
direct-to-home business uplinking from the United Kingdom is listed on
Schedule C hereto (each subsidiary listed on Schedule C hereto is
hereinafter referred to as a "Designated Subsidiary" and, collectively, the
"Designated Subsidiaries"), and has been duly organized and is validly
existing as a corporation under the laws of the jurisdiction of its
incorporation, has corporate power and corporate authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Memorandum and is not required to be qualified as a foreign
corporation to transact business or to own or lease property in any
4
<PAGE>
jurisdiction where it owns or leases property or transacts business; except
as otherwise disclosed in the Offering Memorandum or in Schedule C, 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
and 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) in the case of any Polish limited liability
company, any statutory liability for taxes, (ii) the pledge of 3,583,457
shares of Polska Telewizja Kablowa Warszawa S.A. and of 2,514,291 shares of
Polska Telewizja Kablowa Krakow S.A. held by Poland Cablevision
(Netherlands) B.V. ("PCBV") and 2,400 shares of Polska Telewizja Kablowa
Lublin S.A. held by Poltelkab Sp. z o.o. as security for the loan of $6.5
million granted on August 28, 1996 by the American Bank in Poland to Poland
Communications, Inc. ("PCI"), and (iii) the pledge of 2,313 shares of
Szczecinska Telewizja Kablowa Sp. z o.o. ("SzTK") for the security of
certain obligations undertaken by PTK Szczecin Sp. z o.o. ("PTK Szczecin")
with respect to the sellers of those shares (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.
(viii) Restrictions on Payments of Dividends. 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
Offering Memorandum and except for (i) restrictions relating to the Share
Pledges, (ii) encumbrances on certain assets of Telewizja Kablowa GOSAT Sp.
z o.o. ("GOSAT") consisting of the transfer of title to such assets as
security for the loan of $1.2 million granted on May 18, 1993 by Polski Bank
Rozwoju to GOSAT, and (iii) the restrictions discussed in Schedule D to the
Indenture (collectively, the "Asset Encumbrances").
(ix) Capitalization. The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption "Description of
Capital Stock" (except for subsequent issuances, if any, pursuant to the
exercise of convertible securities or options referred to in the Offering
Memorandum) in the Offering Memorandum and, as of the date hereof, there has
been no material change in the authorized, issued and outstanding capital
stock since the date of the Offering Memorandum other than issuances of
shares of Common Stock upon the exercise of options disclosed to be
outstanding in the Offering Memorandum. The shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued
and are fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company was
5
<PAGE>
issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(x) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(xi) Authorization of the Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company, and,
at the Closing Time, will have been duly executed and delivered by the
Company and will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms except as (x)
the enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, (y) the enforceability thereof
may be limited by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and (z) any
rights to indemnity and contribution may be limited by federal and state
securities laws and public policy considerations.
(xii) Authorization of the Indenture. The Indenture has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
waiver contained in Section 514 thereof may be unenforceable due to
interests of public policy.
(xiii) Authorization of the Notes. The Notes have been duly authorized
and, at the Closing Time, will have been duly executed by the Company and,
when authenticated in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will be
in the form contemplated by, and entitled to the benefits of, the Indenture
and the Registration Rights Agreement.
(xiv) Authorization of the Warrant Agreement. The Warrant Agreement has
been duly authorized by the Company and, at the Closing Time, will have been
duly
6
<PAGE>
executed and delivered by the Company and, when duly executed and delivered
by the Warrant Agent, will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(xv) Authorization of the Warrants. The Warrants have been duly
authorized by the Company and, at the Closing Time, will have been duly
executed by the Company and, when executed and issued in the manner provided
for in the Warrant Agreement and delivered against payment of the purchase
price therefor as provided in this Agreement, (A) will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law),
and (B) will be in the form contemplated by, and entitled to the benefits
of, the Warrant Agreement and the Warrant Registration Rights Agreement.
(xvi) Authorization of the Warrant Shares. The shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") have been duly
authorized and reserved by the Company and, when executed by the Company and
countersigned by the Warrant Agent and issued and delivered upon exercise of
the Warrants in accordance with the terms of the Warrants and the Warrant
Agreement, will be validly issued, fully paid and non-assessable and will
not be subject to any preemptive or similar rights.
(xvii) Authorization of the Warrant Registration Rights Agreement. The
Warrant Registration Rights Agreement has been duly authorized by the
Company and, at the Closing Time, will have been duly executed and delivered
by the Company and, when executed by the Initial Purchasers, will constitute
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditor's rights generally, (y) the enforceability thereof may be limited
by general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and (z) any rights to
indemnity and contribution may be limited by federal and state securities
laws and public policy considerations.
(xviii) Description of the Registration Rights Agreement, Warrant
Registration Rights Agreement, the Units, the Notes, the Warrants, the
Common Stock, the Warrant
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Agreement and the Indenture. The Registration Rights Agreement, Warrant
Registration Rights Agreement, the Units, the Notes, the Warrants, the
Common Stock, the Warrant Agreement and the Indenture will conform in all
material respects to the respective statements relating thereto contained in
the Offering Memorandum and will be in substantially the respective forms
previously delivered to the Initial Purchasers.
(xix) Absence of Defaults and Conflicts. Neither the Company nor any of
its subsidiaries is (1) in violation of its charter or statute, as
applicable, or by-laws (or other similar organizational documents), (2) in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (collectively,
"Agreements and Instruments"), except as described in the Offering
Memorandum and except for such defaults that would not result in a Material
Adverse Effect or (3) in violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties,
except as described in the Offering Memorandum; and the execution, delivery
and performance of this Agreement, the Warrant Agreement, the Registration
Rights Agreement, the Warrant Registration Rights Agreement, the Indenture
and the Securities and any other agreement or instrument entered into or
issued or to be entered into or issued by the Company or any Designated
Subsidiary in connection with the transactions contemplated hereby or
thereby or in the Offering Memorandum and the consummation of the
transactions contemplated herein and in the Offering Memorandum (including
the issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Offering Memorandum under the
caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, the
Agreements and Instruments except for such conflicts, breaches, Repayment
Events or defaults or liens, charges or encumbrances that, singly or in the
aggregate, would not result in a Material Adverse Effect, nor will such
action result in any violation of the provisions of the charter or statute,
as applicable, or by-laws (or other similar organizational documents) of the
Company or any of its subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties,
assuming that the Initial Purchasers comply with all of their obligations
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under Section 6 hereof. As used herein, a "Repayment Event" means any event
or condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any of its subsidiaries.
(xx) Absence of Labor Dispute. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, customers or contractors, which, in
either case, may reasonably be expected to result in a Material Adverse
Effect.
(xxi) Absence of Proceedings. Except as disclosed in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or investigation
before or by any court or governmental agency or body, domestic or foreign,
now pending, or, to the knowledge of the Company, threatened, against or
affecting the Company or any subsidiary thereof, which would be required to
be disclosed in the Offering Memorandum (other than as disclosed therein) if
it were a prospectus filed as part of a registration statement on Form S-1
under the 1933 Act, or which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to adversely
affect the properties or assets of the Company or any of its subsidiaries in
a manner that is material and adverse to the Company and its subsidiaries
considered as one enterprise or the consummation of the transactions
contemplated by this Agreement, the Warrant Agreement, the Registration
Rights Agreement, the Warrant Registration Rights Agreement, the Indenture
or the Securities, or the performance by the Company of its obligations
hereunder or thereunder. The aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary thereof is a party or of
which any of their respective property or assets is the subject which are
not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xxii) Possession of Intellectual Property. Except as disclosed in the
Offering Memorandum, the Company and its subsidiaries own or possess, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary to
carry on the business now operated by them. Except as disclosed in the
Offering Memorandum, neither the Company nor any of its subsidiaries has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or
of any
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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.
(xxiii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
(other than (A) under the 1933 Act and the rules and regulations thereunder
with respect to the Registration Rights Agreement, the Warrant Registration
Rights Agreement and the transactions contemplated thereunder, (B) under the
securities or "blue sky" laws of the various states and (C) the Polish
Anti-Monopoly Act) is necessary or required (x) for the performance by the
Company of its obligations hereunder, in connection with the offering,
issuance or sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement or
the Offering Memorandum or (y) to permit the Company to (1) effect payments
of principal of and premium and interest on the Notes and, if issued, the
Exchange Notes referred to in the Registration Rights Agreement, or (2)
perform its other obligations under the Indenture, the Warrant Agreement and
the Warrant Registration Rights Agreement.
(xxiv) Possession of Licenses and Permits. Except as disclosed in the
Offering Memorandum, the Company and its subsidiaries possess such permits,
licenses, approvals, concessions, consents and other authorizations
(including, without limitation, all permits required for the operation of
the business of the Company and its subsidiaries by the Republic of Poland
and the United Kingdom) (collectively, "Governmental Licenses") issued by
the appropriate domestic or foreign regulatory agencies or bodies, other
governmental authorities or self regulatory organizations necessary to
conduct the business now operated by them or any business currently proposed
to be conducted by them as described in the Offering Memorandum; the Company
and its subsidiaries, except as disclosed in the Offering Memorandum and
except where the failure to so comply would not, singly or in the aggregate,
have a Material Adverse Effect, are in compliance with the terms and
conditions of all such Governmental Licenses; all of the Governmental
Licenses are valid and in full force and effect, except as disclosed in the
Offering Memorandum and except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and except as disclosed
in the Offering Memorandum, neither the Company nor any of its subsidiaries
has received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect. To the knowledge of the Company,
except as described in the
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Offering Memorandum, there exists no reason or cause that could justify the
variation, suspension, cancellation or termination of any such Governmental
Licenses held by the Company or any of its subsidiaries with respect to the
construction or operation of their respective businesses, which variation,
suspension, cancellation or termination could reasonably be expected to have
a Material Adverse Effect.
(xxv) No Additional Documents. There are no contracts or documents of a
character that would be required to be described in the Offering Memorandum,
if it were a prospectus filed as part of a registration statement on Form
S-1 under the 1933 Act, that are not described as would be so required. All
such contracts to which the Company is party have been duly authorized,
executed and delivered by the Company and constitute valid and binding
agreements of the Company.
(xxvi) Management Agreements. Each of the Management Agreements (as
such term is defined in the Indenture) to which any subsidiary of the
Company is a party has been duly authorized, executed and delivered by each
of the parties thereto and constitutes a valid and binding agreement of each
of the parties thereto.
(xxvii) Title to Property. The Company and its subsidiaries own no real
property, except as described in the Final Offering Memorandum and except
for approximately 3,200 square meters of real property owned by a Designated
Subsidiary, and have good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such as
(a) are described in the Offering Memorandum or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or
any of its subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties
described in the Offering Memorandum, are in full force and effect, and
neither the Company nor any of its subsidiaries has any notice of any claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or
any subsidiary thereof to the continued possession of the leased or
subleased premises under any such lease or sublease, except for such claims
as could not reasonably be expected to result in a Material Adverse Effect.
(xxviii) Tax Returns. Except as disclosed in the Offering Memorandum,
the Company and its subsidiaries have filed all domestic and foreign tax
returns that are required to be filed or have duly requested extensions
thereof and have paid all taxes required to be paid by any of them and any
related assessments, fines or penalties, except for any such tax,
assessment, fine or penalty that is being contested in good faith and by
appropriate proceedings, and except for such claims as could not result in a
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Material Adverse Effect; and adequate charges, accruals and reserves have
been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all domestic and foreign taxes for all periods
as to which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities.
(xxix) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any domestic or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating to
the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), (B)
the Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation, investigation
or proceedings relating to any Environmental Law against the Company or any
of its subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or Environmental Laws.
(xxx) Investment Company Act. The Company is not, and upon the issuance
and sale of the Securities as herein contemplated and the application of the
net proceeds therefrom as described in the Offering Memorandum will not be,
an "investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
(xxxi) Internal Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded
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accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
The Company and its subsidiaries have not made, and, to the knowledge of the
Company, no employee or agent of the Company or any subsidiary has made, any
payment of the Company's funds or any subsidiary's funds or received or
retained any funds (A) in violation of the Foreign Corrupt Practices Act, as
amended, or (B) in violation of any other applicable law, regulation or rule
(except, in the case of this clause (B), for such violations as could not
reasonably be expected to result in a Material Adverse Effect) or that would
be required to be disclosed in the Offering Memorandum if it were a
prospectus filed as part of a registration statement on Form S-1 under the
1933 Act.
(xxxii) Taxes on Subsidiary Indebtedness. Except as described in the
Offering Memorandum, as of the date hereof, no material income, stamp or
other taxes or levies, imposts, deductions, charges, compulsory loans or
withholdings whatsoever are or will be, under applicable law in the Republic
of Poland, imposed, assessed, levied or collected by the Republic of Poland
or any political subdivision or taxing authority thereof or therein or on or
in respect of principal, interest, premiums, penalties or other amounts
payable under any indebtedness of any of the Company's subsidiaries held by
the Company.
(xxxiii) Insurance. Except as otherwise disclosed in the Offering
Memorandum, 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 in similar locations.
(xxxiv) Rule 144A Eligibility. The Securities are eligible for resale
pursuant to Rule 144A and will not be, at the Closing Time, of the same
class as securities listed on a national securities exchange registered
under Section 6 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or quoted in a U.S. automated interdealer quotation system.
(xxxv) No General Solicitation. None of the Company, its affiliates, as
such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or
any person acting on its or any of their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation) has engaged or
will engage, in connection with the offering of the Securities, in any form
of general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(xxxvi) No Registration Required. Subject to compliance by the Initial
Purchasers with the representations and warranties set forth in Section 2
and the procedures set forth in Section 6 hereof, it is not necessary in
connection with the
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offer, sale and delivery of the Securities to the Initial Purchasers and to
each Subsequent Purchaser in the manner contemplated by this Agreement, the
Warrant Agreement and the Offering Memorandum to register the Securities
under the 1933 Act or to qualify the Indenture under the Trust Indenture Act
of 1939, as amended (the "1939 Act").
(xxxvii) Reporting Company. The Company is subject to the reporting
requirements of Section 13 or Section 15(d) of the 1934 Act.
(b) Officers' Certificates. Any certificate titled "Officers' Certificate"
or "Secretary's Certificate" signed by any officer of the Company or any of its
subsidiaries which is delivered to the Initial Purchasers or to counsel for the
Initial Purchasers shall be deemed a representation and warranty by the Company
to the Initial Purchasers as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Initial Purchasers and the Initial Purchasers agree to
purchase from the Company, at the price set forth in Schedule B, the aggregate
number of Units set forth in Schedule A opposite the name of such Initial
Purchaser plus any additional Units which such Initial Purchaser may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) Payment. Payment of the purchase price for, and delivery of certificates
for, the Securities shall be made at the office of Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022, or at such other place as shall be
agreed upon by the Initial Purchasers and the Company, at 9:00 A.M. on the
fourth business day after the date hereof (unless postponed in accordance with
the provisions of Section 11), or such other time not later than ten business
days after such date as shall be agreed upon by the Initial Purchasers and the
Company (such time and date of payment and delivery being herein called the
"Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Initial Purchasers for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the other Initial Purchasers, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Securities which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Initial Purchasers, may (but shall
not be obligated to) make payment of the purchase price for the Securities to be
purchased by any Initial Purchaser whose funds have not been received by the
Closing Time, but such payment shall not relieve such Initial Purchaser from its
obligations hereunder.
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(c) Qualified Institutional Buyer. Each Initial Purchaser severally and not
jointly represents and warrants to, and agrees with, the Company that it is a
"qualified institutional buyer" within the meaning of Rule 144A under the 1933
Act (a "Qualified Institutional Buyer") and an "accredited investor" within the
meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").
(d) Denominations; Registration. Certificates for the Securities shall be in
such denominations and registered in such names as the Initial Purchasers may
request in writing at least one full business day before the Closing Time. The
certificates representing the Units, Notes and Warrants shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement and shall be made available
for examination and packaging by the Initial Purchasers in The City of New York
not later than 10:00 A.M. on the last business day prior to the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible, will furnish
to each Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries which (i) make
any statement in the Final Offering Memorandum (as amended or supplemented)
false or misleading or (ii) are not disclosed in the Final Offering Memorandum
(as amended or supplemented). In such event or if during such time any event
shall occur as a result of which it is necessary, in the reasonable opinion of
any of the Company, its counsel, the Initial Purchasers or counsel for the
Initial Purchasers, to amend or supplement the Final Offering Memorandum in
order that the Final Offering Memorandum not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances then
existing, the Company will forthwith amend or supplement the Final Offering
Memorandum by preparing and furnishing to each Initial Purchaser an amendment or
amendments of, or a supplement or supplements to, the Final Offering Memorandum
(in form and substance satisfactory in the reasonable opinion of counsel for the
Initial Purchasers) so that, as so amended or supplemented, the Final Offering
Memorandum will not include an untrue
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statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances existing at
the time it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers, which consent shall not be unreasonably
withheld. Neither the consent of the Initial Purchasers, nor the Initial
Purchasers' delivery of any such amendment or supplement, shall constitute a
waiver of any of the conditions set forth in Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company will use its
best efforts, in cooperation with the Initial Purchasers, to qualify the
Securities for offering and sale under the applicable securities laws of such
jurisdictions as the Initial Purchasers may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
(e) Rating of Securities. The Company shall take all reasonable action
necessary to enable Standard & Poor's Ratings Services, a division of McGraw
Hill, Inc. ("S&P"), and Moody's Investors Service Inc. ("Moody's") to provide
their respective credit ratings of the Securities.
(f) DTC and PORTAL. The Company will cooperate with the Initial Purchasers
and use its best efforts (i) to permit the Securities to be eligible for
clearance and settlement through the facilities of DTC and (ii) include
quotation of the Securities on PORTAL.
(g) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds".
(h) Restriction on Sale of Securities. During a period of 180 days from the
date of the Offering Memorandum, the Company will not, without the prior written
consent of Merrill Lynch, directly or indirectly, issue, sell, offer or agree to
sell, grant any option for the sale of, or otherwise dispose of, any other debt
securities of the Company or securities of the Company that are convertible
into, or exchangeable for, the Securities or such other debt securities, other
than the Exchange Notes referred to in the Registration Rights Agreement.
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SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the preparation, printing
and any filing of the Offering Memorandum (including financial statements and
any schedules or exhibits and any document incorporated therein by reference)
and of each amendment or supplement thereto, (ii) the preparation, printing and
delivery to the Initial Purchasers of this Agreement, any Agreement Among
Initial Purchasers, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement, the Indenture and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Initial Purchasers,
including any charges of DTC in connection therewith, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof and any filing for review of the offering with
the National Association of Securities Dealers (the "NASD"), including filing
fees and the reasonable fees and disbursements of counsel for the Initial
Purchasers in connection therewith and in connection with the preparation of the
Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (vi)
the fees and expenses of the Trustees and paying agents, including the fees and
disbursements of counsel for the Trustees in connection with the Indenture and
the Securities, (vii) any fees payable in connection with the rating of the
Securities and (viii) any fees payable to the NASD and any fees and expenses
payable in connection with the initial and continued designation of the
Securities as PORTAL securities under the PORTAL Market Rules pursuant to NASD
Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by the Initial
Purchasers in accordance with the provisions of Section 5 or Section 10(a)(i)
hereof, the Company shall reimburse the Initial Purchasers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers incurred through the date of termination.
SECTION 5. Conditions of Initial Purchasers' Obligations. The obligations of
the several Initial Purchasers hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinions of Counsel for Company. (i) At the Closing Time, the Initial
Purchasers shall have received two favorable opinions, each dated as of the
Closing Time, of Baker & McKenzie, counsel for the Company, each in form and
substance satisfactory to counsel for the Initial Purchasers, one to the effect
as set forth in Exhibit D hereto and one to
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the effect set forth in Exhibit E hereto and each to such further effect as
counsel to the Initial Purchasers may reasonably request.
(ii) At the Closing Time, the Initial Purchasers shall have received
the favorable opinion, dated as of the Closing Time, of Baker & McKenzie,
Amsterdam, special Dutch counsel to the Company, in form and substance
satisfactory to counsel to the Initial Purchasers, to the effect set forth
in Exhibit F hereto and to such other effect as counsel to the Initial
Purchasers may reasonably request.
(iii) At the Closing Time, the Initial Purchasers shall have received
the favorable opinion, dated as of the Closing Time, of Ashurst Morris
Crisp, special English counsel to the Company, in form and substance
satisfactory to counsel to the Initial Purchasers, to the effect set forth
in Exhibit G hereto and to such other effect as counsel to the Initial
Purchasers may reasonably request.
(b) Opinion of United States Counsel for Initial Purchasers. At the Closing
Time, the Initial Purchasers shall have received the favorable opinion, dated as
of the Closing Time, of Shearman & Sterling, counsel for the Initial Purchasers,
with respect to the matters set forth in (i), (ii), (vi) through (xiii),
inclusive and the penultimate paragraph of Exhibit D hereto.
(c) Opinion of Polish Counsel for Initial Purchasers. At the Closing Time,
the Initial Purchasers shall have received the favorable opinion, dated as of
the Closing Time, of Salans Hertzfeld & Heilbronn Sp. z o.o., special Polish
counsel to the Initial Purchasers, in form satisfactory to the Initial
Purchasers with respect to certain of the matters set forth in paragraphs (i)
through (vii), inclusive, of Exhibit E hereto.
(d) Officers' Certificate. At the Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Offering Memorandum, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Initial
Purchasers shall have received a certificate of the chief executive officer of
the Company and of the chief financial or chief accounting officer of the
Company, dated as of the Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in Section
1 hereof are true and correct with the same force and effect as though expressly
made at and as of the Closing Time, and (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time.
(e) Accountants' Comfort Letter. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from KPMG Polska Sp. z
o.o. a letter dated such date, in form and substance satisfactory to the Initial
Purchasers, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to initial
18
<PAGE>
purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(f) Bring-down Comfort Letter. At the Closing Time, the Initial Purchasers
shall have received from KPMG Polska Sp. z o.o. a letter, dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.
(g) Maintenance of Rating. At the Closing Time, the Notes shall be rated at
least B3 by Moody's Investor's Service Inc. and B by Standard & Poor's Ratings
Services and the Company shall have delivered to the Initial Purchasers a letter
dated the Closing Time, from each such rating agency, or other evidence
satisfactory to the Initial Purchasers, confirming that the Securities have such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading in the rating assigned to the Securities or any of the Company's or
any Designated Subsidiary's other debt securities by any "nationally recognized
statistical rating agency", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the 1933 Act, and no such statistical rating
agency shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of the Securities or any of the
Company's or any Designated Subsidiary's other debt securities.
(h) PORTAL. At the Closing Time, the Securities shall have been designated
for trading on PORTAL.
(i) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Initial Purchasers and
counsel for the Initial Purchasers.
(j) Execution of Agreements. At the Closing Time, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement, and
the Indenture, each in form and substance reasonably satisfactory to the Initial
Purchasers, shall have been duly executed and delivered and shall be in full
force and effect.
(k) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchasers by notice to the Company
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party except as
19
<PAGE>
provided in Section 4 and except that Sections 1, 7, 8 and 9 shall survive any
such termination and remain in full force and effect.
SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) Offers and Sales only to Qualified Institutional Buyers. Offers and
sales of the Securities shall only be made to persons whom the offeror or
seller reasonably believes to be qualified institutional buyers (as defined
in Rule 144A under the 1933 Act). Each Initial Purchaser agrees that it will
not offer, sell or deliver any of the Securities in any jurisdiction except
under circumstances that will result in compliance with the applicable laws
thereof, and that it will take at its own expense whatever action is
required to permit its purchase and resale of the Securities in such
jurisdictions.
(ii) No General Solicitation. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will be
used in the United States in connection with the offering or sale of the
Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
Subsequent Purchaser of a Security acting as a fiduciary for one or more
third parties, each third party shall, in the judgment of the applicable
Initial Purchaser, be a Qualified Institutional Buyer.
(iv) Subsequent Purchaser Notification. Each Initial Purchaser will
take reasonable steps to inform, and cause each of its U.S. Affiliates to
take reasonable steps to inform, persons acquiring Securities from such
Initial Purchaser or affiliate, as the case may be, in the United States
that the Securities (A) have not been and will not be registered under the
1933 Act, (B) are being sold to them without registration under the 1933 Act
in reliance on Rule 144A or in accordance with another exemption from
registration under the 1933 Act, as the case may be, and (C) may not be
offered, sold or otherwise transferred prior to (x) the date which is two
years (or such shorter period of time as permitted by Rule 144(k) under the
1933 Act or any successor provision thereunder) after the later of the date
of original issue of the Securities and (y) such later date, if any, as may
be required under applicable laws except (1) to the Company or any of its
subsidiaries, (2) inside the United States in accordance with (x) Rule 144A
to a person whom the seller reasonably believes is a Qualified Institutional
Buyer that is purchasing such Securities for its own account or for the
account of a Qualified Institutional Buyer to whom notice is given that the
offer, sale or transfer is being made
20
<PAGE>
in reliance on Rule 144A or (y) pursuant to another available exemption from
registration under the 1933 Act, or (3) pursuant to an effective
registration statement.
(v) Restrictions on Transfer. The transfer restrictions and the other
provisions set forth in the Offering Memorandum under the heading "Notice to
Investors", including the legend required thereby, shall apply to the
Securities except as otherwise agreed by the Company and the Initial
Purchasers. Following the sale of the Securities by the Initial Purchasers
to Subsequent Purchasers pursuant to the terms hereof, the Initial
Purchasers shall not be liable or responsible to the Company for any losses,
damages or liabilities suffered or incurred by the Company, including any
losses, damages or liabilities under the 1933 Act, arising from or relating
to any resale or transfer of any Security.
(b) Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original distribution of the
Securities, the Company agrees that, prior to any offer or resale of the
Securities by the Initial Purchasers, the Initial Purchasers and counsel for
the Initial Purchasers shall have the right to make reasonable inquiries
into the business of the Company and its subsidiaries. The Company also
agrees to provide answers to each prospective Subsequent Purchaser of
Securities who so requests concerning the Company and its subsidiaries (to
the extent that such information is available or can be acquired and made
available to prospective Subsequent Purchasers without unreasonable effort
or expense and to the extent the provision thereof is not prohibited by
applicable law) and the terms and conditions of the offering of the
Securities, as provided in the Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will cause
its Affiliates not to solicit any offer to buy or make any offer or sale of,
or otherwise negotiate in respect of, securities of the Company of any class
if, as a result of the doctrine of "integration" referred to in Rule 502
under the 1933 Act, such offer or sale would render invalid (for the purpose
of (i) the sale of the Securities by the Company to the Initial Purchasers,
(ii) the resale of the Securities by the Initial Purchasers to Subsequent
Purchasers or (iii) the resale of the Securities by such Subsequent
Purchasers to others) the exemption from the registration requirements of
the 1933 Act provided by Section 4(2) thereof or by Rule 144A or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
21
<PAGE>
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any Securities which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial
owner or otherwise (except as agent acting as a securities broker on behalf
of and for the account of customers in the ordinary course of business in
unsolicited broker's transactions) unless, immediately upon any such
purchase, the Company or any Affiliate shall submit such Securities to the
Trustees for cancellation.
(c) Resale Pursuant to Rule 144A. Each Initial Purchaser understands that
the Securities have not been and will not be registered under the 1933 Act and
may not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except pursuant to an exemption from the registration
requirements of the 1933 Act. Each Initial Purchaser severally represents and
agrees, that, except as permitted by Section 6(a) above, it has offered and sold
Securities and will offer and sell Securities as part of their distribution at
any time only in accordance with Rule 144A under the 1933 Act or another
applicable exemption from the registration provisions of the 1933 Act. Each
Initial Purchaser severally agrees that, at or prior to confirmation of a sale
of Securities (other than a sale of Securities pursuant to Rule 144A) it will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Securities from it or through it during
the restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and may not
be offered or sold within the United States or to or for the account or
benefit of U.S. persons as part of their distribution at any time
except in accordance with Rule 144A under the Securities Act or another
exemption from the registration requirements of the Securities Act."
(d) Offers and Sales in Poland and The Netherlands. The Initial Purchasers
have advised the Company and hereby severally represent and warrant to and agree
with the Company that they will not offer or sell the Securities in Poland
except under circumstances which do not constitute a public offering or
distribution of securities under Polish laws and regulations. The Initial
Purchasers further agree they will not offer or sell the Securities in The
Netherlands except under circumstances which do not constitute a public offering
or distribution (aanbod buiten besloten kring) of securities under the laws and
regulations of The Netherlands.
22
<PAGE>
(e) Offers and Sales in the United Kingdom. Each Initial Purchaser hereby
severally represents, warrants and agrees that (i) it has not offered or sold
and prior to the expiration of the period six months after the date of issue of
the Securities will not offer to sell by means of any document any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on, and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
(f) Representation and Warranty of Initial Purchasers. Each Initial
Purchaser severally represents and agrees that it has not entered and will not
enter into any contractual arrangements with respect to the distribution of the
Securities, except with its affiliates or with the prior written consent of the
Company.
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to indemnify
and hold harmless each Initial Purchaser and each person, if any, who controls
any Initial Purchaser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 7(d)
below) any such settlement is effected with the written consent of the
Company; and
23
<PAGE>
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum (or any amendment thereto); and provided further that the foregoing
indemnity with respect to any untrue statement contained in or omission from the
Preliminary Offering Memorandum shall not inure to the benefit of the Initial
Purchasers (or any party controlling the Initial Purchasers) if the person
asserting any such loss, liability, claim, damage or expense purchased the
Securities which are the subject thereof directly from the Initial Purchasers in
the offering contemplated by this Agreement and if the Company shall sustain the
burden of proving that such person did not receive a copy of the Final Offering
Memorandum, or any amendment or supplement thereto, at or prior to the written
confirmation of the sale of such Securities to such person and the untrue
statement contained in or omission from such Preliminary Offering Memorandum was
corrected in the Final Offering Memorandum, or such amendment or supplement
thereto, subject to the following: the failure to deliver a copy of the Final
Offering Memorandum or such amendment or supplement thereto does not result from
non-compliance by the Company with Section 3(a) or 3(b) hereof.
(b) Indemnification of Company, Directors and Officers. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Offering
Memorandum in reliance upon and in conformity with written information furnished
to the Company by such Initial Purchaser through Merrill Lynch expressly for use
in the Offering Memorandum.
(c) Actions Against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified
24
<PAGE>
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 7(b) above, counsel to the indemnified parties
shall be selected by the Company. An indemnifying party may participate at its
own expense in the defense of any such action; provided, however, that counsel
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 7 or Section 8 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
25
<PAGE>
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial Purchasers
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Initial Purchasers 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 Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the
Subsequent Purchasers were offered to the Subsequent Purchasers exceeds the
amount of any damages which such Initial Purchaser has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an Initial
Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such Initial Purchaser,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Initial Purchasers' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the principal
number of Units set forth opposite their respective names in Schedule A hereto
and not joint.
26
<PAGE>
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Initial Purchaser or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the Initial Purchasers.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Initial Purchasers may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, the
Republic of Poland or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, or in Polish taxation affecting the
Company or any subsidiary thereof or the transactions contemplated by the
Offering Memorandum, or currency exchange rates for the U.S. dollar into the
Polish Zloty or exchange controls applicable to the U.S. dollar or the Polish
Zloty, in each case the effect of which is such as to make it, in the judgment
of the Initial Purchasers, impracticable to market the Securities or to enforce
contracts for the sale of the Securities, or (iii) if trading in any securities
of the Company has been suspended or materially limited by the Commission, or if
trading generally on the American Stock Exchange, the New York Stock Exchange or
in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by Polish, United States Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 7,
8 and 9 shall survive such termination and remain in full force and effect.
SECTION 11. Default by One or More of the Initial Purchasers. If one of the
Initial Purchasers shall fail at the Closing Time to purchase the Securities
which it is obligated to purchase under this Agreement (the "Defaulted
Securities"), the non-defaulting Initial Purchaser shall have the right, within
24 hours thereafter, to make arrangements for itself, or any other Initial
Purchasers, to purchase all, but not less than all, of the Defaulted Securities
in
27
<PAGE>
such amounts as may be agreed upon and upon the terms herein set forth; if,
however, the non-defaulting Initial Purchaser shall not have completed such
arrangements within such 24-hour period, then this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the non-defaulting Initial Purchaser or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Offering Memorandum or in
any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 11.
SECTION 12. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed, sent by
courier or express delivery company or transmitted by any standard form of
telecommunication. Notices to the Initial Purchasers shall be directed to the
Initial Purchasers at Merrill Lynch & Co., North Tower, World Financial Center,
New York, New York 10281-1209 attention of Lisa Craig; notices to the Company
shall be directed to it at One Commercial Plaza, Hartford, Connecticut
06103-3585, attention of Robert E. Fowler, III.
SECTION 13. Parties. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
28
<PAGE>
SECTION 16. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
@ENTERTAINMENT, INC.
By
--------------------------
Title:
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Authorized Signatory
J.P. MORGAN SECURITIES INC.
By
-------------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Units
--------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................ 201,600
J.P. Morgan Securities Inc............................ 50,400
--------
Total................................................. 252,000
--------
--------
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
@ENTERTAINMENT, INC.
252,000 Units, each Unit consisting of one $1,000 aggregate principal amount
at maturity of 14 1/2% Senior Discount Notes due 2008 and four Warrants, each
Warrant entitling the holder thereof to purchase 1.81 shares of Common Stock.
1. The initial offering price of the Units shall be $496.43 per Unit, plus
accreted amortization of original issue discount on the Notes, if any, from July
14, 1998.
2. The purchase price to be paid by the Initial Purchasers for the Units
shall be $480.296 per Unit, plus accreted amortization of original issue
discount on the Notes, if any, from July 14, 1998.
3. The interest rate on the Notes shall be 14 1/2% per annum; interest will
be payable semiannually on January 15 and July 15, commencing January 15, 2004.
4. The Notes will mature on July 15, 2008 and will be issued in
denominations of $1,000 aggregate principal amount at maturity or integral
multiples thereof.
5. The redemption price supplied on page 134 of the Offering Memorandum (and
correspondingly in the Indenture) with respect to redemptions of Notes from the
proceeds of Public Equity Offerings shall be 114.500% of the Accreted Value
thereof as of the redemption date.
6. The redemption prices supplied on page 134 of the Offering Memorandum
(and correspondingly in the Indenture) relating to the Notes shall be:
<TABLE>
<CAPTION>
Redemption
Year Price
------- ----------
<S> <C>
July 15, 2003 107.250%
July 15, 2004 104.833
July 15, 2005 102.417
July 15, 2006 and thereafter 100.000
</TABLE>
Sch B-1
<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
<TABLE>
<S> <C>
1. ETV Sp. z o.o.
2. Telewizja Kablowa GOSAT Sp. z o.o.
3. Ground Zero Media Sp. z o.o.
4. Otwocka Telewizja Kablowa Sp. z o.o.
5. Polska Telewizja Kablowa S.A.
6. Polska Telewizja Kablowa Krakow S.A.
7. Polska Telewizja Kablowa Lublin S.A.
8. Polska Telewizja Kablowa Operator Sp. z o.o.
9. Polska Telewizja Kablowa Szczecin Sp. z o.o.
10. Polska Telewizja Kablowa Warszawa S.A.
11. Poltelkab Sp. z o.o.
12. ProCable Sp. z o.o.
13. Szczecinska Telewizja Kablowa Sp. z o.o.
14. Telkat Sp. z o.o.
15. TV Kabel Sp. z o.o.
16. At Entertainment Limited
17. Poland Communications, Inc.
18. Poland Cablevision (Netherlands) B.V.
19. Sereke Holding B.V.
</TABLE>
Sch C-1
<PAGE>
<TABLE>
<S> <C>
20. Wizja TV Sp. z o.o.
21. KOLOR-SAT Sp. z o.o. (application for a PAR permit pending)
22. WPTS Sp. z o.o.
23. @Entertainment Programming, Inc.
</TABLE>
Sch C-2
<PAGE>
Exhibit 4.11
INDENTURE dated as of July 14, 1998, between @ENTERTAINMENT, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at One Commercial
Plaza, 24th Floor, Hartford, Connecticut, and BANKERS TRUST COMPANY, a New York
state banking corporation, Trustee (herein called the "Trustee").
INDENTURE dated as of July 14, 1998, between @ENTERTAINMENT, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at One Commercial
Plaza, 24th Floor, Hartford, Connecticut, and BANKERS TRUST COMPANY, a New York
state banking corporation, Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 14 1/2% Senior
Discount Notes due 2008 (herein called the "Initial Securities"), and 14 1/2%
Series B Senior Discount Notes due 2008 (the "Exchange Securities" and, together
with the Initial Securities, the "Securities"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture will be
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.
All things necessary have been done to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted on the Issue Date; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of the Securities:
(i) if the Specified Date is one of the following dates (each a
"Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Semi-Annual Accreted
Accrual Date Value
------------ -----
<S> <C>
Issue Date $ 496.43
January 15, 1999 532.63
July 15, 1999 571.24
January 15, 2000 612.66
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
Semi-Annual Accreted
Accrual Date Value
------------ -----
<S> <C>
January 15, 2001 704.72
July 15, 2001 755.81
January 15, 2002 810.60
July 15, 2002 869.37
January 15, 2003 932.40
July 15, 2003 $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date and (y) a fraction the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after July 15, 2003, $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; provided that, for
purposes of Section 1010, such Indebtedness shall be deemed to be incurred on
the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Advent" means Advent International Corporation, a Delaware corporation.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Voting Stock
or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or
<PAGE>
4
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Members" has the meaning specified in Section 306.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Company are available multiplied by four. For
purposes of calculating "Consolidated Operating Cash Flow" for any fiscal
quarter for purposes of this definition, (a) all Restricted Subsidiaries of the
Company on the date of the transaction giving rise to the need to calculate
"Annualized Pro Forma Consolidated Operating Cash Flow" (the "Transaction Date")
shall be deemed to have been Restricted Subsidiaries at all times during such
fiscal quarter and (b) any Unrestricted Subsidiary of the Company on the
Transaction Date shall be deemed to have been an Unrestricted Subsidiary at all
times during such fiscal quarter. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated Operating Cash Flow"
shall be calculated after giving effect on a pro forma basis for the applicable
fiscal quarter to, without duplication, any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Company or a Restricted Subsidiary
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
fiscal quarter to and including the Transaction Date (the "Reference Period"),
as if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period.
"Asset Acquisition" means (a) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (b) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
the Company or a Restricted Subsidiary in one transaction or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary, (b) any
material governmental license or other governmental authorization of the Company
or any Restricted Subsidiary pertaining to a Cable/Telecommunications Business,
a
<PAGE>
5
DTH Business or an Entertainment/Programming Business, (c) any assets of the
Company or any Restricted Subsidiary which constitute substantially all of an
operating unit or line of business of the Company and its Restricted
Subsidiaries or (d) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (a) any disposition of
properties and assets of the Company that is governed under Article VIII, (b)
sales of property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
the Restricted Subsidiary, as the case may be, (c) for purposes of Section 1017,
any sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions, either
(i) involving assets with a Fair Market Value not in excess of $500,000 (or, if
non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) or (ii) as part
of a Capitalized Lease Obligation, and (d) any transfer by the Company or a
Restricted Subsidiary of property or equipment to a Person who is not an
Affiliate of the Company in exchange for property or equipment that has a fair
market value at least equal to the fair market value of the property or
equipment so transferred; provided that, in the event of a transfer described in
this clause (d), the Company shall deliver to the Trustee an Officer's
Certificate certifying that such exchange complies with this clause (d).
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or the
city
<PAGE>
6
in which the Corporate Trust Office is located are authorized or obligated by
law or executive order to close.
"Cable Television Newco" means any Person (i) of whom the Company or a
Restricted Subsidiary owns the greater of 49% of the outstanding Capital Stock
or the maximum amount of the outstanding Capital Stock the Company or such
Restricted Subsidiary may own under applicable law and (ii) that holds Capital
Stock in a Management Company.
"Cable/Telecommunications Business" means any business operating a cable or
telephone or telecommunications or broadcasting system (other than an
Entertainment/Programming Business or a DTH Business), including, without
limitation, any business (other than an Entertainment/Programming Business or a
DTH Business) conducted by the Company or any Restricted Subsidiary on the Issue
Date and any programming guide or telephone directory business.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of this Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of this Indenture, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (b) certificates of deposit or acceptances with a maturity of 180 days
or less of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
of not less than $500,000,000; (c) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by
<PAGE>
7
S&P or at least P-l by Moody's; and (d) any Capital Stock of any mutual funds
at least 95% of the assets of which are invested in the foregoing.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and l3d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total outstanding Voting Stock of the Company; (b) the Company
consolidates with, or merges with or into another Person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with or merges with or into the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Company is not converted or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company) or is converted into or exchanged for (A) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (B)
Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation and cash, securities and other property (other than
Capital Stock of the Surviving Entity) in an amount that could be paid by the
Company as a Restricted Payment as described under Section 1011 and (ii)
immediately after such transaction, no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the surviving or transferee corporation; (c) during any consecutive two year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or a special resolution is passed
by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with Article VIII.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after
<PAGE>
8
the execution of this Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock or ordinary shares.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order signed
in the name of the Company by its Chairman, its President, any Vice President,
its Treasurer or an Assistant Treasurer, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of the Company and the Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
original issue discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company and the Restricted Subsidiaries,
provided that such amount will be limited for purposes of this definition to the
amount that would have been obtained if such interest had been capitalized at
the interest rate for the Securities and (vi) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, plus (b) the interest component of Capitalized Lease
Obligations of the Company and its Restricted Subsidiaries paid, accrued or
scheduled to be paid or accrued during such period, in each case as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Company and all Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (in each case less all fees
and expenses relating thereto), (b) any
<PAGE>
9
net after-tax gains or losses (in each case less all fees and expenses
relating thereto) attributable to asset dispositions other than in the ordinary
course of business, (c) the portion of net income (or loss) of any Person (other
than the Company or a Restricted Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Company or any Restricted Subsidiary in cash dividends or
distributions during such period, (d) net income (or loss) of any Person
combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(e) except with respect to any encumbrance or restriction described in clause
(ii) of Section 1018, the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and (f) any
non-cash items of the Company and any Restricted Subsidiary (including monetary
corrections) increasing or decreasing Consolidated Net Income for such period
(other than items that will result in the receipt or payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period increased by (in each case to the extent included in computing
Consolidated Net Income) the sum of (a) the Consolidated Income Tax Expense of
the Company and its Restricted Subsidiaries accrued according to GAAP for such
period (other than taxes attributable to extraordinary, unusual or non-recurring
gains or losses); (b) Consolidated Interest Expense for such period; (c)
depreciation of the Company and its Restricted Subsidiaries for such period and
(d) amortization of the Company and its Restricted Subsidiaries for such period,
including, without limitation, amortization of capitalized debt issuance costs
for such period, all determined on a consolidated basis in accordance with GAAP
provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated Operating Cash Flow shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (i) the amount
of Consolidated Net Income attributable to such Restricted Subsidiary multiplied
by (ii) the quotient of (1) the number of shares of outstanding Common Stock of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries divided by (2) the total number of
shares of outstanding Common Stock of such Restricted Subsidiary on the last day
of such period.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at Four Albany Street, New York, New York 10006, except that with respect to
presentation of Securities for payment or
<PAGE>
10
for registration of transfer or exchange, such term shall mean the office or
agency of the Trustee at which, at any particular time, its corporate agency
business shall be conducted.
"Corporation" includes corporations, associations, companies and business
trusts.
"Cumulative Available Cash Flow" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
"Default" means any event that after notice or passage of time or both would
be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under this Indenture, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"DTH Business" means the business of (i) developing, managing, operating or
providing services relating to direct to home satellite systems for the
distribution of subscription programming services directly to homes and cable
systems in areas covered by the "footprint" of the satellites utilized by the
Company and its Restricted Subsidiaries, and activities to accomplish the
foregoing (other than the Cable/Telecommunications Business or the
Entertainment/Programming Business) or (ii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified above.
<PAGE>
11
"Entertainment/Programming Business" means a business engaged primarily in
the management, ownership, operation, acquisition, development, production,
distribution or syndication of general entertainment, sports, movies, children's
or other programming or publishing.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the exchange offer that may be effected pursuant to
the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Securities containing terms substantially
identical to the Initial Securities (except that such Exchange Securities shall
not contain terms with respect to transfer restrictions) that are issued and
exchanged for the Initial Securities pursuant to the Registration Rights
Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer, as determined by the Board of Directors of the Company and evidenced by a
resolution thereof.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United
States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the Issue Date.
"Global Security" has the meaning provided in Section 201.
"guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
<PAGE>
12
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements) incurred in the ordinary course of business (whether or not
evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of Sections 1010 and 1011 and the
definition of "Events of Default", in determining the principal amount of any
Indebtedness to be incurred by the
<PAGE>
13
Company or a Restricted Subsidiary or which is outstanding at any date, (x) the
principal amount of any Indebtedness which provides that an amount less than the
principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accredited value thereof at the date of
determination and (y) effect shall be given to the impact of any Currency
Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning provided in the recitals to this
Indenture.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to such
Person (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock
(including ownership of Capital Stock through share leasing arrangements),
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means July 14, 1998.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds
<PAGE>
14
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Majority Owned Restricted Subsidiary" means a Restricted Subsidiary (a) at
least 66.66% of the outstanding Capital Stock of which is beneficially owned
directly or indirectly by the Company or PCBV and one or more Wholly Owned
Restricted Subsidiaries and (b) no outstanding Capital Stock of which is owned,
directly or indirectly (except through the Company), by any shareholder or
Affiliate of a shareholder of the Company.
"Management Agreement" means (a) any agreement between the Company or a
Restricted Subsidiary and a Management Company pursuant to which the Management
Company shall lease or otherwise employ assets of the Company or a Restricted
Subsidiary to operate a Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business and (b) any agreement or instrument (i)
governing Indebtedness of a Management Company to the Company or a Restricted
Subsidiary or (ii) governing corporate procedures or control of a Management
Company.
"Management Company" means any Person, a portion of whose Capital Stock is
held by the Company or a Restricted Subsidiary, that (i) holds or has applied
for a license or permit to operate a Cable/Telecommunications Business, a DTH
Business or an Entertainment/Programming Business in the Republic of Poland or
elsewhere in Continental Europe and (ii) manages the operations of a Restricted
Subsidiary pursuant to a Management Agreement.
"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations or escrowed funds, but only when received in the
form of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary), net of (i) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than the
<PAGE>
15
Company or any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and (v) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (b) with respect to any capital contribution or issuance or sale of
Capital Stock as referred to under Section 1011 and the definition of "Permitted
Indebtedness", the proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such capital contribution, issuance or sale and net
of taxes paid or payable as a result thereof.
"Officers Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Organizational Contract" means any agreement to which the Company or any
Restricted Subsidiary is a party pursuant to which, among other things, fees are
paid to the Company or a Restricted Subsidiary in exchange for organizational,
consulting or similar services, including, without limitation, the agreements
listed on Schedule A to this Indenture under the subheading "Organizational
Contracts."
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or
<PAGE>
16
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee
has been made;
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Thirteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount at maturity of Outstanding Securities have given any request,
demand, authorization, direction, consent, notice or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgees right so to act with
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Overhead Agreement" means any agreement to which the Company or any
Restricted Subsidiary is a party pursuant to which, among other things, costs
are allocated among the parties thereto, including, without limitation, the
agreements listed on Schedule A to this Indenture under the subheading "Overhead
Agreements".
"Pari Passu Indebtedness" means Indebtedness of the Company that is pari
passu in right of payment to the Securities.
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17
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any)
or interest on any Securities on behalf of the Company. The initial paying agent
shall be the Trustee.
"PCBV" means Poland Cablevision (Netherlands) B.V., a Netherlands
corporation.
"PCI" means Poland Communications, Inc., a New York corporation and a Wholly
Owned Subsidiary of the Company.
"PCI Indenture" means the Indenture dated as of October 31, 1996 between PCI
and State Street Bank and Trust Company, as trustee, as in effect on the Issue
Date.
"Permitted Holders" means, as of the date of determination, (a) David T.
Chase, Arnold L. Chase and Cheryl A. Chase (b) the family members, estates and
heirs of David T. Chase, Arnold L. Chase and Cheryl A. Chase and any trust,
partnership, corporation, limited liability company or other investment vehicle
principally for the benefit of any such persons or their respective family
members or heirs (including, without limitation, Polish Investments Holding LP
for so long as beneficial ownership thereof is held by Persons meeting the
requirements of clause (a) and (b) of this definition), (c) ECO Holdings III
Limited Partnership ("ECO II") and any successor thereto that is owned by the
Persons who beneficially own, directly and indirectly, ECO II on the Issue Date;
(d) Advent International Corp. and (e) any Person that is controlled by the
Persons, individually or as a group, described in clauses (a) through (d) above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Securities (or any guarantee thereof) and
this Indenture;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on Schedule B to this Indenture;
(c) Indebtedness of PCI and any subsidiary of PCI that is a Restricted
Subsidiary to the extent such Indebtedness constitutes "Permitted
Indebtedness" as defined in the PCI Indenture;
(d) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary and (ii) Indebtedness of the Company
owed to and held by any Restricted Subsidiary that is Subordinated
Indebtedness; provided that an incurrence of Indebtedness shall be deemed to
have occurred upon (x) any sale or
<PAGE>
18
other disposition (excluding assignments as security to financial
institutions) of any Indebtedness of the Company or Restricted Subsidiary
referred to in this clause (e) to a Person (other than the Company or a
Restricted Subsidiary) or (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary which holds Indebtedness of the Company or
another Restricted Subsidiary such that such Restricted Subsidiary, in any
such case, ceases to be a Restricted Subsidiary;
(e) Obligations under any Interest Rate Agreement of the Company or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Company or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and (y) is
otherwise permitted to be incurred under Section 1010), or (ii) Indebtedness
for which a lender has provided a commitment in an amount reasonably
anticipated to be incurred by the Company or a Restricted Subsidiary in the
following 12 months after such Interest Rate Agreement has been entered
into, but only to the extent that the notional principal amount of such
Interest Rate Agreement does not exceed the principal amount of the
Indebtedness (or Indebtedness subject to commitments) to which such Interest
Rate Agreement relates;
(f) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the
Company or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under Section 1010) or (ii) obligations to purchase
assets, properties or services incurred in the ordinary course of business
of the Company or any Restricted Subsidiary; provided that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(g) Indebtedness of the Company or any Restricted Subsidiary in respect
of performance bonds of the Company or any Restricted Subsidiary or surety
bonds provided by the Company or any Restricted Subsidiary incurred in the
ordinary course of business in connection with the construction or operation
of a Cable/ Telecommunications Business, a DTH Business or an
Entertainment/Programming Business;
(h) Indebtedness of the Company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Company or of any Restricted Subsidiary
incurred or outstanding pursuant to clause (b) of this definition or the
proviso of paragraph (a) of Section 1010; provided that (i) Indebtedness of
the Company may not be replaced, renewed, refinanced or extended to such
extent under this clause (i) with Indebtedness of any
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19
Restricted Subsidiary and (ii) any such replacement, renewal, refinancing or
extension (x) shall not result in a lower Average Life of such Indebtedness
as compared with the Indebtedness being replaced, renewed, refinanced or
extended, (y) shall not exceed the sum of the principal amount (or, if such
Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof, an amount no greater than such lesser
amount) of the Indebtedness being replaced, renewed, refinanced or extended
plus the amount of accrued interest thereon and the amount of any reasonably
determined prepayment premium necessary to accomplish such replacement,
renewal, refinancing or extension and such reasonable fees and expenses
incurred in connection therewith, and (z) in the case of any replacement,
renewal, refinancing or extension by the Company of Pari Passu Indebtedness
or Subordinated Indebtedness, such new Indebtedness is made pari passu with
or subordinate to the Securities, at least to the same extent as the
Indebtedness being replaced, renewed, refinanced or extended;
(i) Indebtedness of the Company having an aggregate principal amount
not to exceed, at any one time outstanding, two times (i) the Net Cash
Proceeds received by the Company after the Issue Date from the issuance and
sale of its Capital Stock (other than Redeemable Capital Stock) to a Person
that is not a Subsidiary, to the extent such Net Cash Proceeds have not been
used pursuant to clause (a)(3)(B), (b)(ii), (b)(iii) or (b)(v) of Section
1011 to make a Restricted Payment and (ii) 80% of the Fair Market Value of
property (other than cash or Cash Equivalents) received by the Company after
the Issue Date from a sale of its Capital Stock (other than Redeemable
Capital Stock) to a Person that is not a Subsidiary, the extent such sale of
Capital Stock has not been used pursuant to clause (b)(ii), (b)(iii) or
(b)(v) of Section 1011 to make a Restricted Payment; provided, however, that
in determining the Fair Market Value of property, if the estimated Fair
Market Value of such property exceeds $10.0 million, the Company will
deliver to the Trustee a written appraisal as to the fair market value of
such property prepared by an internationally recognized investment banking
or public accounting firm (or, if no such investment banking or public
accounting firm is qualified to prepare such an appraisal, by an
internationally recognized appraisal firm) and provided further that such
Indebtedness does not mature prior to the Stated Maturity of the Securities
and has an Average Life longer than the Securities;
(j) Subordinated Indebtedness of the Company not to exceed $150 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) at
any one time outstanding; and
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of the Company having an aggregate principal amount not
to exceed
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20
$125 million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent
thereof) at any time outstanding less the aggregate principal amount of any
outstanding Indebtedness incurred after the Issue Date under clause (c) of
this definition of Permitted Indebtedness.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to directors or employees made in the ordinary course of business; (d)
Interest Rate Agreements and Currency Agreements; (e) bonds, notes, debentures
or other securities received as a result of Asset Sales permitted under Section
1017, provided that the Company or the Restricted Subsidiaries, as the case may
be, have received at least 75% of the aggregate consideration therefrom in cash
or Cash Equivalents; (f) Investments made in the ordinary course of business as
partial payment for constructing a network relating principally to a
Cable/Telecommunications Business or for supplying equipment used or useful in
the Cable/Telecommunications Business or the DTH Business; (g) Investments
(other than through share leasing arrangements) in any Person engaged in any
business in which the Company or any Restricted Subsidiary is engaged on the
Issue Date not to exceed $90 million (or, if non-U.S. Dollar denominated, the
U.S. Dollar Equivalent thereof) outstanding at any time; provided that
immediately after giving effect to any Investment made under this clause (g),
the Company and its Restricted Subsidiaries shall own at least 25% of the
outstanding Capital Stock of the Person in which the Investment was made; (h)
Investments (other than through share leasing arrangements) in any Person
engaged in any business in which the Company or any Restricted Subsidiary is
engaged on the Issue Date not to exceed $10 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) outstanding at any time; (i)
Investments (other than through share leasing programs) in the Capital Stock of
any Person to the extent the consideration therefor paid by the Company or any
Restricted Subsidiary consists of a lease or other right to use the capacity of
a cable television network of the Company or such Restricted Subsidiary and so
long as the capacity leased or used is used by such Person solely to provide
telephony or Internet access services; provided that the Board of Directors
shall have determined (as evidenced by a Board Resolution) that any such
capacity is in excess of the cable television network capacity required to
operate the Cable/Telecommunications Business of the Company or such Restricted
Subsidiary in the area in which such cable television network is located; and
(j) to the extent not covered in clauses (a) through (i) above, any "Permitted
Investment" as defined in the PCI Indenture made by PCI or any subsidiary
thereof in accordance with the terms of the PCI Indenture.
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21
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any Restricted Subsidiary;
(b) Liens securing the Securities;
(c) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided that such Lien does
not extend to any property or assets of the Company or any Restricted
Subsidiary other than the assets acquired in connection with the incurrence
of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and
with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
the Company or any Restricted Subsidiary incurred in the ordinary course of
business;
(g) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (h); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
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22
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI incurred
after the Issue Date under clause (c) of the definition of Permitted
Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of the Company incurred pursuant to
clause (i) of the definition of Permitted Indebtedness in an amount having
an aggregate principal amount not to exceed, at any one time outstanding,
100% of the Net Cash Proceeds received by the Company after the Issue Date
from the issuance and sale of its Capital Stock;
(m) Liens in favor of Polish governmental fiscal authorities created
without the knowledge of and without fault on the part of the Company;
(n) Liens existing on the Issue Date and listed on Schedule C to this
Indenture;
(o) Liens in favor of the Screen Actors Guild, the Writers Guild of
America, the Directors Guild of America or any other unions, guilds or
collective bargaining units under collective bargaining agreements, which
Liens are incurred in the ordinary course of business solely to secure the
payment of residuals and other collective bargaining obligations required to
be paid by the Company or any of its Restricted Subsidiaries under any such
collective bargaining agreement;
(p) Liens arising in connection with completion guarantees entered into
in the ordinary course of business and consistent with then current industry
practices, securing obligations (other than Indebtedness for borrowed money)
of the Company or any of its Restricted Subsidiaries not yet due and
payable;
(q) Liens in favor of suppliers and/or producers of any programming
that are incurred in the ordinary course of business solely to secure the
purchase or license price of such programming and such directly related
rights or the rendering of services necessary for the production of such
programming; provided, however, that no such Lien shall extend to or cover
any property or assets other than the programming or license and the rights
directly related thereto being so acquired or produced; and provided further
that any payment obligations secured by such Liens shall by their terms be
payable solely from the revenues that are derived directly from the
exhibition, syndication, exploitation, distribution or disposition of such
item of programming and/or such directly related rights;
<PAGE>
23
(r) Liens on assets of PCI or any subsidiary of PCI securing the PCI
Notes; and
(s) Liens on assets or Capital Stock of a Special Purpose Vehicle.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, S.A., Sp. z o.o.,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Physical Note" has the meaning specified in Section 201.
"Poltelkab" means Poltelkab Sp. z o.o., a Polish limited liability company.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of Common Stock
(which is Qualified Capital Stock) of the Company for cash pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligation" means Indebtedness of the Company or any
Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of the Company or any Restricted Subsidiary or (b)
secured by a Lien on any assets of the Company or any Restricted Subsidiary
where the lender's sole recourse is to the assets so encumbered, in either case
to the extent the purchase or construction prices for such assets are or should
be included in "addition to property, plan or equipment" in accordance with
GAAP.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
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24
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified in
Rule 144A.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Securities or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; provided, however, that Redeemable Capital Stock shall not include any
Common Stock the holder of which has a right to put to the Company upon certain
terminations of employment.
"Redemption Date", when used with respect to any Security to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Initial Purchasers named therein, dated as of July
14, 1998, relating to the Securities and the Company's 14 1/2% Senior Notes due
2008, a copy of which has been filed with the Trustee.
"Registration Statement" means the Registration Statement as defined in the
Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the January 1 or July 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means any
officer in its corporate trust department or similar group, and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Payment" has the meaning provided in Section 1011.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
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25
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of The
McGraw-Hill, Inc. and its successors.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Bank Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of the Company or any Restricted Subsidiary.
"Service Agreement" means any agreement to which the Company or any
Restricted Subsidiary is a party pursuant to which, among other things, the
Company or a Restricted Subsidiary provides various services, which may include
administrative, technical, managerial, financial, operational and marketing
services, to the other party or parties thereto, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Service Agreements."
"Shareholder Registration Rights Agreement" means the Registration Rights
Agreement dated as of June 27, 1997 among PIHLP, ECO II, Mr. Freedman, Steele
LLC, AESOP and CACMT (as such terms are defined in the Company's Offering
Memorandum dated July 8, 1998) in the form existing on the Issue Date.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any particular time, any Subsidiary that,
together with the subsidiaries of such Subsidiary, (a) accounted for more than
5% of the consolidated revenues of the Company and its Subsidiaries for their
most recently completed fiscal year or (b) is or are the owner(s) of more than
5% of the consolidated assets of the Company and its Subsidiaries as at the end
of such fiscal year, all as calculated in accordance with GAAP and as shown on
the consolidated financial statements of the Company and its Subsidiaries for
such fiscal year.
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26
"Special Purpose Vehicle" means a Person which is, or was, established: (i)
with separate legal identity and limited liability; and (ii) for the sole
purpose of a single transaction, or series of related transactions, and which
has no assets and liabilities other than those directly acquired or incurred in
connection with such transaction(s).
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Securities.
"Subsidiary" means (a) any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries and (b) Poltelkab, PTK Operator Sp. z o.o., Cable Television
Newco and any other Management Company.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Company and its
Restricted Subsidiaries outstanding as of the date of determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and (b) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company, subject to the
foregoing, may designate any newly acquired or newly formed Subsidiary (other
than a Management Company) to be an Unrestricted Subsidiary so long as (i)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with
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27
respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse
of time or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of Section
1019, (iv) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Company and (v) neither the
Company nor any Restricted Subsidiary has any obligation (1) to subscribe for
additional shares of Capital Stock or other equity interest in such Subsidiary
or (2) to maintain or preserve such Subsidiary's financial condition or to cause
such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a board resolution with the Trustee giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving
effect to such designation, there would be no Default or Event of Default under
this Indenture and the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 1010.
"U.S. Dollar" means United States currency.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such foreign currency involved in
such computation into U.S. Dollars at the spot rate for the purchase of U.S.
Dollars with the applicable foreign currency as quoted by the National Bank of
Poland at approximately noon (New York City time) on the date two business days
prior to such determination.
"U.S. Government Obligations" has the meaning provided in Section 1304.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
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28
"Wholly Owned" means, with respect to any Restricted Subsidiary, such
Restricted Subsidiary if all the outstanding Capital Stock of such Restricted
Subsidiary (other than any directors' qualifying shares) is owned directly by
the Company or PCBV and one or more Wholly Owned Restricted Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers Certificate stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Section 1008(a))
shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some
<PAGE>
29
matters and one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of authority.
The fact and date of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in any other
manner that the Trustee deems sufficient.
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30
(c) The principal amount at maturity and serial numbers of Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. Notwithstanding TIA Section 316(c),
such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee, Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Manager, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and
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31
mailed, first-class postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph of this
Indenture, or at any other address previously furnished in writing to the
Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
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32
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any
Security Registrar and their successors hereunder and the Holders any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York. Upon issuance of the Exchange
Securities or the effectiveness of a Shelf Registration Statement, this
Indenture shall be subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions; and, if and to the extent that any provision of
this Indenture limits, qualifies or conflicts with any other provision included
in this Indenture which is required to be included in this Indenture by any of
Sections 310 to 318, inclusive, of the Trust Indenture Act, such required
provision shall control.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
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33
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The definitive Securities shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
The Initial Securities shall be known as the "14 1/2% Senior Discount Notes
due 2008" and the Exchange Securities shall be known as the "14 1/2% Series B
Senior Discount Notes due 2008". The Securities and the Trustee's certificate of
authentication shall be substantially in the form annexed hereto as Exhibit A.
The Securities may have such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture and may have
such letters, notations, numbers or other marks of identification and such
legends or endorsements placed thereon as the Company may deem appropriate (and
as are not prohibited by the terms of this Indenture) or as may be required or
appropriate to comply with any law or with any rules made pursuant thereto or
with any rules of any securities exchange on which such Securities may be
listed, or to conform to general usage, or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution of such Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security. The Company shall approve the form of the Securities and any
notation, legend or endorsement on the Securities. Each Security shall be dated
the date of its authentication.
The terms and provisions contained in the form of the Securities annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. Each of the Company and the Trustee, by its execution and
delivery of this Indenture, expressly agrees to the terms and provisions of the
Securities applicable to it and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of a single permanent global Security in registered form,
substantially in the form set forth in Exhibit A (the "Global Security"),
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount at maturity of the Global Security
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34
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Securities issued pursuant to Section 306 or Section 307 in exchange for
interests in the Global Security shall be in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
(the "Physical Securities").
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each Global Security and each
Physical Security shall bear the following legend set forth below (the "Private
Placement Legend") on the face thereof.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE
144A")), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER
THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE
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35
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF AVAILABLE), OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO
EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS
SECURITY UNDER (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
Each Global Security, whether or not an Initial Security, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF
DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE
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36
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTIONS 306 AND 307 OF THE INDENTURE.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount at maturity of Securities which may be
authenticated and delivered under this Indenture is limited to $252,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 801, 906, 1016, 1017 or 1108.
The Initial Securities shall be known and designated as the "14 1/2% Senior
Discount Notes due 2008" of the Company. The Exchange Securities shall be known
and designated as the "14 1/2% Series B Senior Discount Notes due 2008" of the
Company. The Stated Maturity of the Initial Securities and the Exchange
Securities shall be July 15, 2008, and, except as otherwise set forth herein,
original issue discount will accrete from the Issue Date up to July 15, 2003;
thereafter cash interest will accrue at the rate of 14 1/2% per annum from July
15, 2003, or from the most recent Interest Payment Date to which cash interest
has been paid or duly provided for, payable on January 15 and July 15 in each
year, commencing January 15, 2004, and at said Stated Maturity, until the
principal thereof is paid or duly provided for. Except in the case of a
Registration Default (as defined in the form of Securities), the principal of
the Securities shall not accrue cash interest until July 15, 2003, except in the
case of a default in payment of the amount due at Maturity, in which case the
amount due on the Securities shall bear interest at a rate of 14 1/2% per annum
(to the extent that the payment of such interest shall be legally enforceable),
which shall accrue from the date of such default to the date the payment of such
amount has been made or duly provided for. Interest on any overdue principal
amount shall be payable on demand.
The principal of (and premium, if any) and interest on the Securities shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that, at the option of the
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
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37
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without coupons and
only in denominations of $1,000 principal amount at maturity and any integral
multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, under its corporate seal reproduced thereon
and attested by its Secretary or an Assistant Secretary. The signature of any of
these officers on the Securities may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated or
merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to
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38
such consolidation, merger, conveyance, transfer, lease or other disposition
may, from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Securities as specified in such request for the purpose
of such exchange. If Securities shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as conclusively evidenced by
their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office a register
(the register maintained in such office and in any other office or agency
designated pursuant to Section 1002 being herein sometimes referred to as the
"Security Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. The Security Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. At all reasonable times, the Security Register shall be open to inspection
by
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39
the Trustee. The Trustee is hereby initially appointed as security registrar
(the "Security Registrar") for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office or
agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount at maturity, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange
(including an exchange of Initial Securities for Exchange Securities), the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive provided
that no exchange of Initial Securities for Exchange Securities shall occur until
an Exchange Offer Registration Statement shall have been declared effective by
the Commission and that the Initial Securities to be exchanged for the Exchange
Securities shall be cancelled by the Trustee.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Security Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange
or redemption of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 801, 906, 1016, 1017 or 1108 not
involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of
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40
business on the day of such mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Securities.
(a) The Global Security initially shall (i) be registered in the name of the
Depositary for such Global Securities or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary, or the Trustee as its custodian, or under any Global
Security, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Security.
(b) Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depositary, its successors or
their respective nominees and, in part, in the circumstances described in
paragraph (d) hereof. Interests of beneficial owners in a Global Security may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 307. Beneficial owners may obtain
Physical Securities (which shall bear the Private Placement Legend if required
by Section 202) in exchange for their beneficial interests in a Global Security
upon request in accordance with the Depositary's and the Security Registrar's
procedures at any time. In addition, Physical Securities shall be transferred to
all beneficial owners in exchange for their beneficial interests in the Global
Security if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Security or the Depositary
ceases to be a "Clearing Agency" registered under the Exchange Act and a
successor depositary is not appointed by the Company within 90 days or (ii) an
Event of Default has occurred and Holders of more than 25% in aggregate
principal amount of the Securities at the time outstanding represented by the
Global Securities advise the Trustee through the Depositary in writing that the
continuation of a book-entry system through the Depositary with respect to the
Global Securities is no longer required.
(c) In connection with any transfer pursuant to paragraph (b) of this
Section of beneficial interests in the Global Security to beneficial owners,
upon receipt of written
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41
instructions from the Depositary, the Security Registrar shall reflect on its
books and records the date and a decrease in the principal amount at maturity of
the Global Security in an amount equal to the principal amount at maturity of
the beneficial interest in the Global Security to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Physical Securities of like tenor and amount.
(d) In connection with the transfer of the entire Global Security to
beneficial owners pursuant to paragraph (b) of this Section, the Global Security
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Security an equal aggregate principal amount at maturity
of Physical Securities of authorized denominations.
(e) Any Physical Security delivered in exchange for an interest in the
Global Security pursuant to paragraph (b) or (c) of this Section shall, except
as otherwise provided by paragraph (a)(i)(x) or paragraph (e) of Section 307,
bear the legend regarding transfer restrictions applicable to the Physical
Security set forth in Section 202.
(f) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold pursuant to an effective
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security in the Exchange Offer pursuant to an effective Registration Statement,
in each case, pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) General. The provisions of this Section 307 shall apply to all transfers
involving any Physical Security and any beneficial interest in any Global
Security.
(b) Certain Definitions. As used in this Section 307 only, "delivery" of a
certificate by a transferee or transferor means the delivery to the Security
Registrar by such transferee or transferor of the applicable certificate duly
completed; "holding" includes both possession of a Physical Security and
ownership of a beneficial interest in a Global Security, as the context
requires; "transferring" a Global Security means transferring that portion of
the principal amount of the transferor's beneficial interest therein that the
transferor has notified the Security Registrar that it has agreed to transfer;
and "transferring" a Physical Security means transferring that portion of the
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42
principal amount thereof that the transferor has notified the Security Registrar
that it has agreed to transfer.
As used in this Indenture,"Rule 144A Certificate" means a certificate
substantially in the form set forth in Section 313 and "Non-Registration Opinion
and Supporting Evidence" means a written opinion of counsel reasonably
acceptable to the Company to the effect that, and such other certification or
information as the Company may reasonably require to confirm that, the proposed
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain Circumstances. A
Rule 144A Certificate, if not actually delivered, will be deemed delivered if
(A) (i) the transferor advises the Company and the Trustee in writing that the
relevant offer and sale were made in accordance with the provisions of Rule 144A
(or, in the case of a transfer of a Physical Security, the transferor checks the
box provided on the Physical Security to that effect) and (ii) the transferee
advises the Company and the Trustee in writing that (x) it and, if applicable,
each account for which it is acting in connection with the relevant transfer, is
a qualified institutional buyer within the meaning of Rule 144A, (y) it is aware
that the transfer of Securities to it is being made in reliance on the exemption
from the provisions of Section 5 of the Securities Act provided by Rule 144A,
and (z) prior to the proposed date of transfer it has been given the opportunity
to obtain from the Company the information referred to in Rule 144A(d)(4), and
has either declined such opportunity or has received such information (or, in
the case of a transfer of a Physical Security, the transferee signs the
certification provided on the Physical Security to that effect); or (B) the
transferor holds the Global Security and is transferring to a transferee that
will take delivery in the form of the Global Security.
(e) Procedures and Requirements. If the proposed transferor holds:
(A) a Physical Security which is surrendered to the Security Registrar,
and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to clause
(d) above) a Rule 144A Certificate and the proposed transferee requests
delivery in the form of a Physical Security, then the Security
Registrar shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and records, (y)
cancel such
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43
surrendered Physical Security and (z) deliver a new Physical Security
to such transferee duly registered in the name of such transferee in
principal amount equal to the principal amount being transferred of
such surrendered Physical Security; or
(ii) delivers (or is deemed to have delivered pursuant to clause
(d) above) a Rule 144A Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the proposed
transferee receive a beneficial interest in the Global Security, then
the Security Registrar shall (x) cancel such surrendered Physical
Security, (y) record an increase in the principal amount of the Global
Security equal to the principal amount being transferred of such
surrendered Physical Security and (z) notify the Depositary in
accordance with the procedures of the Depositary that it approves of
such transfer.
In any of the cases described in this Section 307(e)(A), the Security
Registrar shall deliver to the transferor a new Physical Security in principal
amount equal to the principal amount not being transferred of such surrendered
Physical Security.
(B) the Global Security, and the proposed transferee or transferor, as
applicable:
(i) delivers (or is deemed to have delivered pursuant to clause
(d) above) a Rule 144A Certificate and the proposed transferee requests
delivery in the form of a Physical Security, then the Security
Registrar shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and records, (x)
record a decrease in the principal amount of the Global Security in an
amount equal to the beneficial interest therein being transferred, (y)
deliver a new Physical Security to such transferee duly registered in
the name of such transferee in principal amount equal to the amount of
such decrease and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such transfer; or
(ii) delivers (or is deemed to have delivered pursuant to clause
(d) above) a Rule 144A Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the proposed
transferee receive a beneficial interest in the Global Security, then
the transfer shall be effected in accordance with the procedures of the
Depositary therefor.
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44
(f) Execution, Authentication and Delivery of Physical Securities. In any
case in which the Security Registrar is required to deliver a Physical Security
to a transferee or transferor, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, such Physical Security.
(g) Certain Additional Terms Applicable to Physical Securities. Any
transferee entitled to receive a Physical Security may request that the
principal amount thereof be evidenced by one or more Physical Securities in any
authorized denomination or denominations and the Security Registrar shall comply
with such request if all other transfer restrictions are satisfied.
(h) Transfers Not Covered by Section 307(e). The Security Registrar shall
effect and record, upon receipt of a written request from the Company so to do,
a transfer not otherwise permitted by Section 307(e), such recording to be done
in accordance with the otherwise applicable provisions of Section 307(e), upon
the furnishing by the proposed transferor or transferee of a Non-Registration
Opinion and Supporting Evidence.
(i) General. By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture. The Security Registrar shall not register a transfer of any Security
unless such transfer complies with the restrictions with respect thereto set
forth in this Indenture. The Security Registrar shall not be required to
determine (but may rely upon a determination made by the Company) the
sufficiency of any such certifications, legal opinions or other information.
(j) Private Placement Legend. Upon the transfer, exchange or replacement of
Securities not bearing the Private Placement Legend, the Security Registrar
shall deliver Securities that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Securities bearing the Private Placement
Legend, the Security Registrar shall deliver only Securities that bear the
Private Placement Legend unless (i) the requested transfer is at least two years
after the original issue date of the Initial Security (with respect to any
Physical Security), (ii) there is delivered to the Security Registrar an Opinion
of Counsel in form reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (iii) such Securities are exchanged for Exchange Securities pursuant to
an Exchange Offer.
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45
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount at maturity, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any mutilated,
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the mutilated, destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 310, to the address of
such Person as it appears in the Security Register at the close of business on
the Regular
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46
Record Date for such interest payment or (ii) transfer to an account located in
the United States maintained by the payee.
Any interest on any Security which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Securities (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") may be
paid by the Company, at its election in each case, as provided in clause (1) or
(2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date, and in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be given in the manner provided for in Section 106,
not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so given, such Defaulted Interest shall be paid to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed
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47
payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Sections 305 and 309) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Securities surrendered for payment, redemption, registration of transfer
or exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder which the Company has not issued and sold, and all
Securities so delivered shall be promptly cancelled by the Trustee. If the
Company shall so acquire any of the Securities, however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are surrendered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of by the Trustee in accordance with its customary procedures and
certification of their disposal delivered to the Company unless by Company Order
the Company shall direct that cancelled Securities be returned to it.
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48
SECTION 312. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 313. Form of Rule 144A Certificate.
Upon any transfer of the Securities pursuant to Rule 144A, the purchaser of
such Securities shall deliver to the Trustee a certificate in the form of
Exhibit B hereto.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto and the rights,
powers, trusts, duties and immunities of the Trustee) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 308) and (ii)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
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(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire Indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal of, premium,
if any, and interest on such Securities to the date of such deposit (in
the case of Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
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50
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on any Security when it
becomes due and payable and continuance of such default for a period of 30
days;
(2) default in the payment of the principal of or premium, if any, on
any Security at its Maturity;
(3) default in the performance, or breach, of the provisions described
in Article Eight of this Indenture, the failure to make or consummate a
Change of Control Offer in accordance with the provisions of Section 1016 or
the failure to make or consummate an Excess Proceeds Offer in accordance
with the provisions of Section 1017;
(4) default in the performance, or breach, of any covenant or agreement
of the Company contained in this Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in this Indenture) and continuance of such default or
breach for a period of 30 days after written notice shall have been given to
the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in principal amount of the then Outstanding Securities, as
the case may be;
(5) (i) one or more defaults in the payment of principal of or premium,
if any, on Indebtedness of the Company or any Significant Subsidiary
aggregating $15 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured or
waived or (ii) Indebtedness of the Company or any Significant Subsidiary
aggregating $15 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
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(6) any holder or holders (or any Person acting on any such holder's
behalf) of any Indebtedness in excess of $15 million in the aggregate of the
Company or any Significant Subsidiary shall, subsequent to the occurrence of
a default with respect to such Indebtedness, notify the Trustee of the
intended sale or disposition of any assets of the Company or any Restricted
Subsidiary that have been pledged to or for the benefit of such Person to
secure such Indebtedness or shall commence proceedings, or take action to
retain in satisfaction of any such Indebtedness, or to collect on, seize,
dispose of or apply, any such assets of the Company or any Restricted
Subsidiary pursuant to the terms of any agreement or instrument evidencing
any such Indebtedness of the Company or any Restricted Subsidiary or in
accordance with applicable law;
(7) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $15 million and either
(i) an enforcement proceeding shall have been commenced by any creditor upon
such judgment or order or (ii) there shall have been a period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, was not in effect;
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Significant Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; and
(9) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or the making by it of an
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assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501(8) or 501(9)) shall occur and be continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Securities then
Outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee upon the written request of such
Holders, shall declare the principal of, premium, if any, and accrued interest
on all of the Outstanding Securities immediately due and payable, and upon any
such declaration all such amounts payable in respect of the Securities shall
become immediately due and payable. If an Event of Default specified in Section
501(8) or 501(9) occurs and is continuing, then the principal of, premium, if
any, and accrued interest on all of the Outstanding Securities shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of either the Trustee or any Holder.
At any time after a declaration of acceleration hereunder, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay,
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of and premium, if any, on any
Outstanding Securities that have become due otherwise than by such
declaration of acceleration, and interest thereon at the rate borne by
such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the rate borne
by such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of, premium, if any, or interest on Securities that have become
due solely by
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such declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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54
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents and take such other actions,
including participating as a member of any official creditors committee
appointed in the matter as it may deem necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the
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55
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name and as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Securities in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be applied
in the following order, at the date or dates fixed by the Trustee and, in case
of the distribution of such money on account of principal (or premium, if any)
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any) and interest on the Securities in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable
on such Securities for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
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56
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment, as provided herein and in such Security of the principal of (and
premium, if any) and (subject to Section 309) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
308, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given
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57
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount at maturity of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount at
maturity of the Outstanding Securities may, on behalf of the Holders of all the
Securities, waive any past defaults hereunder, except a default
(1) in the payment of the principal of, premium, if any, or interest on
any such Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security.
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Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default or Event of Default
hereunder, the Trustee shall transmit in the manner and to the extent provided
in TIA Section 313(c), notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of, premium, if
any, or interest on any Security, the Trustee shall be protected in withholding
such notice if a committee of its trust officers in good faith determines that
the withholding of such notice is in the interest of the Holders; and provided
further that in the case of any Default of the character specified in Section
501(4) no such notice to Holders shall be given until at least 30 days after the
occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note,
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other evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (unless other
evidence in respect thereof is herein specifically prescribed) and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) shall be entitled to receive and
may require and, in the absence of bad faith on its part, conclusively rely
upon an Officers Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory to
it against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
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(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) the Trustee shall not be deemed to have knowledge of any default,
breach or Event of Default or other matter upon the occurrence of which it
may be required to take action hereunder unless one of its Responsible
Officers has actual knowledge thereof.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility on Form T-1 supplied to the Company will be
true and accurate, subject to the qualifications set forth therein. The Trustee
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other agent of
the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Paying Agent, Security Registrar or such other agent.
SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for
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interest on any money received by it hereunder except as otherwise agreed in
writing with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of investigating or
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the Trustee,
to pay or reimburse the Trustee for expenses, disbursements and advances and to
indemnify and hold harmless the Trustee shall constitute additional indebtedness
hereunder and shall survive the satisfaction and discharge of this Indenture. As
security for the performance of such obligations of the Company, the Trustee
shall have a claim prior to the Securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the payment of
principal of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(8) or (9), the expenses (including the
reasonable charges and expenses of its counsel) of and the compensation for such
services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar foreign or
domestic law; provided, however, that to the extent unpaid as such expenses,
they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination of this
Indenture.
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SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be eligible to
act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of Federal,
State, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 609 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not less
than a majority in principal amount of the Outstanding Securities, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA Section
310(b) after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed
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63
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and
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certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities. In
case at that time any of the Securities shall not have been authenticated, any
successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases
such certificates shall have the full force and effect which this Indenture
provides for the certificate of authentication of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Holders in accordance with TIA
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under TIA Section 312(b).
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SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first May 15
after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets substantially as an entirety to
any other Person or Persons, and the Company will not permit any Restricted
Subsidiary to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis to any Person or Persons, unless:
(1) either (i) the Company shall be the surviving corporation or (ii)
the Person (if other than the Company) formed by such consolidation or into
which the Company or the Company and its Restricted Subsidiaries is merged
or the Person which acquires by sale, conveyance, transfer, lease or other
disposition, all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, as the case may be,
(the "Surviving Entity") (x) shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof
or the District of Columbia and (y) shall expressly assume, by an indenture
supplemental to this Indenture executed and delivered to the Trustee, in
form satisfactory to the Trustee, the Company's obligations for the due and
punctual payment of the principal of (or premium, if any, on) and interest
on all the Securities and the performance and observance of every covenant
of this Indenture on the part of the Company to be performed or observed;
(2) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any obligation of
the Company or any Restricted Subsidiary in connection with or as a result
of such transaction as
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having been incurred at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction or
series of transactions occurred on the first day of the latest fiscal
quarter for which consolidated financial statements of the Company are
available prior to the consummation of such transaction or series of
transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the ratio of Total Consolidated Indebtedness to Annualized Pro
Forma Consolidated Operating Cash Flow of the Company (or the Surviving
Entity if the Company is not the continuing obligor under this Indenture)
would be less than or equal to such ratio of the Company immediately before
such transaction;
(4) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1014 are complied with; and
(5) the Company or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, conveyance, transfer,
lease or other disposition and such supplemental indenture comply with the
terms of this Indenture.
SECTION 802. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with Section 801 in which the Company is not
the continuing obligor under this Indenture, the Surviving Entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor had been
named as the Company herein. When a successor assumes all the obligations of its
predecessor under this Indenture and the Securities, the predecessor shall be
released from those obligations; provided that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal and
interest on the Securities.
SECTION 803. Securities to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger of the Company
into any other corporation, or upon any conveyance, lease or transfer of the
property of the Company substantially as an entirety to any other Person, any
property or assets of the Company would thereupon become subject to any Lien,
then unless such Lien
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could be created pursuant to Section 1014 without equally and ratably securing
the Securities, the Company, prior to or simultaneously with such consolidation,
merger, conveyance, lease or transfer, will as to such property or assets,
secure the Securities Outstanding (together with, if the Company shall so
determine any other Indebtedness of the Company now existing or hereinafter
created which is not subordinate in right of payment to the Securities) equally
and ratably with (or prior to) the Indebtedness which upon such consolidation,
merger, conveyance, lease or transfer is to become secured as to such property
or assets by such Lien, or will cause such Securities to be so secured; provided
that, for the purpose of providing such equal and ratable security, the
principal amount of the Securities shall mean that amount which would at the
time of making such effective provision be due and payable pursuant to Section
502 upon a declaration of acceleration of the Maturity thereof, and the extent
of such equal and ratable security shall be adjusted, to the extent permitted by
law, as and when said amount changes over time as provided in Section 502.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee pursuant to the requirements of Section 609; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make
any other provisions with respect to matters or questions arising under this
Indenture; provided
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that such action shall not adversely affect the interests of the Holders in
any material respect; or
(6) to secure the Securities pursuant to the requirements of Section
1014 or otherwise; or
(7) to qualify, or maintain the qualification of, this Indenture under
the TIA.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in aggregate
principal amount at maturity of the Outstanding Securities, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the Accreted Value thereof or the
rate of interest thereon or any premium payable upon the redemption thereof,
or change the coin or currency in which any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount at maturity of the
Outstanding Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 1021 or
Article Five, except to increase the percentage of Outstanding Securities
required for such actions or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security, or
(4) amend, change or modify the redemption provisions of this Indenture
or the Securities or the obligation of the Company to make and consummate a
Change of
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Control Offer in the event of a Change of Control or make and consummate an
Excess Proceeds Offer with respect to any Asset Sale or modify any of the
provisions or definitions with respect thereto.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which adversely affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall conform
to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
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SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture. Failure to provide such notice shall
not affect the validity of such amendment.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it will
duly and punctually pay the principal of (and premium, if any) and interest on
the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The office of Bankers Trust Company at Four Albany Street, New
York, New York 10006 shall be such office or agency of the Company, unless the
Company shall designate and maintain some other office or agency for one or more
of such purposes. The Company will give prompt written notice to the Trustee of
any change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of
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any such designation or rescission and any change in the location of any such
other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of (or premium, if any) or interest on any
of the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal of (or premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before 10:00 a.m. (New York City time) on each due
date of the principal of (or premium, if any) or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such
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sums were held by the Company or such Paying Agent; and, upon such payment by
any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (or premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect the corporate existence,
rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary and (b) all lawful claims
for labor, materials and supplies, which, if unpaid, might by law become a Lien
upon the property of the Company or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
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SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or any Subsidiary
or used or held for use in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1008. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year and within 45 days after the end of each fiscal quarter
(other than the last fiscal quarter of a year), a brief certificate from the
principal executive officer, principal financial officer or principal accounting
officer as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture. For purposes of this Section
1008(a), such compliance shall be determined without regard to any period of
grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this Indenture, or
if the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Indebtedness in the
principal amount of less than $5,000,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an officers certificate specifying such event, notice or other
action within five Business Days of its occurrence.
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SECTION 1009. Provision of Financial Statements and Reports.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission (if permitted by Commission practice and applicable law and
regulations) the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
required, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so required. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the Commission (i)
transmit (or cause to be transmitted) by mail to all holders of Securities, as
their names and addresses appear in the applicable Security Register, without
cost to such holders, and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company is required to
file with the Commission pursuant to the preceding sentence, or, if such filing
is not so permitted, information and data of a similar nature, and (b) if,
notwithstanding the preceding sentence, filing such documents by the Company
with the Commission is not permitted by Commission practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any holder of Securities.
SECTION 1010. Limitation on Additional Indebtedness.
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to incur, contingently or otherwise, any Indebtedness,
except for Permitted Indebtedness; provided that the Company will be permitted
to incur Indebtedness if after giving pro forma effect to such incurrence
(including the application of the net proceeds therefrom), the ratio of (x)
Total Consolidated Indebtedness outstanding as of the date of such incurrence to
(y) Annualized Pro Forma Consolidated Operating Cash Flow would be greater than
zero and less than or equal to 6 to 1.
(b) The Company will not incur any Subordinated Indebtedness unless such
Indebtedness by its terms expressly prohibits the payment by the Company of any
assets or securities (including Common Stock) to the holders of such
Subordinated Indebtedness prior to the payment in full of the Securities in the
event of a bankruptcy or reorganization.
SECTION 1011. Limitation on Restricted Payments.
(a) The Company will not take, and will not permit any Restricted Subsidiary
to, directly or indirectly, take any the following actions:
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(i) declare or pay any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders
(in their capacities as such) of Capital Stock of the Company (other than
dividends or distributions payable solely in Capital Stock (other than
Redeemable Capital Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company (other than any such Capital Stock owned by the
Company or a Restricted Subsidiary) or any Affiliate of the Company (other
than any Restricted Subsidiary);
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness of
the Company (other than any Subordinated Indebtedness held by a Restricted
Subsidiary);
(iv) make any Investment (other than a Permitted Investment) in any
Person (other than an Investment by the Company or a Restricted Subsidiary
in either (1) a Restricted Subsidiary or (2) a Person that becomes a
Restricted Subsidiary as a result of such Investment);
(v) create or assume any guarantee of Indebtedness of any Affiliate of
the Company (other than (1) guarantees of any Indebtedness of any Restricted
Subsidiary by the Company or (2) guarantees of the Securities by any
Restricted Subsidiary); or
(vi) declare or pay any dividend or any other distribution on any
Capital Stock of any Restricted Subsidiary to any Person (other than (1)
dividends or distributions paid to the Company or a Restricted Subsidiary or
(2) pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries held by minority stockholders, provided that such dividends or
distributions do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiaries' net income from the first day of
the fiscal quarter beginning immediately following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso of Section
1010; and (3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date would not exceed an amount equal to the sum of:
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(A) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) the product of (I)
1.5 and (II) the cumulative Consolidated Interest Expense of the Company
determined for the period commencing on the Issue Date and ending on the
last day of the latest fiscal quarter for which consolidated financial
statements of the Company are available preceding the date of such
Restricted Payment (or if such difference shall be a negative number, minus
100% of such number), plus (B) the aggregate Net Cash Proceeds received by
the Company from the issue or sale (other than to a Restricted Subsidiary)
of Capital Stock of the Company (other than Redeemable Capital Stock) on or
after the Issue Date, excluding any Net Cash Proceeds that are, promptly
following receipt, invested in accordance with clause (ii), (iii) or (v) of
clause (b) hereof and except to the extent such Net Cash Proceeds are used
to incur Indebtedness pursuant to clause (m) of the definition of Permitted
Indebtedness, plus (C) the aggregate Net Cash Proceeds received by the
Company on or after the Issue Date from the issuance or sale (other than to
a Restricted Subsidiary) of debt securities or Redeemable Capital Stock of
the Company that have been converted into or exchanged for Capital Stock
(other than Redeemable Capital Stock) of the Company to the extent such
securities were originally sold for cash, together with the aggregate net
cash proceeds received by the Company (other than from a Restricted
Subsidiary) at the time of such conversion or exchange, plus (D) in the case
of the disposition or repayment of any Investment (other than through share
leasing arrangements) constituting a Restricted Payment made after the Issue
Date (other than in the case contemplated by clause (E) hereof) an amount
equal to the lesser of the return of capital with respect to such Investment
and the cost of such Investment, in either case, less the cost of the
disposition of such Investment, plus (E) in the case of Investments (other
than through share leasing arrangements) made in any Person other than a
Restricted Subsidiary, the total amount of such Investments constituting
Restricted Payments if and when such Person becomes a Restricted Subsidiary
less any amounts previously credited pursuant to clause (D).
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
(b) The provisions of this covenant shall not prohibit, so long as, with
respect to clauses (ii) through (ix) below, no Default or Event of Default shall
have occurred and be continuing (i) the payment of any dividend or other
distribution within 60 days after the date of declaration thereof if at such
date of declaration such payment complied with the provisions of this Indenture;
(ii) the purchase, redemption, retirement or other acquisition of any shares of
Capital Stock of the Company in exchange for, or out of the net cash proceeds of
the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, shares
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of Capital Stock of the Company (other than Redeemable Capital Stock); (iii) the
purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made by exchange for, or out of the net cash proceeds
of, a substantially concurrent issue or sale (other than to a Restricted
Subsidiary) of (1) Capital Stock (other than Redeemable Capital Stock) of the
Company or (2) other Subordinated Indebtedness so long as (A) the principal
amount of such new Indebtedness does not exceed the principal amount (or, if
such Subordinated Indebtedness being refinanced provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or
retired, plus the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus, in either
case, the amount of expenses of the Company incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the
Securities to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and (C) such new Subordinated
Indebtedness has an Average Life longer than the Average Life of the Securities
and a final Stated Maturity of principal later than the Stated Maturity of
principal of the Securities; (iv) the extension by the Company and the
Restricted Subsidiaries of trade credit to Unrestricted Subsidiaries,
represented by accounts receivable, extended on usual and customary terms in the
ordinary course of business; (v) Investments (other than through share leasing
arrangements) in any Person promptly made with the proceeds of a substantially
concurrent issue or sale of Capital Stock (other than Redeemable Capital Stock)
of the Company; (vi) payments made pursuant to the Shareholder Registration
Rights Agreement; (vii) the payment of reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary; (viii) any
"Restricted Payment" as defined in and permitted by the PCI Indenture made by
PCI or any Subsidiary thereof in accordance with the terms of the PCI Indenture
and (ix) any other Restricted Payments in an aggregate amount not to exceed $1.0
million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
at any one time outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (vi), (vii), (viii) and (ix)
above shall be included as Restricted Payments.
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
(a) The Company will not and will not permit any Restricted Subsidiary to
issue or sell any shares of Capital Stock of a Restricted Subsidiary (other than
to the
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Company or a Restricted Subsidiary); provided, however, that this covenant shall
not prohibit (i) the issuance and sale of all, but not less than all, of the
issued and outstanding Capital Stock of any Restricted Subsidiary in compliance
with the other provisions of this Indenture, (ii) issuances or sales of Common
Stock of a Restricted Subsidiary if (x) the proceeds of such issuance or sale
are applied in accordance with Section 1017 and (y) immediately after giving
effect thereto, the Company and its other Restricted Subsidiaries own no less
than 51% of the outstanding Voting Stock of such Restricted Subsidiary, (iii)
issuances or sales of Capital Stock of Restricted Subsidiaries that are
subsidiaries of PCI that are permitted by the terms of the PCI Indenture or (iv)
the ownership by directors of directors' qualifying shares or the ownership by
foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law.
(b) The Company will not permit the direct or indirect ownership of the
Company or any Restricted Subsidiary in the Capital Stock of any Management
Company to fall below the lesser of (i) the maximum ownership percentage
permitted by applicable law and (ii) 51% of the outstanding Capital Stock of
such Management Company, provided that any increase in such ownership of the
Capital Stock of any Management Company required by any change in applicable law
shall not be required to be completed prior to 365 days from the effective date
of such change in applicable law, provided further that the Company and the
Restricted Subsidiaries may sell all, but not less than all, of their Capital
Stock of any Management Company in accordance with the provisions of Section
1017.
SECTION 1013. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of the Company (other than the Company or a Majority Owned
Restricted Subsidiary) unless (i) such transaction or series of related
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with unrelated third parties who are not
Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $10
million, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Directors of the Board of
Directors, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20
<PAGE>
79
million, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Disinterested Directors of
the Board of Directors, or in the event no members of the Board of Directors are
Disinterested Directors with respect to any transaction or series of
transactions included in this clause (iii), the Company shall obtain an opinion
from a nationally recognized investment banking firm as described above;
provided, however, that this provision will not restrict (1) any transaction by
the Company or any Restricted Subsidiary with an Affiliate directly related to
the purchase, sale or distribution of products in the ordinary course of
business, including, without limitation, transactions related to the purchase,
sale or distribution of programming, subscriber management services,
transmission services and services related to the publication of programming
guides, (2) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary, including,
without limitation, any such fees which the Company has agreed to pay to any
director pursuant to an agreement in effect on the Issue Date and listed on
Schedule A to this Indenture, (3) the payment of compensation (including stock
options and other incentive compensation) to officers and other employees the
terms of which are approved by the Board of Directors, (4) any transactions
pursuant to a Management Agreement, (5) the Company or any Restricted Subsidiary
from making any Restricted Payment in compliance with Section 1011, (6) (x)
transactions pursuant to any Management Contract, Overhead Agreement or Service
Agreement that is entered into prior to the Issue Date and is listed in Schedule
A to this Indenture; or (y) transactions pursuant to any Organizational
Contract, Overhead Agreement or Service Agreement that is entered into after the
Issue Date and has substantially identical terms as, and is no less favorable to
the Company or any Restricted Subsidiary than, the Organizational Contracts,
Overhead Agreements or Service Agreements, as the case may be, listed in
Schedule A to this Indenture, or (7) amendments, modifications or alterations of
Management Agreements, Organizational Contracts, Overhead Agreements and Service
Agreements under (b) below.
(b) The Company will not, and will not permit any Restricted Subsidiary to,
amend, modify, or in any way alter the terms of any Management Agreement,
Organizational Contract, Overhead Agreement or Service Agreement in a manner
materially adverse to the Company other than (i) by adding new Restricted
Subsidiaries to a Management Agreement, (ii) substituting one Restricted
Subsidiary in place of another Restricted Subsidiary under a Organizational
Contract, (iii) amendments, modifications or alterations required by applicable
law, (iv) amendments, modifications or alterations made to increase the
Company's control over, or interest in, any Management Company or (v)
amendments, modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of the Company as not
materially adverse to the Company.
<PAGE>
80
SECTION 1014. Limitation on Liens.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, except for Permitted Liens, on or with respect to any of its property or
assets, whether owned at the date of this Indenture or thereafter acquired, or
any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Securities are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Securities are equally and ratably secured.
SECTION 1015. Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries.
(a) The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
guarantee of payment of the Securities by such Restricted Subsidiary on a basis
senior to any guarantee of Subordinated Indebtedness or at least pari passu with
any guarantee of Pari Passu Indebtedness; provided that this paragraph (a) shall
not be applicable to (i) any guarantee of any Restricted Subsidiary that existed
at the time such Person became a Restricted Subsidiary or (ii) any guarantee of
any Restricted Subsidiary of Senior Bank Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the Securities created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person who is not
an Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by this Indenture) or (ii) the release by
the holders of the Indebtedness of the Company described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness, except
by or as a result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
<PAGE>
81
SECTION 1016. Purchase of Securities upon a Change of Control.
If a Change of Control shall occur at any time, then each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities, in whole or in part in integral multiples of $1,000
principal amount at maturity, at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of the Accreted Value of the
Securities plus accrued and unpaid interest, if any, to the date of purchase
(the "Change of Control Purchase Date"), pursuant to the offer described below
(the "Change of Control Offer") and the other procedures set forth in this
Indenture.
Within 30 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Securities by first-class mail, postage prepaid, at the address of such
holder appearing in the Security Register, stating, among other things, (a) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act;
(b) that any Security not tendered will continue to accrue interest or accrete
original issue discount, as applicable; (c) that, unless the Company defaults in
the payment of the purchase price, any Securities accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after the Change
of Control Purchase Date; and (d) certain other procedures that a holder of
Securities must follow to accept a Change of Control Offer or to withdraw such
acceptance.
The Company will comply with the applicable tender offer rules, including
Rule l4e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not enter into any agreement that would prohibit the
Company from making a Change of Control Offer to purchase the Securities or, if
such Change of Control Offer is made, to pay for the Securities tendered for
purchase.
SECTION 1017. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, engage in any Asset Sale unless (i) the consideration
received by the Company or such Restricted Subsidiary for such Asset Sale is not
less than the Fair Market Value of the shares or assets sold (as determined by
the Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 75% cash or Cash Equivalents. Notwithstanding the preceding
sentence, the Company and its Restricted Subsidiaries may consummate an Asset
<PAGE>
82
Sale without complying with clause (ii) of the immediately preceding sentence if
at least 75% of the consideration for such Asset Sale consists of any
combination of cash, Cash Equivalents and those items described in clause
(b)(ii) or (b)(iii) below.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after the
later of such Asset Sale or the receipt of such Net Cash Proceeds, (i) to
permanently repay or prepay any then outstanding Senior Bank Indebtedness of the
Company or a Restricted Subsidiary, any then outstanding Indebtedness of a
Restricted Subsidiary or any other then outstanding unsubordinated Indebtedness
of the Company, (ii) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection with
a Permitted Investment made under clause (g), (h) or (i) of the definition
thereof), make capital expenditures (including lease payments for one or more
capital assets) or invest in other tangible assets of the Company or any
Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of the Company and its Restricted
Subsidiaries (or enter into a legally binding agreement to do so within six
months of the date on which such agreement is executed) or (iii) to invest in
properties or assets that replace the properties and assets that are the subject
to such Asset Sale (or enter into a legally binding agreement to do so within
six months of the date on which such agreement is executed). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (ii) or (iii) (without regard to the parenthetical contained
in clauses (ii) or (iii)) above. The amount of such Net Cash Proceeds not so
used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15 million the
Company shall, within 30 business days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Securities, on a pro rata basis, in
accordance with the procedures set forth below, the maximum Accreted Value of
Securities that may be purchased with the Excess Proceeds less the amount of
Excess Proceeds, if any, required to be applied under the PCI Indenture for the
repurchase of PCI Notes. The offer price shall be payable in cash in an amount
equal to 100% of the Accreted Value of the Securities plus accrued and unpaid
interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer
is consummated (the "Offer Date"). To the extent that the aggregate Accreted
Value of Securities tendered pursuant to an Excess Proceeds Offer is less than
the Excess Proceeds relating thereto, the Company may use such additional Excess
Proceeds for general corporate purposes. If the Accreted Value of Securities
validly tendered and not withdrawn by holders thereof exceeds
<PAGE>
83
the Excess Proceeds, Securities to be purchased will be selected on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset to zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Securities shall be purchased by the Company, at the option of the
holder thereof, in whole or in part in integral multiples of $1,000 on a date
that is not earlier than 30 days and not later than 60 days from the date the
notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act, subject to
proration in the event the amount of Excess Proceeds is less than the aggregate
Offered Price of all Securities tendered.
(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer.
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions to the Company or any Restricted Subsidiary on or in respect
of its Capital Stock, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make Investments in the Company or any other
Restricted Subsidiary, (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of
the Company or any other Restricted Subsidiary, except in all such cases for
such encumbrances or restrictions existing under or by reason of (i) any
agreement or instrument in effect on the Issue Date and listed on Schedule A
attached to this Indenture, (ii) applicable law or regulation (including
corporate governance provisions required by applicable law and regulations of
the National Bank of Poland), (iii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (v) any mortgage or other Lien on real property acquired or improved
by the Company or any Restricted Subsidiary after the Issue Date that prohibits
transfers of the type described in (d) above with respect to such real property,
(vi) with respect to a Restricted Subsidiary, an agreement that has been entered
into for the sale or disposition of all or substantially all of the Company's
Capital Stock in, or substantially all the assets of, such Restricted
Subsidiary, (vii) the refinancing of Indebtedness incurred under the agreements
listed on Schedule A attached to
<PAGE>
84
this Indenture or described in clause (v) above, so long as such encumbrances or
restrictions are no less favorable in any material respect to the Company or any
Restricted Subsidiary than those contained in the respective agreement as in
effect on the date of this Indenture, (viii) any such customary encumbrance or
restriction contained in a security document creating a Lien permitted under
this Indenture to the extent relating to the property or asset subject to such
Lien, (ix) any agreement or instrument governing or relating to Senior Bank
Indebtedness (an "Indebtedness Instrument") if such encumbrance or restriction
applies only (x) to amounts which at any point in time (other than during such
periods as are described in the following clause (y)) (1) exceed amounts due and
payable (or which are to become due and payable within 30 days) in respect of
the Securities or this Indenture for interest, premium and principal (after
giving effect to any realization by the Company under any applicable Currency
Agreement), or (2) if paid, would result in an event described in the following
clause (y) of this sentence, or (y) during the pendency of any event that
causes, permits or, after notice or lapse of time, would cause or permit the
holder(s) of the Senior Bank Indebtedness governed by the Indebtedness
Instrument to declare any such Indebtedness to be immediately due and payable or
require cash collateralization or cash cover for such Indebtedness for so long
as such cash collateralization or cash cover has not been provided, or (z)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness and that do not individually, or together with all such
encumbrances or restrictions, detract from the value of property or assets of
the Company or any Restricted Subsidiary in any manner material to the Company
or any Restricted Subsidiary and (x) with respect to clause (d) above, any
license agreement entered in the ordinary course of business whereby the Company
or any other Restricted Subsidiary grants a license of programming or other
intellectual property to any other Person and such license agreement prohibits
or encumbers the transfer of the licensed property.
SECTION 1019. Limitation on Investments in Unrestricted Subsidiaries.
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries (other than
Permitted Investments) if, at the time thereof, the amount of such Investment
would exceed the amount of Restricted Payments then permitted to be made
pursuant to Section 1011. Any Investments in Unrestricted Subsidiaries permitted
to be made pursuant to this covenant (a) will be treated as the making of a
Restricted Payment in calculating the amount of Restricted Payments made by the
Company or a Restricted Subsidiary (without duplication under the provisions of
clause (a) of paragraph (iv) of Section 1011 and (b) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (a)).
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85
SECTION 1020. Limitation on Lines of Business.
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, engage in any business other than the Cable/Telecommunications
Business, the Entertainment/Programming Business or the DTH Business or any
business or activity reasonably related thereto, including the operation of a
subscriber management or service business.
SECTION 1021. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1007 through 1020, inclusive, if
before or after the time for such compliance the Holders of at least a majority
in principal amount of the Outstanding Securities, by Act of such Holders, waive
such compliance in such instance with such term, provision or condition, but no
such waiver shall extend to or affect such term, provision or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
(a) The Securities will be redeemable at the option of the Company, in whole
or in part, at any time on or after July 15, 2003 on not less than 30 or more
than 60 days' prior notice at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, together with accrued interest,
if any, to the redemption date, if redeemed during the twelve-month period
beginning on July 15 of the years indicated below (subject to the right of
holders of record on relevant record dates to receive interest due on a relevant
interest payment date):
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- -----
<S> <C>
2003 ................................................... 107.250%
2004 ................................................... 104.833
2005 ................................................... 102.417
2006 and thereafter..................................... 100.000
</TABLE>
<PAGE>
86
(b) At any time or from time to time prior to July 15, 2001 the Company may
redeem up to a maximum of 25% of the initially outstanding aggregate principal
amount at maturity of the Securities with some or all of the net cash proceeds
of one or more Public Equity Offerings at a redemption price equal to 114.5% of
the Accreted Value thereof on the redemption date, plus accrued and unpaid
interest, if any, to the date of redemption (subject to the right of holders of
record on relevant record dates to receive interest due on relevant interest
payment dates); provided that immediately after giving effect to such
redemption, at least 75% of the originally issued aggregate principal amount at
maturity of the Securities remains outstanding. Any such redemption shall be
effected upon not less than 30 nor more than 60 days' notice given within 30
days after the consummation of a Public Equity Offering.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date and of the principal amount of Securities to be redeemed and shall deliver
to the Trustee such documentation and records as shall enable the Trustee to
select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee by such method as the Trustee shall deem fair and
appropriate; provided, however, that no partial redemption shall reduce the
portion of the principal amount of a Security not redeemed to less than $1,000.
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87
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in Section
106 not less than 30 nor more than 60 days prior to the Redemption Date, to each
Holder of Securities to be redeemed at its registered address.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the holder will receive, without
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date, and
(6) the place or places where such Securities are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
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88
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and accrued interest on, all the
Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified (together with accrued interest, if any, to the
Redemption Date), and from and after such date (unless the Company shall default
in the payment of the Redemption Price and accrued interest) such Securities
shall cease to bear interest. Upon surrender of any such Security for redemption
in accordance with said notice, such Security shall be paid by the Company at
the Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 309.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holders attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
<PAGE>
89
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may, at its option and at any time, with respect to the
Securities, elect to have either Section 1302 or Section 1303 be applied to all
Outstanding Securities upon compliance with the conditions set forth below in
this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option applicable to
this Section 1302, the Company shall be deemed to have been discharged from its
obligations with respect to all Outstanding Securities on the date the
conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the Outstanding
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1305 and the other Sections of this Indenture referred to in
(A) and (B) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Securities to receive, solely from the trust fund described in
Section 1304 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any, on) and interest on such Securities when
such payments are due, (B) the Company's obligations with respect to such
Securities under Sections 304, 305, 308, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Thirteen. Subject to compliance with this Article Thirteen, the Company may
exercise its option under this Section 1302 notwithstanding the prior exercise
of its option under Section 1303 with respect to the Securities.
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90
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option applicable to
this Section 1303, the Company shall be released from its obligations under any
covenant contained in Section 801 (3) and in Sections 1007 through 1020 with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 501(4), but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 1302
or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably deposit or cause to be deposited with
the Trustee (or another trustee satisfying the requirements of Section 607
who shall agree to comply with the provisions of this Article Thirteen
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (A) money in
United States Dollars, (B) U.S. Government Obligations, or (C) a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, or a
nationally recognized investment banking firm, to pay and discharge (i) the
principal of, premium, if any, and interest on the relevant Outstanding
Securities on the Stated Maturity (or upon redemption, if applicable) of
such principal, premium, if any, or installment of interest and (ii) any
mandatory redemption or analogous payments applicable to the Outstanding
Securities on the day on which such payments are due and payable in
accordance with the terms of this Indenture and of such Securities; provided
that the Trustee shall have been irrevocably instructed to apply such money
or the proceeds of such U.S. Government Obligations to said payments with
respect to the Securities. For this purpose, "U.S. Government Obligations"
means securities
<PAGE>
91
that are (x) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such
U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 501 hereof are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than this Indenture) to which the Company is a party or by
which it is bound.
(4) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
stating that (x) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling, or (y) since the effective date
of the Registration Statement there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion shall confirm that, the Holders of the Outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(5) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States to
the effect that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be
<PAGE>
92
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had
not occurred.
(6) The Company shall have delivered to the Trustee an Opinion of
Counsel in the United States to the effect that after the 91st day following
the deposit or after the date such opinion is delivered, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Securities over the other creditors
of the Company with the intent of hindering, delaying or defrauding
creditors of the Company.
(8) The Company shall have delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have been
complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding s.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of
<PAGE>
93
a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance, as applicable, in accordance with
this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
to receive such payment from the money held by the Trustee or Paying Agent.
<PAGE>
94
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, and their respective corporate seals to be hereunto affixed and, in
the case of the Company, attested, all as of the day and year first above
written.
@ENTERTAINMENT, INC.
[SEAL] By
-------------------------------
Title:
Attest:
-----------------------
Title:
BANKERS TRUST COMPANY
[SEAL] By
-------------------------------
Title:
<PAGE>
95
Note: In these Schedules to this Indenture, defined terms have the same meaning
as in the Offering Memorandum.
Schedule A
Existing Management Contracts,
Overhead Agreements and Service Agreements
<TABLE>
<CAPTION>
Date Service Agreements
- ---- ------------------
<S> <C>
04/01/96 Service Agreement among Poltelkab, WCCI and PCBV.
08/31/95 Service Agreement among ETV, PCBV and WCCI.
07/07/95 Service Agreement among PTK-Lublin, WCCI and PCBV.
07/01/95 Service Agreement among Elektrim TV Sp. Z 0.0., WCCI and PCBV.
05/26/95 Service Agreement among PTK-Inzynier (currently
known as PTK-Szczecin), WCCI and PCBV.
01/01/94 Service Agreement among PTK, S.A., WCCI and PCBV.
01/01/94 Service Agreement among PTK-Katowice, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Krakow, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Warsaw, WCCI and PCBV.
01/11/95 Service Agreement among Telkat, WCCI and PCBV.
11/01/95 Service Agreement among WCCI and PCBV.
</TABLE>
<TABLE>
Date Management Agreements
- ---- ---------------------
<S> <C>
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier (currently
known as "PTK Szczecin")
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. z o.o.
</TABLE>
<PAGE>
96
Schedule A
(Continued)
<TABLE>
<S> <C>
01/11/95 Management Agreement between WCCI and Telkat.
01/01/95 Management Agreement between WCCI and PTK-Warsaw.
01/01/95 Management Agreement between WCCI and PTK, S.A.
01/01/95 Management Agreement between WCCI and PTK-Krakow.
01/01/94 Management Agreement between WCCI and PTK-Katowice.
</TABLE>
<TABLE>
Date Corporate Overhead Allocation Agreements
- ---- ----------------------------------------
<S> <C>
As of
01/01/96 Corporate Overhead Allocation Agreement dated as of
January 1, 1996, among PTK, S.A., PTK-Warsaw,
PTK-Ryntronik, PTK-Krakow, PTK-Inzynier (currently
known as "PTK Szczecin"), PTK-Lublin, ETV, Telkat,
WCCI and PCBV.
As of
04/01/96 Letter Agreement Between WCCI, PCBV and Poltelkab
adding Poltelkab as a party to the Corporate
Overhead Allocation Agreement.
</TABLE>
<PAGE>
Schedule B
Indebtedness Outstanding on the Issue Date
<TABLE>
<CAPTION>
Amount
Outstanding
Exclusive of
Borrower Lender Accrued Interest Amount of Loan
- -------------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
Poland Communications, AmerBank-Bank $6,500,000.00 $6,500,000.00
Inc. Amerykanski w
Polsce S.A.
Szczecinska Telewizja Polski Bank 3,504,000.00 DM 3,948,615.17 DM
Kablowa Sp. z o.o. Rozwoju S.A.
Szczecinska Telewizja Polski Bank 256,000.00 zL 500,000.00 zL
Kablowa Sp. z o.o. Rozwoju S.A.
Telewizja Kablowa Polski Bank $ 416,672.00 $ 500,000.00
Gosat Sp. z o.o. Rozwoju S.A.
</TABLE>
<PAGE>
Schedule C
Liens Existing on the Issue Date
Pledges of Capital Stock
1. 2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to a
Lien existing on this date, are pledged in favor of AmerBank.
2. 2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to AmerBank.
3. 3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of AmerBank.
4. Pledge of 2,313 shares of Szczecinska Telewizja Kablowa Sp. z o.o. for the
security of certain obligations undertaken by PTK Szczecin Sp. z o.o.
5. Lien on certain cable television fixed assets of Telewizja Kablowa Gosat
Sp. z o.o. and pledge on insurance policies for such assets in favor of
Polski Bank Rozwoju S.A.
<PAGE>
Schedule D
Agreements Not Restricted Under Section 1018
a) Limitations on ability to pay dividends or make distributions on capital
stock.
PCI's ability to pay dividends or make distributions on its capital stock
is limited by its Restated Certificate of Incorporation.
PTK-Operator's ability to pay dividends or make distributions on its
capital stock is limited by the convertible debt of PTK-Operator.
The statutes, notarial deeds or articles of association of each of the
Polish Subsidiaries require shareholder vote to pay dividends or make
distribution on capital stock.
b) Limitations on the payment of indebtedness owed to the Company or any
Subsidiary.
The statutes of PTK-Operator limit the payment on indebtedness owed to the
Company or any Subsidiary.
PCI's ability to make payments on indebtedness is limited by its Restated
Certificate of Incorporation.
PCBV and PCI have subordinated their right to receive payments on their
loans to PTK- Warsaw, PTK-Krakow, and PTK-Lublin in favor of AmerBank.
c) Limitations on the ability of a company to make investments in the Company
or any Subsidiary.
PCI's ability to make investments in any Subsidiary is limited by its
Restated Certificate of Incorporation.
The statutes, notarial deeds or articles of association of each of the
Polish Subsidiaries require shareholder vote to make certain investments in
the Company or any Subsidiary.
The PCBV shareholders agreement limits the ability to make investments in
the Company or any Subsidiary.
<PAGE>
Schedule D
(Continued)
d) Limitations on transferring property or any assets to the Company or any
Subsidiary.
PCI's ability to transfer property or assets to any Subsidiaries is limited
by the Company's Restated Certificate of Incorporation.
Certain Polish statutes restrict the transfer of property or any assets to
the Company or any Subsidiary or the conversion of convertible debt.
The PCBV shareholders agreement limits the ability to transfer property or
any assets to the Company or any Subsidiary.
2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to a
Lien existing on this date, are pledged in favor of AmerBank.
2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to AmerBank.
3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of AmerBank.
Pledge of 2,313 shares of Szczecinska Telewizja Kablowa Sp. z o.o. for the
security of certain obligations undertaken by PTK Szczecin Sp. z o.o.
Lien on certain cable television fixed assets of Telewizja Kablowa Gosat
Sp. z o.o. and assignment of insurance policies for such assets in favor of
Polski Bank Rozwoju S.A.
e) Limitations on guaranteeing the liabilities of the Company or any
Subsidiary.
PCI's ability to make guarantees is limited by its Restated Certificate of
Incorporation.
The notarial deeds, statutes or articles of association of each of the
Polish Subsidiaries limit guaranteeing the liabilities of the Company or
any Subsidiary.
<PAGE>
A-1
Exhibit A
[FACE OF NOTE]
@ENTERTAINMENT, INC.
14 1/2% [Series B]** Senior Discount Note due 2008
CUSIP
--------------
No. $
----------- -------------------
@ENTERTAINMENT, INC., a Delaware corporation (the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to ___________, or its registered assigns, the
principal sum of ____________________________________ ($___________), on July
15, 2008.
[Initial Interest Rate: 14 1/2% per annum.]*
[Interest Rate: 14 1/2% per annum.]**
Interest Payment Dates: January 15 and July 15 of each year
commencing January 15, 2004.
Regular Record Dates: January 1 and July 1 of each year.
Reference is hereby made to the further provisions of this Note set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
- ----------
* Include only for Initial Notes.
** Include only for Exchange Notes.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: @ENTERTAINMENT, INC.
By:
----------------------------
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% [Series B]* Senior Discount Notes due 2008 described
in the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
------------------------------
Authorized Signatory
- --------
* Include only for Exchange Notes.
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
@ENTERTAINMENT, INC.
14 1/2% [Series B]** Senior Discount Note due 2008
1. Principal and Interest.
The Company will pay the principal of this Note on July 15, 2008.
Original issue discount will accrete from the Issue Date up to July 15,
2003. Thereafter the Company promises to pay cash interest on the principal
amount of this Note on each Interest Payment Date, as set forth below, at the
rate of [14 1/2% per annum (subject to adjustment as provided below)]* [14 1/2%
per annum, except that interest accrued on this Note pursuant to the penultimate
paragraph of this Section 1 for periods prior to the applicable Exchange Date
(as such term is defined in the Registration Rights Agreement referred to below)
will accrue at the rate or rates borne by the predecessor Note hereto from time
to time during such periods].**
Cash interest will be payable semiannually (to the holders of record of the
Notes (or any predecessor Notes) at the close of business on the January 1 or
July 1 immediately preceding the Interest Payment Date) on each Interest Payment
Date, commencing January 15, 2004. Except in the case of a Registration Default
(as defined herein), the principal of this Note shall not accrue cash interest
until July 15, 2003, except in the case of a default in payment of the amount
due at Maturity, in which case the amount due on this Note shall bear interest
at a rate of 14 1/2% per annum (to the extent that the payment of such interest
shall be legally enforceable), which shall accrue from the date of such default
to the date the payment of such amount has been made or duly provided for.
Interest on any overdue principal amount shall be payable on demand.
[The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement, dated as of July 14, 1998, between the Company, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Ltd. (the
"Registration Rights Agreement"). In the event that (i) the Exchange Offer
Registration Statement (as defined in the Registration Rights Agreement) is not
filed with the Securities and Exchange Commission
- --------
* Include only for Initial Notes.
** Include only for Exchange Notes.
<PAGE>
A-4
on or prior to the 60th calendar day following the date of original issuance of
the Notes, (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the 90th calendar day after the date of original
issuance of the Notes, (iii) the Exchange Offer (as such term is defined in the
Registration Rights Agreement) is not consummated on or prior to the 120th
calendar day after the date of original issuance of the Notes or, as the case
may be, a Shelf Registration Statement (as such term is defined in the
Registration Rights Agreement) with respect to the Notes is not declared
effective on or prior to the 120th day after the date of original issuance of
the Notes or (iv) the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or usable within the applicable period as provided in the Registration
Rights Agreement except pursuant to Section 2(d)(ii) of the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will be required to pay additional
interest in cash on each Interest Payment Date in an amount equal to one-half of
one percent (0.5%) per annum of the applicable Accreted Value, with respect to
the first 90- day period following such Registration Default. The amount of such
additional interest will increase by an additional one-half of one percent
(0.5%) per annum for each subsequent 90- day period until such Registration
Default has been cured, up to a maximum of one and one-half percent (1.5%) per
annum. Such additional interest shall cease to accrue when such Registration
Default has been cured. Upon (x) the filing of the Exchange Offer Registration
Statement after the 60-day period described in clause (i) above, (y) the
effectiveness of the Exchange Offer Registration Statement after the 90-day
period described in clause (ii) above or the period during which it ceases to be
effective or usable as described in clause (iv) above or (z) the consummation of
the Exchange Offer after the 120-day period or the effectiveness of a Shelf
Registration Statement after the 120-day period, as the case may be, described
in clause (iii) above or after the period during which such Shelf Registration
Statement ceases to be effective or usable as described in clause (iv) above,
and provided that none of the conditions set forth in clauses (i), (ii), (iii)
and (iv) above continues to exist, a Registration Default will be deemed to be
cured.]*
Cash interest on this Note will accrue from the most recent date to which
cash interest has been paid [on this Note or the Note surrendered in exchange
herefor]** or, if no interest has been paid, from July 15, 2003; provided that,
if there is no existing default in the payment of cash interest and if this Note
is authenticated between a Regular Record Date referred to on the face hereof
and the next succeeding Interest Payment Date, cash interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
- --------
* Include only for Initial Notes.
** Include only for Exchange Notes
<PAGE>
A-5
The Company shall pay interest on overdue principal and premium, if any, and
interest on overdue installments of interest, to the extent lawful, at a rate
per annum equal to the rate of interest applicable to the Notes.
2. Method of Payment
The Company will pay cash interest (except defaulted interest, including
with respect to a Registration Default) on the principal amount of the Notes on
each January 15 and July 15, commencing January 15, 2004, to the persons who are
Holders (as reflected in the Note Register at the close of business on the
January 1 and July 1 immediately preceding the Interest Payment Date), in each
case, even if the Note is canceled on registration of transfer or registration
of exchange after such record date; provided that, with respect to the payment
of principal, the Company will make payment to the Holder that surrenders this
Note to any Paying Agent on or after July 15, 2008.
The Company will pay principal, premium, if any, and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal, premium, if
any, and interest by its check payable in such money. The Company may mail an
interest check to a Holder's registered address (as reflected in the Note
Register). If a payment date is a date other than a Business Day at a place of
payment, payment may be made at that place on the next succeeding day that is a
Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Note Registrar.
Initially, the Trustee will act as Paying Agent and Note Registrar. The
Company may change any Paying Agent or Note Registrar upon written notice
thereto. The Company, any Subsidiary or any Affiliate of any of them may act as
Paying Agent, Note Registrar or co-registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of July 14, 1998
(the "Indenture"), between the Company and Bankers Trust Company, as trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement
<PAGE>
A-6
of all such terms. To the extent permitted by applicable law, in the event of
any inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control.
The Notes are senior unsecured obligations of the Company ranking pari passu
in right of payment with all other existing and future unsubordinated
obligations of the Company and senior in right of payment to any existing and
future obligations of the Company expressly subordinated in right of payment to
the Notes. The Indenture limits the aggregate principal amount at maturity of
the Notes to $252,000,000.
5. Optional Redemption upon a Public Equity Offering.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2003 on not less than 30 or more than 60
days' prior notice at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below, together with accrued interest,
if any, to the redemption date, if redeemed during the twelve-month period
beginning on July 15 of the years indicated below (subject to the right of
holders of record on relevant record dates to receive interest due on a relevant
interest payment date):
<TABLE>
<CAPTION>
Redemption
Year Price
- ----- -----------
<S> <C>
2003 .................................................... 107.250%
2004 .................................................... 104.833
2005 .................................................... 102.417
2006 and thereafter...................................... 100.000
</TABLE>
At any time or from time to time prior to July 15, 2001 the Company may
redeem up to a maximum of 25% of the initially outstanding aggregate principal
amount at maturity of the Notes with some or all of the net cash proceeds of one
or more Public Equity Offerings at a redemption price equal to 114.5% of the
Accreted Value thereof on the redemption date, plus accrued and unpaid interest,
if any, to the date of redemption (subject to the right of holders of record on
relevant record dates to receive interest due on relevant interest payment
dates); provided that immediately after giving effect to such redemption, at
least 75% of the originally issued aggregate principal amount at maturity of the
Notes remains outstanding. Any such redemption shall be effected upon not less
than 30 nor more than 60 days' notice given within 30 days after the
consummation of a Public Equity Offering.
<PAGE>
A-7
Notice of a redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder to be redeemed at such Holder's
last address as it appears in the Note Register. Notes in original denominations
larger than $1,000 principal amount at maturity may be redeemed in part in
integral multiples of $1,000 principal amount at maturity. On and after the
Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. Repurchase upon a Change in Control and Asset Sales.
(a) Upon the occurrence of a Change of Control, each holder of Notes shall
have the right to require that the Company purchase such holder's Notes, in
whole or in part in integral multiples of $1,000 principal amount at maturity,
at a purchase price in cash of 101% of the Accreted Value thereof on the
redemption date, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on relevant record dates to
receive interest due on relevant interest payment dates), and (b) upon the
occurrence of an Asset Sale, the Company may be obligated to make an offer to
purchase all or a portion of the outstanding Notes with a portion of the Net
Cash Proceeds of such Asset Sale at a redemption price of 100% of the Accreted
Value thereof on the redemption date plus accrued and unpaid interest, if any,
to the date of purchase.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in denominations of $1,000
principal amount at maturity and any integral multiple thereof. A Holder may
register the transfer or exchange of Notes in accordance with the Indenture. The
Note Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Note Registrar need not register the
transfer or exchange of any Notes selected for redemption (except the unredeemed
portion of any Note being redeemed in part). Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all purposes.
<PAGE>
A-8
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in aggregate
principal amount at maturity of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount at maturity of the Notes
then outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity or inconsistency and make any change that does not
materially adversely affect the rights of any Holder.
11. Restrictive Covenants.
The Indenture contains certain covenants, including, without limitation,
covenants with respect to the following matters: (i) Indebtedness; (ii)
Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) consolidation, merger and certain transfers of assets; and
(xii) lines of business. At the end of each fiscal year, the Company must report
to the Trustee on compliance with such limitations.
12. Successor Persons.
When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.
<PAGE>
A-9
13. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal amount
at maturity of the Notes then outstanding, by written notice to the Company (and
to the Trustee, if such notice is given by the Holders) may declare all the
Notes to be immediately due and payable and upon any such declaration all such
amounts payable in respect of the Notes shall become immediately due and
payable. If a bankruptcy or insolvency default with respect to the Company or
any of its Significant Subsidiaries occurs and is continuing, the Notes and all
such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
14. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may make loans to, accept deposits
from, perform services for, and otherwise deal with, the Company and its
Affiliates as if it were not the Trustee.
15. Authentication.
This Note shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Note.
<PAGE>
A-10
16. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
17. Defeasance.
The Indenture contains provisions for defeasance, at any time, of the
Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- -------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- -------------------------------------------------------------------------------
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of the date of an effective Registration Statement or two
years from the Issue Date, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
/ / (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by Rule
144A thereunder.
or
/ /(b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
<PAGE>
A-12
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date:
------------------------------- -----------------------------------
NOTICE: The signature to this
assignment must correspond
with the name as written upon the
face of the within-mentioned
instrument in every particular,
without alteration or any change
whatsoever.
Signature Guarantee:
-----------------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
---------------------------------- ------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company pursuant
to Section 1016 or Section 1017 of the Indenture, state the amount (in original
principal amount) below:
$
---------------------.
Date:
----------------------------------
Your Signature:
------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
----------------------------------------
<PAGE>
B-1
Exhibit B
Form of Rule 144A Certificate
To: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust Trustee Administration
Re: @Entertainment, Inc. (the "Company")
14 1/2% Senior Discount Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate principal amount of
Notes, we confirm that such sale has been effected pursuant to and in accordance
with Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the
"Securities Act"). We are aware that the transfer of Notes to us is being made
in reliance on the exemption from the provisions of Section 5 of the Securities
Act provided by Rule 144A. Prior to the date of this Certificate we have been
given the opportunity to obtain from the Company the information referred to in
Rule 144A(d)(4), and have either declined such opportunity or have received such
information.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
-----------------------
Name:
Title:
Address:
Date of this Certificate:
------------ -----, ------
<PAGE>
EXECUTION VERSION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
Indenture
Dated as of July 14, 1998
---------------------
$252,000,000 aggregate principal amount at maturity
14 1/2% Senior Discount Notes due 2008
and
14 1/2% Series B Senior Discount Notes due 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
@Entertainment, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of July 14, 1998
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
Section 310(a)(1) .................................. 607
(a)(2) .................................. 607
(b) .................................. 608
Section 312(c) .................................. 701
Section 314(a) .................................. 703
(a)(4) .................................. 1008(a)
(c)(1) .................................. 102
(c)(2) .................................. 102
(e) .................................. 102
Section 315(b) .................................. 601
Section 316(a)(last
sentence) ................................ 101 ("Outstanding")
(a)(1)(A) .................................. 502, 512
(a)(1)(B) .................................. 513
(b) .................................. 508
(c) .................................. 104(d)
Section 317(a)(1) .................................. 503
(a)(2) .................................. 504
(b) .................................. 1003
Section 318(a) .................................. 111
</TABLE>
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES.................................................................... 1
RECITALS OF THE COMPANY.................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions....................................2
Accreted Value...............................................2
Acquired Indebtedness........................................3
Act ...............................................3
Advent ...............................................3
Affiliate ...............................................3
Annualized Pro Forma Consolidated Operating Cash Flow........4
Asset Acquisition............................................4
Asset Sale ...............................................4
Average Life ...............................................5
Bankruptcy Law...............................................5
Board of Directors...........................................5
Board Resolution.............................................5
Business Day ...............................................5
Cable Television Newco.......................................6
Cable/Telecommunications Business............................6
Capital Stock ...............................................6
Capitalized Lease Obligation.................................6
Cash Equivalents.............................................6
Change of Control............................................7
Commission ...............................................7
Common Stock ...............................................8
Company ...............................................8
Company Request" or "Company Order...........................8
Consolidated Income Tax Expense..............................8
</TABLE>
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Interest Expense.................................8
Consolidated Net Income.......................................8
Consolidated Operating Cash Flow..............................9
Corporate Trust Office........................................9
Corporation ................................................9
Cumulative Available Cash Flow...............................10
Currency Agreement...........................................10
Default ...............................................10
Defaulted Interest...........................................10
Depositary ...............................................10
Disinterested Director.......................................10
DTH Business ...............................................10
Entertainment/Programming Business...........................10
Event of Default.............................................10
Exchange Act ...............................................11
Exchange Offer...............................................11
Exchange Offer Registration Statement........................11
Exchange Securities..........................................11
Fair Market Value............................................11
Federal Bankruptcy Code......................................11
Generally Accepted Accounting Principles.....................11
GAAP ...............................................11
Global Security..............................................11
guarantee ...............................................11
Holder ...............................................11
Incur" or "incur.............................................11
Indebtedness ...............................................12
Indenture ...............................................13
Initial Securities...........................................13
Interest Payment Date........................................13
Interest Rate Agreements.....................................13
Investment ...............................................13
Issue Date ...............................................13
Lien ...............................................13
Majority Owned Restricted Subsidiary.........................13
Management Agreement.........................................14
Management Company...........................................14
Maturity ...............................................14
Moody's ...............................................14
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
Page
<S> <C>
Net Cash Proceeds............................................14
Officers Certificate.........................................15
Opinion of Counsel...........................................15
Organizational Contract......................................15
Outstanding ...............................................15
Overhead Agreement...........................................16
Pari Passu Indebtedness......................................16
Paying Agent ...............................................16
PCBV ...............................................16
PCI ...............................................17
PCI Indenture ...............................................17
Permitted Holders............................................17
Permitted Indebtedness.......................................17
Permitted Investments........................................20
Permitted Liens..............................................20
Person ...............................................23
Physical Note ...............................................23
Poltelkab ...............................................23
Predecessor Security.........................................23
Preferred Stock..............................................23
Public Equity Offering.......................................23
Purchase Money Obligation....................................23
Qualified Capital Stock......................................23
Qualified Institutional Buyer" or "QIB.......................23
Redeemable Capital Stock.....................................24
Redemption Date..............................................24
Redemption Price.............................................24
Registration Rights Agreement................................24
Registration Statement.......................................24
Regular Record Date..........................................24
Responsible Officer..........................................24
Restricted Payment...........................................24
Restricted Subsidiary........................................24
Rule 144A ...............................................24
S&P ...............................................25
Securities ...............................................25
Security Register" and "Security Registrar...................25
Senior Bank Indebtedness.....................................25
Service Agreement............................................25
</TABLE>
<PAGE>
iv
<TABLE>
<CAPTION>
Page
<S> <C>
Shareholder Registration Rights Agreement....................25
Shelf Registration Statement.................................25
Significant Subsidiary.......................................25
Special Purpose Vehicle......................................25
Special Record Date..........................................26
Stated Maturity..............................................26
Subordinated Indebtedness....................................26
Subsidiary ...............................................26
Total Consolidated Indebtedness..............................26
Trust Indenture Act..........................................26
Trustee ...............................................26
Unrestricted Subsidiary......................................26
U.S. Dollar ...............................................27
U.S. Dollar Equivalent.......................................27
U.S. Government Obligations..................................27
Vice President...............................................27
Voting Stock ...............................................27
Wholly Owned ...............................................27
SECTION 102. Compliance Certificates and Opinions...........28
SECTION 103. Form of Documents Delivered to Trustee.........28
SECTION 104. Acts of Holders................................29
SECTION 105. Notices, Etc., to Trustee, Company.............30
SECTION 106. Notice to Holders; Waiver......................31
SECTION 107. Effect of Headings and Table of Contents.......31
SECTION 108. Successors and Assigns.........................31
SECTION 109. Separability Clause............................31
SECTION 110. Benefits of Indenture..........................32
SECTION 111. Governing Law..................................32
SECTION 112. Legal Holidays.................................32
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally................................32
SECTION 202. Restrictive Legends............................33
ARTICLE THREE
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
Page
THE SECURITIES
<S> <C>
SECTION 301. Title and Terms.................................36
SECTION 302. Denominations...................................36
SECTION 303. Execution, Authentication, Delivery and
Dating.........................................37
SECTION 304. Temporary Securities............................38
SECTION 305. Registration, Registration of Transfer and
Exchange.......................................38
SECTION 306. Book-Entry Provisions for Global Securities.....40
SECTION 307. Special Transfer Provisions.....................41
SECTION 308. Mutilated, Destroyed, Lost and Stolen
Securities.....................................45
SECTION 309. Payment of Interest; Interest Rights
Preserved......................................45
SECTION 310. Persons Deemed Owners...........................47
SECTION 311. Cancellation....................................47
SECTION 312. Computation of Interest.........................48
SECTION 313. ................................................48
Form of Rule 144A Certificate.................................48
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.........48
SECTION 402. Application of Trust Money......................49
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default...............................50
SECTION 502. Acceleration of Maturity; Rescission and
Annulment......................................52
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.........................53
SECTION 504. Trustee May File Proofs of Claim................54
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities.......................54
SECTION 506. Application of Money Collected..................55
SECTION 507. Limitation on Suits.............................55
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest................56
SECTION 509. Restoration of Rights and Remedies..............56
SECTION 510. Rights and Remedies Cumulative..................56
</TABLE>
<PAGE>
vi
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 511. Delay or Omission Not Waiver....................57
SECTION 512. Control by Holders..............................57
SECTION 513. Waiver of Past Defaults.........................57
SECTION 514. Waiver of Stay or Extension Laws................58
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults..............................58
SECTION 602. Certain Rights of Trustee.......................58
SECTION 603. Trustee Not Responsible for Recitals or
Issuance of Securities.........................60
SECTION 604. May Hold Securities.............................60
SECTION 605. Money Held in Trust.............................60
SECTION 606. Compensation and Reimbursement..................61
SECTION 607. Corporate Trustee Required; Eligibility.........62
SECTION 608. Resignation and Removal; Appointment
of Successor...................................62
SECTION 609. Acceptance of Appointment by Successor..........63
SECTION 610. Merger, Conversion, Consolidation or
Succession to Business.........................64
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders....64
SECTION 702. Reports by Trustee..............................65
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms..................................65
SECTION 802. Successor Substituted...........................66
SECTION 803. Securities to Be Secured in Certain Events......66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
</TABLE>
<PAGE>
vii
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 901. Supplemental Indentures Without Consent
of Holders....................................67
SECTION 902. Supplemental Indentures with Consent
of Holders....................................68
SECTION 903. Execution of Supplemental Indentures............69
SECTION 904. Effect of Supplemental Indentures...............69
SECTION 905. Conformity with Trust Indenture Act.............69
SECTION 906. Reference in Securities to Supplemental
Indentures....................................69
SECTION 907. Notice of Supplemental Indentures...............70
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any,
and Interest..................................70
SECTION 1002. Maintenance of Office or Agency................70
SECTION 1003. Money for Security Payments to Be Held
in Trust......................................71
SECTION 1004. Corporate Existence............................72
SECTION 1005. Payment of Taxes and Other Claims..............72
SECTION 1006. Maintenance of Properties......................73
SECTION 1007. Insurance......................................73
SECTION 1008. Statement by Officers as to Default............73
SECTION 1009. Provision of Financial Statements and Reports..74
SECTION 1010. Limitation on Additional Indebtedness..........74
SECTION 1011. Limitation on Restricted Payments..............74
SECTION 1012. Limitation on Issuances and Sales of
Capital Stock of Restricted Subsidiaries......77
SECTION 1013. Limitation on Transactions with Affiliates.....78
SECTION 1014. Limitation on Liens............................80
SECTION 1015. Limitation on Issuances of Guarantees of
Indebtedness by Subsidiaries..................80
SECTION 1016. Purchase of Securities upon a Change of
Control.......................................81
SECTION 1017. Limitation on Sale of Assets...................81
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted
Subsidiaries..................................83
SECTION 1019. Limitation on Investments in Unrestricted
Subsidiaries..................................84
SECTION 1020. Limitation on Lines of Business................84
SECTION 1021. Waiver of Certain Covenants....................85
ARTICLE ELEVEN
</TABLE>
<PAGE>
viii
<TABLE>
<CAPTION>
Page
<S> <C>
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption............................85
SECTION 1102. Applicability of Article.......................86
SECTION 1103. Election to Redeem; Notice to Trustee..........86
SECTION 1104. Selection by Trustee of Securities to
Be Redeemed...................................86
SECTION 1105. Notice of Redemption...........................87
SECTION 1106. Deposit of Redemption Price....................87
SECTION 1107. Securities Payable on Redemption Date..........88
SECTION 1108. Securities Redeemed in Part....................88
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance...........................89
SECTION 1302. Defeasance and Discharge.......................89
SECTION 1303. Covenant Defeasance............................90
SECTION 1304. Conditions to Defeasance or Covenant
Defeasance....................................90
SECTION 1305. Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Other Miscellaneous Provisions................92
SECTION 1306. Reinstatement..................................93
</TABLE>
<PAGE>
ix
<TABLE>
<CAPTION>
Page
----
<S> <C>
TESTIMONIUM..................................................................91
SIGNATURES AND SEALS.........................................................91
</TABLE>
SCHEDULE A - Existing Management Contracts, Overhead Agreements and Service
Agreements
SCHEDULE B - Indebtedness Outstanding on the Issue Date
SCHEDULE C - Liens Existing on the Issue Date
SCHEDULE D - Agreements Not Restricted Under Section 1018
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered upon Termination of Restricted
Period
<PAGE>
Exhibit 5
August 4, 1998
@Entertainment, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Ladies and Gentlemen:
We have acted as counsel to @Entertainment, Inc., a Delaware corporation
(the "Company"), in connection with its filing of a registration statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of $252 million
aggregate principal amount of 14 1/2% Series B Senior Discount Notes due 2008
("Exchange Notes") to be issued under an Indenture, dated as of July 14, 1998
(the "Indenture"), among the Company and Bankers Trust Company, as Trustee.
We have examined the originals, or photostatic or certified copies, of
such records of the Company, certificates of officers of the Company and of
public officials, and such other documents as we have deemed relevant and
necessary as the basis of the opinion set forth below. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as photostatic or certified copies and the
authenticity of the originals of such copies.
We are the members of the Bar of the District of Columbia. We have made
such examination of federal law and of the Delaware General Corporation Law
as we have deemed relevant for purposes of this opinion, and we express no
opinion as to laws of any other state or jurisdiction.
Based upon our examination, we are of the opinion that:
1. The Indenture has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
(a)
<PAGE>
@Entertainment, Inc.
August 4, 1998
Page 2
as the enforcement may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and (b) the waiver in
Section 514 of the Indenture may be unenforceable due to interests of
public policy.
2. The Exchange Notes are in the form contemplated by the Indenture,
have been duly authorized by the Company and, when executed by the
Company and authenticated by the Trustee in the manner provided
under the Indenture and delivered in exchange for outstanding 14
1/2% Senior Discount Notes due 2008 of the Company, will
constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms
except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law), and will be entitled to the benefits of the Indenture.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act.
Very truly yours,
/s/ Baker & McKenzie
--------------------
Baker & McKenzie
<PAGE>
Exhibit 8
[Baker & McKenzie Letterhead]
August 4, 1998
@Entertainment, Inc.
One Commercial Plaza
Hartford, CT 06103-3585
Dear Sirs:
We have acted as United States federal income tax counsel to
@Entertainment, Inc. (the "Company") in connection with the determination of the
principal consequences under United States federal income tax law of the
Company's proposed exchange of its 14.5% Series B Senior Discount Notes due 2008
for any and all of its outstanding 14.5% Senior Discount Notes due 2008 (the
"Exchange Offer"), as more completely described in the Registration Statement
dated August 4, 1998 (the "Registration Statement").
As counsel to the Company we have examined the Registration
Statement and such other documents and records as we deemed necessary and
relevant for rendering our opinion as to the principal United States federal
income tax consequences of the Exchange Offer. Unless otherwise defined herein,
all capitalized terms shall have the meanings assigned to them in the
Registration Statement.
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 holders of the exchange of Old Notes for Exchange Notes in the
Exchange Offer described in the Registration Statement are, subject to the
limitations and qualifications set forth below, as follows: Because the Exchange
Notes will not be considered to differ materially either in kind or in extent
from the Old Notes, the exchange of the Old Notes for the Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes pursuant to Section 1001 of the United States Internal
Revenue Code of 1986, as amended (the "Code"). As a result, no material United
States federal income tax consequences will result to holders exchanging Old
Notes for Exchange Notes, and the holders' respective tax bases in and holding
periods for the Old Notes will continue to be their tax bases in and holding
periods for the Exchange Notes.
<PAGE>
@Entertainment, Inc.
August 3, 1998
Page 2
Certain holders (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
individuals who are not citizens or residents of the United States) may be
subject to special rules not discussed herein.
The foregoing is based on the United States Internal Revenue
Code of 1986, as amended, regulations, rulings, administrative pronouncements
and judicial decisions relating thereto as of the date hereof. Subsequent
developments in these areas could have a material effect on this opinion.
We hereby consent to the use of our opinion as herein set forth
as an exhibit to the Registration Statement and to the use of our name under the
caption "United States Income Tax Considerations" in the prospectus forming a
part of the Registration Statement. This consent is not to be construed as an
admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of the Securities Act.
Respectfully submitted,
/s/
BAKER & McKENZIE
JOD/LGH
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as
of July 14, 1998 is made and entered into among @ENTERTAINMENT, INC. (the
"Company"), a Delaware corporation, and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("Merrill Lynch") and J.P. MORGAN SECURITIES INC. ("J.P. Morgan")
(collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement
dated July 8, 1998 between the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 252,000 of the Company's Units, each Unit consisting of $1,000
aggregate principal amount at maturity of the Company's 14 1/2% Senior Discount
Notes due 2008 (the "Notes") and four Warrants, each Warrant entitling the
holder thereof to purchase 1.81 shares of common stock, par value $0.01 per
share of the Company. In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Company has agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Company" shall have the meaning set forth in the preamble and
also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; provided, however, that such
depositary must have an address in the Borough of Manhattan in the City of New
York.
"Exchange Notes" shall mean 14 1/2% Series B Senior Notes due
2008 of the Company, issued under the Indenture, containing terms identical to
the Notes (except
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that (a) interest thereon shall accrue from the last date on which interest was
paid on the Notes or, if no such interest has been paid, from the date on which
the Notes were issued, (b) the transfer restrictions thereon pertaining to
United States securities laws shall be eliminated and (c) certain provisions
relating to an increase in the stated rate of interest thereon shall be
eliminated), to be offered to Holders of Registrable Notes in exchange for Notes
pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as
they own any Registrable Notes, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable Notes under
the Indenture.
"Indenture" shall mean the Indenture relating to the Notes
dated as of July 14, 1998 between the Company and Bankers Trust Company as
trustee (the "Trustee"), as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble.
"Issue Date" means July 14, 1998.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount at maturity of Registrable Notes outstanding;
provided that whenever the consent or approval of Holders of a specified
percentage of Registrable Notes is required hereunder, Registrable Notes held by
the Company or any of its affiliates (as such term is defined in Rule 405 under
the 1933 Act) shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"Notes" shall have the meaning set forth in the Preamble.
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"Participating Broker-Dealer" shall have the meaning set forth
in Section 3(f).
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Notes covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Notes" shall mean the Notes; provided, however,
that any Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have been declared effective under
the 1933 Act and such Notes shall have been disposed of pursuant to such
Registration Statement, (ii) such Notes shall have been sold to the public
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Notes shall have ceased to be outstanding
or (iv) such Notes have been exchanged for Exchange Notes upon consummation of
the Exchange Offer.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC, stock exchange or National
Association of Securities Dealers, Inc. ("NASD") registration and filing fees,
(ii) all fees and expenses incurred in connection with compliance with state
securities or blue sky laws and compliance with the rules of the NASD (including
reasonable fees and disbursements of United States and local counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Notes or Registrable Notes), (iii) all expenses of the Company in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, (v) all fees and expenses incurred in connection
with the listing, if any, of any of the Registrable Notes on any securities
exchange or exchanges, (vi) the fees and disbursements of counsel for the
Company and of the independent public accountants of the Company, including the
expenses of any special
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audits or "cold comfort" letters required by or incident to such performance and
compliance, (vii) the fees and expenses of the Trustees, and any escrow agent or
custodian, and (viii) in the case of any Underwritten Offering, any fees and
disbursements of the underwriters customarily required to be paid by issuers or
sellers of securities and the reasonable fees and expenses of any special
experts retained by the Company in connection with any Registration Statement,
but excluding (except as otherwise provided herein) fees of United States,
United Kingdom, Polish and other counsel to the underwriters or the Holders and
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement
of the Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a shelf registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Underwritten Offering" shall mean an underwritten offering of
a minimum of US$15 million aggregate principal amount at maturity of Notes.
2. Registration Under the 1933 Act. (a) Exchange Offer
Registration. To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
(A) to file within 60 days after the Issue Date an Exchange Offer Registration
Statement covering the offer by the Company to the Holders to exchange all of
the Registrable Notes for Exchange Notes, (B) to cause such Exchange Offer
Registration Statement to be declared effective by the SEC within 90 days after
the Issue Date, (C) to cause such Registration Statement to remain effective
until the closing of the Exchange
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Offer and (D) to consummate the Exchange Offer within 120 days following the
Issue Date. The Exchange Notes will be issued under the Indenture. As soon as
practicable, but in no event more than one week, after the effectiveness of the
Exchange Offer Registration Statement, the Company shall commence the Exchange
Offer, it being the objective of such Exchange Offer to enable each Holder
(other than Participating Broker-Dealers) eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder (i) is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (ii)
acquires the Exchange Notes in the ordinary course of such Holder's business and
(iii) has no arrangements or understandings with any Person to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes) to trade
such Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if required by
applicable law);
(iii) use the services of the Depositary for the Exchange
Offer with respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at
any time prior to 5:00 P.M. New York City time, on the last business day on
which the Exchange Offer shall remain open, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Registrable Notes
delivered for exchange, and a statement that such Holder is withdrawing his
election to have such Notes exchanged; and
(v) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange
Offer, the Company shall:
(i) accept for exchange Registrable Notes duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the
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Exchange Offer Registration Statement and the letter of transmittal which is an
exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the Company;
and
(iii) cause the Trustee promptly to authenticate and
deliver Exchange Notes to each Holder of Registrable Notes equal in principal
amount at maturity to the principal amount at maturity of the Registrable
Notes of such Holder so accepted for exchange.
Original issue discount will accrete, if prior to July 15,
2003, and interest will accrue, if on or after July 15, 2003, on each Exchange
Note exchanged for a Registrable Note, in either case from the last date on
which original issue discount accreted or interest was paid, as the case may be,
on the Notes surrendered in exchange therefor. If no interest has been paid on
the Notes, such interest will accrue from July 15, 2003. The Exchange Offer
shall not be subject to any conditions, other than (i) that the Exchange Offer,
or the making of any exchange by a Holder, does not violate applicable law or
any applicable interpretation of the Staff of the SEC, and (ii) the due
tendering of Registrable Notes in accordance with the Exchange Offer. Each
Holder of Registrable Notes (other than Participating Broker-Dealers) who wishes
to exchange such Registrable Notes for Exchange Notes in the Exchange Offer
shall represent that (i) it is not an affiliate (as defined in Rule 405 under
the 1933 Act) of the Company, (ii) any Exchange Notes to be received by it will
be acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it has no arrangement with any Person to
participate in the distribution (within the meaning of the 1933 Act) of the
Exchange Notes and shall have made such other representations as may be
reasonably necessary under applicable SEC rules, regulations or interpretations
to render the use of Form S-4 or another appropriate form under the 1933 Act
available. To the extent permitted by law, the Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such Holders
and otherwise facilitate the tender of Registrable Notes in the Exchange Offer.
(b) Shelf Registration. In the event that (i) any changes in
law or the applicable interpretations of the Staff of the SEC do not permit the
Company to effect the Exchange Offer; (ii) for any reason the Exchange Offer is
not consummated within 120 days following the Issue Date; (iii) any Holder of
Notes notifies the Company prior to the effectiveness of the Exchange Offer
Registration Statement that (A) due to a change in law or SEC policy it is not
entitled to participate in the Exchange Offer, (B) due to a change in law or SEC
policy it may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the Prospectus is not
appropriate or available for
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such resales by such Holder, (C) it is a broker-dealer and owns Registrable
Notes acquired directly from the Company or an affiliate of the Company or (D)
the Majority Holders of Notes that are Registrable Notes may not resell the
Exchange Notes acquired by them in the Exchange Offer to the public without
restriction under the 1933 Act and without restriction under applicable blue sky
or state securities laws, the Company shall, at its cost,
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the
Registrable Notes by the Holders from time to time in accordance with
the methods of distribution elected by the Majority Holders of Notes
that are Registrable Notes and set forth in such Shelf Registration
Statement, and use its best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC within 120 days after
the Issue Date. In the event that the Company is required to file a
Shelf Registration Statement upon the request of any Holder (other
than the Initial Purchasers) not eligible to participate in the
Exchange Offer pursuant to clause (iii) above or upon the request of
any Initial Purchaser pursuant to clause (iii)(C) above, the Company
shall file and have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Section 2(a) with respect to
all Registrable Notes and a Shelf Registration Statement (which may
be a combined Registration Statement with the Exchange Offer
Registration Statement) with respect to offers and sales of
Registrable Notes held by such Holder or the Initial Purchasers after
completion of the Exchange Offer;
(B) subject to clause d(ii) below, use its best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the Prospectus forming part thereof to be usable by Holders
for a period of two years from the date the Shelf Registration
Statement is declared effective by the SEC (or one year from the date
the Shelf Registration Statement is declared effective if such Shelf
Registration Statement is filed upon the request of the Initial
Purchasers pursuant to clause (iii)(C) above) or such shorter period
which will terminate when all of the Registrable Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement; and
(C) notwithstanding any other provisions hereof, use its
best efforts to ensure that (x) any Shelf Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any
supplement thereto comply in all material respects with the 1933 Act
and the rules and regulations thereunder, (y) any Shelf Registration
Statement and any amendment thereto do not, upon effectiveness,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (z) any Prospectus forming part
of any Shelf Registration Statement, and any supplement to
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such Prospectus (as amended or supplemented from time to time), do
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of
the circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or
amend the Shelf Registration Statement if reasonably requested by the Majority
Holders of Notes that are Registrable Notes with respect to information relating
to the Holders and otherwise as required by Section 3(b) below, to use all
reasonable efforts to cause any such amendment to become effective and such
Shelf Registration to become usable as soon as thereafter practicable and to
furnish to the Holders of Registrable Notes copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or the
Initial Purchasers for the reasonable fees and disbursements of one United
States firm or counsel, one United Kingdom firm or counsel and one Polish firm
or counsel designated in writing by the Majority Holders of the Notes to act as
counsel for the Holders of the Registrable Notes in connection therewith. Each
Holder shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be
deemed not to have used its best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if it voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Notes covered thereby not
being able to exchange or offer and sell such Registrable Notes during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(k) hereof, if applicable.
(ii) The Company may suspend the availability of the Shelf
Registration Statement and the use of the Prospectus for a period not to exceed
an aggregate of 60 days in any four month period or four periods not to exceed
an aggregate of 120 days in any 12 month period if such suspension is effected
in good faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or divestiture of
assets, the filing of public reports with the SEC and during the pendency of
material corporate
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developments, so long as the Company promptly complies with the requirements of
Section 3(k) hereof (including compliance with the obligation to prepare a
supplement or amendment to a Registration Statement and related Prospectus if
necessary) promptly after the termination of such suspension.
(iii) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 60th calendar day after the Issue Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 90th calendar day after
the Issue Date, (iii) the Exchange Offer is not consummated on or prior to the
120th calendar day after the Issue Date or, as the case may be, a Shelf
Registration Statement with respect to the Registrable Notes is not declared
effective on or prior to the 120th day after the Issue Date or (iv) the Exchange
Offer Registration Statement or the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable within the applicable
period as provided in this Agreement except pursuant to Section 2(d)(ii) (each
such event referred to in clauses (i) through (iv) above, a "Registration
Default"), the Company shall be required to pay additional interest in cash on
each Interest Payment Date in an amount equal to one-half of one percent (0.5%)
per annum of the Accreted Value of the Notes, with respect to the first 90-day
period following such Registration Default. The amount of such additional
interest will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until such Registration Default has been
cured, up to a maximum of one and one-half percent (1.5%) per annum. Such
additional interest shall cease to accrue when such Registration Default has
been cured. Upon (x) the filing of the Exchange Offer Registration Statement
after the 60-day period described in clause (i) above, (y) the effectiveness of
the Exchange Offer Registration Statement after the 90-day period described in
clause (ii) above or the period during which it ceases to be effective or usable
as described in clause (iv) above or (z) the consummation of the Exchange Offer
after the 120-day period or the effectiveness of a Shelf Registration Statement
after the 120-day period, as the case may be, described in clause (iii) above or
after the period during which such Shelf Registration Statement ceases to be
effective or usable as described in clause (iv)
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above, and provided that none of the conditions set forth in clauses (i), (ii),
(iii) and (iv) above continues to exist, a Registration Default will be deemed
to be cured.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its obligations under Section
2(a) and Section 2(b) hereof may result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures. In connection with the obligations
of the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement,
within the time period specified in Section 2, on the appropriate
form under the 1933 Act, which form (i) shall be selected by the
Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Notes by the selling
Holders thereof and (iii) shall comply as to form in all material
respects with the non-financial statement requirements of the
applicable form and (except with respect to the Exchange Offer
Registration Statement) include or incorporate by reference all
financial statements required by the SEC to be filed therewith, and
use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the 1933 Act; and
comply with the provisions of the 1933 Act with respect to the
disposition of all Notes covered by each Registration Statement
during the applicable period in accordance with the intended method
or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Notes, at least five days prior to filing, that
a Shelf Registration Statement with respect to the Registrable Notes
is being filed and advising such Holders that the distribution of
Registrable Notes will be made in accordance with the method elected
by the Majority
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Holders of Notes that are Registrable Notes; and (ii) furnish to each
Holder of Registrable Notes, to counsel for the Initial Purchasers,
to counsel for the Holders and to each underwriter of an Underwritten
Offering of Registrable Notes, if any, without charge, as many copies
of each Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as such
Holder or underwriter may reasonably request, including financial
statements and schedules and, if the Holder so requests, all exhibits
(including those incorporated by reference) in order to facilitate
the public sale or other disposition of the Registrable Notes; and
(iii) subject to the last paragraph of this Section 3, hereby consent
to the use of the Prospectus or any amendment or supplement thereto
by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by the
Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Notes covered
by a Registration Statement and each underwriter of an Underwritten
Offering of Registrable Notes shall reasonably request by the time
the applicable Registration Statement is declared effective by the
SEC, to cooperate with the Holders in connection with any filings
required to be made with the NASD, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
Holder to consummate the disposition in each such jurisdiction of
such Registrable Notes owned by such Holder; provided, however, that
the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d)
or (ii) take any action which would subject it to general service of
process or taxation in any such jurisdiction if it is not then so
subject;
(e) in the case of a Shelf Registration, notify each Holder
of Registrable Notes and U.S. counsel for the Initial Purchasers
promptly and, if requested by such Holder or counsel, confirm such
advice in writing promptly (i) when a Registration Statement has
become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any request by the SEC
or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Notes covered
thereby, the representations and warranties of the Company contained
in any underwriting agreement, securities sales agreement or other
similar agreement, if any,
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relating to such offering cease to be true and correct in all
material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of
the Registrable Notes for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose, (vi) of the
suspension of the availability of the Shelf Registration Statement
and the use of the Prospectus pursuant to Section 2(d)(ii) hereof or
of the happening of any event or the discovery of any facts during
the period a Shelf Registration Statement is effective which makes
any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the
making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading and (vii) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in
the Exchange Offer Registration Statement a "Plan of Distribution"
section covering the use of the Prospectus included in the Exchange
Offer Registration Statement by broker-dealers who have exchanged
their Registrable Notes for Exchange Notes for the resale of such
Exchange Notes, (ii) furnish to each broker-dealer who desires to
participate in the Exchange Offer, without charge, as many copies of
each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or
supplement thereto, as such broker-dealer may reasonably request,
(iii) include in the Exchange Offer Registration Statement a
statement that any broker-dealer which holds Registrable Notes
acquired for its own account as a result of market-making activities
or other trading activities (a "Participating Broker-Dealer"), and
who receives Exchange Notes for Registrable Notes pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a
Prospectus meeting the requirements of the 1933 Act in connection
with any resale of such Exchange Notes, (iv) subject to the last
paragraph of this Section 3, hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement
or any amendment or supplement thereto, by any broker-dealer in
connection with the sale or transfer of the Exchange Notes covered by
the Prospectus or any amendment or supplement thereto, and (v)
include in the transmittal letter or similar documentation to be
executed by an exchange offeree in order to participate in the
Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend
to engage in, a distribution of Exchange Notes. If the
undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Registrable
Notes, it represents that the Registrable Notes to be
exchanged for Exchange Notes were acquired by it as a
result of market-making activities or other trading
activities and acknowledges
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that it will deliver a Prospectus meeting the requirements
of the 1933 Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by
so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act.";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Notes, the broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the 1933 Act;
and
(B) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the Initial Purchasers, unless it
elects not to act as such representative) only one, if any, "cold comfort"
letter with respect to the Prospectus in the form existing on the last date for
which exchanges are accepted pursuant to the Exchange Offer and with respect to
each subsequent amendment or supplement, if any, effected during the period
specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period of 180
days following the closing of the Exchange Offer or such shorter period which
will terminate when the Participating Broker-Dealers have completed all resales
subject to applicable prospectus-delivery requirements; and
(D) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b) hereof, or take any other action as a
result of this Section 3(f), for a period exceeding 180 days after the last date
for which exchanges are accepted pursuant to the Exchange Offer (as such period
may be extended by the Company) and Participating Broker-Dealers shall not be
authorized by the Company to, and shall not, deliver such Prospectus after such
period in connection with resales contemplated by this Section 3;
(g) in the case of an Exchange Offer or a Shelf Registration,
furnish U.S. counsel for the Initial Purchasers copies of any request by the SEC
or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
<PAGE>
14
(h) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement as soon as
practicable and provide prompt notice to each Holder of the withdrawal of any
such order;
(i) in the case of a Shelf Registration, furnish to each
Holder of Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends pertaining to U.S. securities laws; and cause
such Registrable Notes to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling Holders
or the underwriters, if any, may reasonably request at least two business days
prior to the closing of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence
of any event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use its best efforts to prepare a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Notes, such
Prospectus will not contain at the time of such delivery any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission.
At such time as such public disclosure is otherwise made or the Company
determines that such disclosure is not necessary, in each case to correct any
misstatement of a material fact or to include any omitted material fact, the
Company agrees promptly to notify each Holder of such determination and to
furnish each Holder such numbers of copies of the Prospectus, as amended or
supplemented, as such Holder may reasonably request;
(l) obtain CUSIP numbers for all Exchange Notes, or
Registrable Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Notes or the Registrable Notes, as the case may be, in a form
eligible for deposit with the Depositary;
<PAGE>
15
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may be,
(ii) cooperate with the Trustees and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustees to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable the Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions (including those reasonably requested by the Majority Holders of
Registrable Notes, if applicable) in order to expedite or facilitate the
disposition of such Registrable Notes and in such connection whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders
of such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the Holders of a majority in principal amount at maturity of
the Registrable Notes being sold) addressed to each selling Holder
and the underwriters, if any, covering the matters customarily
covered in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested by
such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and will use reasonable best efforts to
have such letter addressed to the selling Holders of Registrable
Notes, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters to
underwriters in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such
<PAGE>
16
agent for the selling Holders for the purpose of soliciting purchases
of Registrable Notes, which agreement shall be in form, substance and
scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case
of an Underwritten Offering, cause the same to set forth
indemnification provisions and procedures substantially equivalent to
the indemnification provisions and procedures set forth in Section 5
hereof with respect to the underwriters and all other parties to be
indemnified pursuant to said Section; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration Statement
(and, if appropriate, each post-effective amendment thereto) and (ii) each
closing under any underwriting or similar agreement as and to the extent
required thereunder. In the case of any Underwritten Offering, the Company shall
provide written notice to the Holders of all Registrable Notes of such
Underwritten Offering at least 30 days prior to the filing of a prospectus
supplement for such Underwritten Offering. Such notice shall (x) offer each such
Holder the right to participate in such Underwritten Offering, (y) specify a
date, which shall be no earlier than 10 days following the date of such notice,
by which such Holder must inform the Company of its intent to participate in
such Underwritten Offering and (z) include the instructions such Holder must
follow in order to participate in such Underwritten Offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and any
underwriters participating in any disposition pursuant to a Shelf Registration
Statement and any U.S. counsel or accountant retained by such Holders or
underwriters, all financial and other records, pertinent corporate documents and
properties of the Company reasonably requested by any such persons, and cause
the respective officers, directors, employees, and any other agents of the
Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection with a
Registration Statement; provided that any such records, documents, properties
and such information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such records, documents,
properties or information shall be kept confidential by any such representative,
underwriter, special counsel or accountant and shall be used only in connection
with such Registration Statement, unless such information has become available
(not in violation of this agreement) to the public generally or through a third
party without an accompanying
<PAGE>
17
obligation of confidentiality, and except that such representative, underwriter,
special counsel or accountant shall have no liability, and shall not be in
breach of this provision, if disclosure of such confidential information is made
in connection with a court proceeding or required by law, and the Company shall
be entitled to request that such representative, underwriter, special counsel or
accountant sign a confidentiality agreement to the foregoing effect;
(p) (i) a reasonable time prior to the filing of any Exchange
Offer Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or supplement
to a Prospectus, provide a copy of such document to the Initial Purchasers, and
make such changes in any such document prior to the filing thereof as the
Initial Purchasers or their U.S. counsel may reasonably request; (ii) in the
case of a Shelf Registration, a reasonable time prior to filing any Shelf
Registration Statement, any Prospectus forming a part thereof, any amendment to
such Shelf Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Holders of Registrable Notes, to the
Initial Purchasers, to U.S. counsel on behalf of the Holders and to the
underwriter or underwriters of an Underwritten Offering of Registrable Notes, if
any, and make such changes in any such document prior to the filing thereof as
the Holders of Registrable Notes, the Initial Purchasers on behalf of such
Holders, the Initial Purchasers' counsel and any underwriter may reasonably
request; and (iii) cause the representatives of the Company to be available for
discussion of such document as shall be reasonably requested by the Holders of
Registrable Notes, the Initial Purchasers on behalf of such Holders or any
underwriter and shall not at any time make any filing of any such document of
which such Holders, the Initial Purchasers on behalf of such Holders, the
Initial Purchasers' U.S. counsel or any underwriter shall not have previously
been advised and furnished a copy or to which such Holders, the Initial
Purchasers on behalf of such Holders, the Initial Purchasers' counsel or any
underwriter shall reasonably object;
(q) in the case of a Shelf Registration, use its best efforts
to cause all Registrable Notes to be listed on any securities exchange on which
similar debt securities issued by the Company are then listed if requested by
the Majority Holders of such class of Registrable Notes or by the underwriter or
underwriters of an Underwritten Offering of such Registrable Notes, if any;
(r) in the case of a Shelf Registration, use its best efforts
to cause the Registrable Notes to be rated with the appropriate rating agencies,
if so requested by the Majority Holders of any class of Registrable Notes or by
the underwriter or
<PAGE>
18
underwriters of an Underwritten Offering of Registrable Notes, if any, unless
the Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering at
least 12 months which shall satisfy the provisions of Section 11(a) of the 1933
Act and Rule 158 thereunder; and
(t) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by any
underwriter and its U.S. counsel.
In the case of a Shelf Registration Statement, the Company may
(as a condition to such Holder's participation in the Shelf Registration)
require each Holder of Registrable Notes to furnish to the Company such
information regarding such Holder and the proposed distribution by such Holder
of such Registrable Notes as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Notes current at the time of receipt of such notice.
If the Company shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension provided that the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Shelf Registration Statement and shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date when the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an Underwritten Offering,
the investment banker or
<PAGE>
19
investment bankers and manager or managers that will manage the offering will be
selected by the Majority Holders of such class of Registrable Notes included in
such offering and shall be reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
5. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless the Initial Purchasers, each Holder, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the respective directors,
officers, employees, agents and each Person, if any, who controls any of such
parties within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Exchange Notes or Registrable Notes were registered under the 1933 Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 5(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of United States and Polish
counsel chosen by any indemnified
<PAGE>
20
party), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened in connection
with, or any claim whatsoever based upon, any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii)
of this Section 5(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent (A) arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in or omitted from a
preliminary Prospectus or registration statement and corrected or cured in a
subsequent Prospectus or registration statement or any amendment or supplement
thereto, (ii) made in reliance upon and in conformity with information furnished
to the Company by the Initial Purchasers, any Holder, including Participating
Broker-Dealers, or any underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto), or (B) resulting from the use of the Prospectus during a
period when the use of the Prospectus has been suspended in accordance with
Section 2(d)(ii) or Section 3(e)(vi) hereof, provided, in each case, that
Holders received prior notice of such suspension;
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Initial Purchasers, each
underwriter who participates in an offering of Registrable Notes and the other
selling Holders and each of their respective directors and officers (including
each officer of the Company who signed the Registration Statement) and each
Person, if any, who controls the Company, the Initial Purchasers, any
underwriter or any other selling Holder within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with information furnished to the Company by such Holder,
as the case may be, expressly for use in the Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that
<PAGE>
21
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel, in addition to any local counsel, separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 5 hereof (whether or not the
indemnified parties are actual or potential parties thereof), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party;
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel for which they are entitled to indemnification hereunder,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 5(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party for such reasonable fees
and expenses of counsel in accordance with such request prior to the date of
such settlement;
(e) If the indemnification provided for in any of the
indemnity provisions set forth in this Section 5 is for any reason unavailable
to or insufficient to hold harmless an indemnified party in respect of any
losses, liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, the Initial Purchasers on
another hand, and the Holders on another hand, from the offering of the Exchange
Notes or Registrable Notes included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, the
Initial Purchasers on another hand, and the Holders on another hand, in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand, the
<PAGE>
22
Initial Purchasers on another hand, and the Holders on another hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Initial Purchasers or the Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Initial Purchasers and the Holders of the Registrable
Notes agree that it would not be just and equitable if contribution pursuant to
this Section 5 were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by another method of allocation which
does not take account of the equitable considerations referred to above in
Section 5. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each Person, if any, who controls an Initial Purchaser or a Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to the Initial
Purchasers pursuant to the Purchase Agreement shall not be deemed to be a
benefit received by the Initial Purchasers in connection with the offering of
the Exchange Notes or Registrable Notes included in such offering.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as
the Company is subject to the reporting requirements of Section 13 or 15 of the
1934 Act, the Company covenants that it will file or furnish the reports
required to be filed or furnished by it under the 1933 Act and Section 13(a) or
15(d) of the 1934 Act and the rules and regulations adopted by the SEC
thereunder, that if it ceases to be so required to file or furnish such reports,
it will upon the request of any Holder of Registrable Notes (i) make publicly
available such information as is necessary to permit sales pursuant to Rule 144
under the 1933 Act, (ii) deliver such information to a prospective purchaser as
is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it
will take such further action as any Holder of Registrable Notes may reasonably
request, and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to
<PAGE>
23
sell its Registrable Notes without registration under the 1933 Act within the
limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (y) Rule 144A under the 1993 Act, as
such Rule may be amended from time to time, or (z) any similar rules or
regulations hereafter adopted by the SEC.
(b) No Inconsistent Agreements. The Company has not entered
into and the Company on or after the date of this Agreement will not enter into
any agreement which is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount at maturity of the
outstanding Registrable Notes affected by such amendment, modification,
supplement, waiver or departure; provided, however, that no amendment,
modification, supplement or waiver or consent to any departure from the
provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Notes unless consented to in writing by such Holder.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any air courier (i) if to a Holder, at
the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 6(d), which
address initially is, with respect to the Initial Purchasers, the address set
forth in the Purchase Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; at the
time received, if mailed or sent by air courier; when answered back, if telexed;
and when receipt is acknowledged, by recipient's telecopy operator, if
telecopied.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustees,
at the addresses specified in the Indenture.
<PAGE>
24
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. The Initial Purchasers shall be
third party beneficiaries to the agreements made hereunder between the Company,
on the one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder. Other than the foregoing sentence, nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchasers, the Holders, including
Participating Broker- Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the Company and their
respective successors and the controlling persons and directors, officers,
employees, and agents referred to in Section 5 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole benefit of
the Initial Purchasers, the Holders and the Company and the other persons
referenced by the preceding sentence and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA.
<PAGE>
25
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
@ENTERTAINMENT, INC.
By:
---------------------------
Name:
Title:
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
---------------------------
Name:
Title:
J.P. MORGAN SECURITIES INC.
By:
---------------------------
Name:
Title:
<PAGE>
EXECUTION VERSION
- --------------------------------------------------------------------------------
Registration Rights Agreement
Dated as of July 14, 1998
among
@Entertainment, Inc.
and
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
and
J.P. Morgan Securities Inc.
- --------------------------------------------------------------------------------
<PAGE>
1
EXHIBIT 10.3
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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2
The services and expenses for which the consulting management fee described in
Article 5 is due include:
1. Organization consulting on behalf of B .
2. Organization activity directed to the fulfillment of
Article of B Deed of Association.
Article 7
The parties agree that for the fiscal year and for each year thereafter the
consulting management fee defined in Article 5 of this Agreement will be
equal to an equivalent of USD $ (Dollars 00/100) for the System.
Accrued management fees will become payable when and to the extent that B net
income exceeds zero.
Article 8
The amount determined in Article 7 was based on the feasibility study which
served as a basis for the issuance of the permit .
Article 9
The agreement shall continue until and shall be automatically
renewed for successive one (1) year periods unless terminated in writing by
either party at least thirty (30) days prior to the then existing term.
Article 10
This Agreement shall be binding on and inure to the parties' successors and
assigns. This Agreement relates to the operation of the C System. A hereby
acknowledges and agrees the B may assign all or a portion of rights granted to
it herein to any entity(ies) continuing to operate the C System without the
prior consent of A . Any such entity(ies) shall consent to be bound by the
obligations of B to A hereunder. A may assign its rights and obligations
hereunder to an affiliated entity capable of performing the services hereunder
without the prior consent of B .
Article 11
Matters unregulated by this Agreement will be governed by the Civil Code.
2
<PAGE>
3
Article 12
Potential disputes will be resolved by courts headquartered in the United
States.
Article 13
This Agreement was prepared in two counterparts, one for each party.
A
By:
------------------------------
B
By:
------------------------------
3
<PAGE>
1
EXHIBIT 10.4
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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3
The existing business of the Owner is to acquire, construct, own and
operate cable television systems to service the city of C and surrounding areas
in the Republic of Poland. The business of the Owner includes the construction
and development and promotion of the System in the Republic of Poland, the
purchase of equipment, supplies, and other goods and materials for the System,
the evaluation and acquisition of cable television systems, the operation and
maintenance of the Systems and managing personnel needed to carry out its
business goals and objectives and all other functions relating to the successful
operation of a cable television system. The activities as described in this
Section are referred to below as the "Business of the Owner".
ARTICLE 3
SERVICES/FEES/EXPENSES
Section 3.1 Agency Services/Fees/Expenses.
(a) Agency Services: A shall (or may cause its Agent or affiliates, in
its sole discretion, to) provide services to and at the request of Owner
relating to technical, managerial, supervisory, purchasing, operational,
financial and administrative functions ("Agency Services"), as follows:
(i) A shall engage (or cause to be engaged) personnel for the
benefit of and on behalf of Owner as A shall deem necessary and as requested by
Owner to perform the Agency Services. Such personnel, whether located in Poland,
the United States, or elsewhere, shall be engaged substantially full-time in
providing such services. All reasonable out-of-pocket costs and expenses
incurred by A (or Agent or affiliates) relating to these personnel (including,
without limitation, salaries, social security, insurance and other benefits,
housing allowances, travel and entertainment expenses and any other related and
sundry costs) (collectively "Personnel Costs") shall be reimbursed by Owner
pursuant to this Section;
(ii) With the consent of Owner, A shall purchase (or may cause
to be purchased) from unaffiliated third parties, as A shall deem necessary, any
equipment, supplies or other goods or materials to be used or useful for the
Business of Owner. Upon receipt of consideration for such purchases from Owner,
title to the foregoing shall be in Owner. All reasonable out-of-pocket costs and
expenses of unaffiliated third parties incurred by A or Agent or affiliates)
relating to these purchases (including without limitation, any and all
transportation, freight, shipping, import taxes, other taxes, fees, insurance
and brokerage fees) (collectively "Purchasing Costs") shall be reimbursed by
Owner pursuant to this Section;
(iii) A shall, at Owner's request, supervise the
2
<PAGE>
4
payment of, or at A 's election pay, any operating expenses relating to the
Business of the Owner ("Operating Expenses"). Expenses incurred by A or Agent in
accordance with this Subsection shall be reimbursed in full (with interest, if
applicable) by Owner pursuant to this Section;
(iv) A shall be entitled to reimbursement for all reasonable
out-of-pocket costs and expenses charged by unaffiliated third parties and
incurred by A or Agent or any of its affiliates on behalf of Owner in connection
with providing the Agency Services in accordance with this Agreement, including
without limitation, travel, lodging, entertainment, postage, or telephone costs
and expenses.
(v) All reimbursements by Owner shall be in the same currency
as payments, costs and expenses were made or incurred, unless otherwise agreed
to by the parties.
(b) A shall submit to Owner, within 30 days after each calendar
quarter, a statement indicating all payments, costs and expenses made or
incurred by A or Agent or affiliate during such calendar quarter and for which A
seeks to be reimbursed by Owner (each statement being referred to herein
individually as a "Statement" and collectively as "Statements"). Such amounts
shall be reimbursed within thirty (30) days of the date such Statement is
rendered unless otherwise agreed to by the parties. In no event shall any delay
or failure to list any cost or expense on a Statement waive any of A 's rights
to reimbursement upon submission of a Statement by A or its Agent setting forth
such cost or expense.
(c) Owner shall be deemed to have conclusively and irrevocably approved
any and all payments, costs and expenses made or incurred by A or Agent in
accordance with this Agreement (except for any payments, costs and expenses made
or incurred resulting from willful misconduct or gross negligence on the part of
A or Agent as described in Section 6.2 as it relates to Owner's indemnification
obligations set forth in Section 6.2) unless, as to each Statement , written
objection is given, as to each payment, cost or expense objected to, within
thirty (30) days of Owner's receipt of such Statement, specifying either that
(i) Owner notified A or Agent of its disapproval of such payment, cost or
expense prior to its having been made or incurred by WCCI29 A or Agent and
setting forth the specific facts regarding such disapproval, or (ii) A or Agent
was acting with gross negligence or willful misconduct in making or incurring
such payment, cost or expense. If Owner and A or Agent are in disagreement as to
right to reimbursement of a particular payment, cost or expense, the provisions
of Section 8.2 shall apply.
(d) Notwithstanding anything herein to the contrary, neither A nor
Agent nor any of their affiliates shall have any obligation
3
<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
4
<PAGE>
6
A or Agent on behalf of Owner at A 's or Agent's sole discretion ("Specific
Services").
(b) All fees, costs and expenses for Specific Services made, rendered,
or incurred by A , Agent or any of their affiliates from time to time in
accordance with Section 3.3(a), including reasonable out-of-pocket expenses,
shall be separately billed and shall be paid or reimbursed by Owner within
thirty (30) days of receipt of the bill.
(c) The provisions of Section 3.1(d) shall apply to this Section.
Section 3.4 Advances/Interest.
A , Agent or any of their affiliates, may, in accordance with this
Agreement but in no event shall A or its Agent have any obligation to, advance
funds to or on behalf of Owner or make or incur costs or expenses on behalf of
Owner. Any such funds advanced to or on behalf of Owner, or any such costs or
expenses or incurred by A , Agent or any of their affiliates on behalf of Owner
(individually "Advance", collectively "Advances"), shall bear interest at the
Market Interest Rate, as defined hereafter, accruing from and after the date
advanced, made or incurred, as applicable, until paid or reimbursed in full. The
Market Interest Rate shall be the rate of ten percent (10%) per annum for U.S.
dollar denominated advances.
Section 3.5 Documentation.
A and Agent shall promptly supply to Owner on request all supporting
documentation with respect to any payments or reimbursements asserted to be due
from Owner hereunder.
ARTICLE 4
THE ENGAGEMENT
Section 4.1 Engagement of A and Agent.
Owner engages A and Agent, on an non-exclusive basis, to perform the
various Services described in Article 3 of the Systems for the term of this
Agreement. A and Agent each accepts the engagement and agrees to perform the
Services in accordance with this Agreement. The parties acknowledge that, for
the purposes of this Agreement, Agent is acting solely on behalf of and as the
agent for A in carrying out A 's obligations under the terms of this Agreement
and its liability in all respects shall be limited to that status and as
otherwise set forth in Article 6 herein.
Section 4.2 Term of Agreement.
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<PAGE>
7
(a) The term of this Agreement shall commence as of the date of this
Agreement and terminate on .
(b) The term of this Agreement shall be extended automatically for
successive periods of one calendar year unless a party notifies the others on or
before January 31 of any calendar year (after the year ) of its desire that the
term of this Agreement shall end on December 31 of the same calendar year, and,
in that event, this Agreement shall terminate on the December 31 of that
calendar year.
Section 4.3 Control and Compliance.
(a) It is the intention of the parties that the management and
operation of the System and the Business of the Owner be in compliance with the
pertinent rules, regulations and policies of Polish law. Nothing in this
Agreement shall serve, or shall be construed to serve, to prevent or hinder the
Owner from retaining and exercising full and complete control over the System
and the Business of the Owner, including but not limited to its assets, its
policies and practices, its personnel and the advertising and broadcast on the
System. In the event that the Polish government indicates to Owner, by formal or
informal means, that any term or provision of this Agreement is objectionable
under Polish law, the parties shall promptly make reasonable efforts to modify
this Agreement to the extent necessary to remove the objection of the Polish
government.
(b) No payments shall be made under this Agreement which require the
permission of the National Bank of Poland without the receipt of such
permission.
ARTICLE 5
AUTHORITY OF A AND AGENT
Section 5.1 Grant of Authority.
A (together with its Agent or any affiliates acting on its behalf
pursuant to this Agreement) is an independent contractor respect to the Agency
Services provided in Section 3.1.
ARTICLE 6
RELEASE/INDEMNIFICATION/LIABILITY
Section 6.1 Release.
Owner releases A , Agent, their affiliates, officers, directors,
stockholders, employees, partners, joint ventures, successors and assigns, from
any loss, liability or damage which may arise as a result of or in connection
with:
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<PAGE>
8
(a) any occurrence to the extent which such loss, liability or damage
is covered by fire insurance or any of the perils covered by extended coverage
or difference of condition endorsements; and/or
(b) act or omission of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners or joint
venturers,successors and assigns other than willful misconduct or gross
negligence in the conduct of its duties unless such action shall have been in
good faith reliance on the opinion of counsel.
Section 6.2 Indemnification and Liability.
(a) Owner hereby indemnifies and holds harmless A , Agent, their
successors and assigns, their affiliates, officers, directors, stockholders,
employees, partners or joint venturers (jointly and severally, "Indemnitee")
from and against all claims and liabilities, whether they proceed to judgment or
are settled, and from and against all out-of-pocket expenses incurred by the
Indemnitee which are payable to any unaffiliated third party in defense of such
claims and liabilities, including reasonable attorney's fees, to which the
Indemnitee may become subject by reason of providing the Agency Services,
General Services, or Specific Services in accordance with this Agreement,
including, without limitation: (1) the choice, manner or extent of any Services
provided; (2) the entering into contractual relationships of any sort, whether
in the name of Indemnitee or Owner, on behalf of the Owner; and (3) the filing
or failure to file reports, notices, certificates or accounting required by any
law, rule, regulation or agreement of any country, state or other governmental
authority; provided, however, that the Indemnitee shall not be indemnified or
reimbursed in relation to any matter with respect to which it shall be
determined in a final judgment by a court of competent jurisdiction that
Indemnitee's action constituted gross negligence or willful misconduct in the
conduct of its duties unless such action shall have been determined to be in
good faith reliance on the opinion of counsel.
(b) The rights accruing to the Indemnitee hereunder shall not exclude
any other right to which it may be or come to be lawfully entitled, nor shall
anything contained herein restrict the right of the Owner to reimburse any
Indemnitee, in any lawful cause, even though not specifically provided for
herein.
(c) A and Agent shall not be liable in any respect for any act or
omission on the part of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners, or joint venturers,
unless a final judgment is rendered by a court of competent jurisdiction that
such act or failure to act constitutes willful misconduct or gross negligence in
the conduct of A 's (or Agent's) duties hereunder unless such action
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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
8
<PAGE>
10
prosecutes the cure thereafter.
(b) A or Agent may terminate this Agreement for cause:
(i) If the Owner shall default in the performance of any
material covenant, agreement, term or provision of this Agreement (other than as
contemplated in clause (v) below) and the default shall continue for a period of
60 days after written notice to Owner from A or Agent stating the specific
default.
(ii) If the System shall be damaged by fire or other casualty
and if the Owner fails to commence repairing, restoring, rebuilding or replacing
the portion of the System damaged or destroyed within 60 days after the fire or
other casualty, or shall fail to complete the work within a reasonable period of
time; or
(iii) If the license of or franchise for of the System cannot
be obtained or renewed, or is at any time suspended, terminated, or revoked; or
(iv) If, in the sole discretion of A or its Agent, a material
adverse change occurs or exists at any time in the Business, the System, and/or
the financial condition of Owner; or
(v) If Owner shall fail to make any material payment due
hereunder to A or Agent within 30 days after receiving written notice from A or
Agent of such failure.
In the event this Agreement is terminated for cause under one or more
of the terms of this section, all fees and payments due to A or its Agent
pursuant to this Agreement will remain payable and will be paid by Owner in
full.
Section 8.2 Disputes.
Any dispute arising under this Agreement which Owner, on the one hand,
and A or Agent, on the other hand, cannot resolve within a reasonable time shall
be resolved by arbitration by a board of three arbitrators in the United States,
one to be designated by Owner, one to be designated by A or Agent, and the third
to be designated by the first two arbitrators. The board of arbitrators shall
adopt procedures for the arbitration and, for this purpose, may adopt some or
all of the rules and regulations of the American Arbitration Association. The
cost of any arbitration shall be borne as determined by the board of
arbitrators. The decision of the board shall be in writing and shall be final
and unappealable.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Notice.
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11
Notices given under this Agreement shall be valid only if in writing
and properly mailed. A notice shall be properly mailed only if delivered by
overnight courier, with signature required, or if mailed by certified or
registered mail, if postage is prepaid, and if the notice if properly addressed.
A notice to a party shall be properly addressed only if addressed to the address
of the party set forth under Section 1 or to any other address the party may
designate by giving notice to the other party.
Section 9.2 Interpretation.
Captions and headings used in this Agreement are for reference only and
shall not be considered in connection with the interpretation of any provision
of this Agreement.
A male or female person may be referred to in this Agreement by a
neuter pronoun. A provision of this Agreement which requires a party to perform
an action shall be construed so as to require the party to perform the action or
to cause the action to be performed. The word "include" and variations of the
word such as "includes" and "including" shall not be construed as to limit the
generality of the statements they follow or precede and the phrase "shall not be
limited to" shall be deemed to follow every reference to the word "include" and
its variations. The singular includes the plural, and the plural includes the
singular. "Any" means "any and all".
"Notices" includes notices, consents, "approvals" and other
communications. This Agreement may not be changed or cancelled orally. No person
shall be regarded as a third party beneficiary of this Agreement.
Section 9.3 Status Reports.
Recognizing that each party may find it necessary, from time to time,
to establish to third parties, such as accountants, banks, mortgagees,
shareholders or the like, the financial status of its interest in this
Agreement, Owner and A agree to furnish, as promptly as practicable upon written
request of the other party a written statement as to the status of any matter
pertaining to this Agreement and the rights and obligations created by this
Agreement.
Section 9.4 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. The submission of an
unexecuted copy of this Agreement shall not constitute an offer to be legally
bound by the provisions of the copy submitted; and no party shall be bound by
this Agreement until it is executed by all of the parties. This Agreement may be
executed in counterparts, and each counterpart constitutes an original document.
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12
Section 9.5 Governing Law.
This Agreement shall be governed and construed in accordance with the
laws of the State of Connecticut.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by duly authorized representatives.
[PTK Company]
By:
------------------------------
Its:
By:
------------------------------
Its:
A
By:
------------------------------
Its:
B
By:
------------------------------
Its:
11
<PAGE>
Exhibit 10.11
AMENDED STOCK OPTION AGREEMENT
BETWEEN
PRZEMYSLAW A. SZMYT
AND @ ENTERTAINMENT, INC.
This Amended Stock Option Agreement ("Option Agreement'),
dated March 31, 1998, is made effective as of June 22, 1997 (the "Effective
Date"), by and between Przemyslaw A. Szmyt ("Szmyt") and @ Entertainment, Inc.,
a Delaware corporation (the "Company"). This Option Agreement replaces and
supersedes the Stock Option Agreement by and between the Company and Szmyt, date
June 22, 1997.
1. Grant of Option and Option Period.
a. The Company hereby grants Szmyt 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 (i) the Option shall vest in full immediately on the
date of change in control of the Company (for purposes of this clause, the term
"change in control" shall have the same meaning, except with respect to the
Company rather than Poland Communications, Inc. ("PCI"), as that term has in the
Indenture dated as of October 31, 1996, between PCI and State Street Bank and
Trust Company as trustee with respect to those certain 9 7/8% Senior Notes of
the Company due 2003 and (ii) no portion of such option shall vest after the
date (the "Cut-Off Date") that is the earlier of (a) the date that the
Employment Agreement (as described in Section 16 of this Agreement) is
terminated , and (b) the date on which the Company sends Szmyt a notice referred
to in Section II of the Employment Agreement.
c. If Szmyt's employment with the Company is terminated for
any reason, Szmyt 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
Szmyt 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 Szmyt ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Szmyt's death, disability, voluntary termination or involuntary termination).
<PAGE>
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 Szmyt 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Szmyt's lifetime, the Option
can only be exercised by Szmyt. 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 Szmyt 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 Szmyt. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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
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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 Szmyt 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), Szmyt 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 Szmyt 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, Szmyt shall not sell, encumber,
pledge, transfer, hypothecate, assign or otherwise dispose of any of the Shares
until Szmyt 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 Szmyt offers to sell to the Company a specified
number of the Shares owned by Szmyt. 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 Szmyt.
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
Szmyt 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 Szmyt 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), Szmyt 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.
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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 22, 1997, BETWEEN PRZEMYSLAW A. SZMYT AND @
ENTERTAINMENT, INC., A COPY OF WHICH IS ON FILE IN THE OFFICE
OF THE SECRETARY OF @ ENTERTAINMENT, INC.
6. No Stock Rights.
Szmyt 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 Szmyt has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
8. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement, Szmyt,
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,
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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.
Szmyt 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 Szmyt
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 security (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 Szmyt 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 Szmyt may request.
Szmyt 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, 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 Szmyt shall reduce the amount of securities he intended to
distribute
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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 Szmyt 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 Szmyt, 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 Szmyt 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 Szmyt 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
Szmyt 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 Szmyt to consummate the disposition in such
jurisdiction of the securities covered by such Registration Statement.
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 Szmyt that Szmyt shall
furnish to the Company such information regarding the securities held by Szmyt
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.
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<PAGE>
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 jurisdictions 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 Szmyt; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Szmyt 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 Szmyt, against any losses, claims, damages or liabilities,
joint or several, to which Szmyt 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
Szmyt for any legal or any other expenses reasonably incurred by Szmyt 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 Szmyt or his stock furnished to the Company by Szmyt
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 Szmyt, and shall survive the transfer
of such securities by Szmyt.
(ii) Szmyt 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, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Szmyt or his stock in writing provided to
the Company
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<PAGE>
by Szmyt 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 Szmyt, 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, liabilities 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 include 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 Szmyt. In order to induce the
Company to accept this Option Agreement, Szmyt hereby represents and warrants to
the Company as follows:
a. Szmyt 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. Szmyt confirms that no representations or warranties have
been made to Szmyt regarding the Company and that Szmyt has not relied upon any
representation or warranty in making or confirming this Option Agreement.
c. Szmyt 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.
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d. Szmyt, either by himself or together with his purchaser
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. Szmyt is accepting the Option, and will be purchasing the
Shares, for investment purposes, for Szmyt's own account and not with a view to,
or for sale in connection with, the distribution thereof.
f. Szmyt 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. Szmyt 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. Szmyt 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. Szmyt confirms that he has been given an opportunity to
make any inquiries of the Company and its representatives that he desires to
make.
j. Szmyt is at least twenty-one (21) years of age.
k. Szmyt is aware of and understands the following:
(i) The business of the Company and the risks inherent in that
business;
(ii) That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the Option
or in the Shares or any recommendation or endorsement of the Option or of the
Shares;
(iii) That the Option and the Shares have not been registered
for sale under the Securities Act of 1933, as amended, or under any state "Blue
Sky Law"; and
(iv) That there are substantial restrictions on the
transferability of the Option and of the Shares; there is no public market, and
there will not necessarily be any public market, for the Option or the Shares in
the United States; Szmyt 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
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<PAGE>
accordingly, Szmyt may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
l. If in the future Szmyt 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. Szmyt understands and agrees that the Company has no
obligation to complete any public or private offering and sale of its Common
Stock to other investors, and that the Company shall have no liability to Szmyt
if it cannot complete any such offering and sale upon terms which, in the
Company's sole discretion, are favorable to the Company.
n. Szmyt 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. Szmyt agrees that the representations and warranties of
Szmyt 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, Szmyt, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Szmyt in furtherance thereof may execute a will directing Szmyt's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Szmyt'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
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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.
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: John Frelas
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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 Szmyt:
Przemyslaw A. Szmyt
Orzechowa #3
05830 Madarzyn
Poland
Facsimile: 48-22-729-8397
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 Szmyt and Poland Communications, Inc., which was
assigned to the Company as of June 22, 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.
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.
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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
By:
-----------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
Przemyslaw A. Szmyt
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Exhibit 10.12
ADDENDUM TO THE EMPLOYMENT AGREEMENT
BY AND BETWEEN
POLAND COMMUNICATIONS, INC. AND PRZEMYSLAW SZMYT
EFFECTIVE FEBRUARY 7, 1997
AND ASSUMED BY @ENTERTAINMENT, INC. AS OF JUNE 20, 1997
Pursuant to Section 1.C. of the employment agreement by and between
Poland Communications, Inc. and Przemyslaw Szmyt effective February 7, 1997
and assumed by @Entertainment, Inc. as of June 20, 1997, the Base Salary of
Mr. Szmyt shall be $180,000. This addendum shall be effective as of January
1, 1998.
- -----------------------
Robert E. Fowler III
Chief Executive Officer
@Entertainment, Inc.
- -----------------------
Przemyslaw Szmyt
<PAGE>
Exhibit 10.13
STOCK OPTION AGREEMENT
BETWEEN
PRZEMYSLAW A. SZMYT
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement') is made
effective as of January 26, 1998 (the "Effective Date"), by and between
Przemyslaw A. Szmyt ("Szmyt") and @ Entertainment, Inc., a Delaware corporation
(the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Szmyt an option (the "Option") to
purchase seventy-five thousand (75,000) 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 twelve dollars and
twenty-four cents (U.S. $12.24) per share.
b. The option to purchase twenty-five thousand (25,000) 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 (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Poland Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends Szmyt a notice referred to in Section II of
the Employment Agreement.
c. If Szmyt's employment with the Company is terminated for
any reason, Szmyt 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
Szmyt 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 Szmyt ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Szmyt's death, disability, voluntary termination or involuntary termination).
<PAGE>
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 Szmyt 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Szmyt's lifetime, the Option
can only be exercised by Szmyt. 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 Szmyt 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 Szmyt. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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
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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. No Stock Rights.
Szmyt 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 Szmyt has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement, Szmyt,
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. Szmyt 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 Szmyt 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 7.
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8. Registration Rights.
a. Registration Procedures. The Company will, as expeditiously
as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(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;
(iii) furnish to Szmyt such number of copies of a prospectus,
in conformity with the requirements of the Securities Act, and such other
documents, as Szmyt 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
Szmyt 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).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Szmyt that Szmyt shall
furnish to the Company such information regarding the securities held by Szmyt
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.
b. Expenses. All expenses incurred in complying with Section
8, 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 jurisdictions pursuant to this Section 8,
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 Szmyt; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Szmyt in connection with any registration.
c. Indemnification and Contribution.
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(i) In the event of any registration of any of the Shares
under the Securities Act pursuant to this Section 8, the Company shall indemnify
and hold harmless Szmyt, against any losses, claims, damages or liabilities,
joint or several, to which Szmyt 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
Szmyt for any legal or any other expenses reasonably incurred by Szmyt 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 Szmyt or his stock furnished to the Company by Szmyt
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 Szmyt, and shall survive the transfer
of such securities by Szmyt.
(ii) Szmyt 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, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Szmyt or his stock in writing provided to
the Company by Szmyt 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
Szmyt, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto.
(iii) If the indemnification provided for in this Section 8
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, liabilities
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<PAGE>
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 include 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 8(c) 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.
9. Representations and Warranties of Szmyt.
In order to induce the Company to accept this Option Agreement, Szmyt hereby
represents and warrants to the Company as follows:
a. If in the future Szmyt desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. Szmyt 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.
c. Szmyt agrees that the representations and warranties of
Szmyt set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. 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.
11. Benefit.
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<PAGE>
This Option Agreement shall be binding upon the Company, Szmyt, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Szmyt in furtherance thereof may execute a will directing Szmyt's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Szmyt'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.
12. Specific Performance.
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.
13. 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.
14. 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:
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If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U. S. A.
Facsimile: (860) 293-4297
Attention: John Frelas
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 Szmyt:
Przemyslaw A. Szmyt
Orzechowa #3
05830 Madarzyn
Poland
Facsimile: 48-22-729-8397
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.
15. Entire Agreement.
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.
16. Severability.
<PAGE>
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.
17. 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.
18. 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
By:
-----------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
Przemyslaw A. Szmyt
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Exhibit 10.15
AMENDED STOCK OPTION AGREEMENT
BETWEEN
DAVID WARNER
AND @ ENTERTAINMENT, INC.
This Amended Stock Option Agreement ("Option Agreement'), dated March 31,
1998, is made effective as of June 22, 1997 (the "Effective Date"), by and
between David Warner ("Warner") and @ Entertainment, Inc., a Delaware
corporation (the "Company"). This Option Agreement replaces and supersedes the
Stock Option Agreement by and between the Company and Warner, date June 22,
1997.
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 (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Poland Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends 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).
<PAGE>
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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). 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 in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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
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<PAGE>
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.
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.
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<PAGE>
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
22, 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.
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,
4
<PAGE>
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 security (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, 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
5
<PAGE>
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.
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.
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<PAGE>
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 jurisdictions 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, 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
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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, liabilities 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 include 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.
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.
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d. Warner, either by himself or together with his purchaser
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. 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 Shares or any recommendation or endorsement of the Option or of the
Shares;
(iii) That the Option and the Shares have not been registered for
sale under the Securities Act of 1933, as amended, or under any state "Blue Sky
Law"; and
(iv) That there are substantial restrictions on the
transferability of the Option and of the Shares; there is no public market, and
there will not necessarily be any public market, for the Option or the Shares in
the United States; 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
9
<PAGE>
accordingly, Warner may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
l. If in the future 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 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 this 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
10
<PAGE>
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.
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: Przemyslaw A. Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
11
<PAGE>
If to Warner:
David Warner
Millbank House
Cranbrook Road
Tenterden
Kent, England
TN30 6UN
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 22, 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.
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.
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<PAGE>
IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
By:
-------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
David Warner
13
<PAGE>
Exhibit 10.16
STOCK OPTION AGREEMENT
BETWEEN
DAVID WARNER
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement'), is made
effective as of January 26, 1998 (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 seventy-five thousand (75.00) 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 twelve dollars and
twenty-four cents (U.S. $12.24) per share.
b. The option to purchase twenty-five thousand (25,000) 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 (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Polish Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends 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.
<PAGE>
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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). 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 in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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.
2
<PAGE>
5. 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.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. 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 7.
3
<PAGE>
8. Registration Rights.
a. Registration Procedures. The Company will, as expeditiously
as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(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;
(iii) furnish to Warner such number of copies of a 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).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 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.
b. Expenses. All expenses incurred in complying with Section
8, 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 jurisdictions pursuant to this Section 8,
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.
c. Indemnification and Contribution.
4
<PAGE>
(i) In the event of any registration of any of the Shares
under the Securities Act pursuant to this Section 8, 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, 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 8
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities
5
<PAGE>
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, liabilities 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 include 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 8(c) 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.
9. 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. If in the future Warner desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. 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.
c. Warner agrees that the representations and warranties of
Warner set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. 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.
11. Benefit.
6
<PAGE>
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 this 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.
12. Specific Performance.
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.
13. 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.
14. 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
7
<PAGE>
Attention: Przemyslaw Szmyt
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
Millbank House
Cranbrook Road
Tenterden
Kent, England
TN30 6UN
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.
15. Entire Agreement. 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.
16. 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.
17. 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.
8
<PAGE>
18. 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
By:
----------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
David Warner
9
<PAGE>
Exhibit 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made
effective as of January 1, 1998, by and between David Keefe, of 35 Stevens Lane,
Cohasset, Massachusetts 02025 ("Employee"), and Poland Communications, Inc., a
New York corporation ("PCI" or the "Company").
WITNESSETH:
WHEREAS, Employee desires to serve as Chief Executive Officer
of the Company, and the Company desires to employ Employee as Chief Executive
Officer, and Employee and the Company desire to embody in this Agreement the
terms and conditions under which Employee shall be employed;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Employee and the
Company, intending to be legally bound hereby, AGREE AS FOLLOWS:
1. DEFINITIONS
For the purposes of this agreement, the following definitions
shall apply:
a. "Affiliate" of the Company shall mean any other Person
controlling, controlled by, or under common control with the Company.
b. "Associated Company" of the Company shall mean any
Affiliate of the Company or any Subsidiary.
c. "Business" means: (i) providing cable television services
anywhere in Poland; (ii) providing television programming in any city in Poland
where the Company or any Associated Company provides such programming; (iii)
providing local-loop telephony in any city in Poland where the Company or any
Associated Company provides such telephony; and (iv) providing direct to home
service anywhere in Poland.
d. The "Company" shall mean Poland Communications, Inc., a New
York corporation.
e. "Dollars" and "$" each mean the lawful currency of the
United States of America.
f. "Effective Date" shall mean the date first above written.
g. "Employee" shall mean David Keefe.
<PAGE>
h. "Person" shall mean a natural person, a juridical person of
any kind, a general or limited partnership, a corporation, a limited liability
company or partnership, 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.
i. "Subsidiary" shall mean each Person, in which the Company,
at the time as of which such determination is being made, owns, directly or
indirectly, any of the outstanding voting securities.
j. "@Entertainment" shall mean @Entertainment, Inc., a
Delaware corporation, which is the parent company of Poland Communications, Inc.
2. EMPLOYMENT, DUTIES AND RESPONSIBILITIES
a. Performance of Job Duties. Employee shall be the Chief
Executive Officer of the Company, and shall perform the services and duties
customary for that position, all subject to the general supervision of the Board
of Directors of the Company. Employee shall also perform such services and
duties with respect to Associated Companies as may be assigned to him by the
Company's Board of Directors, so long as such services and duties are consistent
with his position as a senior executive officer of the Company. Among other
things, Employee shall have general supervision over all of the operations of
the Company and its Subsidiaries operating in Poland, and the General Managers
of such Subsidiaries shall report to Employee. Employee shall devote all of his
skill, time, attention, and best efforts to furthering the Company's businesses,
affairs, interests and welfare.
b. Appointment to Management Board or Supervisory Board. The
parties contemplate that Employee will be appointed to the Management Board or
Supervisory Board of one or more Associated Companies operating in Poland. The
compensation arrangements in connection with such appointment(s) shall be the
subject of a separate agreement between Employee and each such Associated
Company.
c. Compliance with Laws. Employee agrees to comply with all
federal, state, local, and foreign laws, and to comply with all of the Company's
and @Entertainment's rules, regulations, and policies in force during his
employment, as well as with all the rules, regulations and policies prescribed
for all Associated Companies for whom or with respect to the business of which
he performs services during the term of this Agreement.
d. Location. Employee's office and principal place of
employment shall be in Warsaw, Poland, but Employee's personal residence shall
be in Budapest, and he shall travel to the United States, the United Kingdom,
the Netherlands or such other location(s) as necessary to fulfill his duties as
described in Section 2(a). Employee's status in the Company, while based outside
the United States, will be that of a U.S. employee assigned to a non-U.S. post.
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3. TERM OF AGREEMENT
This Agreement shall go into effect as of the Effective Date,
and shall continue until the second anniversary of the Effective Date unless
terminated earlier as provided in Section 8.
4. COMPENSATION
As compensation and consideration for the performance by
Employee of his obligations under this Agreement, Employee shall be entitled to
the following:
a. Base Salary. During the term of this Agreement, the Company
shall pay to Employee a base annual salary (the "Base Salary") totaling Eighteen
Thousand Three Hundred Thirty-Four Dollars (U.S. $18,334) per month, less any
compensation paid to Employee pursuant to any separate agreement entered into as
contemplated by Section 2(b) above. This Base Salary may be increased by the
Company in its sole discretion. The Base Salary shall be paid in installments
payable every second week.
b. Payment of Bonuses During First Year. The Company shall pay
Employee a signing bonus of Two Hundred Thousand Dollars (U.S.$200,000) upon the
execution of this Agreement by both parties. In addition, Employee shall be paid
a guaranteed bonus of One Hundred Thousand Dollars (U.S.$100,000) within thirty
(30) days of the first anniversary of the Effective Date.
c. Eligibility for Subsequent Bonus. Employee shall be
eligible for a discretionary performance bonus of up to One Hundred Ten Thousand
Dollars (U.S. $110,000) reflecting the value of his services during the second
year of his employment hereunder. The performance criteria (which shall relate
to, among other things, cashflow and subscriber count), amounts, if any, and
payment dates for such bonus shall be determined by the Board of Directors of
the Company in its sole discretion.
d. Adjustments to Reflect Foreign Taxes. If Employee (i)
becomes liable for employment-related taxes and/or social contributions arising
out of employment compensation hereunder in Poland or any other country in
addition to the United States, and (ii) should his combined income taxes,
employment related taxes and/or social contributions arising out of employment
compensation legally owed to the United States, Poland or any other country
exceed the amount of such taxes and social contributions which would have been
due if he had served exclusively in the United States, then the Company will
hold Employee harmless for any such tax and/or social contribution payments made
in excess of the amount of such taxes and social contributions which would have
been due if he had served exclusively in the United States. Employee shall
cooperate fully with the Company, within the bounds of applicable laws, in an
attempt to minimize the burden placed on the Company by this Section 4(d).
e. Allowances. During the term of this Agreement, Company shall provide
Employee with Five Thousand Dollars (U.S.$5,000) per month which is to serve as
an allowance for additional
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housing and cost of living expenses in Warsaw. The Company shall be responsible
for applicable income taxes, if any, levied on such amount.
f. Expenses. The Company shall reimburse Employee for
reasonable out-of-pocket expenses (excluding housing and cost of living
expenses, but including reasonable expenses of Employee commuting between
Budapest and Warsaw) incurred by Employee in connection with the business of the
Company and in performance of his duties under this Agreement, upon his
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the policies of the Company and
@ Entertainment relating to business-related expenses as in effect from time to
time.
g. Additional Employee Benefits and Perquisites. In addition
to the foregoing, Employee shall receive the following benefits and perquisites:
(1) Benefits. During the term of this Agreement, Employee
shall be eligible to participate in such benefit programs as are made
available from time to time to senior executives of the Company. If
Employee chooses, in lieu of the Company's health insurance program, to
continue utilizing the health insurance program of his former employer,
the Company shall reimburse him for the premiums on such package, up to
a maximum amount of One Thousand Dollars (U.S. $1,000) per calendar
month.
(2) Vacation. Employee shall be entitled to twenty (20) days
of paid vacation during each calendar year. Employee shall also be
entitled to all paid holidays given by the Company to its executives.
(3) Moving Expenses. If Employee and the Company agree that
Employee should move his personal residence to Warsaw, the Company shall
reimburse Employee for the reasonable expenses of moving Employee, his immediate
family and their personal belongings, up to a maximum of Twenty Thousand Dollars
(U.S. $20,000).
(4) Tuition. The Company shall reimburse Employee for the high
school tuition in Budapest or Warsaw for his daughter, up to a maximum amount of
$15,000 per calendar year.
(5) Automobile. The Company shall provide Employee with a Ford
Scorpio or substantial equivalent, plus a driver, for his use while in Warsaw.
(6) Tax Assistance. The Company shall reimburse Employee for
tax planning and preparation services provided to him by a Big Five accounting
firm, up to a maximum amount of Eight Thousand Dollars (U.S. $8,000) per
calendar year.
(7) Repatriation upon Termination. If Employee is terminated
by the Company pursuant to Section 8 hereof, the Company shall reimburse
Employee for the reasonable costs of moving Employee, his immediate family and
their personal belongings to
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the northeastern United States, up to a maximum amount of Twenty Thousand
Dollars (U.S. $20,000).
h. Deduction and Withholding; Place of Payment. All
compensation and other benefits to or on behalf of Employee pursuant to this
Agreement shall be subject to such deductions and withholding as may be agreed
to by Employee or required by applicable law. All cash compensation payable to
Employee hereunder shall be paid at such bank or other place within or without
the United States and/or Poland, as Employee may direct, subject to applicable
laws.
i. Stock Options. The Company shall cause @ Entertainment to
grant to Employee a non-transferable option to purchase Two Hundred Fifty
Thousand (250,000) shares of @Entertainment's common stock, $0.01 par value per
share, upon the terms and conditions of a stock option agreement in the form of
Exhibit A, at a price of Twelve Dollars (U.S. $12.00) per share.
5. CONFIDENTIALITY
a. Confidentiality. Employee acknowledges that during the
course of his employment with the Company he will, from time to time, be
invested with confidential information (including without limitation) trade
secrets relating to, inter alia, the business practices, technology, products,
business plans, marketing, financial information and plans, and research
activities of the Company, Associated Companies, and customers and suppliers of
the foregoing. Employee hereby agrees to keep all such information confidential,
regardless whether documents containing such information are marked as
confidential, if he has been told, or should reasonably know or expect, that
such information is confidential. Employee also agrees that he will not, except
as required in the conduct of Company business, or as authorized in writing by
the Company, publish, disclose or make use of any such information or knowledge
unless and until such information or knowledge shall have ceased to be secret or
confidential without his fault.
b. Exclusive Property. Employee confirms that all confidential
information is the exclusive property of the Company. All business records,
papers and other documents kept or made by Employee relating to the business of
the Company or an Associated Company shall be and remain the property of the
Company or the Associated Company. Upon the termination of his employment with
the Company or upon the request of the Company at any time, Employee shall
promptly deliver to the Company, and shall retain no copies of, any written
materials, records and documents made by Employee or coming into his possession
concerning the business or affairs of the Company or an Associated Company other
than personal notes or correspondence of Employee not containing proprietary
information relating to such business or affairs.
c. Inventions, Rights to Improvements. Employee hereby sells,
transfers and assigns to the Company any right, title and interest in any and
all inventions, improvements, discoveries, and ideas (whether or not patentable
or copyrightable) (collectively the "Inventions") which Employee may make or
conceive while acting in his capacity as an employee of the Company during the
term
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of this Agreement, and which relate to or are applicable to any phase of the
Company's and the Associated Companies' businesses. Employee hereby agrees to
communicate promptly and disclose to the Company all information, details and
data pertaining to the aforementioned Inventions and to execute any documents
and do any act reasonably necessary to perform Employee's duties under this
Section 5(c). Employee also affirms that if any such Inventions shall be deemed
confidential by the Company, he will not disclose any such Inventions without
prior written authorization from a majority of the members of the Company's
Board of Directors.
d. Survival of Section. The provisions of this Section 5 shall
survive the termination of this Agreement for any reason whatsoever.
6. EXCLUSIVITY / NON-COMPETITION
a. Exclusivity/No Competing Employment. For the term of this
Agreement and a period of one (1) year following the date Employee is no longer
employed by the Company or any Associated Company (the "Restricted Period"),
Employee shall not directly or indirectly compete with the Company or any
Associated Company, and he shall not directly or indirectly own an interest in,
manage, operate, join, control, perform services for, lend money to, render
financial or other assistance to, participate in, or be connected with, as an
officer, employee, partner, stockholder, consultant or otherwise, any
individual, partnership, firm, corporation or other business organization or
entity that at such time is engaged in the Business.
b. No Interference. During the Restricted Period, Employee
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization or
entity, intentionally solicit, endeavor to entice away from the Company or an
Associated Company, or otherwise interfere with the relationship of the Company
or an Associated Company with any person who is employed by the Company or an
Associated Company, or any person or entity who is, or was within the
twelve-month period immediately preceding, a customer, supplier or client of the
Company or an Associated Company.
c. Stock Ownership. Nothing in this Agreement shall prohibit
Employee from acquiring or holding any securities of any company listed on a
national securities exchange or quoted on the automated quotation system of the
National Association of Securities Dealers, Inc., provided that at any time
during the Restricted Period Employee and members of his immediate family do not
own more than five percent (5 %) of any voting securities of any company engaged
in the Business.
d. Scope. The prohibitions in Sections 6(a) and 6(b) shall
apply to Poland and any other place where the Company or any Subsidiary is doing
Business on the first day of the Restricted Period. Said prohibitions shall also
apply with respect to any Person (or any subsidiary thereof) located within or
without the United States that is doing Business, directly or indirectly, in
Poland
e. Survival of Section. The provisions of this Section 6 shall
survive the termination of this Agreement for any reason whatsoever.
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7. REMEDIES
a. Arbitration. The Parties agree, expressly renouncing any
other forum for the resolution of disputes, that except as provided in Section
7(b), any disputes arising out of, relating to, or arising in connection with
this Agreement or arising out of, relating to, or arising in connection with
Employee's employment, shall be finally settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(except insofar as those rules are modified by the terms of this Section 7). The
arbitration will be held in Hartford, Connecticut, USA; and it shall be held as
promptly as possible at such time as the arbitration tribunal may determine. The
arbitration will be held in the English language. The arbitrator(s) shall state
the reasons upon which the award is based. Judgment upon the arbitration award
may be entered in any court of competent jurisdiction (including without
limitation the courts of the United States, any country where the Company or any
Associated Company is engaged in business, and the respective political
subdivisions of each of the foregoing), or application may be made to any such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. If any Party employs an attorney or commences legal or arbitral
proceedings to enforce the provisions of this Agreement, the prevailing Party
shall be entitled (unless the relevant tribunal decides otherwise) to recover
from the other, reasonable costs incurred in connection with such enforcement,
including but not limited to, attorney's fees and costs of investigation and
litigation/arbitration. Except as otherwise specifically provided in this
Section 7, no Party shall institute any action or proceeding against any other
Party in any court with respect to any dispute which is or could be the subject
of a claim or proceeding pursuant to this Section 7.
b. Equitable Remedies. Employee hereby acknowledges that
breaches of Sections 5 or 6 of this Agreement may result in material irreparable
injury to the Company for which there is no adequate remedy at law, that it will
not be possible to measure damages for such breaches, and that in the event of
such a breach or threat thereof the Company shall be entitled (notwithstanding
the provisions of Section 7(a)) to seek and obtain a temporary restraining
order, a preliminary injunction, a permanent injunction or other equitable
relief restraining Employee from engaging in activities prohibited by this
Agreement. Employee further acknowledges that in the event of such a breach or
threat thereof the Company shall be entitled to obtain such other or further
relief as may be required to specifically enforce any of the covenants of this
Agreement. Employee hereby agrees and consents that such injunctive or other
relief may be sought in any court of competent jurisdiction, including, without
limitation, any court in the nation, state and/or political subdivision thereof
in which such violation may occur, at the election of the Company. Employee
agrees to and hereby does submit to in personam jurisdiction before each and
every such court for that purpose.
c. Suspension of Payments. Should an alleged breach by
Employee of Sections 5 or 6 of this Agreement occur, the Company shall not be
entitled to suspend any payments otherwise due to Employee during litigation of
any action it may bring against Employee for injunctive and/or monetary relief.
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d. Remedies not Exclusive. The remedies of this Section shall
be cumulative and not exclusive, and shall be in addition to any other remedy
which the Company may have.
e. Survival of Remedies. This Section 7 shall survive the
termination of this Agreement for any reason whatsoever.
8. TERMINATION OF EMPLOYMENT
This Agreement and Employee's employment hereunder may be
terminated without any breach of this Agreement under the following conditions:
a. Termination by Employee. Employee may terminate this
Agreement, with or without cause, by sending written notice thereof at least
three (3) months in advance of the date of his proposed termination.
b. Termination by the Company for Cause. The Company may
terminate the Agreement and Employee's employment for Cause prior to the
expiration of this Agreement as provided in this Section 8(b). If the Cause is
susceptible of remedy by Employee, then the Company shall first deliver to
Employee written notice of such Cause; and if Employee has not remedied the
Cause within thirty (30) days after receipt of that notice, the Company may
terminate this agreement forthwith thereafter by written notice effective
immediately. If the Cause is not susceptible of remedy by Employee, then the
Company may terminate this agreement forthwith by written notice effective
immediately. For purposes of this Section 8(b) "Cause" shall mean (1) dishonesty
or fraud resulting in damage to the business of the Company or any of its
Associated Companies; (2) embezzlement or theft of assets of the Company or any
of its Associated Companies; (3) competing with the Company or aiding a
competitor of the Company or any of its Associated Companies to the detriment of
the Company or any of its Associated Companies; (4) a substantial breach of this
Agreement; (5) conduct of an illegal or criminal nature under the laws of the
United States, the United Kingdom, Poland, or any political subdivision thereof
(except for minor traffic offenses and other minor offenses which do not
indicate moral turpitude), or (6) a substantial violation of any applicable
polices and procedures set forth in any policy manual as may be adopted by the
Board of Directors of the Company or of @ Entertainment.
c. Termination by the Company without Cause. Notwithstanding
the provisions of Section 8(b) above, the Company may terminate this Agreement
and Employee's employment upon one (1) month's written notice without cause. In
the event that this Agreement is terminated pursuant to this section 8(c),
Employee shall be entitled to an additional two five (5) months' of Base Salary
after the effective date of termination.
d. Later Employment With Successor in Interest of Company.
Employee shall not be deemed to have been terminated under this Agreement if he
is offered employment on substantially the same or better terms by any
Associated Company; by any successor in interest or assign of the Company; or by
any purchaser of substantially all of the Company's assets.
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e. Death. Notwithstanding anything to the contrary herein
contained, Employee's employment and this Agreement shall terminate upon his
death or his inability due to disability to perform the essential functions of
his position for a continuous period of ninety (90) days.
f. Delivery of Material. Employee agrees that upon the
termination of this Agreement he will deliver to the Company all documents,
papers, materials and other property of the Company relating to its affairs
which may then be in his possession or under his control.
g. Accrual. If the Company or Employee terminates this
Agreement, Employee shall not be entitled to any compensation or benefits after
the effective date of his termination except as provided in section 8(c).
9. NOTICES
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested, addressed as follows:
If to the Company:
@ Entertainment, Inc.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7204
Attention: Przemyslaw Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Employee:
David Keefe
35 Stevens Lane
Cohasset, Massachusetts 02025
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U. S. A.
b. Notice given in accordance with this Section 9 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
10. MISCELLANEOUS
a. Agreement is Non-Assignable. This Agreement is a personal
service contract and shall not be assignable by Employee or by the Company,
except that the Company may assign this Agreement to an Associated Company or
any Person that succeeds to the Company's rights and liabilities by merger, sale
of assets as a going concern, or consolidation with the Company.
b. Binding Effect. All rights and obligations and agreements
of the parties under this Agreement shall be binding upon and enforceable
against, and inure to the benefit of the parties and their personal
representatives, heirs, legatees and devises, and any Person succeeding by
operation of law to their rights under this Agreement, except that such personal
representatives, heirs, legatees, devises and other persons shall have no
obligation to perform Employee's duties described in Section 2 hereof.
c. Further Assurances. Employee and the Company, as the case
may be, shall execute and deliver such further instruments and do such further
acts and things as may be required to carry out the terms or conditions of this
Agreement or as may be consistent with the intent and purpose of this Agreement.
d. Rights of Third Parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person other than the
parties hereto any rights or remedies under or by reason of this Agreement
(except that any option which has vested in Employee as of the date of his
death, as well as any accrued but unpaid compensation as of the date of his
death, shall pass to his estate on death, subject to the limitations on exercise
of the option contained in Exhibit A).
e. Effect of Waiver. A waiver of, or failure to exercise, any
rights provided for in this Agreement, in any respect, shall not be deemed a
waiver of any further or future rights hereunder. Except for rights which must
be exercised within a specified time period under this Agreement or Exhibit A,
no rights herein shall be considered as waived, whether intentionally or not,
unless waived in a writing signed by the party to be charged with the waiver.
f. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and performed in that jurisdiction, without regard to the
principles of conflicts of laws.
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g. Amendments. This Agreement may not be changed or amended
orally, but only by an agreement in writing signed by all parties hereto.
h. Counterparts This Agreement may be executed in several
counterparts, each of which shall be an original, and such counterparts shall
together constitute but one and the same instrument.
i. Severability. If a court of competent jurisdiction declares
that any term or provision of this Agreement is invalid or unenforceable, then:
(1) the remaining terms and provisions hereof shall be
unimpaired, and
(2) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
j. No Conflicts. Employee represents and warrants that he is
not prevented by any other employment agreement, arrangement, contract,
understanding, court order or otherwise, which in any way directly or indirectly
conflicts, is inconsistent with, or restricts or prohibits him from fully
performing the duties of the Employment, in accordance with the terms and
conditions of this Agreement.
k. Entire Agreement. This Agreement supersedes all prior
agreements, oral or written, between the parties hereto with respect to the
employment of Employee by the Company. This Agreement contains the entire
agreement of the parties with respect to the employment of Employee by the
Company, and the parties shall not be bound by any terms, conditions,
statements, covenants, representations or warranties, oral or written, not
herein contained.
1. Employee Acknowledgment. EMPLOYEE REPRESENTS THAT HE HAS
HAD AMPLE OPPORTUNITY TO REVIEW THIS AGREEMENT AND EMPLOYEE ACKNOWLEDGES THAT HE
UNDERSTANDS THAT IT CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT AND THAT IT
EXPLAINS POSSIBLE CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF EMPLOYEE BREACHES
THE AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Executive
Employment Agreement effective as of the date first above written.
Poland Communications, Inc., a
New York corporation
/s/David Keefe By: /s/Robert E. Fowler, III
- ------------------------- ------------------------------
David Keefe Robert E. Fowler, III
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David Keefe Robert E. Fowler, III
Its: Chairman of the Board
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Exhibit 10.18
STOCK OPTION AGREEMENT BETWEEN
DAVID KEEFE
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made effective as
of January 1, 1998 (the "Effective Date"), by and between David Keefe ("Keefe")
and @ Entertainment, Inc., a Delaware corporation (the "Company"), pursuant to
the @Entertainment, Inc. 1997 Stock Option Plan, as amended (the "Plan").
1. Grant of Option and Option Period.
a. The Company hereby grants Keefe an option (the "Option") to
purchase Two Hundred Fifty Thousand shares (250,000) (the "Shares") of the
Company's common stock ("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 Twelve Dollars
(U.S. $12.00) per share.
b. The option to purchase Thirty-one Thousand Two Hundred
Fifty (31,250) of these Shares will vest at the end of each fiscal quarter on
March 31, June 30, September 30 and December 31 of 1998 and 1999, provided,
however, that (i) the Option shall vest in full immediately (A) on the date of
change in control of Poland Communications, Inc. ("PCI") (for purposes of this
clause, the term "change in control" shall have the same meaning as that term
has in the Indenture dated as of October 31, 1996, between PCI and State Street
Bank and Trust Company as trustee with respect to those certain 9 7/8% Senior
Notes of the Company due 2003 (the "Indenture")) or (B) on the date of change in
control of the Company (for purposes of this clause, the term "change of
control" shall be determined in the same manner as in clause (A) above), and
(ii) no portion of the Option shall vest after the date (the "Cut-Off Date")
that Keefe's employment with the Company, or any of its affiliates, is
terminated for any reason whatsoever. For the purposes of this Agreement, the
term "affiliate of the Company" shall mean any entity that controls, is
controlled by or is under common control with the Company.
c. If Keefe's employment with the Company, or any of its
affiliates, is terminated for any reason, Keefe 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 Keefe 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 Keefe ceases to be an
employee of the Company, or any of its affiliates, for any reason
whatsoever (including but not limited to Keefe's death, disability, voluntary
termination or involuntary termination).
<PAGE>
e. Each exercise of the Option shall reduce, by an equal
number, the total number of shares of @Entertainment Common Stock that may
thereafter be purchased by Keefe 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner (other than by
will or by the laws of descent and distribution during the option period
described in Section 1, or in a manner as may be established from time to time
by the Company's Stock Option Committee pursuant to the Plan ). This Option is
not assignable by operation of law or subject to execution, attachment or
similar process. During Keefe's lifetime, the Option can only be exercised by
Keefe. Any attempted sale, pledge, assignment, hypothecation or other transfer
of the Option or any interest therein contrary to the provisions hereof, or the
levy of any execution, attachment or similar process upon the Option or any
interest therein shall be null and void and without force or effect. No transfer
of the Option by will or by the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished
written notice thereof executed by the personal representative of the estate of
Keefe which shall be accompanied by an authenticated copy 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 Keefe.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the
Company due to stock dividends, recapitalizations, reorganizations, mergers,
consolidations, split-ups, 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
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shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of the Shares.
5. No Stock Rights.
Keefe 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 Keefe has exercised the Option with respect to such
Shares in accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, the number of shares of Common
Stock that is sufficient for the purpose of enabling it to satisfy any
obligation to issue the shares of Common Stock upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-up Agreement
a. During the term of this Option Agreement, Keefe 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. Keefe 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 Keefe 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 7.
8. Representations and Warranties of Keefe. In order to induce the
Company to accept this Option Agreement, Keefe hereby represents and warrants to
the Company as follows:
3
<PAGE>
a. If in the future Keefe desires to offer or dispose of the
Option or any the Shares or any interest therein, he will do so only in
compliance with applicable securities laws and this Option Agreement.
b. Keefe 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.
c. Keefe agrees that the representations and warranties of
Keefe set forth in this Section 8 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
9. Governing Law.
This Option Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware without regard to the principles
of conflicts of laws or choice of law.
10. Benefit.
This Option Agreement shall be binding upon the Company, Keefe, their
heirs, executors, administrators, legal representatives, successors, and
permitted assigns, and Keefe in furtherance thereof may execute a will directing
Keefe's executor to perform this Option Agreement and to execute all documents
necessary to effectuate the purposes of this Option Agreement, but the failure
to execute such a will shall not affect the rights of the Company or the
obligations of Keefe's estate as provided in this Option Agreement. Nothing in
this Option Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto, any rights or remedies under or by reason
of this Option Agreement.
11. Specific Performance.
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.
12. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of this Option Agreement shall not be deemed a waiver of
such terms, covenants or conditions, nor shall any waiver or relinquishment of
any right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
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<PAGE>
13. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7204
Attention: Przemyslaw Szmyt
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 Keefe:
David Keefe
35 Stevens Lane
Cohasset, Massachusetts 02025
U. S. A.
b. Notice given in accordance with this Section 13 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
14. Entire Agreement.
This Option Agreement 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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<PAGE>
15. 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.
16. Headings.
The headings to the sections of this Option Agreement are used for
reference only and are not to be construed as limiting or extending the
provisions hereof.
17. Counterparts.
This Option Agreement may be executed in any number of counterparts,
each of which shall be considered an original but all of which shall constitute
the Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
By: ____________________________
Robert E. Fowler, III
Its: Chairman of the Board
--------------------------------
David Keefe
6
<PAGE>
Exhibit 10.19
Poland Communications, Inc.
One Commercial Plaza
Hartford, Connecticut
06103-3585 U.S.A.
STRICTLY PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF JANUARY 1, 1998
Ms. Dorothy E. Hansberry
77 Glen Road
Wellesly MA 02181
USA
This contract sets forth the understanding between you and Poland
Communications, Inc. (hereinafter, together with its 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 two (2) year period
commencing January 1, 1998. During that period you may be expected
to enter into additional employment agreements with one or more of the
Company's affiliates.
B. You shall hold the position of General Counsel and Vice President.
C. Your base gross remuneration shall amount to 150,000 U.S. Dollars (one
hundred and fifty thousand) annually (hereinafter referred to as the "Base
Salary"), paid either directly by Poland Communications Inc. and/or one or
more of its affiliates. The Base Salary shall be paid in 12 equal monthly
installments on the last working day of each calendar month.
If part of your Base Salary is paid in Polish Zloty, that part shall be
calculated in accordance with the average rate of exchange of U.S. Dollars
announced by the National Bank of Poland in the daily Rzeczsospolite 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.
<PAGE>
D. In addition to your salary, you shall be eligible to receive an annual
bonus of up to 40,000 US Dollars (forty thousand) ("Bonus"). The Bonus
for 1998 shall be guaranteed. The criteria to receive each next 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 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
participation in a stock option plan for the Company's executives
and/or employees.
F. You will be provided with an automobile for your business and personal
use. The Company will provide you with a Toyota Carina E 2.0 (with A/C)
or similar vehicle.
G. You shall receive a "Golden Card ABC Medicover" medical coverage for
you, your spouse and children.
II. TERM AND TERMINATION OF EMPLOYMENT
A. The term of this contract shall be for two (2) years commencing as of
January 1, 1998. However, and except as set forth in Section II (B)
below, the Company or you 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 under this contract, in the event that:
(i) you are convicted for activity of a criminal nature under the
applicable laws; and/or
(ii) 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 provided
in writing at the time you commence employment with the Company; and/or
<PAGE>
(iii) you have violated the Conflict of Interest policy of the Company as
referenced in Section V of this contract.
Subsections (i) through (iii) above shall be considered "termination
for cause". Prior to instituting "termination for cause" proceedings,
the Company shall:
(1) Notify you in writing of its intention to institute termination for
cause proceedings (the "Notification"). The Notification shall include
the reason(s) for the Company's intention to initiate the termination
for cause proceedings:
(2) Provide you with adequate time, which shall be at least seven days to
respond in writing to the Notification: and
(3) Ensure that the responsible official of the parent company (a) reviews
the Notification and your response, and (b) issues his or her written
decision to you on the matter.
The Company agrees and acknowledges that if you are terminated for cause
pursuant to Section II (B) of this Contract, you shall be entitled to seek
appropriate equitable relief.
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
<PAGE>
(2) is the subject of reasonable efforts by the Company to maintain its
confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two
(2) years after your termination/separation from the Company, you will
hold in a fiduciary capacity for the benefit of the Company, and shall not
directly or indirectly use or disclose, any Confidential or Proprietary
information, as defined hereinafter, that you may have acquired (whether
or not developed or compiled by you and whether or not you were authorized
to have access to such information) during the term of, in the course of
or as a result of your employment by the Company. The term "Confidential
or Proprietary Information" as used in this contract means any secret,
confidential or proprietary information of the Company not otherwise
included in the definition of "TRADE SECRET" above. The term
"Confidential and Proprietary Information" does not include information
that has become generally available to the public by the act of one who
has the right to disclose such information without violating any right of
the client to which such information pertains.
C. You agree that for a period of twelve (12) months after termination/
separation of your employment you will not hire or attempt to hire for
any purpose whatsoever (whether as an employee, consultant, adviser,
independent contractor or otherwise) any employee of the Company or any
affiliate thereof or any person who was an employee of the Company or
any affiliate thereof at any time during the one year period prior
to the termination of your employment.
D. You agree that for a period of twelve (12) months after termination/
separation of your employment you will not, directly or indirectly, for
any purpose whatsoever (whether as employee, consultant, advisor,
independent contractor or otherwise) engage in or solicit the same or
substantially similar business conducted by the Company i.e.
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, the Company shall be entitled to seek an
appropriate equitable relief.
<PAGE>
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.
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 the State of New York.
You and the Company agree to submit to the exclusive
<PAGE>
jurisdiction of the courts of the State of New York 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.
D. The Company agrees that you will continue to hold the position of
President of Hansberry Consultants Inc. ("HCI"), a company incorporated
pursuant to the laws of the State of Georgia. From time to time, you, as
president of HCI may provide antitrust consulting services to companies
that are not competitors, suppliers or customers of the Company and/or any
other company in which @ Entertainment Inc. holds, directly or indirectly,
not less than five per cent (5%) of shares. You agree to consult with the
Company prior to agreeing to provide each such antitrust consulting
service in order to ensure that: (i) each such consulting service will not
constitute a conflict of interest, and (ii) each such consulting service
will not materially interfere with your duties as General Counsel and Vice
President of the Company.
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: 3/12/97
I, Dorothy E. Hansberry, acknowledge that I have received this contract and I
agree to the terms and information contained herein.
By: /s/ Dorothy E. Hansberry
----------------------------------
Date: January 31, 1997
<PAGE>
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
mployee 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: Dorothy E. Hansberry Date: January 31, 1997
-------------------- --------------------
<PAGE>
Exhibit 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made effective
as of June 8, 1998 by and between Donald Miller-Jones, of 91 St. Georges Square
Mews, Aylesford Street, London SW1V 3RZ, United Kingdom ("Employee"), and
@Entertainment, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, Employee desires to serve as Chief Financial Officer of the
Company, and the Company desires to employ Employee as Chief Financial Officer,
and Employee and the Company desire to embody in this Agreement the terms and
conditions under which Employee shall be employed;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee and the Company,
intending to be and being legally bound hereby, AGREE AS FOLLOWS:
1. DEFINITIONS
For the purposes of this agreement, the following definitions shall
apply:
a. "Affiliate" of the Company shall mean any other Person controlling,
controlled by, or under common control with the Company.
b. "Associated Company" of the Company shall mean any Affiliate of the
Company or any Subsidiary.
c. "Business" means: (i) providing cable television services anywhere
in Poland; (ii) providing television programming in any city in Poland where the
Company or any Associated Company provides such programming; (iii) providing
local-loop telephony in any city in Poland where the Company or any Associated
Company provides such telephony; and (iv) providing direct to home television
services anywhere in Poland.
d. "Company" shall mean @Entertainment, Inc., a Delaware corporation.
e. "Dollars" and "$" each mean the lawful currency of the United States
of America.
f. "Effective Date" shall mean the date first above written.
g. "Employee" shall mean Donald Miller-Jones.
<PAGE>
h. "Person" shall mean a natural person, a juridical person of any
kind, a general or limited partnership, a corporation, a limited liability
company or partnership, 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.
i. "Pounds" and "(pound)" shall mean the lawful currency of the United
Kingdom.
j. "Subsidiary" shall mean each Person, in which the Company, at the
time as of which such determination is being made, owns, directly or indirectly,
any of the outstanding voting securities.
2. EMPLOYMENT, DUTIES AND RESPONSIBILITIES
a. Performance of Job Duties. Employee shall be the Chief Financial
Officer of the Company, and shall perform the services and duties customary for
that position, all subject to the general supervision of the Board of Directors
of the Company. Employee shall also perform such services and duties with
respect to Associated Companies as may be assigned to him by the Company's Board
of Directors, so long as such services and duties are consistent with his
position as a senior executive officer of the Company. Among other things,
Employee shall have general supervision over all of the financial matters of the
Company and with respect to its Subsidiaries. Employee shall devote all of his
skill, time, attention, and best efforts to furthering the Company's businesses,
affairs, interests and welfare.
b. Appointment to Management Board or Supervisory Board. The parties
contemplate that Employee may be appointed to the Management Board or
Supervisory Board of one or more Associated Companies operating in Poland. The
compensation arrangements in connection with such appointment(s) shall be the
subject of a separate agreement between Employee and each such Associated
Company.
c. Compliance with Laws. Employee agrees to comply with all federal,
state, local, and foreign laws, and to comply with all of the Company's rules,
regulations, and policies in force during his employment, as well as with all
the rules, regulations and policies prescribed for all Associated Companies for
whom or with respect to the business of which he performs services during the
term of this Agreement.
d. Location. Employee shall travel to the United Kingdom, Poland, the
United States, and such other locations as necessary to fulfill his duties as
described in Section 2(a).
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<PAGE>
3. TERM OF AGREEMENT
This Agreement shall go into effect as of the Effective Date, and shall
continue until the third anniversary of the Effective Date unless terminated
earlier as provided in Section 8.
4. COMPENSATION
As compensation and consideration for the performance by Employee of
his obligations under this Agreement, Employee shall be entitled to the
following:
a. Base Salary. During the term of this Agreement, the Company shall
pay to Employee a base annual salary (the "Base Salary") totaling Ten Thousand
Two Hundred Twenty-Five Pounds ((pound)10,225) per month, less any compensation
paid to Employee pursuant to any separate agreement entered into as contemplated
by Section 2(b) above. This Base Salary may be increased by the Company in its
sole discretion. The Base Salary shall be paid in installments payable every
second week.
b. Payment of Bonuses During First Year. Employee shall be eligible for
a performance bonus of up to Thirty Thousand Five Hundred Pounds ((pound)30,500)
during the first year of his employment hereunder. Of such amount, Employee
shall be guaranteed to receive at least Eighteen Thousand Three Hundred Pounds
((pound)18,300). The performance bonus for such first year shall be paid to
Employee within thirty (30) days of the first anniversary of the Effective Date.
c. Eligibility for Subsequent Bonus. Employee shall be eligible for a
discretionary performance bonus reflecting the value of his services during the
second and third year of his employment hereunder. The performance criteria,
amounts, if any, and payment dates for such bonus shall be determined by the
Board of Directors of the Company in its sole discretion.
d. Expenses. The Company shall reimburse Employee for reasonable
out-of-pocket expenses incurred by Employee in connection with the business of
the Company and in performance of his duties under this Agreement, upon his
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the policies of the Company
relating to business-related expenses as in effect from time to time.
e. Additional Employee Benefits and Perquisites. In addition to the
foregoing, Employee shall receive the following benefits and perquisites:
(1) Benefits. During the term of this Agreement, Employee
shall be eligible to participate in such benefit programs as are made
available from time to time to senior executives of the Company, such
benefits to include health insurance coverage for Employee and his
immediate family under the Company's health insurance program, life
insurance in the amount of three times annual compensation, and annual
pension contribution in the amount of ten (10) percent of Employee's
Base Salary.
3
<PAGE>
(2) Vacation. Employee shall be entitled to twenty (20) days
of paid vacation during each calendar year. Employee shall also be
entitled to all paid holidays given by the Company to its executives.
(3) Automobile. The Company shall provide Employee with
(pound)30,000 toward the purchase of an automobile, which automobile
shall belong to Employee at the termination of this Agreement.
f. Deduction and Withholding; Place of Payment. All compensation and
other benefits to or on behalf of Employee pursuant to this Agreement shall be
subject to such deductions and withholding as may be agreed to by Employee or
required by applicable law. All cash compensation payable to Employee hereunder
shall be paid at such bank or other place within or without the United Kingdom
and/or Poland, as Employee may direct, subject to applicable laws.
g. Stock Options. The Company shall grant to Employee a
non-transferable option to purchase Two Hundred Thousand (200,000) shares of the
Company's common stock, $0.01 par value per share, upon the terms and conditions
of a stock option agreement in the form of Exhibit A.
5. CONFIDENTIALITY
a. Confidentiality. Employee acknowledges that during the course of his
employment with the Company he will, from time to time, be invested with
confidential information (including without limitation) trade secrets relating
to, inter alia, the business practices, technology, products, business plans,
marketing, financial information and plans, and research activities of the
Company, Associated Companies, and customers and suppliers of the foregoing.
Employee hereby agrees to keep all such information confidential, regardless
whether documents containing such information are marked as confidential, if he
has been told, or should reasonably know or expect, that such information is
confidential. Employee also agrees that he will not, except as required in the
conduct of Company business, or as authorized in writing by the Company,
publish, disclose or make use of any such information or knowledge unless and
until such information or knowledge shall have ceased to be secret or
confidential without his fault.
b. Exclusive Property. Employee confirms that all confidential
information is the exclusive property of the Company. All business records,
papers and other documents kept or made by Employee relating to the business of
the Company or an Associated Company shall be and remain the property of the
Company or the Associated Company. Upon the termination of his employment with
the Company or upon the request of the Company at any time, Employee shall
promptly deliver to the Company, and shall retain no copies of, any written
materials, records and documents made by Employee or coming into his possession
concerning the business
4
<PAGE>
or affairs of the Company or an Associated Company other than personal notes or
correspondence of Employee not containing proprietary information relating to
such business or affairs.
c. Inventions, Rights to Improvements. Employee hereby sells, transfers
and assigns to the Company any right, title and interest in any and all
inventions, improvements, discoveries, and ideas (whether or not patentable or
copyrightable) (collectively the "Inventions") which Employee may make or
conceive while acting in his capacity as an employee of the Company during the
term of this Agreement, and which relate to or are applicable to any phase of
the Company's and the Associated Companies' businesses. Employee hereby agrees
to communicate promptly and disclose to the Company all information, details and
data pertaining to the aforementioned Inventions and to execute any documents
and do any act reasonably necessary to perform Employee's duties under this
Section 5(c). Employee also affirms that if any such Inventions shall be deemed
confidential by the Company, he will not disclose any such Inventions without
prior written authorization from a majority of the members of the Company's
Board of Directors.
d. Survival of Section. The provisions of this Section 5 shall survive
the termination of this Agreement for any reason whatsoever.
6. EXCLUSIVITY / NON-COMPETITION
a. Exclusivity/No Competing Employment. For the term of this Agreement
and a period of one (1) year following the date Employee is no longer employed
by the Company or any Associated Company (the "Restricted Period"), Employee
shall not directly or indirectly compete with the Company or any Associated
Company, and he shall not directly or indirectly own an interest in, manage,
operate, join, control, perform services for, lend money to, render financial or
other assistance to, participate in, or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise, any individual,
partnership, firm, corporation or other business organization or entity that at
such time is engaged in the Business.
b. No Interference. During the Restricted Period, Employee shall not,
whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization or entity,
intentionally solicit, endeavor to entice away from the Company or an Associated
Company, or otherwise interfere with the relationship of the Company or an
Associated Company with any person who is employed by the Company or an
Associated Company, or any person or entity who is, or was within the
twelve-month period immediately preceding, a customer, supplier or client of the
Company or an Associated Company.
c. Stock Ownership. Nothing in this Agreement shall prohibit Employee
from acquiring or holding any securities of any company listed on a national
securities exchange or quoted on the automated quotation system of the National
Association of Securities Dealers, Inc., provided that at any time during the
Restricted Period Employee and members of his immediate
5
<PAGE>
family do not own more than five percent (5 %) of any voting securities of any
company engaged in the Business.
d. Scope. The prohibitions in Sections 6(a) and 6(b) shall apply to
Poland and any other place where the Company or any Subsidiary is doing Business
on the first day of the Restricted Period. Said prohibitions shall also apply
with respect to any Person (or any subsidiary thereof) located within or without
the United States or the United Kingdom that is doing Business, directly or
indirectly, in Poland.
e. Survival of Section. The provisions of this Section 6 shall survive
the termination of this Agreement for any reason whatsoever.
7. REMEDIES
a. Arbitration. The Parties agree, expressly renouncing any other forum
for the resolution of disputes, that except as provided in Section 7(b), any
disputes arising out of, relating to, or arising in connection with this
Agreement or arising out of, relating to, or arising in connection with
Employee's employment, shall be finally settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(except insofar as those rules are modified by the terms of this Section 7). The
arbitration will be held in Hartford, Connecticut, USA; and it shall be held as
promptly as possible at such time as the arbitration tribunal may determine. The
arbitration will be held in the English language. The arbitrator(s) shall state
the reasons upon which the award is based. Judgment upon the arbitration award
may be entered in any court of competent jurisdiction (including without
limitation the courts of the United States, any country where the Company or any
Associated Company is engaged in business, and the respective political
subdivisions of each of the foregoing), or application may be made to any such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. If any Party employs an attorney or commences legal or arbitral
proceedings to enforce the provisions of this Agreement, the prevailing Party
shall be entitled (unless the relevant tribunal decides otherwise) to recover
from the other, reasonable costs incurred in connection with such enforcement,
including but not limited to, attorney's fees and costs of investigation and
litigation/arbitration. Except as otherwise specifically provided in this
Section 7, no Party shall institute any action or proceeding against any other
Party in any court with respect to any dispute which is or could be the subject
of a claim or proceeding pursuant to this Section 7.
b. Equitable Remedies. Employee hereby acknowledges that breaches of
Sections 5 or 6 of this Agreement may result in material irreparable injury to
the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such breaches, and that in the event of such a
breach or threat thereof the Company shall be entitled (notwithstanding the
provisions of Section 7(a)) to seek and obtain a temporary restraining order, a
preliminary injunction, a permanent injunction or other equitable relief
restraining Employee from engaging in activities prohibited by this Agreement.
Employee further acknowledges that in the event of such a breach or threat
thereof the Company shall be entitled to obtain such other
6
<PAGE>
or further relief as may be required to specifically enforce any of the
covenants of this Agreement. Employee hereby agrees and consents that such
injunctive or other relief may be sought in any court of competent jurisdiction,
including, without limitation, any court in the nation, state and/or political
subdivision thereof in which such violation may occur, at the election of the
Company. Employee agrees to and hereby does submit to in personam jurisdiction
before each and every such court for that purpose.
c. Suspension of Payments. Should an alleged breach by Employee of
Sections 5 or 6 of this Agreement occur, the Company shall not be entitled to
suspend any payments otherwise due to Employee during litigation of any action
it may bring against Employee for injunctive and/or monetary relief.
d. Remedies not Exclusive. The remedies of this Section shall be
cumulative and not exclusive, and shall be in addition to any other remedy which
the Company may have.
e. Survival of Remedies. This Section 7 shall survive the termination
of this Agreement for any reason whatsoever.
8. TERMINATION OF EMPLOYMENT
This Agreement and Employee's employment hereunder may be terminated
without any breach of this Agreement under the following conditions:
a. Termination by Employee. Employee may terminate this Agreement, with
or without cause, by sending written notice thereof at least four (4) months in
advance of the date of his proposed termination.
b. Termination by the Company for Cause. The Company may terminate the
Agreement and Employee's employment for Cause prior to the expiration of this
Agreement as provided in this Section 8(b). If the Cause is susceptible of
remedy by Employee, then the Company shall first deliver to Employee written
notice of such Cause; and if Employee has not remedied the Cause within thirty
(30) days after receipt of that notice, the Company may terminate this agreement
forthwith thereafter by written notice effective immediately. If the Cause is
not susceptible of remedy by Employee, then the Company may terminate this
agreement forthwith by written notice effective immediately. For purposes of
this Section 8(b) "Cause" shall mean (1) dishonesty or fraud resulting in damage
to the business of the Company or any of its Associated Companies; (2)
embezzlement or theft of assets of the Company or any of its Associated
Companies; (3) competing with the Company or aiding a competitor of the Company
or any of its Associated Companies to the detriment of the Company or any of its
Associated Companies; (4) a substantial breach of this Agreement; (5) conduct of
an illegal or criminal nature under the laws of the United States, the United
Kingdom, Poland, or any political subdivision thereof (except for minor traffic
offenses and other minor offenses which do not indicate moral turpitude), or (6)
a
7
<PAGE>
substantial violation of any applicable polices and procedures set forth in
any policy manual as may be adopted by the Board of Directors of the Company.
c. Termination by the Company without Cause. Notwithstanding the
provisions of Section 8(b) above, the Company may terminate this Agreement and
Employee's employment upon six (6) month's written notice without cause.
d. Later Employment With Successor in Interest of Company. Employee
shall not be deemed to have been terminated under this Agreement if he is
offered employment on substantially the same or better terms by any Associated
Company; by any successor in interest or assign of the Company; or by any
purchaser of substantially all of the Company's assets.
e. Death. Notwithstanding anything to the contrary herein contained,
Employee's employment and this Agreement shall terminate upon his death or his
inability due to disability to perform the essential functions of his position
for a continuous period of ninety (90) days.
f. Delivery of Material. Employee agrees that upon the termination of
this Agreement he will deliver to the Company all documents, papers, materials
and other property of the Company relating to its affairs which may then be in
his possession or under his control.
g. Accrual. If the Company or Employee terminates this Agreement,
Employee shall not be entitled to any compensation or benefits after the
effective date of his termination except as provided in section 8(c).
9. NOTICES
a. All notices required to be given under the terms of this Agreement
or which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
@Entertainment, Inc.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7200
Attention: Przemyslaw Szmyt
With a copy to:
8
<PAGE>
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Employee:
Donald Miller-Jones
91 St. Georges Square Mews
Aylesford Street
London SW1V 3RZ
United Kingdom
Facsimile: (44-171) 976 6684
b. Notice given in accordance with this Section 9 shall be deemed to
have been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its
new address in writing to the other party.
10. MISCELLANEOUS
a. Agreement is Non-Assignable. This Agreement is a personal service
contract and shall not be assignable by Employee or by the Company, except that
the Company may assign this Agreement to an Associated Company or any Person
that succeeds to the Company's rights and liabilities by merger, sale of assets
as a going concern, or consolidation with the Company.
b. Binding Effect. All rights and obligations and agreements of the
parties under this Agreement shall be binding upon and enforceable against, and
inure to the benefit of the parties and their personal representatives, heirs,
legatees and devises, and any Person succeeding by operation of law to their
rights under this Agreement, except that such personal representatives, heirs,
legatees, devises and other persons shall have no obligation to perform
Employee's duties described in Section 2 hereof.
c. Further Assurances. Employee and the Company, as the case may be,
shall execute and deliver such further instruments and do such further acts and
things as may be required to carry out the terms or conditions of this Agreement
or as may be consistent with the intent and purpose of this Agreement.
9
<PAGE>
d. Rights of Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement (except that any option
which has vested in Employee as of the date of his death, as well as any accrued
but unpaid compensation as of the date of his death, shall pass to his estate on
death, subject to the limitations on exercise of the option contained in Exhibit
A).
e. Effect of Waiver. A waiver of, or failure to exercise, any rights
provided for in this Agreement, in any respect, shall not be deemed a waiver of
any further or future rights hereunder. Except for rights which must be
exercised within a specified time period under this Agreement or Exhibit A, no
rights herein shall be considered as waived, whether intentionally or not,
unless waived in a writing signed by the party to be charged with the waiver.
f. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts made
and performed in that jurisdiction, without regard to the principles of
conflicts of laws.
g. Amendments. This Agreement may not be changed or amended orally, but
only by an agreement in writing signed by all parties hereto.
h. Counterparts This Agreement may be executed in several counterparts,
each of which shall be an original, and such counterparts shall together
constitute but one and the same instrument.
i. Severability. If a court of competent jurisdiction declares that any
term or provision of this Agreement is invalid or unenforceable, then:
(1) the remaining terms and provisions hereof shall be
unimpaired, and
(2) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
j. No Conflicts. Employee represents and warrants that he is not
prevented by any other employment agreement, arrangement, contract,
understanding, court order or otherwise, which in any way directly or indirectly
conflicts, is inconsistent with, or restricts or prohibits him from fully
performing the duties of the Employment, in accordance with the terms and
conditions of this Agreement.
k. Entire Agreement. This Agreement supersedes all prior agreements,
oral or written, between the parties hereto with respect to the employment of
10
<PAGE>
Employee by the Company. This Agreement contains the entire agreement of the
parties with respect to the employment of Employee by the Company, and the
parties shall not be bound by any terms, conditions, statements, covenants,
representations or warranties, oral or written, not herein contained.
1. Employee Acknowledgment. EMPLOYEE REPRESENTS THAT HE HAS HAD AMPLE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND EMPLOYEE ACKNOWLEDGES THAT HE
UNDERSTANDS THAT IT CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT AND THAT IT
EXPLAINS POSSIBLE CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF EMPLOYEE BREACHES
THE AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement effective as of the date first above written.
@Entertainment, Inc., a
Delaware corporation
______________________________ By:__________________________
Donald Miller-Jones
Its:
11
<PAGE>
Exhibit 10.21
Exhibit A
STOCK OPTION AGREEMENT
BETWEEN
DONALD MILLER-JONES
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made effective as
of June 8, 1998 (the "Effective Date"), by and between Donald Miller-Jones
("Miller-Jones") and @Entertainment, Inc., a Delaware corporation (the
"Company"), pursuant to the @Entertainment, Inc. 1997 Stock Option Plan, as
amended (the "Plan").
1. Grant of Option and Option Period.
a. The Company hereby grants Miller-Jones an option (the
"Option") to purchase Two Hundred Thousand shares (200,000) (the "Shares") of
the Company's common stock ("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 Fourteen
Dollars and Thirty Cents (U.S. $14.30) per share.
b. The option to purchase Sixty-six Thousand Six Hundred
Sixty-seven (66,667) 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 (i) the Option shall vest in full immediately (A)
on the date of change in control of the Company (for purposes of this clause,
the term "change in control" shall have the same meaning, except with respect to
the Company rather than Poland Communications, Inc. ("PCI") as that term has in
the Indenture dated as of October 31, 1996, between PCI and State Street Bank
and Trust Company as trustee with respect to those certain 9 7/8% Senior Notes
of the Company due 2003 (the "Indenture")), and (ii) no portion of the Option
shall vest after the date (the "Cut-Off Date") that is the earlier of (i) the
date that the Executive Employment Agreement (as described in Section 14 of this
Agreement) is terminated, and (ii) the date on which the Company sends
Miller-Jones a notice referred to in 8(b) of the Executive Employment Agreement.
c. If Miller-Jones's employment with the Company, or any of
its affiliates, is terminated for any reason, Miller-Jones 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 Miller-Jones 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 Miller-Jones ceases
to be an employee of the Company, or any of its affiliates, for any reason
whatsoever
Exhibit A - Page 1
<PAGE>
(including but not limited to Miller-Jones'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 Common Stock that may thereafter be
purchased by Miller-Jones 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner (other than by
will or by the laws of descent and distribution during the option period
described in Section 1, or in a manner as may be established from time to time
by the Company's Stock Option Committee pursuant to the Plan ). This Option is
not assignable by operation of law or subject to execution, attachment or
similar process. During Miller-Jones's lifetime, the Option can only be
exercised by Miller-Jones. Any attempted sale, pledge, assignment, hypothecation
or other transfer of the Option or any interest therein contrary to the
provisions hereof, or the levy of any execution, attachment or similar process
upon the Option or any interest therein shall be null and void and without force
or effect. No transfer of the Option by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished written notice thereof executed by the personal
representative of the estate of Miller-Jones which shall be accompanied by an
authenticated copy 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
Miller-Jones.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the
Company due to stock dividends, recapitalizations, reorganizations, mergers,
consolidations, split-ups, 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.
Exhibit A - Page 2
<PAGE>
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. No Stock Rights.
Miller-Jones 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 Miller-Jones has exercised the Option with respect
to such Shares in accordance with the terms and conditions of this Option
Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, the number of shares of Common
Stock that is sufficient for the purpose of enabling it to satisfy any
obligation to issue the shares of Common Stock upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-up Agreement
During the term of this Option Agreement, Miller-Jones 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. Miller-Jones 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 Miller-Jones 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 7.
8. Representations and Warranties of Miller-Jones. In order to induce
the Company to accept this Option Agreement, Miller-Jones hereby represents and
warrants to the Company as follows:
Exhibit A - Page 3
<PAGE>
a. If in the future Miller-Jones desires to offer or dispose
of the Option or any the Shares or any interest therein, he will do so only in
compliance with applicable securities laws and this Option Agreement.
b. Miller-Jones 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.
c. Miller-Jones agrees that the representations and warranties
of Miller-Jones set forth in this Section 8 shall survive the exercise of the
Option and the termination or expiration of this Option Agreement for a period
of six months.
9. Governing Law.
This Option Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware without regard to the principles
of conflicts of laws or choice of law.
10. Benefit.
This Option Agreement shall be binding upon the Company, Miller-Jones,
their heirs, executors, administrators, legal representatives, successors, and
permitted assigns, and Miller-Jones in furtherance thereof may execute a will
directing Miller-Jones's executor to perform this Option Agreement and to
execute all documents necessary to effectuate the purposes of this Option
Agreement, but the failure to execute such a will shall not affect the rights of
the Company or the obligations of Miller-Jones's estate as provided in this
Option Agreement. Nothing in this Option Agreement, expressed or implied, is
intended to confer upon any person, other than the parties hereto, any rights or
remedies under or by reason of this Option Agreement.
11. Specific Performance.
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.
12. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of this Option Agreement shall not be deemed a waiver of
such terms, covenants or conditions, nor
Exhibit A - Page 4
<PAGE>
shall any waiver or relinquishment of any right or power hereunder at any one
time or more times be deemed a waiver or relinquishment of such right or power
at any other time or times.
13. Notice.
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.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7200
Attention: Przemyslaw Szmyt
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 Miller-Jones:
Donald Miller-Jones
91 St. Georges Square Mews
Aylesford Street
London SW1V 3RZ
United Kingdom
Facsimile: (44-171) 976 6684
b. Notice given in accordance with this Section 13 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
Exhibit A - Page 5
<PAGE>
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
14. Entire Agreement.
This Option Agreement 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.
15. 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.
16. Headings.
The headings to the sections of this Option Agreement are used for
reference only and are not to be construed as limiting or extending the
provisions hereof.
17. Counterparts.
This Option Agreement may be executed in any number of counterparts,
each of which shall be considered an original but all of which shall constitute
the Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
By: ___________________________
Its: __________________________
________________________________
Exhibit A - Page 6
<PAGE>
Donald Miller-Jones
Exhibit A - Page 7
<PAGE>
Exhibit 10.22
@Entertainment, Inc.
November 17, 1997
Mr. Samuel Chisholm
Mr. David Chance
2 Hyde Park Square
London WC2
United Kingdom
Dear Sam and David:
I am pleased to offer to you positions as members of the Board of
Directors of @Entertainment, Inc. ("the Company"). As we have discussed, I
would also like to engage your services as consultants to the business of the
Company in Poland ("the Territory"). The principle terms and conditions of
your directors' and consultants' positions are set forth below.
1. In your capacity as directors of the Company, the Company will pay to
each of you the sum of US$5,000 per meeting for attendance at each of
the five regular meetings of the Board of Directors and an additional
US$5,000 to each of you for any special meetings of the Board. Board
meetings will take place in London.
2. The Company will make available to you options to purchase a total of
1,000,000 shares (500,000 shares each) of the Company's common stock
at US$12 per share.
3. The stock options will vest in two equal proportions on each of the
first and second anniversaries of the Effective Date (see below).
Your right to exercise these options shall not be affected by
termination of your consultancy services; (same in the case of options
which have not vested prior to termination), unless such termination
is a result of your breach of the consultancy agreement.
4. You will be appointed as consultants to the Company in respect of its
business in the Territory with effect from 1st January 1998 (the
"Effective
<PAGE>
November 17, 1997
Page 2
Date"). The consultancy agreement shall continue for a period of two
years. The consultancy agreement shall not be subject to cancellation
by either party, except as a result of a breach of the consultancy
agreement by the other party, which is not remedied within 30 days of
a notice from the non-breaching party requiring that such breach be
remedied.
5. In your capacity as consultants to the Company, the Company will pay a
per diem fee of US$10,000 per Consultancy Day based on a minimum on
average over each 12 month period, of 4 days per month. (A
Consultancy Day shall be a single day of at least seven hours during
which one Consultant provides services to the Company, so that a
single day on which both of you provide your services will count as
two days towards the minimum of four per month). The consultants
shall decide between themselves which of them will provide the
services on which of the four days per month. Extra days in any
months on which services are provided will carry the same per diem
fees.
6. All reasonable expenses incurred by you in the discharge of your
responsibilities either as directors or consultants shall be for the
account of the Company, including, without limitation, office
accommodations situated in Central London.
7. The Company will pay your consultancy fees monthly within 30 days of
the end of the month to which such invoices relates, and will at the
same time reimburse you for all expenses incurred in the provision of
your services during the same month. All fees set out in this
agreement are exclusive of VAT.
8. Your services will be provided from London England.
9. Any travel overseas will be subject to your agreement.
10. Either of you may transfer your rights and obligations into a limited
company or companies owned by either or both of you and in such event,
subject to your entry into an [text illegible] an inducement letter
agreement to abide by the terms of this letter, your rights and
obligations under this letter shall be wholly transferred into such
company/companies.
<PAGE>
November 17, 1997
Page 3
11. Your consultancy services shall be provided on a nonexclusive basis
and you shall each be free to provide services to third parties. In
particular you may each provide your services to BSkyB and group
companies and to BskyB's shareholders whether or not those companies
carry on business in the Territory in competition with the Company and
in the event that any conflict exists between the provision of your
services thereunder and the services provided by either of you to such
person, then the consultant affected by each conflict may decline from
providing consultancy services to the Company on the matters giving
rise to such conflict.
In the event that either of you choose to so terminate the
provision of your consultancy services you agree that you will
simultaneously resign from the Board of Directors.
12. You agree, in the provision of your consultancy services, and
thereafter to keep confidential all confidential information about the
Company and its business which is disclosed to you in carrying out
your services (other than information in the public domain other than
through breach of this provision).
13. This agreement is personal to the parties and may not be assigned by
any of the orders without the comment of the others (save as provided
in Clause 10 above).
14. Without prejudice to the rights and remedies of either party for
breach of contract the Company may terminate the Agreement if you
[text illegible] a breach of this agreement or fail to provide
consultancy services hereunder and you may terminate if the Company
commits a breach of the obligations.
<PAGE>
November 17, 1997
Page 4
The remaining terms and conditions of your consultancy relationship would
be set forth in a materially acceptable consulting agreement. Until then the
terms of this letter agreement shall apply.
Please sign below to signify your acceptance of the above terms of
appointment.
Yours sincerely,
/s/ Robert E. Fowler, III
-------------------------
Robert E. Fowler, III
Chief Executive Officer
ACCEPTED AND AGREED
/s/Sam Chisholm
- ---------------------------------
Sam Chisholm
ACCEPTED AND AGREED
/s/David Chance
- ---------------------------------
David Chance
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Exhibit 10.23
STOCK OPTION AGREEMENT
BETWEEN
SAMUEL CHISHOLM
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made
effective as of January 1, 1998 (the "Effective Date"), by and between Samuel
Chisholm ("Chisholm") of London, England, and @ Entertainment, Inc., a Delaware
corporation (the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Chisholm an option (the "Option")
to purchase five hundred thousand shares (500,000) (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 twelve dollars
(U.S. $12.00) per share.
b. The option to purchase two hundred and fifty thousand
(250,000) of these Shares will vest each year for two years 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 the Consultancy Agreement (as described in
Section 15 of this Agreement) is terminated.
c. If Chisholm's consultancy with the Company is terminated
for cause Chisholm shall have no right to exercise any portion of the Option
that has not then vested.
d. 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 Chisholm 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997
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Stock Option Plan). This Option is not assignable by operation of law or subject
to execution, attachment or similar process. During Chisholm's lifetime, the
Option can only be exercised by Chisholm. 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
Chisholm 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 Chisholm. The terms of the Option transferred in trust shall be
binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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. No Stock Rights.
Chisholm 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 Chisholm has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. 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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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.
7. Lock-up Agreement
a. Agreement. During the term of this Option Agreement,
Chisholm 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.
Chisholm 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 Chisholm
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 7.
8. Registration Rights.
a. Registration Procedures. The Company will, as
expeditiously as possible:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(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;
(iii) furnish to Chisholm such number of copies of a
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as Chisholm 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 Chisholm shall reasonably request (provided,
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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).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Chisholm that Chisholm
shall furnish to the Company such information regarding the securities held by
Chisholm 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.
b. Expenses. All expenses incurred in complying with Section
8, 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 jurisdictions pursuant to this Section 8,
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 Chisholm; and (ii) the Company shall not be liable for any
fees or expenses of counsel for Chisholm in connection with any registration.
c. Indemnification and Contribution.
(i) In the event of any registration of any of
the Shares under the Securities Act pursuant to this Section 8, the Company
shall indemnify and hold harmless Chisholm, against any losses, claims, damages
or liabilities, joint or several, to which Chisholm 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 Chisholm for any legal or any other expenses reasonably incurred
by Chisholm 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 Chisholm or his stock furnished to the Company by Chisholm
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 Chisholm, and shall survive the
transfer of such securities by Chisholm.
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(ii) Chisholm 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, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon information regarding Chisholm
or his stock in writing provided to the Company by Chisholm 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 Chisholm, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto.
(iii) If the indemnification provided for in this
Section 8 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, liabilities 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
include 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 8(c) 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.
9. Representations and Warranties of Chisholm. In order to induce the
Company to accept this Option Agreement, Chisholm hereby represents and warrants
to the Company as follows:
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a. If in the future Chisholm desires to offer or dispose of
the Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. Chisholm 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.
c. Chisholm agrees that the representations and warranties of
Chisholm set forth in this Section 9 shall survive the exercise of the Option
and the termination or expiration of this Option Agreement for a period of six
months.
10. 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.
11. Benefit.
This Option Agreement shall be binding upon the Company, Chisholm, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Chisholm in furtherance thereof may execute a will directing
Chisholm's executor to perform this Option Agreement and to execute all
documents necessary to effectuate the purposes of this Option Agreement, but the
failure to execute such a will shall not affect the rights of the Company or the
obligations of Chisholm'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.
12. Specific Performance.
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.
13. 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
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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.
14. 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: Przemyslaw Szmyt
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 Chisholm:
Samuel Chisholm
21 Hyde Park Square
London, England WC2
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.
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c. Any party may change its address for notices by
communicating its new address in writing to the other party.
15. Entire Agreement.
This Option Agreement is subject to that certain Consultancy Agreement between
Chisholm and @ Entertainment, Inc., dated November 17, 1997, and in the event of
a conflict between them, the provisions of the Consultancy 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.
16. 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.
17. 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.
18. 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
By: ____________________________
Robert E. Fowler, III
Its: Chief Executive Officer
_________________________________
Samuel Chisholm
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Exhibit 10.24
STOCK OPTION AGREEMENT
BETWEEN
DAVID CHANCE
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement') is made
effective as of January 1, 1998 (the "Effective Date"), by and between David
Chance ("Chance") of London, England, and @ Entertainment, Inc., a Delaware
corporation (the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Chance an option (the "Option")
to purchase five hundred thousand shares (500,000) (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 twelve dollars
(U.S. $12.00) per share.
b. The option to purchase two hundred and fifty thousand
(250,000) of these Shares will vest each year for two years 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 the Consultancy Agreement (as described in
Section 15 of this Agreement) is terminated.
c. If Chance's consultancy with the Company is terminated for
cause Chance shall have no right to exercise any portion of the Option that has
not then vested.
d. 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 Chance 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.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established
<PAGE>
from time to time by the Company's Stock Option Committee pursuant to the
Company's 1997 Stock Option Plan). This Option is not assignable by operation of
law or subject to execution, attachment or similar process. During Chance's
lifetime, the Option can only be exercised by Chance. 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
Chance 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 Chance. The terms of the Option transferred in trust shall be
binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, 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. No Stock Rights.
Chance 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 Chance has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. 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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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.
7. Lock-up Agreement
a. Agreement. During the term of this Option Agreement,
Chance if requested by the Company and the lead underwriter of any public
offering of the Common Stock or other securities of the Company (the ALead
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.
Chance 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 Chance
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 7.
8. Registration Rights.
a. Registration Procedures. The Company will, as
expeditiously as possible:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(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;
(iii) furnish to Chance such number of copies of a
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as Chance 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 Chance shall reasonably request (provided, however,
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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).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Chance that Chance shall
furnish to the Company such information regarding the securities held by Chance
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.
b. Expenses. All expenses incurred in complying with Section
8, 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 jurisdictions pursuant to this Section 8,
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 Chance; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Chance in connection with any registration.
c. Indemnification and Contribution.
(i) In the event of any registration of any of
the Shares under the Securities Act pursuant to this Section 8, the Company
shall indemnify and hold harmless Chance, against any losses, claims, damages or
liabilities, joint or several, to which Chance 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 Chance for any legal or any other expenses reasonably incurred
by Chance 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 Chance or his stock furnished to the Company by Chance
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 Chance, and shall survive the transfer
of such securities by Chance.
(ii) Chance 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
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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, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information regarding Chance or his stock in writing provided to the Company by
Chance 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 Chance, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto.
(iii) If the indemnification provided for in this
Section 8 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, liabilities 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
include 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 8(c) 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.
9. Representations and Warranties of Chance. In order to induce the
Company to accept this Option Agreement, Chance hereby represents and warrants
to the Company as follows:
a. If in the future Chance desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
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b. Chance 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.
c. Chance agrees that the representations and warranties of
Chance set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. 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.
11. Benefit.
This Option Agreement shall be binding upon the Company, Chance, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Chance in furtherance thereof may execute a will directing Chance's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Chance'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.
12. Specific Performance.
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.
13. 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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14. 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
Facsimile: (860) 293-4297
Attention: Przemyslaw Szmyt
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 Chance:
David Chance
British Sky Broadcasting
Athena Court, Grant Way
Isleworth TW7 5QD
Willoughby Road
East Twickenham TWI 2QJ
United Kingdom
Facsimile: (44-171) 705-3730
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.
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15. Entire Agreement.
This Option Agreement is subject to that certain Consultancy Agreement between
Chance and @Entertainment, Inc., dated November 17, 1997, and in the event of a
conflict between them, the provisions of the Consultancy 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.
16. 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.
17. 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.
18. 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
By: ____________________________
Robert E. Fowler, III
Its: Chief Executive Officer
-----------------------------------
David Chance
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Exhibit 10.25
@Entertainment, Inc.
January 23, 1998
Agnieszka Holland
[Title]
[Address]
Dear Agnieszka:
I am pleased to offer you a position as a member of the Board of
Directors of @Entertainment, Inc. (the "Company"). As we discussed, we would
also like to engage your services as an artistic consultant to the Company. The
principal terms and conditions of your positions as director and artistic
consultant are set forth below:
1. Your term as a director and as an artistic consultant shall begin on
January __, 1998 ("Effective Date").
2. Your target compensation for services rendered in your capacity as a
director and as an artistic consultant shall be US$50,000 per year. The
components of your compensation are as follows:
a. In your capacity as a director of the Company, you shall
attend meetings of the Company's Board of Directors, subject
to your availability and other work commitments. In
consideration for your services rendered as a director of the
Company, the Company shall pay to you the sum of US$5,000 per
meeting for each of the five regular meetings of the Board of
Directors that you attend each year.
b. In your capacity as an artistic consultant to the Company, you
shall be available, either in person or by telephone, on an ad hoc
basis to consult with officers or directors of the Company on
issues of an artistic nature that relate to the Company or its
business, subject to your availability and other work commitments.
In consideration for your consulting services, the Company will
pay to you US$25,000 per year, in 12 equal prorated amounts, to be
paid within 30 days of the end of each month. Your consultancy
agreement shall continue for a period of two years and shall be
terminable by either party on 30 days notice.
3. All reasonable expenses incurred by you in rendering services as a
director or as an artistic consultant of the Company shall be for the
account of the Company.
<PAGE>
4. Your consultancy services shall be provided to the Company on a
nonexclusive basis and you shall be free to provide services to third
parties.
5. This letter agreement shall be subject to the provisions set forth in
the Indemnification Agreement, dated as of January ___, 1998, between
you and the Company, and the provisions set forth in the Company's
Directors and Officers Liability Insurance Policy, which the Company
agrees shall be in effect throughout the term of your directorship.
6. You agree, in the provision of your consultancy services and
thereafter, to keep confidential all confidential information disclosed
to you by the Company and its representatives.
7. The terms of this letter agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
the conflicts of law rules thereof.
Please sign below to signify your acceptance of the above terms of
appointment as a member of the Board of Directors and as an artistic consultant
of the Company.
Yours sincerely,
Robert E. Fowler, III
Chief Executive Officer
Accepted and Agreed:
________________________________
Agnieszka Holland
<PAGE>
Exhibit 10.26
@ ENTERTAINMENT, INC.
1997 STOCK OPTION PLAN, AS AMENDED
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, consultants and
directors.
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) "Director" shall mean any Director of the
Corporation who is not an Employee or Consultant of the Corporation.
(i) "Effective Date" shall mean June 22, 1997.
(j) "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
<PAGE>
of the Code and the regulations thereunder. In the case of a
Consultant, the provisions governing 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.
(k) Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(l) "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.
(m) "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.
(n) "Incentive Stock Option" shall mean an Option of the type
described in Section 422(b) of the Code.
(o) Nonstatutory Stock Option" shall mean an Option of the
type not described in Section 422(b) or 423(b) of the Code.
(p) Option" shall mean an option to purchase Common Stock
granted pursuant to the Plan.
(q) Optionee" shall mean any person who holds an Option
pursuant to the Plan.
(r) Plan" shall mean this stock option plan as it may be
amended from time to time.
(s) Purchase Price" shall mean at any particular time the
Exercise Price times the number of Shares for which an Option is being
exercised.
(t) Share" shall mean one share of authorized Common Stock.
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<PAGE>
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 of not less than two members, 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 or
Directors 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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<PAGE>
(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
and Directors 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 and Directors, provided that Consultants and
Directors are not eligible to receive Incentive Stock Options.
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<PAGE>
(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 4,436,000 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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<PAGE>
Section 5(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 vesting 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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<PAGE>
(iii) The first anniversary of the date the Optionee ceases to
be an Employee or Director 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 shall, when granted, be not less
than 100% of the Fair Market Value of the Shares for which the Option is
exercisable.
(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
7
<PAGE>
(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, 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. Notwithstanding the above, the Committee may designate, at the time of
grant, that certain Options may be transferable by gifts in trust by family
members. 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 or Director 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 ceases active employment with the Corporation or any
Affiliate, unless the Optionee's reemployment rights are guaranteed by
applicable law or contract.
(i) Death of Optionee.
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<PAGE>
If an Optionee dies while an Employee or Director, or after
ceasing to be an Employee or Director but during the period while he or she
could have exercised an Option under Section 6(h), any 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 or Director 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 therefor.
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 Employees or
Directors or Employees employed outside the United States or by Affiliates not
incorporated in the United States. Such sub-plans or modifications shall contain
such terms and conditions as the Committee in its
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<PAGE>
discretion deems necessary or desirable to facilitate compliance with local laws
or to achieve favorable tax or legal results.
(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
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<PAGE>
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 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
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<PAGE>
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 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 an 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 UNVESTED 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
12
<PAGE>
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 Corporation with respect to all
unvested Shares if the Optionee ceases to be an Employee or Director 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 or Directors 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.
13
<PAGE>
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
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 an Affiliate determines that
it is required to withhold Federal, state, foreign or local taxes in connection
with the exercise of an Option or the disposition of Shares issued pursuant to
the exercise of an Option, the Optionee 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 undertakings 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, Directors,
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 during normal business
hours.
14
<PAGE>
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, and any other
applicable governmental 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, without regard
to principles of conflicts of laws.
15
<PAGE>
16
<PAGE>
[FORM IF OPTIONS ARE REGISTERED]
INCENTIVE STOCK OPTION AGREEMENT
EXHIBIT D
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
(subject to restrictions contained in the Plan) 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 full calendar year following the
Vesting Commencement Date.
(b) Optionee may exercise the Stock Option as to one fifth of
the Shares at the end of the first full calendar year following the Vesting
Commencement Date.
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<PAGE>
(c) Optionee may exercise the Stock Option as to an additional
one fifth of the Shares at the end of each of the four full calendar years
following the anniversary of 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 Federal, state and any
other applicable laws have been satisfied.
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<PAGE>
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:
--------------------------------
--------------------------------
19
<PAGE>
1
Exhibit 10.27
AGREEMENT
FOR THE LEASE OF CABLE CONDUITS
concluded on [ ] between Telekomunikacja Polska S.A. hereinafter referred
to as the Lessor, represented by the director of the TP S.A. Office in Opole and
[ ], hereinafter referred to as the Lessee, represented by:
[ ]
SEC.1
1. The Lessor shall, for a period of [ ] years, lease the part of the cable
conduit belonging to it and located on the territory of the town of [ ] for the
purposes of [ ].
2. The object of lease described in the documentation approved by the
Lessor, and its state are described in the specification in the form of a
protocol constituting annex no. 1, which is an integral part of this Agreement.
Page 1
<PAGE>
SEC.2
1. The parties agree that the rental fee for each commenced 100m of the
cable conduit will be [ ] + 22% VAT, proportionally to the part of the opening
in this conduit occupied by the Lessor, according to the capacity norm of the
opening.
2. The whole of the rental fee for the lease of the object of the Agreement
in accordance with sec.2, item 1, amounts to [ ] zlotys and is payable monthly
at the latest within 14 days of the date of the issuance of the invoice. In the
case of any delay in the payment of rental fees statutory interest will be
charged.
3. The rental fee as mentioned in items 1 and 2 is set on the basis of the
maintenance costs for the cable conduit, increased by 20% profit.
4. The rental fee described in items 1, 2 and 3 is revised each quarter and
its level will be calculated pursuant to the compound interest method on the
basis of the monthly consumer prices increase index declared by the Chief
Statistic Office. The change in the level of rent will not be treated by the
Parties as an amendment of the terms of this Agreement.
Page 2
<PAGE>
5. In the case of any significant discrepancies between the increase in the
rent, calculated according to the method as described in item 4, and the
increase in the real costs of exploitation, the rent will be set by the Lessor
proportionally to the actual incurred costs of exploitation. The change of the
rent will not result in the amendment of the terms of this Agreement.
6. The Lessor will inform the lessee of any changes in the rental fee in a
written form.
7. The Lessee undertakes to pay the rental fee in the amount as indicated
in the notification mentioned in item 6.
8. Any change to the scope of the object of lease as described in sec.1,
item 2 herein, and the rental fee relating thereto, shall be described in
annexes to this Agreement, including an appropriate protocol. The rental fee for
each commenced 100m of cable conduit, shall be set in the annex at the level of
the rent applicable on the date of the signing of the annex.
1
2
SEC.3
Page 3
<PAGE>
1. The Lessee undertakes to use the cable conduit exclusively for the
purpose as described in sec.1, item 1 of the Agreement.
2. The Lessee undertakes to install and use equipment, lines or
telecommunications networks in accordance with the Telecommunications Act dated
23 November 1990 (Journal of Laws no. 86, pos. 504, as amended) and the
regulations issued on its basis, as well as to use equipment having homologation
certificates issued by the Ministry of Telecommunications when such equipment
connects with the public network.
3. All work relating to the assembly of cables and other telecommunications
equipment in the leased cable conduit, must be notified to TP S.A. by the
Lessee. The Lessor has the right to conduct a technical supervision of the work
performed.
4. The Lessee undertakes to perform the work as described in item 3 so that
they do not cause electro-magnetic interference and do not damage the equipment
of the Lessor.
5. The Lessee can not, without the consent of the Lessor, make any changes
to the leased cable conduit.
Page 4
<PAGE>
6. The Lessee can not, without the consent of the Lessor, sub-lease or
allow the free use of the object of lease to third parties.
7. The Lessor has the right to conduct a control of the leased conduit in
the presence of the authorized representative of the Lessee.
SEC.4
The Lessor can give notice of termination of the agreement with immediate
effect in the event of the Lessee failing to comply with the terms of the
agreement, and in particular:
- the installation of the cables and assembly of other machinery in
violation of the technical conditions or without the consent of the
Lessor.
- a delay in the payment of rent exceeding [ ] month,
- failure to pay the rent according to the new rate, after the expiry of [
] month from the date he was informed of the change to the level of rent.
Page 5
<PAGE>
SEC.5
1. The Lessor has the right to demand from the Lessee the removal of his
installation from the leased conduit (if the technical state of the conduit
enables this), within 30 days in the case of:
- the expiry of the agreement,
- resignation from the lease,
- notice of termination of the agreement and the expiry of the period
defined in sec.11,
- notice of termination with immediate effect, in accordance with sec.4.
2. Upon the expiry of the period as mentioned in item 1, the Lessor has the
right to remove the Lessee's installation and charge him with the costs of
disassembly and storage.
SEC.6
1. The Lessor is obliged, under the rental fee, to maintain the leased
Page 6
<PAGE>
conduit in a proper technical state at all times.
2. Joint undertakings concerning the supplementation or construction of
conduits will be performed on the basis of separate agreements.
3
SEC.7
Upon the expiry of the Agreement the Lessor undertakes to return the cable
conduit in a state as described in the protocol prepared at the conclusion of
the agreement, subject to the provisions of sec.6.
SEC.8
Any amendments to this Agreement must be in writing.
SEC.9
For matters not regulated in this Agreement the provisions of the Civil
Code shall apply.
SEC.10
Page 7
<PAGE>
The settlement of disputes arising during the performance of this Agreement
shall be performed by the appropriate common courts.
SEC.11
1. This Agreement shall expire on [ ].
2. In the case of the intention to extend the duration of the agreement,
the Lessee is under obligation to inform the Lessor of such an intention within
3 months prior to the date of the expiry of the lease agreement. The Lessor
reserves the right to refuse to extend the period of validity of the agreement.
3. Each party has the right to terminate the Agreement with [ ] months
notice.
SEC.12
This Agreement was prepared in [ ] identical counterparts, from which [ ]
copy is intended for the Lessee and [ ] for the Lessor.
Page 8
<PAGE>
Wizja TV Sp z o.o.
("WTV")
and
Philips Business Electronics BV
("PBE")
and
Philips Polska Sp z o.o.
("PPS")
--------------------------------
COMMERCIAL COOPERATION AGREEMENT
--------------------------------
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
CONFIDENTIAL
<PAGE>
COMMERCIAL COOPERATION AGREEMENT
Table of Contents
1. Definitions 2
2. Purchase and Sale of Decoder Systems 5
2.1 Manufacture, purchase and sale 5
2.2 Forecast 6
2.3 Confirmation and conditions 6
2.3A New Agreement 6
2.4 Factory testing and Delivery Conditions 7
2.5 Packing and user instructions 7
2.6 Acceptance 8
2.7 Third Party Suppliers 11
2.8 Payment 11
2.9 Warranty 12
2.10 Late Delivery 13
2.11 Homologation 15
2.12 Smart Cards 15
2.12A Additional Smart Cards 15
2.13 Spare parts and support 16
3. Decoder system Testins and Acceptance 16
3.1 Delivery of trial units 16
3.2 Tests 16
3.2A Final Acceptance of the Equipment 17
3.3 Notice of Rejection/Acceptance 17
3.4 Engineering Change Procedure 17
3.5 Documentation 18
4. Establishment of a Special Department of PPS 18
4.1 DTII Centre 18
4.2 Staffing 19
5. Distribution services to be provided 19
5.1 Logistics 19
5.2 Sales/Rentals 19
5.3 PBE/WTV Guarantee 19
5.4 Collection of subscription fees and Payment of Dealer 20
6. Payment for Services 20
6.1 Payments 20
6.2 Intentionally deleted 21
6.3 Taxes 21
6.4 Currency 21
6.5 Bank 21
6.6 Delay 21
6.7 Setoff 21
6.8 Audits 21
CONFIDENTIAL
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7. Exclusivity, Software licences and Escrow 22
7.1 Exclusivity 22
7.2 Licence 23
7.3 Licence Fees 23
7.4 Reservations 24
7.5 Modifications and Improvements 25
7.6 Term and Termination 25
7.7 Miscellaneous 26
7.8 CryptoWorks sublicensing and future products 26
7.9 Escrow 26
8. Dealers and Points of Sale 27
8.1 Authorised Channels of Distribution 27
8.2 Qualification of Dealers and Installers 27
8.3 Point of sale facilities 27
8.4 Inspection of Dealers 28
8.5 Establishment of Installation appointment at time of sale/rental 28
8.6 Amount of Dealers 28
9. Initial Distribution 29
9.1 Preparedness for Initial Distribution 29
10. Training 29
10. Provision of Training 29
10.2 Timing 30
11. Installation 30
11.1 Installation provided 30
11.2 Installation Accessories 30
11.3 Installation by Customer or unauthorised installers 31
11.4 Installation work orders 31
11.5 ODU Amount 31
12. Customer Support 31
12.1 PPS' Technical Team 31
12.2 Customer service and support telephone line 32
12.3 PPS's obligation to repair and perform maintenance 32
12.3A Mutual Indemnity 32
13. Network Service by WTV 33
13.1 Control of Content 33
13.2 Subscription Agreement 33
13.3 Procedure for completing Subscription Agreement at Dealer
facilities 33
14. Use of WTV Trademarks by PPS/PBE 34
14.1 Grant 34
14.2 Acknowledgement of Ownership 34
CONFIDENTIAL
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14.3 Quality Control and WTV Approval 34
14.4 Placement of Trademark 35
14.5 Rights upon Termination 35
15. Use of Philips Trademarks by WTV 35
15.1 Grant 35
15.2 Acknowledgement of Ownership 35
15.3 Quality Control and Philips Approval 36
15.4 Placement of Trademark 36
15.5 Rights upon Termination 36
16. Advertising Inserts 37
16.1 Packaging and Advertising inserts 37
17. Marketing and Advertising 37
17.1 Advertising and Promotion Plan and Contributions 37
18. Term and Termination 37
18.1 Term 37
18.2 Material Breach 38
18.3 Insolvency 38
18.4 Compensation 39
18.5 Dealer and Manufacturer Continuity 39
19. Intellectual Property rights 40
20. Force Majeure 43
20.1 Definition 43
20.2 Notice 43
20.3 Right of Termination 44
21. Project Management 44
22. Confidentiality 45
22.1 Confidential Information 45
22.2 Exceptions 45
22.3 Surviving Obligations 46
23. Notices 46
24. Law and Disputes 47
25. Miscellaneous 48
25.1 Amendments 48
25.2 Trademarks and Tradenames 48
25.3 No waiver 48
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25.4 Assignment and delegated performance 48
25.5 Survival 49
25.6 Publicity 49
25.7 Export Control 49
25.8 Inconsistencies 49
25.9 Relation between the parties and costs 49
25.10 Validity 49
25.11 Limitation of Liability 50
25.12 Mutual warranties 50
25.13 Entire Agreement 50
25.14 English Language Version 51
SCHEDULES 52
Schedule 1H : Specification of the Decoder
Schedule 1H(A) : Specification for ODU
Schedule 1I : Delivery and Milestone Plan
Schedule 2.8 : Payment Schedule
Schedule 2.9A : Software Warranty
Schedule 2.9B : Repair and replacement procedure
Schedule 2.12 : CryptoWorks Security Programme
Schedule 3.2 : Test Plan
Schedule 3.4 : Engineering Change Procedure
Schedule 5.1 : Logistics/Distribution services
Schedule 5.3A : PBE's Guarantee
Schedule 5.3B : WTV's Guarantee
Schedule 8.6 : Dealer Criteria
Schedule 11 : Installation Specification
Schedule 14.1 : WTV Trademarks
Schedule 15.1 : Philips Trademarks
Schedule 20.3 : List of Third Party Subcontractors/Sublicencees
CONFIDENTIAL
<PAGE>
COMMERCIAL COOPERATION AGREEMENT
This Commercial Cooperation Agreement ("Agreement") is made this 10th day of
March, 1998 by and between
Wizja TV Sp z o.o. of Ostrobramska 75. (Promenada) 04-175, Warsaw, Poland
(hereinafter referred to as "WTV"), on the one hand, and
Philips Business Electronics BV business unit Digital Video Systems, having its
registered office at Glaslaan 2, Eindhoven, The Netherlands (hereinafter
referred to as "PBE"), and Philips Polska Sp z o.o., acting through its division
Sound & Vision, having its registered office at ul. Marszalkowska 44-49, 00-648
Warsaw, Poland (hereinafter referred to as "PPS") on the other hand,
WHEREAS, PBE is currently manufacturing and selling digital compression, DVB and
MPEG-2 compliant satellite broadcast distribution systems including CryptoWorks
conditional access systems and corresponding digital consumer receivers/decoders
including a smart card and out-door-unit for various markets throughout the
world;
WHEREAS, WTV is purchasing Decoders from PBE for distribution by PPS in Poland
to WTV's Customers;
WHEREAS, PBE within the Philips group of companies is the legal entity having
ultimate responsibility for the development, production and sale of the Decoders
(as defined hereinafter) and PPS is the legal entity within the Philips group of
companies carrying out Distribution of the Decoders within Poland in accordance
with the terms and conditions set forth herein; and
WHEREAS, the parties entered into a Memorandum of Understanding dated 7 July,
1997 and WTV's Affiliate At Entertainment Limited of Maidstone, Kent, UK and PBE
have signed a digital compression purchase and sale agreement dated December 19,
1997 for digital compression equipment for the transmission of At Entertainment
Limited's direct to home satellite digital service to WTV's Customers in Poland
("Main Agreement") as part of the end to end solution provided by PBE and PPS as
part of a fully integrated and functioning digital encrypted television system
and the parties hereto wish to cooperate on a long term basis in providing state
of the art digital reception equipment and telecommunications services to
Customers in Poland in accordance with the terms and conditions set forth
hereinafter.
NOW THE PARTIES HERETO AGREE AS FOLLOWS:
CONFIDENTIAL
<PAGE>
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Article 1
Definitions
1. Definitions
A. "Affiliate" shall mean any corporation, company, partnership or other legal
entity, existing now or in the future, which directly or indirectly controls, or
is controlled by, or is under common control with, a Party to this Agreement.
Control means the ability to direct the policy or operations of an entity,
directly or indirectly, but only as long as such control exists.
B. "Agreed Amount" shall mean:
(i) with respect to Decoders: 500,000 units, and
(ii) with respect to ODUs: the amount of ODUs calculated in accordance with
Article 11.5 ("ODU Amount"),
less the amount of Decoder Systems and/or Decoders and/or ODUs, WTV is entitled
to subtract on the basis of this Agreement.
C. "Authorised Representatives" mean the representatives nominated by WTV, PBE
and PPS respectively and notified to the other parties in writing from time to
time.
D. "Batch" means the number of Decoders and/or Decoder Systems specified in the
Forecast for delivery during a particular week of the Term.
E. "Contract Price" means the price of each Decoder System as set out in Article
2.8.
F. "Customer" means a purchaser or renter of a Decoder or Decoder System who has
executed a Subscription Agreement on the basis of which he is authorised to
receive the Network Service.
G. "Dealer" means a retailer which distributes consumer electronics products
(including Decoders and Decoder Systems) supplied by PPS for (re)sale or rental
in the Polish market through its respective Points of Sale.
H. "Decoder" means the integrated digital receiver decoder including Software
and a corresponding Smart Card, manufactured by PBE, containing the Philips
trademark and which is used to access, receive, decompress, demultiplex, decrypt
and decode the Network Service and which meets the Specification attached hereto
as Schedule 1H.
I. "Dealer System" or "System" means the combination of PBE products, capable of
accessing, receiving, decompressing, demultiplexing, decrypting and decoding the
Network
CONFIDENTIAL
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Service and which meets the Specifications attached hereto as Schedule 1H and
Schedule 1H(A). This includes a Decoder and an ODU in the case of individual
residential units, and in the case of MDUs, one Decoder per residential unit and
a minimum of one ODU per MDU.
J. "Decoder System Products" means Decoder Systems, Installation Accessories and
any other products related to or required for the use of the Decoder Systems by
Customers and distributed by PPS.
K. "Delivery and Milestone Plan" shall mean the agreed dates and or milestones
for the various tasks to be performed, all as set forth in Schedule 1I hereto,
as updated from time to time in writing by the parties.
L. "Distribution" means the sale, renting, leasing, distribution, marketing and
promotion of the Decoder Systems and the Network Service. "Distribute" shall
have the corresponding meaning.
M. "Engineering Change Procedure" shall mean the procedure attached hereto as
Schedule 3.4 describing the manner in which future technical changes are to be
implemented.
N. "Execution Date" means the date first written above upon which this Agreement
was executed.
O. "Firmware" shall mean all non-accessible and non-reproducible software and
program codes embedded in hardware which are necessary for the proper
functioning of the Decoder Systems.
P. "Forecast" means the commitment for purchase of Decoder Systems, Decoders,
Smart Cards and ODU's provided to PBE by WTV in accordance with Article 2.2.
Q. "Future Products" shall mean natural extensions, Updates, Upgrades, future
generations and follow on products capable of receiving the Network Service,
produced by Philips.
R. "Installation" means the erection, cabling, complete assembly and
set-up/configuration of the Decoder Systems at a Customer's premises.
S. "Installation Accessories" means all materials and accessories required and
used in the Installation of the Decoder Systems, including, but not limited to,
cabling, wiring, special tools and/or brackets, parts, instruction manuals and
all other items necessary to install the Decoder Systems at a Customer's
premises.
T1. "Installation Specification" means the specification for a standard
Installation as set out in Schedule 11.
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U. "Installer" means an individual or entity qualified, trained and authorised
by PPS to perform the Installation as set forth in Article 11.
V. "Libor" means the six (6) month London Interbank Offered Rate quoted by the
British Bankers Association in London in respect of US dollars.
W. "Licensed Products and Materials" means those products approved by WTV for
PBE's and PPS's use of the WTV Trademarks (as defined in Article 14). Such
products include upon approval in accordance with Article 14, the Decoder
Systems, Decoders, ODUs, Installation Accessories and other related materials,
the packaging thereof and the advertising, point of sale and promotional and
advertising materials with respect thereto and to the Network Service.
X. "Major Fault" shall mean that a Decoder System:
(a) does not materially perform in accordance with the Specification other
than any failure to meet the requirements in respect of the Software as
set out in Article 2.6; or
(b) does not comply with Eur1 certification.
Y. "Multiple Dwelling Unit" or "MDU" means apartment, condominium, hotel,
hospital and similar multiple dwelling structure.
Z. "Network Service(s)" shall mean the direct to home satellite encrypted
digital subscription television service broadcast by At Entertainment Limited
delivered to Customers.
AA. "ODU" means outdoor unit and consists of a Philips and WTV branded satellite
reception dish and associated electronics capable of receiving Network Service
which operates in accordance with the Specification set forth in Schedule 1H(A)
and the live signal from the Equipment.
BB. "Point of Sale" shall mean a sales outlet of a Dealer at which a Decoder
System is available for display, promotion, sale and/or hire.
CC. "Software" shall mean all Firmware and any downloadable software packages
that operate the Decoder Systems including CryptoWorks as specified in Schedule
1H hereto and any Updates and Upgrades to the Software.
DD. "Smart Card" shall mean the insertion card which when inserted in the
Decoder will, through the use of a built in microprocessor (or such other
device as agreed by the parties) and the CryptoWorks embedded (conditional
access) code controls the ability of the Decoder System to access the Network
Service after authorisation by WTV.
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EE. "Specification" means the agreed technical and performance specification for
the Decoder System attached to this Agreement at Schedule 1H and Schedule 1H(A)
as amended and agreed in writing by both parties from time to time.
FF. "Subscription Agreement" means an agreement entered into by a prospective
Customer under which he is authorised to receive the Network Service.
GG. "Term" means the term of this Agreement which shall commence on the
Execution Date and expire in accordance with Article 18.1.
HH. "Tests" shall have the meaning set forth in Article 2.4.
II. "Update" shall mean improved hardware, Software and/or Firmware having the
same functional Specification as before, but originating from corrected source
code in case of Software or corrections, in case of hardware.
JJ. "Upgrade" shall mean improved hardware, software and/or firmware as a result
of enhanced functionally and/or changed Specification.
KK. "Working Day" means a business day in The Netherlands and does not include
public holidays or Saturdays or Sundays in The Netherlands.
Article 2
Purchase and Sale of Decoder Systems
2.1 Manufacture, purchase and sale
PBE shall manufacture or have manufactured the Decoder Systems in
accordance with the Specifications and the Delivery and Milestone Plan and
best practice quality assurance procedures. WTV shall be entitled to (a)
inspect the factory or factories where the Decoder Systems are being
manufactured; and (b) inspect and review the manufacturing procedures for
the Decoder Systems; and (c) inspect and review PBE's quality records
relating to the manufacture and testing of Decoder Systems, during the
Term by 14 days' notice in writing to PBE to verify PBE's compliance with
its obligations under this Agreement. PBE shall cooperate with WTV
including allowing access to relevant premises and records and using
reasonable endeavours to ensure relevant staff are available if required.
WTV agrees to purchase and pay for and PBE agrees to sell and deliver the
Agreed Amount in accordance with the terms and conditions hereof.
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2.2 Forecast
WTV will provide to PBE on a monthly basis a written six-month rolling
forecast of its estimated requirements for Decoders and Smart Cards, for
delivery of Batches in each of the next six (6) months. This Forecast will
indicate the following:
(a) a commitment for each of the first four (4) months;
(b) a non-binding reasonable commercial efforts forecast for the fifth
and sixth months, which may vary each month in total plus or minus
20% (twenty percent), versus the immediately preceding forecast.
WTV will provide to PBE on a monthly basis a written 3 month rolling
forecast of its estimated requirements for ODU's for delivery of Batches
in each of the next three (3) months. This Forecast will indicate the
following:
(a) a commitment for each of the first two (2) months;
(b) a non-binding reasonable commercial endeavours forecast to the third
month, which when it is confirmed may vary in total plus or minus
20% (twenty percent).
PBE agrees to use reasonable commercial endeavours to deliver the Decoder
Systems, Decoders, ODUs and Smart Cards in accordance with WTV's weekly
requirements for Decoder Systems, Decoders, ODU's and Smart Cards as set
out in the Forecast, provided that WTV's weekly requirements in that
Forecast do not vary by more than 20% from week to week.
2.3 Confirmation and conditions
The Forecast is binding on both parties. PBE shall acknowledge in writing
such Forecast to WTV within five (5) Working Days after receipt thereof.
Any and all such deliveries shall be issued subject to the terms and
conditions of this Agreement and any and all other terms and conditions
included in or made applicable to a quotation or a confirmation of a
purchase order, if any, are declared to be invalid and any such supplies
of Decoders or Decoder Systems shall only be governed by the terms and
conditions of this Agreement, unless otherwise agreed in writing.
2.3A New Agreement
If WTV has purchased the Agreed Amount in accordance with Article 2.1 and
wants to continue:
(a) PPS' appointment as its agent to Distribute the Decoder Systems,
and/or
(b) to purchase Decoders and/or Decoder Systems from PBE,
it shall notify PBE at least four months in advance and the parties
(including PPS) shall negotiate the terms and conditions of the new
agreement or agreements in good faith.
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2.4 Factory testing and Delivery conditions
Prior to despatch from PBE, each Batch of Decoder Systems shall be
carefully inspected and submitted to standard tests to be agreed between
the Parties ("Tests"). WTV shall have the right to send a representative
at its cost to inspect the Batch of Decoders or Decoder Systems and/or
witness the Tests before their despatch from the factory in Belgium, or
any other factory where PBE manufactures Decoders or Decoder Systems.
PBE agrees to notify WTV of the times and place when Tests will take place
in accordance with the Forecast at least 4 weeks before commencement of
the Tests. WTV agrees to notify PBE at least 2 weeks before the Tests are
due to commence if it intends to exercise this right.
PBE shall deliver the Decoder Systems to WTV at PBE's Belgian factory, or
any other factory where PBE manufactures Decoders or Decoder Systems in
accordance with the Forecast and the Delivery and Milestone Plan. PBE
shall be responsible for the transportation as from the factory and
delivery, including insurance and export licenses to the extent required,
and (if legally possible) import permits (if any) related thereto, of the
Decoders and Decoder Systems to a PPS appointed bonded warehouse approved
by WTV in Poland (or non bonded if WTV allows same for improved timing of
delivery), all on behalf of WTV as described below. PBE hereby warrants
that all Decoder Systems are adequately insured until delivery to the
Dealers up to the full invoice value. The distribution fee to be paid to
PPS in accordance with Article 6 includes importing services and costs
involved in distribution to Dealers from said warehouse but excludes
transport to Poland, import duties, any applicable VAT and customs
clearance administration, which will be paid directly by WTV, PBE and PPS
undertake to use all reasonable endeavours to support WTV in relation to
the importation of the Decoder Systems into Poland and prepare
documentation for importation, if required.
All Decoder Systems shall become WTV's property upon delivery (ex
factory), but the Decoder Systems shall be at PBE's risk as from delivery
up to receipt in the warehouse and at PPS risk until delivery and
Installation at the Customer's premises.
2.5 Packing and user instructions
Unless otherwise agreed, any Decoder Systems to be delivered hereunder
shall be labelled by PBE with the details such as ship to address,
codenumbers and packing list as provided to WTV by PBE, shall be packed
and packaged (a) to ensure undamaged and safe arrival at their ultimate
destination; and (b) to comply with requirements imposed by the modes of
transport. The Decoder Systems will contain user instructions in both the
English and Polish languages approved by WTV and promotional inserts as
set out in Article 16.1.
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2.6 Acceptance
PBE warrants that the Decoder Systems shall comply with the Specification
as at the date of Installation at the Customer's premises.
PBE and WTV acknowledge that the [***] of the Decoders ("[***]",
"[***]" and "[***]" respectively) to be delivered to WTV will
meet the Specification [***] as set out in Schedule 1H, which is
attached to this Agreement.
For these purposes, [***] Decoder shall mean a Decoder meeting the
Specification [***] the functionality and/or features so indicated in
Schedule 1H; [***] Decoder shall mean a Decoder meeting the
Specification [***] the functionality and/or features so indicated in
Schedule 1H; [***] Decoder shall mean a Decoder meeting the
Specification [***] the functionality and/or features so indicated in
Schedule 1H. PBE shall ensure that:
(a) each Decoder delivered as from [***] shall be a [***] Decoder
and each of the Decoders delivered or to be delivered as
soon as practically possible, but no later than [***] shall
be a [***] Decoder; and
(b) as soon as practically possible, but no later than [***],
each of the Decoders delivered and to be delivered as from such date
shall be a [***] Decoder; and
(c) as soon as practically possible, but no later than [***],
each of the Decoders delivered and to be delivered as from
such date, comply with the Specification;
(d) any costs associated with ensuring compliance with the Specification
(including downloaded software, training WTV's engineers, customer
support and enquiries and acceptance testing) shall be paid by PBE.
The costs payable by PBE exclude costs incurred by WTV relating to
the satellite transmission of the downloaded software to Decoders
Installed at Customers' premises by WTV.
If WTV incurs any out of pocket expenses arising out of:
(i) the deviation of [***] Decoders from the
Specification; or
(ii) subsequent tasks to ensure compliance of [***] Decoders with
the Specification; or
(iii) queries or concerns of Customers,
other than costs relating to satellite transmission of the downloaded
software to Decoders Installed in Customers' premises by WTV, PPS shall
reimburse WTV within 30 days of the issue of an invoice for those expenses
including VAT, provided
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that WTV has the right at its election to set off the cost of these
expenses against payments to be made by WTV in accordance with Article
6.1. If PPS fails to pay WTV within 30 days of the issue of the invoice,
interest will be due at the rate of [***] ([***]) percent per month on the
outstanding amount, until it is paid by PPS, unless there is a good faith
dispute in relation to the amount payable.
2.6A Remedies
The remedies set out in Article 2.6B apply if:
(a) the [***] Decoders are not delivered by [***]; or
(b) the [***] Decoders are not delivered by [***]; or
(c) the [***] Decoders are not delivered by [***]; or
(d) the Decoders [***] are not delivered by [***],
each a "Relevant Date".
2.6B If the Decoders and/or Decoder Systems do not meet the Specification for
the [***] of the Decoder ("[***] Specification") by the Relevant Date,
WTV is entitled to:
(a) Delay Discounts as set out in Article 2.10 applied to the Contract
Price of the Decoders and/or Decoder Systems Forecasted after the
Relevant Date up to a maximum of [***]% of the Contract Price for
those Decoders and/or Decoder Systems that do not meet the [***]
Specification until remedied;
(b) if WTV elects not to take the Decoders that do not meet the
[***] Specification and the delay amounts to more than 5 weeks,
WTV shall be entitled to a [***] reduction of the Agreed Amount to
be purchased for each Decoder and/or Decoder System Forecasted;
(i) after the 5 week grace period set out in Article 2.6B(a) for
the Decoders referred to in Articles 2.6A(a), (b) & (c); and
(ii) after [***] for the Decoders referred to in Article
2.6A(d),
until the Decoders delivered and to be delivered meet the [***]
Specification.
The Contract Price applicable to the reduction in the Agreed Amount
shall be as follows:
(i) [***] Decoder and/or Decoder System calculated on the basis
of the [***] as defined in Article 2.8; and
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(ii) [***] Decoders and/or Decoder System calculated on the basis
of the [***] as defined in Article 2.8.
(c) if WTV elects to take those Decoders that do not meet the [***]
Specification, payment of the [***] of the Contract Price payable on
delivery of Decoders and/or Decoder Systems in accordance with
Article 2.8 will be payable on the later of:
(i) 60 days after delivery of those Decoders; and
(ii) 14 days after the Decoder meets the [***] Specification.
2.6C If Decoders delivered after December 31, 1998 do not contain the agreed
[***] functionality as set out in the Specification, WTV shall be
entitled to:
(a) Delay Discounts as set out in Article 2.10 applied to the Contract
Price of the Decoders and/or Decoder Systems Forecasted after
December 31, 1998 up to a maximum of [***]% of the Contract Price
for those Decoders and/or Decoder Systems that do not have [***]
until remedied; and
(b) notify PBE that PBE will lose its exclusivity as set out in Article
7.1 by March 31, 1999;
(c) upon receipt of that notice, PBE shall cooperate in good faith to
expeditiously license third parties appointed by WTV its Software
including CryptoWorks in order for WTV to have a second and third
source of manufacture by March 31, 1999; and
(d) WTV will not be required to purchase the Agreed Amount in accordance
with Article 7.1.
In relation to the Forecast for Decoders and/or Decoder Systems to be
delivered after 31 December 1998, WTV will be required to purchase the
Forecasted Decoders for January, February and March 1999. If WTV requires
Decoders:
(a) in April 1999, it agrees to order them by 15 January 1999; and
(b) in May 1999 it agrees to order them by 15 February 1999.
Notwithstanding the foregoing, PBE will undertake all reasonable
commercial endeavours to ensure that it delivers Decoder Systems which
meet the [***] Specification in accordance with the timetable set out
in this Article and that at all times that WTV can continue to meet the
roll out targets.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
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AND EXCHANGE COMMISSION]
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2.7 Third Party suppliers
PBE and PPS are entitled to appoint a third party to handle logistics,
integration, assembling or subcontracted activities relating to the
Decoder Systems provided that:
(a) WTV has given its prior written approval to the appointment of the
third party, which may not be unreasonably withheld or delayed, WTV
will grant its approval provided the performance requirements of any
such third party are at least as comprehensive as the performance
required of PBE under this Agreement; and
(b) PBE and PSS remain liable for the performance of their respective
obligations in this Agreement.
2.8 Payment
The Contract Price is the sum of:
(a) US$ [***] for each of the [***] Decoders delivered by PBE to
WTV ("[***]") or US$[***] for each of the [***] Decoders
delivered by PBE to WTV ("[***]"); and
(b) US$ [***] for the Smart Cards; and
(c) US$ [***] for the license of the Software (including Cryptoworks)
per Decoder ("Software Price"); and
(d) US$ [***] for each ODU.
PBE agrees that the Contract Price may vary by the reduction of US$[***]
where an ODU is not ordered and delivered as part of the Decoder System as
contemplated in Article 11.5.
All PBE invoices are due 30 days as from the date of the invoice, unless
agreed otherwise herein.
(i) Payment for Decoders and Smart Cards shall be made to PBE according
to the following conditions:
Each month PBE will invoice WTV [***]% of the Contract Price of each
month's new Forecast for those Decoders and/or Smart Cards.
The last [***]% of the Contract Price will be invoiced by PBE on the
date of shipment from the factory. Subject to Article 2.6B(c), this
last invoice will have to be paid by WTV within 60 days after the
invoice has been sent.
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(ii) Payment for the ODU's shall be made to PBE according to the
following conditions:
Each month PBE will invoice WTV [***]% of the total price of a
month's Forecast for ODU's once it becomes binding. The
remaining [***]% of the total price of the month's Forecast shall
be invoiced on the date of shipment from the factory. These
invoices shall be paid by WTV within 30 days of the date of the
invoice being sent to WTV.
In Schedule 2.8 an example of the payment schedule is attached.
Invoices are to be off set against the US$8 million which has been paid
in advance to PBE until that amount has been satisfied.
Any and all value added taxes and any other taxes, if any (other than
corporate tax levied on PBE and PPS), and/or (import) duties as applicable
by law are not included in the Contract Price payable to PBE and WTV
agrees to pay any such taxes and duties. All amounts shall be due and
payable in the currency in which they are incurred. All payments shall be
made by direct transfer to the bank indicated by PBE on the invoices with
all costs of the transaction paid by WTV. In case WTV fails to pay the
amounts due within the agreed period and they are not subject to a good
faith dispute, interest will be due by WTV at the rate of [***] percent
per month on the outstanding amount for which an invoice has been issued
until such amount is paid, without any notice of default being required.
WTV is entitled to set off any liquidated damages it is entitled to on the
basis of Article 2.10 (delivery delays) against any amount payable on the
basis of this Article 2.
2.9 Warranty
Each Decoder System will be warranted to WTV by PPS for a period of 12
months as from the date of Installation at the Customer's premises as set
out in this Article 2.9.
PPS warrants to WTV the good quality of the Decoder Systems supplied
against defects which appear therein under proper use in accordance with
the user documentation supplied by PBE (if any), and which arise solely
from faulty design, manufacture, materials or workmanship. This warranty
does not cover damage sustained by normal wear and tear or arising in
consequence of negligence, misuse or improper installation, use,
maintenance, repair, alteration, storage or return handling or
unauthorised combining with third party products of the Decoder Systems by
the Customer. Some newly manufactured Decoder Systems supplied hereunder
may contain selected remanufactured parts equivalent to new in
performance. Replacement parts are new or equivalent to new in
performance.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
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Under this warranty PPS shall replace such parts as have proved to have
such defects as set out hereabove or, at PPS option, repair such parts or
have them repaired at PPS option, always free of charge, provided the
procedure set forth in Schedule 2.9B is adhered to. Defective parts shall
become PPS' property as soon as they have been replaced. For the Software
in the Decoder Systems, Schedule 2.9A has specific warranty arrangements.
Compliance with this warranty undertaking pursuant to this paragraph shall
be considered to give full satisfaction (except as set out in Article
2.10) to WTV and any Customer. In respect of malperforming or faulty
Decoder Systems, any claim for WTV for set off, compensation or for
dissolution of the purchase order or for damages arising out of a defect
arising from the faulty design, manufacture, materials or workmanship is
hereby waived. Warranty and repair services will be executed by or on
behalf of PPS in accordance with Schedule 2.9B.
PBE, PPS and WTV will negotiate in good faith the terms of a service and
maintenance agreement for each Decoder System which will apply after the
warranty period set out above for each Decoder System has expired. Service
and maintenance for the first year of any such agreement shall be provided
at a cost of US$[***] per Decoder System. The service and maintenance
agreement shall set out further terms and conditions on which support and
service will be provided by PBE and PPS to WTV and shall meet the same
requirements as when the Decoder Systems are under warranty as set out in
Article 2.9.
Unless the service and maintenance agreement referred to above is in
force, PPS undertakes to provide a repair and replacement facility for
Decoders on standard conditions for Customers which apply to its other
consumer electronics products in Poland for 7 years from the last date of
delivery of the Agreed Amount.
Finally, PBE warrants that the personnel employed by PBE and its
subcontractors, if any, shall be sufficiently skilled and qualified and
will exercise all due care and skill in the performance of their tasks
with respect to the Decoder Systems and it knows of no reason why it
should not be capable of fully performing its obligations in the manner
and time-scale envisaged in this Agreement, provided that the parties
acknowledge the normal risks in software development activities which
apply to PBE's obligations in developing and delivering [***]
Decoders and Decoder Systems which comply with the Specification
by the dates specified in Article 2.6.
2.10 Late Delivery
If PBE fails to deliver:
(a) Decoders and/or Decoder Systems in accordance with the Forecast
(April 1998: [***] units, May 1998: [***] units and June 1998:
[***] units) and subsequently as provided by WTV to PBE; or
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(b) the [***], [***], [***] Decoder that meets the [***]
Specification or a Decoder System that meets the Specification
and contains the agreed [***] functionality in accordance with
article 2.6A, B & C),
then, as WTV's sole remedy (other than as described in this Article 2):
(i) PBE will reduce the Contract Price for the Batch of delayed Decoder
Systems and/or Decoders and/or ODUs (whichever applies) by [***]%
([***] percent) for each week or part thereof that such delay
continues, up to a maximum of [***]% ([***] percent) of the Contract
Price for the delayed Batch of Decoders or Decoder Systems and/or
ODU's; and
(ii) the US$[***] distribution fee to be paid to PPS will be reduced by
the same percentages,
(together the "Delay Discounts"),
except that these reductions shall not apply if such delay is the direct
result of acts or omissions on the part of WTV or breach of this Agreement
by WTV or Force Majeure. In case such delay extends beyond three months,
WTV is entitled to terminate this Agreement in accordance with Articles
18.2 or 18.3. The parties acknowledge and agree that Decoders do not incur
a delay discount in addition to a functionality discount if the cause is
only with Software not being delivered or downloaded in accordance with
Article 2.6.
PBE acknowledges that ODU's must be delivered as part of a Decoder System.
If Decoders are delayed as set out in this Article 2.10 the ODUs will
remain in the PPS appointed bonded warehouse, at PPS's cost, after
delivery of the ODUs to WTV. PBE will not provide the ODU's separately to
WTV or Dealers or Installers, unless expressly agreed to by WTV. If a
Batch of Decoders is delayed, payment of the remaining [***]% of the price
of the ODUs that relate to that Batch of Decoders will be payable on the
later of 30 days after the date of invoice or 14 days after that Batch of
Decoders has been delivered.
Notwithstanding the foregoing, PBE will undertake all reasonable
commercial endeavours to ensure at all times that WTV can continue to meet
applicable to the planned date for the commercial launch of the Network
Services and roll out targets. WTV will inform PBE promptly in case of any
(anticipated) delay regarding such launch date, and PBE will inform WTV
promptly in case any delay is expected regarding any deliveries. In such
case, without prejudice to WTV's, PBE's and PPS' other rights and remedies
set forth herein, the parties will jointly work out a remedy programme
(including committed resources from both parties) within 10 days of
notification of the delay to WTV, in order to minimise disruption to WTV's
business and its rollout targets and to try to ensure efficient delivery
of the delayed Decoder Systems.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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If there is a Major Fault with more than 10% of a Batch of Decoders and/or
Decoder Systems, WTV is entitled to require PPS to withdraw affected or
suspected Decoders or Decoder Systems until the situation has been
analysed and a solution implemented for these Decoders or Decoder Systems.
In case PPS has drawn on more than 10% of the WTV existing pool of new
Decoders or Decoder Systems for replacement purposes, then such amount
overdrawn shall be deemed delayed for these purposes until PPS has
replaced such amount. The delay discounts set out in this Article 2.10
shall apply to each Batch of Decoders or Decoder Systems with a Major
Fault.
2.11 Homologation
Homologation of the Decoder Systems will be the responsibility of PBE
wherever necessary with the help and support of WTV at PBE's cost for out
of pocket expenses.
2.12 Smart Cards
PBE will order Smart Cards on behalf of WTV, to be bypacked with each
matching Decoder.
Serial number, initialisation and personalisation information are provided
by PBE to WTV as part of the CryptoWorks `security programme' attached in
Schedule 2.12 and in the LOT files to be separately supplied to WTV. PBE
will be responsible for delivery of Smart Cards pursuant to agreed
instructions. The Smart Cards will interface and work with the Decoders.
PBE shall or shall procure that the Smart Cards are manufactured and
prepersonalised irreversibly. The relevant personalisation data can be
changed by WTV via its own subscriber authorisation system. The Smart
Cards shall be prepersonalised by PBE by loading WTV specific system and
operational information on to the Smart Cards. PBE warrants that its
agreements with third party suppliers of components, parts or equipment
for manufacture of Smart Cards contain customary and appropriate
provisions relating to quality control.
2.12A Additional Smart Cards
WTV will hold an adequate number of Smart Cards at its subscriber
management centre for the purposes of any claim under the Smart Card
warranty set forth in Article 2.9. WTV may order additional Smart Cards
separately from Decoders. If WTV orders such Smart Cards, PBE agrees to
supply those Smart Cards at the agreed price specified in Article 2.8(b)
(plus separate transportation charges) and to deliver those Smart Cards
within 2 months for spare quantities. Normal quantities of Smart Cards are
to be supplied on the basis of a six months rolling forecast, with the
first 3 months firm and fixed ("Smart Card Forecast"). A complete swapout
of all Smart Cards can be accomplished within 6 months, provided same is
planned at least four months in advance. The Smart Cards will be at PBE's
risk until delivery to
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WTV in Poland. The Smart Cards so delivered will comply with the
Specification as agreed between the parties and carry the same warranty as
described for Smart Cards supplied as part of a Decoder System as set out
it Article 2.9.
If PBE receives a notice from WTV of a breach of the obligations in this
Article, PBE shall: (a) as a matter of urgency take all reasonable steps
to identify and remedy the problem causing the defective operation of the
Smart Cards; and (b) as soon as practically possible replace the defective
Smart Cards free of charge as set out in Article 2.9. PBE hereby warrants
that to the best of its knowledge, no successful hacking has taken place
of CryptoWorks as at the Execution Date.
If PBE fails to deliver the Smart Cards in accordance with the Smart Card
Forecast, delay discounts of [***]% ([***] per cent) for each week or part
thereof that the delay continues shall apply to the amount of Smart Cards
to be delivered in that week in accordance with the Smart Card Forecast.
The delayed discounts will be capped at a maximum of [***]% ([***] per
cent) of the total price of the delayed Smart Cards.
2.13 Spare parts and support
PBE guarantees the availability for sale of spare parts for the Decoder
Systems, or functionally equivalents suitable for replacement purposes,
for a period of 7 years from the last date of delivery of the respective
type of Decoder Systems. In order to induce WTV to enter this Agreement,
PBE has agreed to fully support the Decoder Systems in accordance with the
terms hereof and to provide solutions compatible with the Decoder System
if PBE upgrades any of its components.
Article 3
Decoder System testing and acceptance
3.1 Delivery of trial units
PBE shall deliver 200 Decoder Systems no later than April 6, 1998 to
Dealers the locations of which are to be specified by WTV and PPS in order
for PBE, PPS and WTV to jointly conduct end to end system testing to
ensure that the equipment installed at At Entertainment Limited's
transmission facility at its UK site ("Transmission Facility") and the
Decoder Systems interface and interoperate with each other and that the
digital television signals uplinked from the Transmission Facility are
receivable by the Decoders without any loss of signal or features.
3.2 Tests
Following production of the [***] Decoders, each of:
(a) [***] of the Decoder;
(b) [***] of the Decoder;
(c) [***] of the Decoder; and
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(d) the Decoder that has all the functionality and features set out in
the Specification,
shall be tested in accordance with this Article and Schedule 3.2.
The [***] and the Decoder Systems shall be tested with `live'
signals from the Philips digital compression program delivery system
("Equipment") installed at the Transmission Facility to ensure the Decoder
Systems are operating in compliance with the Specification and are capable
of receiving the live signal from the Equipment. The field trial
acceptance tests, will be executed in accordance with Schedule 3.2 and the
Delivery and Milestone Plan. The parties will jointly execute such
acceptance tests.
3.2A Final Acceptance of the Equipment
The parties agree that for the purposes of Article 4 of the Main
Agreement, the final acceptance testing of the Equipment will use the
[***] Decoder.
3.3 Notice of Rejection/Acceptance
Upon each test being finalised WTV must specify, if applicable, in writing
in reasonable detail the reasons why the Decoder Systems are not operating
in accordance with the Specification as set out in Schedule 1H or the live
signal from the Equipment ("Notice of Rejection"). Failure to issue a
Notice of Rejection within 10 days as from the end of such testing as
notified to WTV by PBE shall mean that Final Acceptance for those Decoder
Systems shall be deemed to have occurred. If a Final Notice of Rejection
is issued, PBE undertakes to investigate in a timely and efficient manner,
the shortcomings identified by WTV and to correct them as soon as
technically possible so that the Decoder Systems are operating in
accordance with the Specification and the live signal from the Equipment
in the UK (in this Article 3, said live signal is as specified in the Main
Agreement, Exhibit A). Upon PBE and WTV being satisfied all such
shortcomings identified by WTV in the Notice of Rejection have been
corrected, the parties shall repeat the final acceptance tests for those
Decoder Systems to ensure that the Decoder Systems are operating in
accordance with the Specification and the live signal from the Equipment.
If so, PBE shall issue the Final Acceptance Certificate. If WTV disputes
PBE right to issue the Final Acceptance Certificate, it shall have a
period of 5 Working Days to refer the matter to the dispute resolution
mechanisms set out under Article 24, otherwise the final acceptance
certificate for those Decoder Systems shall be binding upon it.
3.4 Engineering Change Procedure
During the Term of this Agreement, PBE undertakes to keep WTV informed
under appropriate confidentiality obligations of any new or improved
products or services that may result from its decoder systems activities
or digital video systems business and cooperate with WTV to make such
products or services available to WTV at then prevailing terms and
conditions. In order to ensure the good performance of the
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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Decoder Systems installed and to be installed, and safeguard the
reputation of the parties hereto, any future technical issues (including
amendments to the Specification, the downloading of new software and
Future Products) shall be governed exclusively by the Engineering Change
Procedures set forth in Schedule 3.4 hereto.
WTV will ensure that PBE shall receive all material information regarding
future updates and upgrades to the Network Service, its technical signals
and any proposed changes to digital receivers simultaneously or at least
no later than other authorized manufacturers in order to ensure a level
playing field. Furthermore, WTV will communicate to PBE any technical
issues affecting other manufacturer(s) promptly if such issues could
affect the Decoders (System)s of PBE subject to any confidentiality
obligations owned to those other manufacturer(s).
3.5 Documentation
Except where intended to serve as instructions for use or advertising
purposes, all technical information in relation to Decoder Systems and
their maintenance are PBE proprietary, covered by PBE copyrights and
remain PBE property and may not be utilized or copied, reproduced,
transmitted or communicated to third parties without the prior written
consent of PBE. PBE hereby grants WTV a non-transferable (except to an
Affiliate), royalty-free license to use and translate the user
documentation of the Decoder Systems and any Updates thereto for use
within its business and for its Customers, without the right to grant
licenses or provide copies to third party (potential) competitors of
PBE/PPS.
PBE agrees to place in escrow at Ashurst Morris Crisp, Solicitors, a copy
of the technical maintenance documentation of the Decoders for internal
use by WTV only to be released to WTV's Director of Engineering &
Distribution if (i) a good faith warranty dispute arises the solution of
which requires resort to the documentation, or (ii) one of the events
listed in Article 18.3 occurs.
Article 4
Establishment of Special Department of PPS
4.1 DTH Centre
PPS shall establish and maintain in Warsaw, Poland, a special
direct-to-home department ("DTH Centre") by January 1, 1998 or within 3
weeks from the Execution Date, whichever is later, which shall handle all
PPS' matters related to the Decoder Systems, all services to be provided
to WTV in that regard and shall supervise and co-ordinate all activities
related to the responsibilities of PPS in Poland under this Agreement. The
DTH Centre shall be maintained during the Term.
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4.2 Staffing
Staffing of said DTH Centre will consist of (i) a full time Marketing and
Sales Manager (and if he is to be replaced, a new appointment only after
consultation with WTV) (ii) a Technical Manager and (iii) an assistant to
the MSM. This centre can draw on indirect personnel of PPS on a part-time
basis such as, but not limited to merchandising specialist (50%);
(b) 11 sales representatives (each at least 10%), one National Sales
Manager (5%);
(c) team of 5 logistics personnel (each at least 5%);
(d) one person at the PPS order desk (as needed);
(e) personnel at the PPS business administration (as needed);
(f) personnel at the PPS service department to organise and provide
support;
(g) one person (50%) at the technical helpdesk of PPS.
PPS agrees that:
(a) the number of its staff in the DTH Centre will be sufficient at all
times to ensure that it is able to comply with its obligations in
this Agreement; and
(b) all staff in the DTH Centre will be suitably qualified and act with
due care and skill at all times consistent with best Polish industry
standards.
Article 5
Distribution services to be provided
5.1 Logistics
PPS will receive Batches of the Decoder Systems from PBE in consignment as
from the date of delivery by PBE and PBE will provide transportation to a
PPS' appointed bonded warehouse, approved by WTV. PPS will provide all
other logistics services to WTV. PPS will provide Polish order desk
fulfillment, delivery and monitoring services and business administration
and documentation of the above, all in accordance with Schedule 5.1
hereto.
5.2 Sales/Rentals
Decoder Systems will be distributed by PPS to Dealers, with PPS acting as
agent for and on behalf of WTV on the standard terms and conditions as
agreed between WTV, PPS and each such Dealer.
5.3 PBE/WTV Guarantees
PPS obligations hereunder are guaranteed by the PBE Guarantee set forth in
Schedule 5.3A hereto. Payments to PBE and PPS are guaranteed by WTV's
ultimate
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parent At Entertainment Inc., as set forth in the Guarantee attached as
Schedule 5.3B hereto.
5.4 Collection of subscription fees and Payment of Dealer
PPS will procure that the Dealer:
(a) collects the subscription fee from the Customer when the Customer
signs the Subscription Agreement; and
(b) remits the subscription fee to PPS as agreed by WTV and PPS.
PPS and WTV agree that the Dealers will invoice WTV the Polish Zloties
equivalent of the Dealer's commission and fees for the Installation once a
completed Subscription Agreement and installment protocol has been sent by
the Dealer to PPS on behalf of WTV by courier or registered mail. The
amounts payable in accordance with this Article will be payable by WTV
within 30 days of receipt of the Subscription Agreement and instalment
protocol.
Article 6
Payment for services
6.1 Payments
Payment by WTV to PPS for the services to be provided by PPS as listed in
Schedules 2.9A, 2.9B and 5.1 will be made in accordance with the payment
terms and conditions set forth below.
a. [***] USD prepayment (based on [***] USD x total April 1998
quantities of [***]) to be paid on the Execution Date.
b. [***] USD (based on [***] USD x total May 1998 quantities of [***])
to be paid in the first week of May 1998.
c. [***] USD (based on [***] USD x total June 1998 quantities of [***])
to be paid in the first week of June 1998.
d. Further monthly payments (for services covering all the Agreed
Amount) will be paid in accordance with the Forecast subject to the
following procedure:
[***]% of the total monthly payment (based on [***] USD x the fixed
quantity for that month) will be invoiced at the end of the
preceding month, such invoice being payable within 30 days of date
of invoice.
- the remaining [***]% will be payable within 14 days after
receipt of an invoice by WTV from PPS confirming the completed
Installation for a Customer who has entered into a Subscription
Agreement with WTV, or no later than six months after delivery of
the Decoder Systems to the PPS Warehouse, whichever is first.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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6.2 deleted intentionally
6.3 Taxes
Any and all value added taxes and any other taxes, if any (other than
corporate tax levied on PBE and PPS), and/or (import) duties as applicable
by law are not included in the fees payable in accordance with article 6
and WTV agrees to pay any such taxes and duties.
6.4 Currency
All amounts for services to be paid to PPS shall be due and payable by WTV
in Polish Zloties against the United States Dollar value agreed herein.
The exchange rate for payments to be made in Zloties will be the rate
published by the National Bank of Poland on the date of payment.
6.5 Bank
All payments shall be made by direct transfer to the bank indicated by PPS
on the invoices with all costs of the transaction paid by WTV.
6.6 Delay
All PPS invoices are due 30 days as from the date of invoice. In case WTV
fails to pay the amounts due within the agreed period and they are not
subject to a good faith dispute, interest will be due by WTV at the rate
of [***] ([***]) percent per month on the outstanding amount for which an
invoice has been issued until such amount is paid, without any notice of
default being required.
6.7 Setoff
WTV is entitled to set off any liquidated damages it is entitled to from
PPS on the basis of Article 2.10 (delivery delays) against any amount
payable on the basis of Article 6.
6.8 Audits
PPS shall maintain true and accurate books and records relating to the out
of pocket costs and expenses for transportation to the Polish warehouse
and Polish customs clearance administration costs as listed in Schedule
5.1 and charged to WTV during the Term and for the period set by Polish
law and regulations following termination. WTV shall have the right twice
a year during a period of one year following its receipt from PPS of
invoices for costs and expenses to be paid hereunder to cause such
information to be audited, inspected and examined by an accounting firm of
international repute reasonably acceptable to WTV and PPS (the "Auditor")
to determine that the amounts invoiced to WTV were correct. PPS and WTV
acknowledge that any one of the "Big 6" accounting firms is acceptable.
Any information acquired during the course of any such examination shall
be and remain
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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strictly confidential and shall not be disclosed to any person or entity,
except the results thereof to PPS and WTV, or otherwise required by law,
governmental order or regulation, or by any order of any court of
competent jurisdiction or for dispute resolution in accordance with
Article 24 hereof (provided that the Auditor shall have immediately
notified both parties in writing of, and supplied PPS with a copy of such
order, and take, and/or cooperate with both in taking, all reasonable
steps to protect such confidential information), or as specifically agreed
in writing by WTV, PBE and PPS. PPS agrees to cooperate with the Auditor
including giving the Auditor reasonable access to relevant books and
records, and using reasonable endeavors to ensure relevant staff and
management are available if required. If, as a result of the examination,
the Auditor identifies in the Auditor's professional judgement that costs
and expenses charged deviate 5% or more from the information so audited,
the Auditor shall thereupon notify both parties of the existence and
identity of such differences. If the result of the audit concludes that
WTV has over-paid for costs and expenses, PPS shall issue a credit note
for the amount of the overpayment accompanied by an appropriate
reimbursement, with interest charged at a rate of 3% above LIBOR on the
amount of the overpayment, within 28 days of the Auditor's notification.
If the agreement has been terminated or has expired, PPS shall pay WTV the
amount of the overpayment within 30 days of the Auditor's notification. If
the result of the audit concludes that WTV has under-paid for costs and
expenses, PPS shall issue a debit note for the amount of the underpayment,
to be paid within 30 days thereof. The fees of the Auditor shall be borne
by PPS only in case an overpayment by WTV of 5% or more.
Article 7
Exclusivity, Software licenses and Escrow
7.1 Exclusivity
The parties hereto agree that they wish to develop the Polish digital
television market together on the exclusive basis as described below. To
this end and subject to the terms of this Agreement, WTV will purchase the
Agreed Amount exclusively from PBE no later than September 1, 1999. WTV
will not allow a competing product to be sold, rented or used with its
Network Service until the Agreed Amount of Decoder Systems have been paid
for. PBE will not manufacture or distribute digital receivers/decoders
under a Philips brand in or for use in Poland for any person other than
WTV and PPS will not distribute any digital receiver/decoder other than
the Decoder Systems until WTV has sold subscriptions equal to the Agreed
Amount for its Network Service, or September 1, 1999, whichever is the
earlier. PBE grants WTV an exclusive licence of the CryptoWorks
technology in Poland during the Term. If PBE confirms by documented tests
that is technically impossible for a smart card or other decryption device
using CryptoWorks other than a Smart Card to authorize and enable
Customers or other third parties to view the
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Network Service or any third party service using a Decoder, the
licence of CryptoWorks shall become non-exclusive. If for any
reason PPS or PBE or an Affiliate of PBE or PPS in Poland does
manufacture or distribute (or allow its Dealers in Poland to
distribute) digital receivers/decoders under a Philips brand in
the Territory for any person other than WTV before WTV has bought
the Agreed Amount of Decoder Systems, then (i) WTV's obligation
to buy the Agreed Amount of Decoder Systems from PBE shall be
reduced on a one-for-one basis for each Decoder System manufactured
or distributed for that other person and (ii) WTV's obligation
not to allow a competing product to be sold or used with its
Network Services shall cease. If this occurs, PBE agrees to
licence third party manufacturers in accordance with Article 7.8
in good faith. As from January 1, 1999 until January 1, 2001, the
maximum number of licensed manufacturers with whom WTV may
co-operate regarding the provision of decoder systems and other
equipment required for reception of the Network Services in
Poland will be no more than 3 (three). PBE and PPS acknowledge
that there will be no restriction on the number of licensed
manufacturers that WTV may cooperate with or contract with after
January 1, 2001. PBE and PPS acknowledge that WTV shall be
entitled to negotiate as from September 1, 1998 onwards the terms
and conditions of agreements with third party:
(a) distributors (other than Dealers) for the distribution of the
Decoder Systems or third party decoder systems; and
(b) manufacturers for the manufacture of decoders, smart cards and/or
ODUs,
for distribution of decoder systems to commence on September 1, 1999 or
earlier in accordance with this agreement.
7.2 Licence
Software shall be made available as part of a Decoder System and shall not
become the property of the Customer or WTV, regardless of whether it was
or was not developed specifically for use by the WTV. No rights to any
intellectual property residing in the Software, its documentation, or any
data furnished hereunder, if any, are granted except the right to use such
Software only in the operation, continuous downloading and use of said
Decoder Systems. Subject to the fulfilment of the terms and conditions
contained herein, PBE hereby grants to WTV (and in case of a sale or
rental by WTV: the right to grant sublicenses to WTV's Customers, which
sublicense includes the WTV obligations set forth herein) a fully paid up
and non-exclusive license to use the Software in the Decoder Systems for
operating same in perpetuity ("License").
7.3 License fees
The License fees for the Software are listed in Article 2.8(c).
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7.4 Reservations
(a) The Software and any copies thereof and any intellectual property
rights related thereto shall at all times remain the sole and
exclusive property of PBE (unless otherwise indicated, e.g. third
party software).
(b) WTV acknowledges that the Software is proprietary to PBE and that
PBE may suffer economic harm if the Software is made available to
third parties other than as authorised by PBE. WTV agrees not to
disclose, transfer, assign or make available the Software or copies
thereof, in any form, in whole or in part, to any other party,
person or entity (other than (i) in the regular sale or rental of
Decoder Systems to Customers and (ii) for use by its and its
Affiliates' employees, agents and subcontractors on a need-to-use
basis) without the prior written consent of PBE, which shall not be
unreasonably withheld or delayed.
(c) The Software shall be used by WTV or its respective Customer only
with the Decoder System. Each Subscription Agreement will contain
adequate Software license conditions protecting PBE's rights to the
Software and restrictions on use set forth herein.
(d) WTV may copy or have 1 (one) copy of the Software available in
machine readable form for backup/archival purposes only as is
necessary to support WTV's own use of the Software on the Decoder
System. WTV agrees not to copy or otherwise reproduce the Software
or any part thereof for other purposes without prior written
authorisation from PBE. In as far as copying is allowed under this
License, WTV shall not erase, delete or otherwise remove PBE'
copyright notice and other legend(s), if any, contained on the
Software to such reproductions or copies. All restrictions in this
License relating to the use and disclosure of the Software shall
apply to any such reproduction or copies of the Software. WTV shall
only use the Software for the purpose(s) agreed and shall not for
example rent, electronically distribute (except as set out in this
agreement) or timeshare the Software or market the Software by
interactive cable or remote processing services or otherwise
distribute the Software other than as specified herein or agreed
between the parties (for example for downloading Updates or Upgrades
to the Software).
(e) The Software (other than documentation) is to be used in machine
readable form only.
(f) WTV shall not cause or permit the Software, or any part thereof, to
be used by any person other than either PBE/PPS personnel or the
officers, employees, and agents of WTV engaged in the business
activities of WTV and the Customers. WTV agrees that it shall cause
each person who uses the
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Software to adhere in particular to the terms and conditions
specified in Articles 7.4 and 7.5 hereof.
7.5 Modifications and Improvements
(a) WTV shall not modify, adapt, translate, reverse engineer, decompile,
disassemble or rent out the Software, or create derivative works
based on the Software or have such work carried out without the
prior written consent of PBE, which shall not be unreasonably
withheld or delayed, unless authorised by law. PBE agrees:
(i) to provide interface specifications and licenses to such
Decoder System's interfaces in a timely manner, free of
charge both to WTV and its system integrator for use with
the Decoder Systems only; and
(ii) to communicate directly, and where requested, co-operate in
good faith on a time and materials basis with WTV's systems
provider regarding operational interfaces between the Decoder
System and WTV's other Systems as notified to PBE, provided
customary non disclosure agreements and licenses, if any,
have been executed.
(b) If the Software is modified in any manner by anyone other than
PBE/PPS, their authorised repairers or otherwise authorized by PBE,
or combined with third party software products not previously
approved by PBE, all warranties associated with the Software and
Decoder System(s) shall become null and void as from the moment of
such modification, provided always that WTV, having been given 30
days to rectify the circumstances causing the warranties to become
null and void has failed to rectify such circumstances. PBE agrees
to give WTV all reasonable assistance including testing (and
approval, at PBE's sole discretion) or correcting unauthorised
modifications and testing (and approval, at PBE's sole discretion),
where appropriate, previously non-approved products or recommending
alternative products.
(c) PBE may, from time to time, create and, if created, shall license
Updates and Upgrades of the Software. PBE shall make available such
Updates and Upgrades of the Software to WTV on reasonable terms at
PBE' published rates, less any discounts applicable in any service
agreement for the Decoder Systems, if any. Unless explicitly agreed
otherwise, delivery of the said Software to WTV will automatically
be subject to the terms and conditions of this Agreement where
appropriate.
7.6 Term and Termination
This License shall continue for a long as WTV or its Customers utilises
the Decoder Systems except that PBE may terminate any licence granted to
WTV for Decoders to be delivered after the date of termination upon thirty
(30) days written notice to WTV in the event of any breach by WTV by WTV
of any material term, covenant or
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condition contained herein, provided PBE has given WTV a written warning
specifying such breach and WTV has failed to remedy such breach within
fifteen (15) Working Days from the date of such notice or within such
longer period as may be specified in said notice. Such termination shall
not relieve WTV of any of its obligations incurred prior to such
termination, and shall not impair any of PBE's rights which have accrued
prior to such date. WTV shall return the Software and any copies thereof
and documentation relating thereto to PBE at WTV's expense immediately
upon termination of this licence The covenants of WTV contained in
Articles 7.4 & 7.5 hereof survive the termination of this licence.
7.7 Miscellaneous
Whenever PBE has acquired the (rights to use and/or sublicense parts of
the) Software from a third party supplier/vendor (hereinafter "Supplier")
by way of license or other transaction in which Supplier retains rights to
the Software, any reference to PBE in this Article 7 shall be deemed to be
a reference to PBE and/or Supplier, wherever applicable.
7.8 CryptoWorks sublicensing and future products
PBE will provide a license on reasonable and non-discriminatory terms and
conditions for its CryptoWorks rights and technology (including Updates
and Upgrades made available to WTV) to allow a third party to incorporate
CryptoWorks into a third party's own reception and de-encryption equipment
and provide support in accordance with standard terms and conditions to a
CryptoWorks sublicensee when WTV decides to authorize other suppliers of
reception arid de-encryption equipment for its Network Service when the
exclusivity period described in Article 7.1 ends or in accordance with
Article 2.6C or if a Force Majeure event occurs. It is understood between
the parties that in order to induce PBE to enter this CCA WTV ensures that
it will discuss first with PBE prior to such discussions with third
parties the possibility of PBE becoming one of the (3) initial
manufacturers of future generation set top boxes/decoders as well,
provided PBE has not committed any material breach under this Agreement.
The parties hereto express their intention to include in such discussions
the development of future set top boxes/decoders which may include a
separated or integrated modem, added functionality and/or data or
broadcast facilities
7.9 Escrow
PBE shall place the source code of the Software and any source code for
Updates or Upgrades to the Software, to the extent proprietary to PBE,
into escrow with Nauta Dutilh notary public as escrow agent (except for
the CryptoWorks part, which will be deposited with two different escrow
agents on the basis of the Security Services Agreement. The specification
for CryptoWorks shall be deposited with Ashurst Morris Crisp. If PBE is
unable or unwilling to fulfil its obligations with respect to the Software
for any reason and such is not remedied by PBE within 30 days of
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notice to do so from WTV, WTV shall be entitled to access such source
codes directly for executing such obligations itself. WTV shall pay the
reasonable costs of the escrow arrangement. Within 30 days of the date of
this Agreement, PBE and WTV agree to negotiate in good faith and execute
separate agreements relating to the escrow arrangements on reasonable
terms.
Article 8
Dealers and Points of Sale
8.1 Authorised Channels of Distribution
Subject to the terms of this Agreement, WTV appoints PPS as its agent to
Distribute in accordance with the terms hereof the Decoder Systems and
subscriptions to the Network Service via its existing and/or newly
acquired Dealer network in Poland. PPS will publicly announce the launch
of the Decoder Systems, contact selected Dealers and sign separate
distribution agreements with them and WTV for Distribution of the Decoder
Systems and the sale of subscriptions to the Network Service, all in
accordance with the Delivery and Milestone Plan. PPS agrees to use all
reasonable commercial efforts to Distribute the Decoder Systems and
Network Service in Poland so as to maximise the number of Customers to the
Network Service.
8.2 Qualification of Dealers and Installers
8.2.1 PPS shall evaluate all retailers under consideration to become
Dealers of Decoder Systems. PPS shall have an established network of
a 1,000 Points of Sale in accordance with PPS's rollout plan as
follows: [***] by April 4, 1998; [***] by April 25,1998; [***] by
May 16, 1998; [***] by June 1,1998; a detailed logistics plan will
be worked out by PPS and provided to WTV for approval 15 days
after Execution Date and in any event no later than March 30th,
1998.
8.2.2 PPS shall train Dealers with WTV's support, under a training program
agreed between the parties in accordance with Article 10 below.
8.2.3 Each Dealer shall have the capability to execute or have executed on
its behalf Installation of the Decoder Systems. Each Installer must
undergo an Installation training program to be provided by PPS.
8.3 Point of Sale facilities
The following materials and services will be made available by WTV to PPS:
8.3.1 for demonstration Decoder Systems and other Decoder System Products
(including a free of charge Subscription to be provided by WTV to
each of the Points of Sale);
8.3.2 WTV subscription forms at each Point of Sale;
8.3.3 training for sales assistants to service potential Customers;
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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8.3.4 advertisements of Network Service and the Decoder Systems, Point of
Sale and merchandising materials, take-one brochures, etc. in
accordance with the plan for advertising and promotion to as agreed
between the parties and developed pursuant to Article 17.
8.3.5 merchandising stands consisting of: a stand (structure) and Decoder
System in an agreed in store position with supporting promotional
material. This is to be provided to the Dealer at cost price by PPS
for WTV's account.
WTV shall be entitled to access the Point of Sale to support or
undertake additional sale, marketing or promotional activities at
each Point of Sale in co-operation with PPS.
8.4 Inspection of Dealers
From time to time, WTV and PPS may jointly conduct spot checks, audits and
inspections of the premises of any Point of Sale being used to promote and
sell subscriptions to the Network Service to ensure compliance with this
Agreement. However, PPS may decide to decline being present at such
visits. PPS shall procure that WTV has an audit right and the right to
conduct spot checks on Dealers regarding compliance with the agreement
between PPS and the Dealer. PPS and PBE acknowledge that WTV may employ a
team of sales people who will promote the Network Service which will
include:
(a) inspecting Dealers;
(b) training Dealers, both formally and on an informal basis;
(c) reviewing sales figures, stock levels and Customer service levels
for Dealers;
(d) assisting Dealers with in-store promotions and selling of Decoder
Systems; and
(e) organising and running marketing and promotional events.
8.5 Establishment of Installation appointment at time of sale/rental
At the time of sale/rental of a Decoder System at the premises of a
Dealer, the Dealer shall set up an appointment for an Installer to install
the Decoder System at the Customer's premises.
8.6 Amount of Dealers
8.6(A) In case in certain areas WTV is of the opinion that insufficient or
malperforming Points of Sale exist, or in case WTV wishes Points of Sale
to be added in certain geographical areas on the basis of demonstrable
customer demand which cannot be met within the targets agreed, PPS will
first offer such additional outlets to WTV; in case WTV declines same for
reasons to be agreed between the parties by 30 May 1998, WTV may
distribute the Decoder Systems in the Territory through third party
dealers/distributors selected by WTV and approved beforehand by PPS, which
approval will not be unreasonably withheld or delayed and PPS will
cooperate fully and expeditiously with WTV to enable such third party
distribution, such cooperation
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to include (without limitation) auditing, qualifying and authorising such
dealers and subsequent delivery of Decoder Systems to such third party
dealers/distributors who must meet the criteria set forth in Schedule 8.6.
8.6(B) During the Term, WTV may nominate a person to become a Dealer. PPS agrees
to consider that person for appointment as a Dealer provided that person
meets the criteria set forth in Schedule 8.6. Until April 1999, PPS may or
may not appoint that person as a Dealer in its absolute discretion. The
parties acknowledge that PPS may change or amend the criteria (or grant
waivers in exceptional cases) and WTV agrees that these further criteria
may be applied to such persons provided those criteria are reasonable and
are uniformly applied by PPS to all persons appointed to distribute PPS
consumer electronic products before their appointment as PPS dealers.
8.6(C) If a digital multichannel pay television service is introduced which
competes with the Decoders and/or Network Service, the parties agree to
enter good faith negotiations to discuss the distribution structure of the
Network Service and the Decoders by PPS in Poland, including, if
necessary, appointing additional Dealers and/or removal of Dealers, all
within the requirements of Polish law.
Article 9
Initial Distribution
9.1 Preparedness for Initial Distribution
On April 18, 1998 PPS and the initial Dealers nominated by PPS and
approved by WTV shall be prepared for the initial market release of the
Decoder Systems and the launch of the Network Service. Such preparedness
shall include the following:
9.1.1 a list of Installers available at each Point of Sale's premises;
9.1.2 sufficient support for such Installers to service Customers;
9.1.3 Decoder Systems and sufficient other Decoder System Products
available to the Dealers in accordance with the Forecast to be
provided by WTV to PBE and PPS;
9.1.4 briefing the Dealer and their sales staff on the details of the
Network Service and WTV sales strategy.
Article 10
Training
10.1 Provision of Training
PPS shall provide (with support from WTV regarding sales training covering
the Network Service) the following training for the staff of PPS,
Dealers/Points of Sale, Installers, WTV representatives and certain third
parties.
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10.1.1 Training in sales and demonstration of the Decoder Systems and
Network Service to individual Customers shall be provided
by PPS to:
(a) At least one(1) representative from each Dealer and Installer;
(b) The direct sales persons of PPS at the DTH Centre.
10.1.2 Training in Installation and the demonstration of Decoder Systems
and Network Service shall be provided by PPS to:
(a) all relevant persons of PPS and Dealers; and
(b) the Installers who will be performing the Installation.
PPS shall give WTV:
(a) copies of all training materials, and
(b) an outline of training to be conducted, in accordance with
this Article for WTV's prior approval. WTV may attend any
training sessions conducted by PPS. PPS agrees to notify
WTV of the time and location of the training sessions in a
timely manner.
10.2 Timing
The initial training of the staff of Dealers and Installers, PPS'
promotion team and WTV representatives will begin once 5 pre-production
([***]) Decoder Systems to be delivered before 4 March 1998 are
available. PPS shall use its reasonable commercial efforts to successfully
complete training as soon as possible thereafter commensurate with the
rollout plan for Dealers in Article 8.2.1. PPS shall conduct training for
all new Dealers, Installers and others as agreed with WTV on an ongoing
basis.
Article II
Installation
11.1 Installation provided
Each Customer will be referred to an Installer procured by PPS, or
procured by the Dealer in accordance with the agreement between the Dealer
and PPS who shall perform Installation of the Decoder System free of
additional charge in accordance with the Installation Specification. PPS
shall remain primarily responsible to WTV for the Installation and the
performance of the Dealers and Installers.
11.2 Installation Accessories
The Dealer and Installer are responsible to ensure that adequate and
appropriate quantities and types of Installation Accessories shall be
available at all Installer's premises at Installer's expense. PPS shall
ensure such requirements are incorporated into its agreement with Dealers.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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11.3 Installation by Customer or unauthorised installers
In the event that a Customer has installed the Decoder System himself, or
have same carried out by an unauthorised installer, or in case the
Customer declines to have installed the WTV/Philips', branded ODU, such
Customer (i) shall be charged at standard rates for any subsequent call
for service as a result of improper installation by the Customer; and (ii)
may lose certain protections under the Subscriber Agreement. The 12 month
warranty from PPS on the Decoder in Article 2.9 shall continue to apply.
11.4 Installation work orders
An installation work order to be created by PPS must be completed by both
the Installer and Customer. Five (5) copies of each such order shall be
completed in full, and distributed as follows: one to be sent by the
Installer within 48 hours of completion to (i) the respective Dealer, (ii)
to WTV, and (iii) to PPS; one copy is to be retained by the Customer and
one by the Installer.
11.5 ODU Amount
The parties acknowledge that not all Installations will include an ODU
because of:
(a) Installation of Decoders at MDUs, where only one ODU is required;
(b) Installation of Decoders at cable head ends; and
(c) where Customers decline to take an ODU.
The ODU Amount will be calculated by taking 500,000 units as the starting
point and subtracting ODU's on the basis of the factors set out in this
Article; however, WTV warrants it will purchase at least [***] ODUs
during the Term hereof, less any amounts subtracted on the basis of
Article 2.6B.
Article 12
Customer Support
12.1 PPS' Technical team
Unless otherwise agreed in writing between the parties, PPS will arrange
for a team of an adequate number of technicians at the DTH Centre to (i)
receive calls from the Wizja TV Call Centre in case of Decoder System
warranty requests and technical assistance, and (ii) provide assistance to
the Dealers and Installers. Such technical team will operate under the
direction of PPS.
PPS shall train one or more of WTV's technical staff in the use of the
Decoder System as soon as possible after the Execution Date.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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12.2 Customer service and support telephone line
WTV will provide or procure the provision of an operational Wizja TV Call
Centre service and support telephone line at WTV's call center as long as
it makes good business sense. Such customer service will be staffed by a
sufficient number of trained operators to provide a sufficient level of
operational and technical service and support. In case of warranty claims
which cannot be handled orally by the Call Centre, the Call Centre will
forward Customer requests for warranty repairs to the respective Dealer
who initially signed up the Customer.
12.3 PPS's obligation to repair and perform maintenance
Pursuant to its warranty obligations, PPS shall be responsible for all
repair services of Decoders and Decoder Systems distributed by PPS,
through its service centre in Poland all as described in Schedule 2.9B.
12.3A Mutual Indemnity
PPS shall indemnify and hold WTV, its employees and agents harmless
against any claim for bodily injury, damage to property and/or death or a
claim by a third party relating to a breach of any law or regulation
relating to the Distribution and Installation of the Decoder Systems by or
on behalf of PPS made against or incurred by WTV and its employees and
other agents of WTV as far as such claims are due to any fault or failure
to perform by PPS or its personnel, Dealers, Installers or agents in the
Distribution or Installation of Decoder Systems, provided that WTV:
(i) gives notice to PPS of any claim or breach as soon as practicable
after becoming aware of it;
(ii) gives PPS the sole conduct of the defence of any claim or breach;
(iii) agrees to provide assistance reasonably requested by PPS for the
conduct of the defence at PPS's cost.
PPS agrees to keep WTV informed about the progress of the defence of the
claim or breach. PPS liability shall be limited, regardless of the number
of claims, up to the maximum of the total amount received by PPS for
services rendered hereunder (other than a claim for bodily injury and/or
death where liability is unlimited). In no event will PPS be liable for
any lost profits, lost savings, incidental, indirect, consequential or
other economic damages, even if PPS has been advised of the possibility
thereof.
Likewise, WTV shall indemnify and hold PPS and its employees, Dealers and
other agents harmless against any claim for bodily injury, damage to
property and/or death or a claim by a third party relating to the breach
of any law or regulation relating to the Distribution and Installation of
the Decoder Systems made against or incurred by either of them as far as
such claims are due to any fault or failure to perform by WTV, its
personnel or agents, provided that such party:
(i) gives notice to WTV of any claim or breach as soon as practicable
after becoming aware of it;
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(ii) gives WTV the sole conduct of the defence of any claim or breach;
(iii) agrees to provide assistance reasonably requested by WTV for the
conduct of the defence at WTV's cost.
WTV agrees to keep the respective party informed about the progress of the
defence of the claim or breach. WTV's liability shall be limited,
regardless of the number of claims, up to the maximum of the total amount
paid by WTV for services rendered by PPS hereunder (other than a claim for
bodily injury and/or death where liability is unlimited). In no event will
WTV be liable for any lost profits, lost savings, incidental, indirect,
consequential or other economic damages, even if WTV has been advised of
the possibility thereof.
Article 13
Network Service by WTV
13.1 Control of content
To the extent applicable, WTV will comply with Polish law and WTV (and/or
its Affiliates) shall have control over the programming and content of the
Network Service.
13.2 Subscription Agreement
Dealers shall only sell, rent or deliver Decoder Systems to Customers who
have executed a Subscription Agreement. WTV and PPS shall jointly prepare
such Subscription Agreement and provide originals to PPS for distribution
to the Points of Sale. The recommended retail/rental price of Decoder
Systems including Subscription and Installation services shall be set by
WTV and changed from time to time during the Term with a one month's
notification to PBE and PPS. Subject to full compliance by PBE and PPS,
where practical, with their respective obligations, WTV or its Affiliate
shall be responsible for ensuring that the provision of the Network
Service and the use by Customers of Decoder Systems in Poland do not
violate Polish law relating to broadcasting and viewing of the Network
Service.
13.3 Procedure for completing Subscription Agreement at Dealer facilities
The following procedures shall apply to the completion of a Subscription
Agreement at Point of Sale's facilities. Four (4) copies of each
Subscription Agreement shall be completed. One copy shall be retained by
the Dealer; one copy shall be provided to the Customer; one copy shall be
returned to PPS and one copy shall be provided to WTV by the Dealer/Point
of Sale within 48 hours from the completion of the Subscription Agreement
via means specified by WTV.
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Article 14
Use of WTV Trademarks by PPS/PBE
14.1 Grant
WTV or an Affiliate of WTV hereby grants or will grant to PBE and PPS
during the Term a non-exclusive, non-transferrable, royalty free
authorisation to use the trademarks, service marks, trade names, slogans
and other like property set forth in Schedule 14.1 (the "WTV Trademarks")
solely in connection with the Distribution of the Decoder Systems,
Decoders, ODUs and the Network Service in Poland. WTV shall have the right
in its sole discretion to add or delete WTV Trademarks. Any WTV Trademarks
added by WTV are hereby incorporated by reference into Schedule 14.1 and
shall be subject to the provisions of this Article 14.
14.2 Acknowledgement of Ownership
PBE and PPS acknowledge the ownership of the WTV Trademarks by WTV and
agree that they will do nothing, and will procure that the Dealers and
Installers do nothing, inconsistent with such ownership. PPS agrees to
assist WTV in recording this Agreement or other registered user agreement
with appropriate government authorities to ensure protection of the WTV
Trademarks. PBE and PPS agree that nothing in this Agreement shall give
PBE or PPS, or the Dealers or Installers any right, title or interest in
the WTV Trademarks, other than the right to use the WTV Trademarks in
accordance with this Agreement, or in any other trademarks, service marks,
trade names, slogans or other like property owned by or related to WTV.
PBE and PPS agree that they will not and will procure that the Dealers and
Installers do not attack the title of WTV to the WTV Trademarks or contest
the validity of the WTV Trademarks. PBE and PPS shall not and shall
procure that the Dealers and Installers do not attempt to register any of
the WTV Trademarks alone or as part of its own trademark or use as part of
a trading or company name, nor shall PBE or PPS use or attempt to register
any marks confusingly similar to the WTV Trademarks and they shall procure
that the Dealers and Installers will not use or attempt to register any
trademarks confusingly similar to the WTV Trademarks.
PBE and PPS agree to comply and to procure that Dealers and Installers
comply with all guidelines for use of the WTV Trademarks specified by WTV
from time to time and in particular agree to use the WTV Trademarks with
an acknowledgement of ownership by WTV.
14.3 Quality Control and WTV Approval
PBE and PPS agree that the Licensed Products and Materials on which PBE
and PPS use the WTV Trademarks shall be of high quality. PBE's and PPS's
shall only use WTV Trademarks on any Licensed Products or Materials, with
the prior written approval of such use. WTV shall approve PBE's or PPS's
use of the WTV Trademarks according to procedures to be mutually agreed
between the parties.
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From time to time upon WTV's reasonable request, PBE and PPS shall make
available samples of the Licensed Products and Materials for WTV's
inspection.
14.4 Placement of Trademark
All Licensed Products and Materials shall bear the WTV Trademarks in a
location, colour and size to be agreed, but always avoiding dual branding
of Decoders. PBE and PPS agree to report any suspected infringement of the
WTV Trademarks to WTV as soon as possible after that suspected
infringement comes to PBE or PPS's notice.
14.5 Rights upon termination
Upon termination of this Agreement, PBE and PPS agree to do the following:
14.5.1 discontinue all use of the WTV Trademarks and any mark confusingly
similar thereto in accordance with the terms hereof;
14.5.2 cooperate with WTV or its appointed agent to apply to the
appropriate authorities to cancel or note the termination of this
Agreement as recorded in any governmental records;
14.5.3 destroy or deliver to WTV all printed materials bearing any of the
WTV Trademarks without prejudice to Article 18.4; and
14.5.4 cooperate generally with WTV to ensure that all rights in the WTV
Trademarks and the goodwill connected therewith shall remain the
property of WTV.
Article 15
Use of the Philips Trademarks by WTV
15.1 Grant
PBE will ensure that WTV will be granted during the Term upon WTV'S
written request a non-exclusive, non-transferrable, royalty free
authorisation to use the trademarks, service marks, trade names, slogans
and other like property set forth in Schedule 15.1 (the "Philips
Trademarks") solely in connection with the Distribution of the Decoder
Systems, Decoders, ODUs and Network Service in territories agreed between
the parties. PBE shall have the right in its sole discretion to add or
delete Philips Trademarks. Any Philips Trademarks added by PBE are hereby
incorporated by reference into Schedule 15.1 and shall be subject to the
provisions of this Article 15.
The Decoder Systems shall bear the Philips Tradermarks.
15.2 Acknowledgement of Ownership
WTV acknowledges the ownership of Philips Trademarks by PBE and its
ultimate parent Philips Electronics N.V. and agrees that it will do
nothing inconsistent with such ownership. WTV agrees to assist PBE in
recording this Agreement or other registered user agreement with
appropriate government authorities. WTV agrees that
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nothing in this Agreement shall give WTV any right, title or interest in
Philips Trademarks, other than the right to use Philips trademarks in
accordance with this Agreement, or in any other trademarks, service marks,
trade names, slogans or other like property owned by or related to PBE or
Philips Electronics N.V.. WTV agrees that it will not attack the title of
Philips Electronics N.V. to Philips Trademarks or contest the validity of
the Philips Trademarks. WTV shall not attempt to register the Philips
Trademarks alone or as part of its own trademark, nor shall WTV use or
attempt to register any marks confusingly similar to the Philips
Trademarks. WTV agrees to comply with all guidelines for use of the
Philips Trademarks specified by PBE from time to time and in particular
agree to use the Philips Trademarks with an acknowledgement of ownership
by Philips.
15.3 Quality control and Philips Approval
Prior to WTV's use of any Philips Trademarks in advertising, marketing or
promotions, PPS and PBE must provide its written approval of such use. PPS
and PBE shall approve WTV's use of the Philips Trademarks according to
procedures to be mutually agreed between the parties. From time to time
upon PBE's reasonable request, WTV shall make available samples of the
advertising and promotional materials for PPS's inspection. WTV agrees to
report any suspected infringement of the Philips Trademarks to PBE as soon
as possible after that suspected infringement comes to WTV's notice.
15.4 Placement of Philips Trademarks
All promotional materials shall bear the Philips Trademarks in a location,
colour and size to be agreed, thereby always avoiding dual branding of the
Decoders.
15.5 Right upon Termination
Upon termination of this Agreement, WTV agrees to do the following:
15.5.1 immediately discontinue all use of the Philips Trademarks and any
mark confusingly similar thereto (without prejudice to WTV's right
to sell any existing stock of Decoder Systems);
15.5.2 cooperate with PBE and PPS or its appointed agent to apply to the
appropriate authorities to cancel or note the termination of this
Agreement as recorded in any governmental records;
15.5.3 destroy or deliver to PBE all printed materials bearing any of the
Philips Trademarks, without prejudicing WTV's right to use
existing printed materials as long as existing stock of Decoder
Systems are being sold; and
15.5.4 cooperate generally with PBE to ensure that all rights in the
Philips Trademarks and the goodwill connected therewith shall
remain the property of Philips Electronics N.V..
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Article 16
Advertising inserts
16.1 Packaging and Advertising Inserts
PBE shall allow WTV to designate and deliver a reasonable amount of
advertising materials, which materials PBE shall include within the
Decoder System packaging Procedures for the timely insertion of such
advertising materials shall be agreed between the parties before
production of Decoders begins or as soon as possible thereafter. All
materials to be provided to a prospective Customer are to indicate that
Customers are only authorised to rely on written statements and
information (i) provided or approved by WTV, and (ii) Decoder System user
manual.
Article 17
Marketing and Advertising
17.1 Advertising and Promotion Plan and Contributions
The parties will set up a joint promotional/advertising and marketing
campaign before November 1, 1998, which will be co-ordinated closely, and
to which each party will contribute NLG 1 million. These funds will be
used solely for the joint promotion of the Network Service and the Decoder
Systems combined, using both parties' branding and trademarks in
accordance with terms and conditions to be agreed.
In addition to the amount set out above, both PPS and WTV will
continuously discuss during the Term, possibilities and conditions under
which one party will include the other party's trademarks and offerings in
its advertising and promotion of their respective businesses in Poland.
Article 18
Term and Termination
18.1 Term
This Agreement is effective from the date first written above ("Effective
Date") and shall continue until (i) the Agreed Amount of Decoder Systems
have been purchased by WTV from PBE (ii) terminated earlier in accordance
with its terms, or (iii) extended by mutual consent in writing by duly
Authorised Representatives. Termination of this Agreement shall not
relieve a party of any rights and obligations which have accrued hereunder
or which are destined to survive or extend beyond the date of termination
or expiration by the terms of this Agreement, including but not limited to
rights and obligations contained in Articles 2.6C, 2.9, 2.12A, 2.13, 5.3,
6.6, 6.7, 6.8, 7.2-7.9,12.3, 13.2, 18.4, 18.5, 19, 20.3, 22, 23, 24 & 25
and Schedules: 2.9A, 2.9B & 2.12, will remain valid.
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18.2 Material breach
Either WTV on the one hand or PBE and PPS and on the other, may terminate
this Agreement in the event the other party fails to meet any of its
material obligations under this Agreement, provided that, where the breach
is capable of remedy, the former party has given written notice of the
alleged default to the failing party specifying the nature of the
("Notice"). Within 10 days of the date of the Notice ("the Notice
Period"), the Authorised Representatives shall meet to discuss the alleged
breach and shall use good faith efforts to agree on a programme to remedy
the breach ("Remedy Programme"). The Authorised Representatives must have
sufficient authority to agree the Remedy Programme which shall identify
the tasks required, responsibilities, the resources to be committed by one
or more of the parties and the timeframe for remedying the breach. If the
breach is not remedied within the timeframe agreed in the Remedy Programme
to the satisfaction of the notifying party, then termination shall become
effective at the end of a 45 (forty five) day period or on the date set
forth in such Notice which shall not be less than 45 days after the date
of the Notice. Failure by a party in default to meet within the Notice
Period or if failure of the parties to agree a Remedy Progamme within [14
days of the end of the Notice Period] shall constitute a material breach
entitling the party not in default to terminate the agreement on 14 days
notice to the other party.
For the purposes of Article 18.2 a reference to the other party means WTV
where PBE and/or PPS fails to meet its obligations and to PPS and/or PBE
where WTV fails to meet its obligations.
18.3 Insolvency
Either WTV on the one hand or PBE and PPS on the other, may terminate this
Agreement by written notice with immediate effect:
(a) in the event that the other party makes an assignment for the
benefit of creditors; or
(b) in the event that the other party becomes insolvent, or voluntary or
involuntary proceedings are instituted by or against such other
party under any applicable insolvency laws and such proceedings are
not terminated within ninety (90) days, or a receiver is appointed
for such party; or
(c) in the event that time other party ceases to trade as a going
concern; or
(d) if any event analogous to any of the foregoing under the law of any
jurisdiction has occurred in respect of the other party; or
(e) in the event that the control over the other party shall be
transferred to any other person other than those exercising control
at the time of the signing of this Agreement.
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For the purposes of the Article 18.3 a reference to the other party means
WTV where it is the subject of any of the events referred to in Articles
18.3 (a) to (e) and to PPS and/or PBE where either or both of them are
subject to such events.
18.4 Compensation
Upon termination of this Agreement by WTV other than pursuant to Articles
2.10, 18.2 or 18.3, or upon termination of this Agreement by PBE and PPS
pursuant to Article 18.2 or 18.3 or Article 20.1, PBE and PPS shall cease
performance under this Agreement and shall be entitled to receive from WTV
and WTV shall pay to PBE and PPS in full and final settlement within 30
days of termination:
(a) the total price for all then manufactured Decoder Systems pursuant
to this Agreement as well as the non-refundable cancellation costs
for any and all related components firmly ordered (non cancellable)
by PBE from its suppliers prior to termination, all of which shall
be delivered to WTV in Poland upon payment (including the ownership
thereof), title to the Decoder Systems and all related materials and
components specified in this 18.4(a) shall pass WTV on payment in
accordance with this Article; and
(b) the total price for all services which have been performed by PPS
pursuant to and in compliance with this Agreement prior to the date
of termination; and
(c) except in case of termination due to Force Majeure, [***] ([***])
percent of the value of the Decoders (i.e. the Agreed Amount for
Decoders only minus amount of units that have been paid for) with
respect to the uncompleted portion of the Agreed Amount as
liquidated damages and not as a penalty.
PBE and PPS agree to use reasonable commercial endeavours to minimise
costs and expenses payable by WTV in accordance with this Article.
18.5 Dealer and Manufacturer continuity
In case of termination by WTV on the basis of Articles 2.10, 18.2 or 18.3
or 20.1:
(a) WTV has the right to, all at its sole discretion, negotiate directly
with PPS' Dealers for continuation of the distribution by Dealers of
reception and de-encryption equipment for use with the Network
Service; and/or
(b) PBE agrees to cooperate with WTV and any third party manufacturer
set out in Schedule 20.3 in licensing on standard, non
discriminatory terms and conditions the Software to such third party
for manufacture of reception and de-encryption equipment and smart
cards with the Software.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
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Article 19
Intellectual Property Rights
19.1 PBE shall defend at its own cost and expense any suit, claim or proceeding
brought by any third party against WTV and its Affiliates and their
respective directors and employees (hereinafter also referred to as
"Indemnified Party") in so far as such suit, claim or proceeding is based
on a claim that the Decoder Systems and/or Software or any part thereof
directly infringes any Intellectual Property Rights of such third party,
provided
(a) that the Indemnified Party shall notify PBE without undue delay of
any claim which would fall within the scope of this Article 19.1 and
provide PBE with all information which it may have or receive in
relation to such claim; and
(b) that the Indemnified Party turn over to PBE sole and exclusive
control of defending or settling the claim (but PBE shall keep the
Indemnified Party regularly informed of all developments in relation
to such claim); and
(c) that the Indemnified Party fully cooperate with PBE in relation to
the defence or settlement of the claim (and PBE shall reimburse the
Indemnified Party all its reasonable out of pocket expenses).
For these purposes, Intellectual Property Rights shall mean any and all
copyrights, trade marks, service marks, patents, design rights, mask
works, know-how, trade secrets and rights of use and all other rights of a
similar or related nature which may now or at any time subsist in any and
all parts of the world including all renewals, revisions or extensions.
19.2 In the event that in any such suit or proceeding the Decoder Systems
and/or Software or any part thereof ("the Infringing Decoder
Systems/Software") is held in a final judgement to constitute a direct
infringement of any third party's Intellectual Property Rights and/or the
use of any Infringing Decoder Systems/Software is enjoined by a court of
competent jurisdiction, PBE shall indemnify WTV for all its direct damages
and out-of-pocket expenses and shall also at PBE's option and expense and
with the result that as little disruption as is reasonably practicable is
caused to the Indemnified Party's business, either:
(a) procure for the Indemnified Party the right to continue using such
Infringing Decoder Systems/Software; or
(b) replace such Infringing Decoder Systems/Software with a
non-infringing product which performs substantially the same
functions and meets the Specification; or
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(c) modify such Infringing Decoder Systems/Software to become
non-infringing, provided always that it performs substantially the
same functions and meets the Specification;
PROVIDED ALWAYS that in case of a claim, suit or proceeding based on the
fact that Decoder Systems and/or Software either indirectly infringes any
third party's Intellectual Property Rights or contributes to such
infringement, PBE' liability to WTV shall be apportioned on the basis of
the extent to which the Decoder Systems and/or Software contributes to
such infringement.
19.3 If none of the alternatives in Article 19.2 is commercially available, PBE
shall at WTV'S option, either refund the Book Value of the Decoder Systems
or the Indemnified Party and PBE shall have good faith discussions with
the aim of arriving at a mutually acceptable solution provided that PBE
shall have the responsibility of paying, obtaining and effecting such
solution. "Book Value" for these purposes are defined as the larger of (a)
20% of the total cost per Decoder System incurred by WTV (covering the
Contract Price, PPS', Dealer's and Installer's commissions and import
duties), or (b) actual depreciated value (net book value) of the Decoder
Systems in the records of WTV (linear depreciation over four years).
19.4 PBE shall not be obliged to indemnify and shall not be liable for
infringement of any third party's Intellectual Property Rights:
(a) which are not infringed by the Decoder Systems and/or Software
supplied hereunder or any part thereof; and/or
(b) are infringed by the combination of the Decoder Systems supplied
hereunder with any other product not supplied by PBE; and/or
(c) covering the MPEG2 and DVB standards currently being finalised by
the respective international standardisation committees as
established for that purpose (except that PBE warrants to be
licensed and pay for any ensuing royalties to the MPEG LA, LLC/MPEG2
patent portfolio covering at present 33 essential patents); and/or
(d) covering the use of the Decoder Systems and/or Software supplied
hereunder for which (amount of) use such third party requires the
payment of royalties based on any factor other than an industry
common percentage of the Decoder Systems and/or Software Price
charged by PBE or for which use such third party refuses to grant a
license to PBE. PBE warrants and undertakes that to the best of its
knowledge as at the date of this Agreement:
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(i) no third party has claimed that it is entitled to payment of
royalties based on any other factor other than a percentage of the
Decoder Systems and/or Software Price; and
(ii) it has done nothing to cause its relevant rights, assignments,
transfers, licenses or other dealings to be terminated, suspended,
revoked or cancelled.
If a third party makes any claim that it is entitled to payment of
royalties based on any other factor other than a percentage of the Decoder
Systems and/or Software Price and/or refuses to grant PBE a license of the
intellectual property to which the claim relates after the date of this
Agreement, WTV agrees to pay the royalty fees to the third party provided
that:
(a) PBE agrees to take all reasonable and customary actions to resist
any such claims brought by any third party, at its own cost and PBE
agrees to keep WTV fully informed on the progress of its claim;
(b) if PBE is not taking all such actions to resist such third party
claims, WTV shall have the right to take such action as it seems
appropriate at PBE cost and if necessary in PBE's name to resist
such claims and PBE agrees to cooperate fully with WTV in this
regard.
19.5 The indemnities and obligations of PBE in this Article 19 shall not apply
to any claim, suit or proceeding based on an alleged infringement of any
third party's Intellectual Property Rights pertaining only to
off-the-shelf, finished products of another third party supplied to WTV
by PBE as part of the Decoder Systems and/or Software. However, PBE shall
wherever possible and otherwise does undertake to make all reasonable
endeavours to transfer or assign to WTV any indemnity rights PBE may have
received from such third party supplier. In case PBE is unable to assign
or transfer such rights, such products shall be treated as any other PBE
product under Article 19 (except this 19.5) PBE warrants that to the best
of its knowledge there has not been and there is no claim, suit or
proceeding of infringement of any third party's Intellectual Property
Rights relating to Decoders and Smart Cards.
19.6 Furthermore, PBE shall not be obliged to defend against and shall not be
liable for infringement of any third party's Intellectual Property Rights
arising from compliance with WTV's written technical design drawings, if
any. The parties acknowledge that the Specification does not contain any
WTV technical design drawings. WTV shall indemnify PBE against any award
of damages or costs for such infringement and shall reimburse all
reasonable costs incurred by PBE in defending any suit or proceeding for
such infringement, provided that PBE gives WTV prompt notice in writing of
any such suit or proceeding for infringement and provides WTV with
information which it may have or receive in relation to such infringement.
WTV shall
CONFIDENTIAL
<PAGE>
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have full authority to solely and exclusively conduct the defence and
settlement thereof and PBE agrees to give WTV full assistance and
cooperation in said defence.
19.7 PBEs liability under this Article shall under no circumstances exceed a
maximum amount equal to the value of the Decoder Systems and/or Software
purchased by WTV pursuant to this Agreement and furthermore Articles 19.1
to 19.6 inclusive shall not apply to any claims of which notice has not
been received by the relevant party within the period of five (5) years
from delivery of a Decoder that meets the Specification.
19.8 THE FOREGOING STATES THE ENTIRE LIABILITY OF PBE IN CONNECTION WITH THE
INFRINGEMENT OF THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS BY THE DECODER
SYSTEMS AND/OR SOFTWARE SUPPLIED BY PBE HEREUNDER AND EXCEPT AS STATED
HEREABOVE, PBE SHALL NOT BE LIABLE FOR ANY OTHER LOSS OR DAMAGE OF ANY
KIND WHATSOEVER, INCLUDING ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL LOSS OR DAMAGES, SUFFERED OR INCURRED BY THE INDEMNIFIED
PARTY OR ITS CUSTOMERS IN CONNECTION WITH THE INFRINGEMENT OF ANY THIRD
PARTY'S INTELLECTUAL PROPERTY RIGHTS.
Article 20
Force Majeure
20.1 Definition
For the purpose of this Agreement Force Majeure shall mean any
circumstances or occurrences beyond a party's reasonable control,
including but not limited to acts of God, fires, floods, epidemics, wars,
insurrection, strikes involving a third party, satellite or satellite
transponder failure and/or degradation (and if no reasonably practicable
alternative is available), and governmental laws, rules and regulations.
20.2 Notice
If the performance of this Agreement is prevented or delayed by reason of
Force Majeure, the party whose performance is prevented or delayed shall
give prompt written notice to the other parties of the event and the
likely duration of the delay and shall be excused from performance to the
extent delayed or prevented by Force Majeure without being liable for any
damages resulting therefrom, provided that the party whose performance is
prevented or delayed shall take reasonable steps to avoid or remove such
causes of non-performance and shall continue performance whenever and to
the extent such causes are removed. In the event a party's performance
suffers from Force Majeure, WTV's payment obligation hereunder shall be
suspended for the period of time that performance is affected.
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20.3 Right of termination
However, if it can be reasonably expected that the performance shall be
interrupted for more than 3 (three) months due to Force Majeure, the party
receiving notice under Article 20.2 shall have the right to terminate, by
written notice to the other parties, any portion of this Agreement
covering the delayed performance and the obligations and liabilities of
all parties with respect to such portion of the agreement shall thereupon
lapse and terminate. In the event of termination as a result of Force
Majeure, PBE shall and does hereby grant to WTV a non-exclusive license
without the right to grant sublicenses under all PBE's Intellectual
Property Rights in the Software including CryptoWorks to the extent
necessary to ensure that WTV is able to acquire and use software and
products compatible with Decoder Systems purchased from PBE. PBE shall
cooperate fully with WTV. In case WTV is not capable of using such
licenses itself but wishes a third party to exercise the rights under such
licenses for the internal benefit of WTV, WTV may assign its rights to a
third party subcontractor provided it has the prior written consent of PBE
which will not be unreasonably withheld; to this end, Schedule 20.3
contains a list of third parties acceptable to PBE, which list may be
amended from time to time by PBE by giving 30 days written notice provided
that there is at least one alternative supplier on the list. For the
avoidance of doubt, any Software sublicenses granted by WTV in the sale or
rental of Decoder to Customers shall remain in full force and effect.
Article 21
Project Management
21.1 The Authorised Representatives shall meet at least every fortnight for the
first year of the Term or as otherwise agreed. The parties may meet by
teleconferencing if necessary. At the end of the first year of the Term
the parties may agree to meet on a less frequent basis.
21.2 During the first year of the Term PPS and PBE shall provide a written
report to WTV's Authorised Representative each fortnight, or as otherwise
agreed, setting out details relating to manufacture, delivery, sale,
marketing, installation and support of Decoder Systems. At the end of the
first year of the Term, WTV may elect to receive the written report less
frequently. The report will be in a format agreed between the parties.
21.3 Each party shall bear its own costs of complying with this article.
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Article 22
Confidentiality
22.1 Confidential Information
Each party to this Agreement agrees that this Agreement and any
information or data fixed in a tangible medium and furnished by one party
to the other party and conspicuously marked as the confidential or
proprietary information of the disclosing party (hereinafter referred to
collectively as "Confidential Information"), shall not be disclosed to
anyone other than those employees, shareholders, auditors and other
professional advisors of such party who need to use such Confidential
Information for the purposes of this Agreement and who have agreed to hold
such Confidential Information in trust and confidence.
PPS shall procure that the Dealers and Installers keep any information
they are given or they obtain on Customers and WTV confidential and that
they do not disclose that information to any third party. PPS shall ensure
and procure that there are appropriate restrictions in the agreements
between the Dealers and PPS and the Dealers and the Installers to protect
confidential and proprietary information of WTV, PPS and PBE.
22.2 Exceptions
Notwithstanding the provisions of Article 22.1 a party receiving
Confidential Information may disclose such information:
(a) pursuant to any law, rule or regulation including applicable stock
exchanges or an order or judgement of any court or governmental
body, provided that the disclosing party shall give notice of such
order or judgement to the other party prior to making such
disclosure and shall use reasonable efforts to obtain a protective
order or, in case such is not possible, confidential treatment,
covering the Confidential Information; or
(b) which is or becomes generally available to the public through any
means other than a breach by the disclosing party of its obligations
under this Agreement; or
(c) which is disclosed to the receiving party without an obligation of
confidentiality by a third party who has the right to make such
disclosure; or
(d) which is developed independently by the receiving party without use
of or benefit from the Confidential Information; or
(e) which was in the possession of the receiving party without
obligations of confidentiality prior to receipt under this
Agreement.
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<PAGE>
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22.3 Surviving obligation
The provisions of this Article shall retro-actively be in full force and
effect from March 10, 1997 and shall remain in full force and effect
during the term of this Agreement and three (3) years thereafter.
Article 23
Notices
23.1 Notices and communications under this Agreement shall be given in writing
and may be delivered to the relevant party or sent by registered air mail
or facsimile (with a regular mail confirmation copy) to the addresses of
that party or that party's facsimile number specified in Article 23.2.
23.2 Notices between the parties hereto will be addressed as follows:
If to WTV:
Wizja TV Sp z o.o.
Ostrobramska 75,
(Promenada) 04-175,
Warsaw, Poland
Attention: Finance Director
Tel: 00 48 22 611 3400 / 00 48 22 608 9822
Fax: 00 48 22 611 3401 / 00 48 22 668 7200
with a copy to:
At Entertainment Limited
Maidstone Studios,
Vinters Park, Maidstone, Kent, UK
Attention: Director of Engineering & Distribution
Tel +44 1622 684516
Fax +44 1622 684427
If to PBE:
Philips Business Electronics B.V.
business unit Digital Video Systems, Digital Receivers
Building OAN
P.O. Box 80002
5600 JB Eindhoven
The Netherlands
Attn- General Manager
Tel + 31 40-2734928
Fax + 31 40-2738007
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If to PPS:
Philips Polska Sp z o.o.
Consumer Electronics Division
Attn: General Manager (George Zduleczny)
ul. Marszalkowska 45-49
00-648 Warszawa, Poland
or to such other addresses and/or persons as the pertaining party
will have previously notified to the other party.
Article 24
Law and Disputes
24.1 This Agreement shall be governed, and construed in all respects in
accordance with the laws of the Netherlands without regard to the
principles of conflicts of law, and without regard to the United Nations
Convention on the International Sale of Goods.
If a dispute arises between the parties in connection with this Agreement,
a party may give a notice of dispute ("Dispute Notice") to the other
parties. Within 14 days of receipt of the Dispute Notice, the Authorised
Representatives shall meet and try to resolve the dispute. If the dispute
cannot be resolved by the Authorised Representatives, the dispute shall be
escalated to the parties' Chief Executives for resolution within 14 days
of the Authorised Representatives' last meeting. The parties may meet by
teleconferencing if necessary.
All disputes arising in connection with this Agreement, which disputes
have not been settled by mutual or amicable agreement, shall be finally
settled by arbitration (i) administered by the International Chamber of
Commerce and (ii) under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in effect on the date of signature of
this Agreement (the "ICC Rules"). The number of arbitrators shall be three
(3) and the arbitrators shall be appointed exclusively in accordance with
the ICC Rules and this Agreement. The arbitrators, one to be nominated by
PBE and PPS on the one hand, and the other to be nominated by WTV on the
other in accordance with Articles 2(4), 3 and 4(1) of the ICC Rules shall
agree on a third arbitrator, who shall serve as chairman of the arbitral
tribunal, within twenty (20) days after confirmation of the second
party-appointed arbitrator by the ICC International Court of Arbitration
(the "ICC Court"), failing which the third arbitrator shall be appointed
by the ICC Court. The place of arbitration shall be Amsterdam, the
Netherlands and the arbitrators shall be fluent in English (which is the
language in which the arbitration is to be conducted).
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Any award of the arbitral tribunal shall be final and binding on the
Parties and judgement thereon may be entered in any court of competent
jurisdiction, and application may be made to any competent jurisdiction
for judicial recognition of the award and an order of enforcement. The
Parties hereby waive any right to appeal from any award insofar as such
waiver can validly be made. Arbitration hereunder shall be the exclusive
method for resolving the disputes covered hereby, and no Party to this
Agreement shall commence any action or proceeding in any court with
respect to any such dispute except (i) to enforce the obligation to
arbitrate hereunder; (ii) to obtain provisional judicial assistance
(including injunctions or other provisional remedies) in aid of
arbitration hereunder; or (iii) to enforce an arbitral award made in
accordance herewith.
Article 25
Miscellaneous
25.1 Amendments
This Agreement may be amended only by an instrument in writing signed by
both parties.
25.2 Trademarks and Tradenames
Neither party shall use or make reference to the other party's trademarks
or tradenames in its marketing or sales literature or in any other way
other than in accordance with the terms and conditions agreed herein.
25.3 No waiver
The failure of any party to enforce or assert reliance upon, at any time
or for any period of time, any of the provisions of this Agreement shall
not be construed as a waiver of such party's rights under such provisions,
or the right of such party thereafter to enforce each and every provision
of this Agreement.
25.4 Assignment and delegated performance
No party hereto shall assign any of its rights under this Agreement to any
third party without the prior written consent of the other parties.
However, no consent is required for an assignment or transfer in whole or
in part by any party to any of its Affiliates, provided that the initial
party warrants the correct performance of all obligations hereunder. Such
party shall notify the others of such assignment or transfer in writing.
Furthermore, PBE shall be entitled to delegate, subcontract or assign its
obligations under this Agreement to any third party, provided it remains
fully bound by and liable for the correct execution of its obligations and
the performance requirements imposed on that third party are at least as
comprehensive as the performance required of the initial party under this
agreement.
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<PAGE>
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25.5 Survival
All terms and conditions of this Agreement which are destined (whether
expressed or not) to survive the expiration or termination of this
Agreement shall so survive.
25.6 Publicity
All media releases by a party hereto in the context of this Agreement
shall be coordinated with and approved in writing by the others prior to
the release thereof.
25.7 Export Control
WTV acknowledges that the Decoder Systems and/or documentation to be
supplied may be subject to United States or any specific local export
regulations and WTV acknowledges that it is familiar or agrees to become
familiar with such regulations. WTV furthermore agrees that it will not
deal with the Decoder Systems and/or documentation in violation of such
regulations, more specifically will not (re)export or otherwise dispose of
same without the applicable prior written authorisation of the national or
US authorities respectively, WTV certifies that it will not export (any
part of) the Decoder Systems without the prior written authorisation from
the appropriate authorities in Poland or their successors.
25.8 Inconsistencies
In case of inconsistencies between the Agreement and its annexes, exhibits
and other documents explicitly referred to herein, the order of precedence
will be (provided all such documentation was signed or initialled by
authorised officers of each party): (i) this Agreement and any amendments;
(ii) the Schedules, (iii) other documents.
25.9 Relation between the parties and costs
Nothing in this Agreement shall be deemed to create any joint venture,
partnership or principal and agent relationship between PBE, PPS and WTV
and neither WTV on the one hand and PPS and PBE on the other shall hold
themselves out in their advertising or otherwise in any manner which would
indicate or imply any such relationship with the other.
Save as expressly otherwise provided in this Agreement each of the parties
shall bear its own legal and other costs, charges and expenses connected
with the negotiation, preparation and implementation of this Agreement and
any other agreement incidental to or referred to in this Agreement.
25.10 Validity
If any provision of this Agreement is found or held to he invalid or
unenforceable, the validity of all other provisions hereof shall not be
attached thereby and the parties agree to meet and review the matter and
if any valid and enforceable means is reasonably available to achieve the
same commercial objective as the invalid or
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unenforceable provision, to adopt such means by way of variation of this
Agreement however if any invalid term is incapable of amendment to render
it valid, the parties agree to negotiate in good faith an amendment to
remove the invalidity or unenforceability.
25.11 Limitation of Liability
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER OR ITS AGENTS, DISTRIBUTORS AND CUSTOMERS FOR ANY INDIRECT, SPECIAL
OR CONSEQUENTIAL DAMAGES, WHETHER GROUNDED IN TORT, STRICT LIABILITY OR
CONTRACT, AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY'S LIABILITY TO THE
OTHER PARTY EXCEED THE OBLIGATIONS DESCRIBED HEREIN.
The parties hereto agree that the disclaimers and limitations of liability
set forth herein apply regardless of whether WTV will actually accept the
Decoder Systems.
The Parties acknowledge that PBE and PPS has set its prices and entered
into this Agreement in reliance upon the rights, explicit remedies,
disclaimers and limitations of liability set forth herein, and that same
reflect an allocation of risk between the Parties (including the risk that
a contract remedy may fail for its essential purpose and cause
consequential loss) and that same form an essential basis of the bargain
between the Parties.
25.12 Mutual warranties
Each party warrants to the others that it has all necessary power and
authority under its constitution to execute, deliver, and complete this
Agreement and this Agreement has been approved by its respective directors
or authorised officers; it has all necessary permissions, consents and
permits required to perform its obligations in this Agreement and will do
nothing to impair, derogate from or cause these permissions, consents and
permits to be suspended or revoked.
25.13 Entire Agreement
This Agreement sets out the entire understanding between the parties
relating to the subject matter of this Agreement and supersedes and
extinguishes any prior representations, undertakings and arrangements
relating to the same. The parties however acknowledge and agree that the
SEC Confidentiality Arrangement dated July 24, 1997 remains in full force
and effect relating to any disclosure of Confidential Information to the
SEC or any other stock exchange.
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<PAGE>
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25.14 English Language Version
If this Agreement is translated into Polish or Dutch, the English language
version of this Agreement prevails.
IN WITNESS WHEREOF this Agreement has been signed by each party in triplicate in
a manner duly binding upon them.
For Wizja TV Sp z o.o.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------- ----------------------
Name: [ILLEGIBLE] Name: [ILLEGIBLE]
Position: Director Position: Director
For Philips Business Electronics BV For Philips Polska Sp z o.o.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------- ----------------------
Name: [ILLEGIBLE] Name: [ILLEGIBLE]
Position: [ILLEGIBLE] Position: [ILLEGIBLE]
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<PAGE>
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SCHEDULES
---------
Schedule 1H Specification of the Decoder
[***]
Schedule 1H(A) Specification for ODU
[***]
Schedule 1I Delivery and Milestone Plan
Schedule 2.8 Payment Schedule
[***]
Schedule 2.9A Software Warranty
Schedule 2.9B Repair and replacement procedure
Schedule 2.12 CryptoWorks Security Programme
[***]
Schedule 3.2 Test Plan
[***]
Schedule 3.4 Engineering Change Procedure
Schedule 5.1 Logistics/Distribution services
Schedule 5.3A PBE's Guarantee
Schedule 5.3B WTV's Guarantee
Schedule 8.6 Dealer Criteria
Schedule 11 Installation Specification
Schedule 14.1 WTV Trademarks
Schedule 15.1 Philips Trademarks
Schedule 20.3 List of Third Party Subcontractors/Sublicencees
[***]
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
CONFIDENTIAL
<PAGE>
[LOGO] PHILIPS
[LOGO] Digital Video Systems
- --------------------------------------------------------------------------------
Version 3.6
March 9, 1998
Status: final
Filename: Wizja-CRS3.6.doc
G+4 Wizja
Digital Satellite Receiver
PRODUCT SPECIFICATIONS
[***]
[*** CONFIDENTIAL TREATMENT REQUESTED FOR
REMAINING 32 PAGES OF THIS SCHEDULE; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE>
[PHILIPS LOGO] PHILIPS
- --------------------------------------------------------------------------------
Philips Business Electronics
- --------------------------------------------------------------------------------
PREPARED By: 60 CM OUTDOOR SPEC NO: POL 0004
S AL FAKIR UNIT
for
- ----------------------- --------------------------
For further information Direct To Home DATE OF ISSUE:
contact:
Philips Digital Video Ku Band Reception 9-Mar-98
Systems
51, rue Carnot
92156 Suresnes
FRANCE
- ----------------------- --------------------------
Tel: 33 1 47 28 67 61 SPECIFICATION PAGES:
Fax: 33 1 47 28 63 40 MODEL NO: DSD665/91 8 + Appendix B
email: alfakir@ditv-
philips.fr
- --------------------------------------------------------------------------------
CUSTOMERS APPROVAL
DATE 980310 PRESENTED
BY /s/ [Illegible] BY
----------------- -----------------
SAMI AL FAKIR
PRODUCT MANAGER
This document contains information which is proprietary and confidential to
Philips Business Electronics B.V. and is intended for the specific use of the
recipient for the express purpose of Satellite antennas. This document is
provided with the expressed understanding that the recipient will not divulge
its content to other parties or otherwise misappropriate the information
contained herein.
- --------------------------------------------------------------------------------
<PAGE>
Philips Business Electronics
1. Introduction
This document specifies the PHILIPS Outdoor Unit (ODU) for Direct To Home (DTH)
reception of a digital signal broadcast by satellite.
The ODU consists of an offset reflector, a universal Low Noise Block
down-converter with integrated feedhorn (LNBF) and a mounting bracket.
The ODU is pointed at the appropriate satellite, to receive a Ku-band signal.
The LNBF converts this signal down to the Intermediate Frequency (IF) band by
mixing it with one of two local oscillator frequencies.
The LNBF is fed via the same coaxial cable that is used to carry the IF band
output signal to the consumer's Digital Satellite Receiver (DSR).
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<PAGE>
Philips Business Electronics
2. Assumptions
This specification is based on the link budget performed by the customer Wizja
TV and the satellite operator Astra. This link budget analysis has shown that
the minimum size requirement for a Quasi Error Free (QEF)* reception quality of
the Wizja TV bouquet, broadcasted from the Astra Platform on 19.2(degrees) East.
Following tests, PBE acknowledges that the specification for the ODU may
cause a [***] rate of unavailability for the Network Service in parts of
[***]. As the rate of unavailability can only be determined over time, the
parties agree that WTV will monitor calls and complaints, if any, from Customers
and Dealers in relation to unavailability of the Network Service. If the
analysis of those calls and complaints indicates a [***] rate of unavailability
in an area due to the specification of the ODU, PBE agrees to:
(a) replace the ODUs in that area at its cost with an ODU that will ensure an
availability rate of the Network Service consistent with [***];
(b) reimburse WTV for any reasonable out of pocket expenses it incurs as a
result of the calls or complaints, if any, and the swap out of ODUs.
* The definition of Quasi Error Free (QEF) reception is DVB specified.
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All proprietary rights reserved by Philips Business Electronics
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE>
Philips Business Electronics
3. General Description
The ODU has been designed for digital DTH reception, to provide
o a high quality reception of the digital bouquet by satellite, when it is
associated with the G+4 Wizja TV Digital Satellite Receiver.
o a quick and easy installation, ensured by a high level of premounting and
fewest possible number of screws.
o high stability and durability under weather conditions of Central and
Northern Europe.
It is delivered in a single package consisting of:
o the offset reflector, its back structure, the azimuth elevation holder,
the U clamp and the mast clamp.
o the Low Noise Block-down-convertor with integrated Feed-horn, LNBF,
premounted on the antenna feed-arm.
o the wall mounting bracket.
o an instruction manual.
No spare parts and no separate screw bag.
The feed-arm is clicked into the reflector. The elevation is adjusted with one
bolt and two other bolts are tightened to finalize the mounting of the antenna
on the mast.
An easy to read and durable scale setting facilitates the elevation adjustment
to the required satellite. The instruction manual describes step by step the
installation process, helping the installer achieve the best installation
settings.
The ODU is made of pre-galvanised steel, with powder coating for the reflector
and a UV resistant plastic for the feed-arm and the back structure. All parts
are treated and powder coated to prevent corrosion. For protection, the coaxial
cable is fed through the arm. The special plastic F connector protector is
adjusted over the connection between the coaxial cable and the F connector of
the LNBF to ensure total waterproofness.
With its finishing in middle-grey colour, the ODU blends in well with the
environment. The WIZJA TV and PHILIPS logos appear on the reflector.
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<PAGE>
Philips Business Electronics
4. Performance specification
4.1 Electrical characteristics
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
No Item Unit Specification
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
4.1.1 Offset Antenna
- --------------------------------------------------------------------------------
Effective Diameter mm 530x610
- --------------------------------------------------------------------------------
Input frequencies GHz from 10.7 to 12.75
- --------------------------------------------------------------------------------
Polarization horizontal and vertical
- --------------------------------------------------------------------------------
Gain*:
- --------------------------------------------------------------------------------
11.7 dBi 34.5
- --------------------------------------------------------------------------------
12.5 dBi 35.0
- --------------------------------------------------------------------------------
half power Beamwidth deg. 3.0
@ 11.7 GHz
- --------------------------------------------------------------------------------
on axis Cross Polar dB > 30
discrimination
- --------------------------------------------------------------------------------
4.1.2 LNBF values @ 25
(degrees)C
- --------------------------------------------------------------------------------
Output frequencies MHz Low Band 950 - 1950
- --------------------------------------------------------------------------------
High Band 1100-2150
- --------------------------------------------------------------------------------
Output component F-type female
connector
(with water-proof cap)
- --------------------------------------------------------------------------------
nominal output Ohm 75
impedance
- --------------------------------------------------------------------------------
Noise figure dB 0.9 typ
low band @ 25 deg 1.5 max
high band @ 25 deg 1.3 max
- --------------------------------------------------------------------------------
Phase noise dBc/Hz -50 @ 1KHz offset
-75 @ 10KHz offset
-100 @ 100 KHz offset
- --------------------------------------------------------------------------------
conversion gain dB 48 - 60
- --------------------------------------------------------------------------------
Gain variation dBpp 7.0 Low band
7.0 High band
1.0 within any 26 Mhz
segment
- --------------------------------------------------------------------------------
Polarization control
voltage:
- --------------------------------------------------------------------------------
vertical selection V 9 - 14
- --------------------------------------------------------------------------------
horizontal selection V 16 - 20
- --------------------------------------------------------------------------------
</TABLE>
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09/03/98 5
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<PAGE>
Philips Business Electronics
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Band selection: 22 +/- 4 kHz tone
- --------------------------------------------------------------------------------
No Item Unit Specification
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Low band mV pp 0 - 200
- --------------------------------------------------------------------------------
High band 400 - 800
- --------------------------------------------------------------------------------
Current consumption mA 180 max
- --------------------------------------------------------------------------------
</TABLE>
* accuracy of the gain measurement is +/- 0.3 dB
- --------------------------------------------------------------------------------
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<PAGE>
Philips Business Electronics
4.2 Mechanical and environmental characteristics
- --------------------------------------------------------------------------------
Item Unit Specification
- --------------------------------------------------------------------------------
OFU offset angle deg. Tbc
- --------------------------------------------------------------------------------
f/D 0.55
- --------------------------------------------------------------------------------
ODU mounting options:
- --------------------------------------------------------------------------------
Pole mount yes
- --------------------------------------------------------------------------------
pole mounting range * mm 32 - 50
- --------------------------------------------------------------------------------
wall mount yes
- --------------------------------------------------------------------------------
Elevation adjustable ** deg. 15 - 50
- --------------------------------------------------------------------------------
Azimuth adjustable deg. -180 - +180
- --------------------------------------------------------------------------------
Polarisation offset deg. -45 - +45
adjustable from
- --------------------------------------------------------------------------------
Temperature range (degrees)C -40 - +60
- --------------------------------------------------------------------------------
Operational wind-speed*** km/hr 72
- --------------------------------------------------------------------------------
Survival wind-speed*** km/hr 144
- --------------------------------------------------------------------------------
Destructive wind speed*** km/hr 216
- --------------------------------------------------------------------------------
Weight of package kg tbf
- --------------------------------------------------------------------------------
Number of product per tbf
pallet
- --------------------------------------------------------------------------------
* The ODU can be mounted on an existing pole. In that case, the verticality of
the pole is necessary in order to apply the azimuth, elevation and polarization
offset values mentioned in the instruction manual of the ODU. The pole on which
the ODU can be installed, must have a diameter in the range 32 to 50 mm.
** The elevation is adjusted by using the elevation scale marked on the back
structure.
*** The ODU is compliant with Euronorm IEC61114-2 for mechanical and
environmental testing.
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09/03/98 7
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All proprietary rights reserved by Philips Business Electronics
<PAGE>
Philips Business Electronics
5. Finishing and Labels:
The reflector, feed-arm and LNBF rain cover are finished in middle-grey colour.
This finishing is used for aesthetic purposes as well as protection of the
reflector against aging.
The brackets are made of black pre-galvanised steel.
The ODU is durably marked with the WIZJA TV and PHILIPS logos.
6. Lightning protection
A Ground symbol is clearly marked on the wall mount, indicating where to attach
a ground wire to the dish. This is also a requirement of the Euronorm
IEC61114-2.
7. Components List
The ODU consists of different components which are pre-assembled together in
only three parts, to ensure easy installation.
A detailed description of the components is given in Appendix B.
8. Packaging
One package contains all components of the ODU.
The PHILIPS logo, as well as logistics information and type numbers, appear in
black printing on the packaging.
- --------------------------------------------------------------------------------
09/03/98 8
STRICTLY CONFIDENTIAL
All proprietary rights reserved by Philips Business Electronics
<PAGE>
- --------------------------------------------------------------------------------
Commercial Specification WIZJA-TV
- --------------------------------------------------------------------------------
Digital Satellite Antenna DSD665/91
- --------------------------------------------------------------------------------
Diameter
- --------------------------------------------------------------------------------
last date of issue 07/02/98
- --------------------------------------------------------------------------------
Part number DSD665/91
- --------------------------------------------------------------------------------
[Illegible]
- --------------------------------------------------------------------------------
1. reflector + back structure + AZ/EL holder +
mast clamp yes
- --------------------------------------------------------------------------------
2. arm + LNB + F connector protector premounted yes
- --------------------------------------------------------------------------------
3. wall mount premounted yes
- --------------------------------------------------------------------------------
4. Separate accessories
- --------------------------------------------------------------------------------
F connector protector on LNB
- --------------------------------------------------------------------------------
5. IFU yes 10 pages A5 max
- --------------------------------------------------------------------------------
Material
- --------------------------------------------------------------------------------
Reflector pre galvanised steel
- --------------------------------------------------------------------------------
arm PP+3O%FG
- --------------------------------------------------------------------------------
back structure PP+3O%FG
- --------------------------------------------------------------------------------
wall mount pre galvanised steel
- --------------------------------------------------------------------------------
Az/EI holder pre galvanised steel
- --------------------------------------------------------------------------------
LNB holder PP+3O%FG
- --------------------------------------------------------------------------------
U clamps pre galvanised steel
- --------------------------------------------------------------------------------
screws on reflector rivets, Aluminium
- --------------------------------------------------------------------------------
Finishing
- --------------------------------------------------------------------------------
Reflector RAL7OO4
- --------------------------------------------------------------------------------
arm RAL7004
- --------------------------------------------------------------------------------
back structure black
- --------------------------------------------------------------------------------
Az/EI holder black pre-galva steel
- --------------------------------------------------------------------------------
Mast clamp black pre-galva steel
- --------------------------------------------------------------------------------
U clamp black pre-galva steel
- --------------------------------------------------------------------------------
wallmount black pre-galva steel
- --------------------------------------------------------------------------------
LNB holder RAL7OO4
- --------------------------------------------------------------------------------
LNB RAL7OO4
- --------------------------------------------------------------------------------
Logo
- --------------------------------------------------------------------------------
content WIZJA TV and PHILIPS,
- --------------------------------------------------------------------------------
Color Black and blue
- --------------------------------------------------------------------------------
LNB type
- --------------------------------------------------------------------------------
universal yes
- --------------------------------------------------------------------------------
other
- --------------------------------------------------------------------------------
reference PHILIPS LSH16
- --------------------------------------------------------------------------------
Package
- --------------------------------------------------------------------------------
Print Brown & Black
- --------------------------------------------------------------------------------
Labelling
- --------------------------------------------------------------------------------
sticker on package: yes
- --------------------------------------------------------------------------------
label on back of reflector yes
- --------------------------------------------------------------------------------
label on LNB yes
- --------------------------------------------------------------------------------
Shipping location et works Italy
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G+4 Wizja Poland DSR Project
- --------------------------------------------------------------------------------
Wizja Project Production Schedule
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
February March April May June
--------------------------------------------------------------------------------------
ID Task Name Duratio 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
53 DMT TESTS Phase Two 3 TESTS Phase Two
- -------------------------------------
54 Production Trajectory 75d
- -------------------------------------
55 Software Pre-Release 1 Od 3/27/98 5:00 PM
- -------------------------------------
56 Ramp Up PCB's 2 Ramp Up PCB's
- -------------------------------------
57 Ramp Up SETS Belt 1 3 Ramp Up SETS Belt 1
- -------------------------------------
58 Ramp Up SETS Belt 2 3 Ramp Up SETS Belt 2
- -------------------------------------
59 Shipment Wk16 (6900) 1 Shipment Wk16 (6900)
- -------------------------------------
60 Shipment Wkl7 (3500) 1 Shipment Wkl7 (3500)
- -------------------------------------
61 Shipment Wk18 (4000) 1 Shipment Wkl8 (4000)
- -------------------------------------
62 JTAG Belt 1 Week 1 2 JTAG Belt 1 Week 1
- -------------------------------------
63 PMT tests 5 PMT tests
- -------------------------------------
64 Shipment Wkl9 (4000) 1 Shipment Wkl9 (4000)
- -------------------------------------
65 Shipment Wk2O (4000) 1 Shipment Wk2O (4000)
- -------------------------------------
66 Shipment Wk21 (4000) 1 Shipment Wk2l (4000)
- -------------------------------------
67 Shipment Wk22 (10000) 1 Shipment Wk22 (10000)
- -------------------------------------
68 Shipment Wk23 (10000) 1 Shipment Wk23 (10000)
- -------------------------------------
69 Shipment Wk24 (10000) 1 Shipment Wk24 (10000)
- -------------------------------------
70 Shipment Wk25 (10000) 1 Shipment Wk25 (10000)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Digital Video Systems Page 1 February 4, 1998
<PAGE>
Schedule 2.8. Price and Payments
<TABLE>
<S> <C> <C> <C> <C>
Starting Point for calculations: - All calculations are in US Dollars ($);
- Payment term of "forecast" payments will be 30 days;
- Payment term of "shipment" payments will be 60 days;
- For the [***] the price is: Set Top Box: [***]
Licenses: [***]
Smartcard: [***] +
------
[***]
- For the [***] the price is: Set Top Box: [***]
Licenses: [***]
Smartcard: [***] +
------
[***]
- It is assumed that the exact forecasted quantities are produced. If this is not the case,
then invoiced amounts and quantities will vary accordingly;
- Service charges (distribution fees) are not taken into account.
<CAPTION>
-------------------------------------------------------------------------------------------
Amounts in 000's of USD dec 97 jan 98 feb 98 mar 98 apr 98 may 98 jun 98 jul 98 aug 98 sep 98
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forecast - Quantities [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Forecast - Amounts ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Invoice ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Payments ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------------------------
Amounts in 000's of USD oct 98 nov 98 dec 98 jan 99 feb 99 mar 99 apr 99 may 99 jun 99 jul 99 TOTALS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forecast - Quantities [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Forecast - Amounts ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Invoice ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Payments ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- ----------------------------------------------------------------------------------------------------------------------------------
- - The invoice of [***] in December 1997 is [***]% multiplied by forecasted amounts in January - April plus [***]% multiplied by
production (sales value) in December
- - The invoice of [***] in May 1998 is [***]% multiplied by forecasted amounts in June - September ([***]) plus [***]% multiplied by
production (sales value) in May ([***]);
- - In terms of payments, a 60 days term is allowed for shipped quantities. In June, the payment of [***] consists of [***]%
multiplied by forecasted amounts in June - September ([***]) plus [***]% multiplied by shipped value in April ([***]).
- - First payments are to be deducted from the $8,000,000, = up front payment made by At Entertainment Ltd. First payment will be
$[***], = due in April.
ODU's
Starting Point for calculations: - Payment term for all payments will be 30 days;
- Invoicing will be on an N+2 forecast, invoice schedule [***];
- From July 1998 onwards, it is assumed that ODU: STB = [***]. If this is not the case, then
invoiced amounts and quantities will vary accordingly.
- The price for the ODU is: [***]
<CAPTION>
-------------------------------------------------------------------------------------------------
Amounts in 000's of USD dec 97 jan 98 feb 98 mar 98 apr 98 may 98 jun 98 jul 98 aug 98 sep 98 oct 98 nov 98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forecast - Quantities [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Forecast - Amounts ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Invoice ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Payments ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------
Amounts in 000's of USD dec 98 jan 99 feb 99 mar 99 apr 99 may 99 jun 99 jul 99 TOTALS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forecast - Quantities [***] [***] [***] [***] [***] [***] [***] [***] [***]
Forecast - Amounts ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***]
Invoice ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***]
Payments ($ 000) [***] [***] [***] [***] [***] [***] [***] [***] [***]
- ---------------------------------------------------------------------------------------------------------
- - The invoice of [***] in February 1997 is [***]% multiplied by forecasted amounts in March - April plus [***]% multiplied by
production (sales value) in February
- - The invoice of [***] in May 1998 is [***]% multiplied by forecasted amounts in July ([***]) plus [***]% multiplied by production
(sales value) in May ([***]);
- - First payment is $[***], = due in March.
</TABLE>
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE>
SCHEDULE 2.9(A)
Software warranty
Subject to the provisions defined herein PPS warrants from delivery to WTV,
during a period of 12 (twelve) months after installation at the Customer's
premises, that:
(a the Software, unless modified by Customer without the authority of PBE,
will perform substantially the functions described in the respective
product documentation ("Documentation") and Specification and enable the
Decoder System to meet the Specification;
(b) PBE has the right to grant all the rights and licenses it grants or
purports to grant in the Software to WTV pursuant to and in accordance
with the terms of this Agreement;
(c) to the best of PPS knowledge and belief, there is no third party whose
consent is necessary in order for WTV to exercise the rights granted or
purported to be granted to it by PBE in relation to the Software pursuant
to and in the terms of this Agreement;
(d) no third party has made any claim which is outstanding at the date hereof
that any of the Software infringes any rights howsoever and wheresoever
arising; and
(e) the Software will be compatible with and interoperate with the Equipment
as defined in Article 3 of this agreement.
PPS does not warrant that the Software will meet the requirements of the
Customer, other than as specified in the Specification.
Except for the express warranties herein, PBE or PPS grants no warranties either
express, implied, statutory or other warranties on the Software, including but
not limited to all implied warranties of merchantability and fitness for a
particular purpose. In the event that, based on documented and reproducible
evidence, the Software does not conform to the said Documentation or perform in
accordance with the Specification, PPS will or will procure, at its option,
either (a) replace or modify the Software free of charge so that it conforms
with such Documentation in a timely manner and, if necessary (b) repair or
replace the affected Decoder in accordance with this Agreement. Nothing in this
Schedule prejudices the other rights and remedies that WTV has as set out in
this Agreement.
PBE or PPS make no warranty:
(1) as to defects in the Software other than those which materially affect
performance in accordance with the applicable Documentation and the
Specification;
(2) as to defects that appear in the Software because the Software is used in
violation of the license granted herein; or
(3) that Software will operate uninterrupted or error free, or that all errors
can be corrected.
In no event shall PBE or PPS be liable for indirect, special, or consequential
damages arising out of the use or operation of the Software. In no event shall
PBE's or PPS' liability exceed the total Software Price paid for Software for
Decoders as set forth in Article 2.8 of this Agreement pursuant to this license.
Software/Millenium upgrading
Without warranting that the Decoders or Software will work without interruptions
or errors (i) the Software will be upgraded and modified, where necessary, by
PBE at its sole cost no later than February 1999 in order to enable the Decoders
and the Software to continue to perform accordance with time Specifications as
from September 9, 1999; and (ii) as to third party Software, if any, (including
firmware) delivered by PBE, PBE will no later than February 1999 at its sole
cost investigate, analyze and test same in accordance with industry standards
and replace or have replaced, where necessary, any such Software in such third
party products in
CONFIDENTIAL
<PAGE>
2
order to enable the Decoders and the Software to continue to perform in
accordance with the Specifications as from September 9, 1999, all provided
that (a) such third parties reasonably and timely cooperate, and (b) PBE is
allowed to install any Updates and Upgrades. In case nevertheless an
Emergency or Major Problem occurs, PBE warrants that it will -in deviation of
the applicable general service conditions and as Customer's sole remedy-
start immediately upon notification at providing a Workaround in order to
restore the usability of the Decoders. (The definitions in this Schedule
shall have the same meaning as the definitions in the service level agreement
attached to the Main Agreement) Evaluation and verification of operation of
the Decoders in conjunction with other products, programs or services not
delivered by PBE are WTV's own responsibility. In case the Decoders must
perform as a system in accordance with the PBE obligations set forth above,
such is subject to other products and systems not delivered by PBE connected
to or used with the Decoders (i) properly exchanging accurate date data, (ii)
being and (iii) remaining Year2000 compliant themselves.
CONFIDENTIAL
<PAGE>
SCHEDULE 2.9B
Repair and Replacement
Service concept
PPS will establish one Central Repair Station through a third party to perform
warranty service and repair. Identification of a third party to conduct service
activities will take place on a variety of factors such as financial strength,
warehousing facilities, staff technical expertise and skills. PPS and PBE will
organize training for leading service people in March 1998, which will consist
of theoretical and practical modules. PBE and PPS will also be responsible for
preparation of the service and warranty documentation to be approved by WTV
(instructions, service manual, warranty card, homologation, guidelines etc.), as
well as setting up a spare parts supply system. PPS will also undertake a
training of the PPS' employees at the DTH Center to help Dealers in general and
with service and warranty issues relating to Decoder Systems. PPS and PBE will
furthermore create and maintain an initial service stock (spare parts and buffer
Decoder Systems).
Replacement and Repair Procedure
In case the Customer has a problem the following steps are to be taken:
a. The Customer calls the Wizja TV Call Centre (this number will be on warranty
card, instruction, smart card and subscription form).
b. The person in the Call Centre, using a standard set of questions agreed
jointly by WTV and PPS, determines whether the problem is in the signal
delivered from the Transmission Facility, (Wizja TV to act, but any fault with
the Equipment will be dealt with under the Main Agreement) or in the Decoder
(System) or in the Installation.
c. If the problem is not in the signal, the Call Centre advises the Customer to
bring the Decoder to the Dealer, where it is checked. If the Decoder is faulty,
the Dealer either (a) provides a replacement Decoder from the swap stock, or (b)
arranges an appointment with the Customer, for an Installer to come and install
a replacement Decoder. In both cases, a swap form is to be fully completed.
d. If the Decoder is not faulty, the Dealer will make an appointment with the
Customer for an Installer to rectify the problem at the Customer's premises.
e. Within 48 hours the Customer shall have a working Decoder System again in his
home (excluding Public Holidays, Saturdays and Sundays; calculated from the
moment Customer the Decoder is received by the Dealer).
f. The Dealer sends the faulty Decoder to the PPS Central Repair Station. On
receiving the faulty Decoder, PPS will dispatch a replacement Decoder
(refurbished but equivalent to new in performance) within one week to said
Dealer.
g. Central Repair Station repairs the faulty Decoder, it is then added back into
the replacement stock for replacement of another faulty Decoder.
<PAGE>
h. Central Repair Station produces monthly reports on an agreed format to PBE,
which are available (except pricing information) to WTV on request.
The service and repair procedure as mentioned in point 1 above is included in
the USD 23 fee, and covers a warranty period of 12 months as from installation
If the Decoder Systems are rented a surcharge of USD 4.50 per operational unit
for subsequent 12 month periods beyond the initial warranty period will be
applicable for the service mentioned under point 1 above. The applicable payment
schedule therefore still to be agreed.
<PAGE>
CRYPTOWORKS SECURITY PROGRAMME FOR THE
-WizjaTv "WTV"- PROJECT
Established pursuant to the agreement between - WTV- and
Philips Business Electronics "PBE" B.V.
Date:
CryptoWorks Consultancy Centre
Version 1.4
<PAGE>
[***]
[***CONFIDENTIAL TREATMENT REQUESTED
FOR REMAINING 12 PAGES
OF THIS SCHEDULE; OMITTED
PORTIONS FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION]
<PAGE>
SCHEDULE 3.2
Test Plan
There are three main Decoder tests of the [***], [***] and [***] and the
Decoder System that complies with the Specification (other -intermediary-
tests are mentioned in the Delivery and Milestone Schedule) that will be
running partly in parallel:
1) Alfa Test
2) End-to-End ("EtE") Test
3) Field Test
Add 1) Alfa Test (7 weeks, in accordance with the Attached Test Plan Programme)
These tests consist of laboratory tests with Decoders and a duplicate Uplink
system. The PBE standard Alfa test plan describes in detail the various
procedures to be followed to test the functionality of the Decoder.
Add 2) EtE Test (4 weeks, in accordance with the Attached Test Plan Programme)
The EtE test consists of full testing of the total functionality of the Decoder,
the features contained therein, as detailed in the Specification, [***].
Add 3) Field Test (4 weeks, in accordance with the Attached Test Plan Programme)
This test runs parallel with the EtE Test, where the same functionality is being
tested.
However, the broadcast stream used here, is the live stream from the Astra
transponders leased by At Entertainment Limited. Also, the Decoders will be
divided between the Dealers in specific regions, PPS, Maidstone and PBE
(Eindhoven).
This test incorporates a full testing of the [***] functionality.
The Decoders that are installed at the Dealers will remain there and serve as
commercial promotional models.
All tests except for number 2 will be repeated timely in full before delivery
of [***], [***] and Decoders meeting the Specification, unless the parties
agree to modify the (extent of the) tests.
A Download/Scarts test of the [***] Decoder will also be undertaken (3
weeks, in accordance with the Attached Test Plan Programme):
This test consists of testing the hardware/software of the download module, and
of the Scarts (both non-downloadable functions). WTV undertakes all reasonable
commercial endeavours to procure that Teststreams will be provided by At
Entertainment Limited in week 9. The first part of this test will be carried out
in the laboratory, and the second part will be carried out at the uplink site in
Maidstone, with live transport streams.
To these ends:
1. PBE is to deliver, on the 6th of April, 2000 Decoder Systems for testing
purposes ("Test Sets") and all other necessary equipment for the Test Set
to be installed according to the Installation Specification. WTV is to
provide the "live signal"; PBE will deliver activated smartcards for the
Test Sets.
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE>
2. PPS in co-operation with WTV, will prepare a detailed Test Set Delivery
Program (TSDP), in which all locations/points of sale for the Test Sets
will be specified, based on pre-agreed geographic, economic and practical
study.
3 PPS will organise distribution and installation of the Test Sets within 14
days from delivery of Test Sets to PPS at the locations specified in the
TSDP. PPS and WTV will jointly conduct ongoing monitoring of Test Set
performance, consisting of digital signal tranfer (Satlink), Software
download operation and scart Software operation during a period of four
weeks.
4. Predetermined locations/points of sale as specified in the TSDP will be
obliged to report on a weekly basis on the performance of the Test Sets.
Should any problems occur, PPS and WTV will use their all reasonable
commercial endeavours to rectify the problems before April 18th, 1998, in
accordance with Article 3.3 of the CCA.
<PAGE>
[GRAPHIC]
[Project tests]
<PAGE>
SCHEDULE 3.4
Engineering Change Procedure
1. Scope of document
This document addresses the requirements and processes involved in any
engineering change for Decoder Systems for WTV ("Decoder Systems"). The document
contains the procedures to be followed for (i) a WTV invoked change, or (ii) a
change invoked by PBE. The procedure pertains to any change to the Decoder
System's Specification as attached to the CCA and released for manufacture.
These procedures are in place to ensure that proposed changes (i) are
communicated in a controlled and efficient manner, and (ii) are thoroughly
evaluated and tested by WTV and PBE and (iii) will not adversely affect unless
reasonably required the safety, quality, reliability, functionality or cost of
the Decoder System.
2. Assumptions
The Decoder Systems involved are manufactured to the Specification agreed
between the parties. The parties acknowledge that the Specification is
reasonable and is capable of being met for manufacture. The parties will inform
each other promptly in the event of a change occurring or proposed and pending
which (might) affect(s) all Decoder Systems being manufactured and/or that have
been delivered for the Network Services of WTV which may prompt this procedure
to be invoked.
3. Change definition
A Change is defined as an alteration of physical fit, form or function of the
Decoder System, interchangeability of or Update/Upgrade to parts, removal of
components, or interfacing. This includes therefore electrical, mechanical and
Software changes and any change to the Specification.
4. Change categories
Change requests can be split into 2 categories (depending on the urgency with
which the problems encountered should be solved):
1. Urgent
2. Non Urgent
The Requesting Party will indicate whether a request is deemed Urgent or Non
Urgent. The respective procedure to be followed in each category of Change is
described below.
4A Urgent Changes
An Urgent Change is defined as:
- - Any Change which -if not implemented- would affect the safety of the
Decoder System or the user thereof;
- - Any Change which -if not implemented- would hamper or seriously affect the
receipt or performance including audio and video quality of the Network
Service of WTV;
- - Any Change required because of the introduction of a new feature as part
of the Network Service.
<PAGE>
-2-
4B. Non Urgent Changes
All Changes other than Urgent Changes will be treated as Non Urgent Changes.
5. Change Requests and Information Flow
Requests for Changes in accordance with this procedure ("Change Requests") may
be made by either party (a "Requesting Party"). Change Requests should be raised
on the Change Request Form ("Form") as provided by PBE to WTV, or in
correspondence containing substantially the same information on the Change
Request Form (Annex B). The Requesting Party should complete all sections of the
Form unless it is impractical in the circumstances.
The Receiving Party's Project Manager will undertake all reasonable commercial
endeavours to complete the assesment (in case of Urgent Changes: as soon as
possible), taking due regard to the urgency indicated.
6.Procedure and Impact Assessment
The Receiving Party Receiving Party will (i) review the category of Change (i.e.
Urgent or Non Urgent) and (ii) complete the Impact Assessment Sheet (to be
delivered by PBE to WTV) by the completion date indicated by the Receiving
Party's Project Manager.
Any discussion concerning costs and reimbursements for actions to be undertaken
regarding an Urgent request should take place in accordance with section 6A but
should not impede or delay the implementation of urgent measures.
6A. Urgent Changes Procedure
In case the Change is Urgent, the procedure will be as follows and the parties,
in view of the urgency, will undertake all commercial endeavours to process the
Change Request in a timely, expeditious and adequate manner.
a. The Requesting Party will attach a formal approval plan to the Receiving
Party, that will detail all integration and acceptance testing, any
drawings, any changes to the Specifications (including the Software
Specification) and proposed timing of introduction to allow the Receiving
Party to decide if the Change should proceed. There will he NO Urgent
Changes without evaluation, unless the Urgent Change is required because
of the Network Service has been degraded.
b. The Receiving Party's Project Manager will sign the Form and return it to
the Requesting Party. This will be the "trigger" to start the approval
cycle.
<PAGE>
-3-
c. The Receiving Party will complete the Impact Assessment Sheet by the
completion date indicated by the Receiving Party's Project Manager, noting
any additional areas affected by the Change Request that are not noted on
the Change Request, and may include without limitation the following:
* addition/removal of Hardware items
* changes to user documentation
* changes to implementation or Delivery and Milestone Plan
* additional resource requirements
* modification of Software.
Additional costs may be noted and summarised in the Impact Assessment
Sheet.
d. The Project Managers for each Party shall communicate on a daily basis.
The Receiving Party's Project Manager will summarise the Impact Assessment
Sheet and the Receiving Party will provide a response to a Change Request,
with a quotation, if any, to the Requesting Party. The parties agree not
to withhold or delay unreasonably their consent to Changes.
The parties acknowledge that a Requesting Party may provide a Change
Request that may require a significant amount of work to be performed in
order to prepare the Impact Assessments. In such an event, an Interim
Impact Assessment/Change Quotation will be produced by the Receiving Party
and sent to the Requesting Party for approval in order to proceed with the
processing of the Change Request. However, parties shall take great care
that such will not delay the implementation of urgent measures.
e. Where a Change has been rejected by a party, the Rejecting Party will
detail the reason for rejection. The Requesting Party will be able to
resubmit the Change Request to the Receiving Party after the areas of
concern have been addressed, however a new formal acceptance plan will be
required and the introduction process will start from step 1 above. The
Requesting Party will be expected to resubmit a Change Request only once.
In case of a continued dispute, the procedures set forth in Article 24 of
the Agreement will be followed.
f. On approval the Project Managers of the two parties will ensure
implementation of the Change, and the Requesting Party will file the
details of the Changes, the approval plan and the Receiving Party
acceptance letter in the Form file, the date and the serial number of when
the Change was implemented, with copies to the Receiving Party. All
integration and acceptance testing must have been carried out prior to
implementing an approved Change, unless the parties to decide to forfeit
or delay same in case the Network Services have been degraded.
<PAGE>
-4-
6B. Non Urgent Changes Procedure
In case the Change as Non Urgent, the procedure will be similar but slower (the
parties, in view of the absence of urgency, will undertake reasonable commercial
and technical endevours to process the Change Request in a timely and adequate
manner):
a. The Requesting Party will notify the Receiving Party of the
intention to introduce a Change on the Form. The Form will give the
Receiving Party a full description of the planned Change with
details of all testing completed by the Requesting Party to verify
that the Change will not degrade the quality, reliability,
functionality or performance of the Decoder System and a proposed
timetable. The Requesting Party will also detail all integration and
acceptance testing.
b. The Receiving Party's Project Manager will sign the Form and return
it to the Requesting Party. If the Requesting Party has had no
response from the Receiving Party within 30 Working Days, the
proposed Change is deemed accepted without quotation and
remuneration, and subsection f below applies.
c. The case of a response, the Receiving Party will complete the Impact
Assessment Sheet, by the completion date indicated by the
Receiving Party's Project Manager, noting any additional areas
affected by the Change Request that are not noted on the Change
Request. Additional cost may be noted and summarised in the Impact
Assessment Sheet.
d. The Receiving Party's Project Manager will summarise the Impact
Assessment Sheet and the Receiving Party will provide a response to
a Change Request, with a quotation, if any, to the Requesting Party.
e. Where a Change has been rejected, the Receiving Party will detail
the reason for rejection. The Requesting Party will be able to
resubmit the Change Request to the Receiving Party after the areas
of concern have been addressed, however a new formal acceptance plan
will be required and the introduction process will start from step 1
above. The Requesting Party will be expected to resubmit a Change
Request only once.
f. On approval the Project Managers of the two parties will ensure
implementation of the Change, and the Requesting Party will file the
details of the Changes, the approval plan and the Receiving Party
acceptance letter in the Form file, the date and the serial number
of when the Change was implemented, with copies to the Receiving
Party. All integration and acceptance testing must have been carried
out prior to implementing an approved Change.
7. Archiving
<PAGE>
-5-
The Requesting Party is expected to maintain all Forms and if necessary provide
the file that shows the Receiving Party that the Form has been evaluated in the
agreed manner. A copy of all Forms will be forwarded to the Receiving Party
where a second file will be kept.
8. Administration of Change Requests
The following Status and Action Codes will be used on the changes database
employed by the Receiving Party to assist in tracking of Change Requests:
================================================================================
Status Code Action Code
================================================================================
Open Allocated for Impact Assessment ("IA")
- --------------------------------------------------------------------------------
Interim IA produced
- --------------------------------------------------------------------------------
IA produced
- --------------------------------------------------------------------------------
Preparing Full IA
- --------------------------------------------------------------------------------
Requesting Party Approval pending
- --------------------------------------------------------------------------------
Requesting Party Issues pending
- --------------------------------------------------------------------------------
PM Authorization pending
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorised
- --------------------------------------------------------------------------------
Suspended
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Closed Not Approved
- --------------------------------------------------------------------------------
Not Authorised
- --------------------------------------------------------------------------------
Implemented
================================================================================
Each time the status/action code is changed, the date is recorded, and the
previous contents of the field are moved to the previous action field.
A summary report of the open Change Requests will be provided for each Project
Managers' progress meeting.
Note: In case an item fails to pass an acceptance test and such failure is
demonstrably due to one of the two parties (WTV/PBE) then (i) such party shall
bear any additional costs incurred in remedying same and in retesting the
corrected item, and (ii) such party shall undertake all commercial efforts in
remedying same as soon as possible. In case an item fails to pass an
<PAGE>
-6-
acceptance test and such is not demonstrably due to one of the two parties, then
all parties shall undertake all commercial efforts in remedying same as soon as
possible, however each at its own expense.
<PAGE>
SCHEDULE 5.1
Logistics & Distribution Services
PPS shall provide the following Logistics, Distribution and Marketing related
services for WTV in addition to the obligations set forth in the Agreement:
1) General
PPS will organise, in cooperation with WTV, the distribution network and the
logistics system for Decoder Systems within the Territory in accordance with the
terms and conditions set out in the Agreement.
2) Training & Marketing
PPS will provide at its cost the following training and marketing services
during pre-introduction phase for WTV consisting of:
a. preparation of primary list of appointed Dealers in accordance with Article
8.2.1. of the CCA and the detailed logistics plan established on the basis of
economic, geographical and market-related factors no later than two weeks as
from signing this Agreement.
b. cooperation in organisation of sales training and installation training in
accordance with logistics plan and Article 10 of the CCA, including
identification and reservation of proper training centers, preparation and
supply of relevant training materials and equipment, training and preparation of
pre-determined trainers, etc.
c. detailed Dealer visit program, including point of sale management, stand and
merchandising setup, installer and salesmen competencies evaluation - to be
continually carried out from March 1998 onwards.
d. active participation in the majority of marketing events related to sales and
distribution of the Decoder Systems during pre-introduction phase and other
pre-launch PR activities (preparation, supply and distribution of additional
technical data; dealer relations / consultation & advice and identification of
potential and existing problems and solutions).
3) Transportation and Importing:
a. PPS will receive the Decoder Systems from PBE in consignment as from the date
of delivery by PBE to WTV.
b. organisation of transportation of Decoder Systems from a PPS appointed
(bonded) warehouse approved by WTV (which is part of the US$23 distribution fee
and will not be invoiced seperately),
c. customs clearance administration,
d. VAT payments administration,
<PAGE>
e. duty payments administration.
All mentioned activities under this point 3 will be organised, carried out and
controlled by PPS. All direct costs resulting from activities under this point 3
will be paid directly by WTV on its respective due date.
4) Distribution:
PPS will undertake the following:
a. Weekly stock levels monitoring, control and reporting,
b. evaluation of Dealer network in accordance with Article 8.2.1. of the CCA,
c. distribution of the Decoder Systems from the warehouse to appointed Dealers
within a time frame of 48 hours.
d. spot checks at the premises of Points of Sale an accordance with Article 8.5
of the CCA.
e. Organisation of invoicing to Dealers and collection of payments.
f. Weekly monitoring and reporting of sales to WTV.
g. PPS will organise and provide the facility (order desk) to receive orders
from Dealers.
5. Administration
PPS will undertake the following (not to be invoiced seperately, but as part of
the service fee):
a. Processing compilation, delivery and reporting of completed subscriber forms
and installation protocols;
b. Administration of receipts and payments to Dealers;
c. Administration of invoicing to and from Dealers;
d. Administration of WTV's (subscription) bankaccount on the basis of joint
signatures of WTV and PPS.
<PAGE>
(Logo) Philips
[Philips Business Electronics Letterhead]
DEED OF GUARANTEE AND INDEMNITY
This Deed of Guarantee ("the Guarantee") is given by Philips Business
Electronics B.V., acting through its Business Unit Digital Video Systems, having
its registered office at Glaslaan 2, Eindhoven, The Netherlands ("Guarantor") to
WizjaTV S.p z o.o of Ostrobramska 75, (Promenada) 04-175, Warsaw, Poland ("WTV).
In consideration of WTV entering into (i) the Commercial Cooperation Agreement
of this date with the Guarantor and Philips Polska S.P z o.o. ("PPS"), which is
attached to this Guarantee ("the Agreement"), the Guarantor as principal obligor
and not merely as surety hereby agrees as follows:
1. To irrevocably and unconditionally guarantee and undertake to WTV on
demand the due and the full prompt and complete performance by PPS of all
obligations of PPS to WTV pursuant to the Agreement ("the Obligations").
2. To perform the Obligations on demand and to pay to WTV on demand without
deduction any damages for the breach of PPS' obligations to WTV to which
WTV is entitled under the Agreements ("Liabilities").
3. To indemnify and to keep WTV indemnified against any reasonable costs or
expenses which WTV may incur in enforcing this Guarantee.
4. As a separate and independent obligation that any of the Liabilities which
are nor recoverable from PPS by reason of any legal limitation or
incapacity on or of PPS or any other fact or circumstance (whether or not
known to WTV; PPS or the Guarantor) but to which WTV is entitled, shall be
recoverable from the Guarantor on demand as though the same had been
incurred by the Guarantor and the Guarantor were the principal obligor in
respect thereof.
5. This Guarantee shall be a continuing security to WTV in respect of the
services to be supplied by PPS to WTV and is in addition to and not in
substitution of any other guarantee or security held by WTV now or
hereafter for the obligations of PPS and is enforceable without WTV first
having recourse to any other security and without WTV first taking any
steps or proceedings against PPS.
6. Until the Liabilities have been paid in full the Guarantor shall not prove
in competition with WTV in the liquidation or insolvency of PPS nor shall
the Guarantor apply for the appointment of an administrator or
administrative receiver over the undertaking of PPS.
<PAGE>
[Philips Business Electronics Letterhead]
7. WTV shall be entitled to grant time or make any arrangement or agreement
whatsoever or grant a further indulgence to PPS without prejudicing WTV's
rights under this Guarantee or releasing the Guarantor in any way
whatsoever from it.
8. Any release or compromise by PPS of its obligations under the Agreement
shall be voidable by WTV if any payment or security which WTV may receive
or have received is set aside or proves unenforceable for whatever reason.
9. This Guarantee shall continue to bind the Guarantor notwithstanding any
amalgamation or merger that may be effected by WTV with any other company.
The benefit of this Guarantee and all rights conferred may be assigned to
and enforced by any such company and proceeded on in the same manner to
all intents and purposes as if such company had been named instead of or
in addition to WTV. The Guarantor shall not assign its obligations and/or
liabilities under this Guarantee without WTV's prior written consent (not
to be unreasonably withheld).
10. This Guarantee shall remain in full force and effect notwithstanding any
change in the Guarantor's constitution or in the constitution of PPS.
11. No failure or delay on WTV's part in exercising any power or right under
this Guarantee or against Guarantor shall operate as a waiver thereof nor
shall any single or partial exercise of any such right or power preclude
any other or further exercise thereof or of any other such right or power.
12. Valid service of any notice or demand under this Guarantee must be in
writing and sent by recorded delivery post to the addresses referred to
herein.
13. This Guarantee shall be governed by English law and the parties submit to
the exclusive jurisdiction of the English courts for that purpose. If any
provision of this Guarantee is found by a court of competent jurisdiction
to be unenforceable for any reason, the remainder of this Guarantee shall
continue in full force and effect.
14. Interest will be payable on sums outstanding under this Guarantee from the
date of demand until the date of payment at the rate of 4% p.a. above the
base rate from time to time of National Westminster Bank Plc. calculated
on a weekly basis.
15. This Guarantee constitutes the entire agreement and understanding between
the parties with respect to all matters described herein and excludes any
terms implied by law which may be excluded by contract. The Guarantor
acknowledges that:
<PAGE>
[Philips Business Electronics Letterhead]
(a) it does not enter into this Guarantee on the basis of and does not
rely, and has not relied, upon any statement or representation
(whether negligent or innocent) or warranty or other provision (in
any case whether oral, written express or implied) made or agreed to
by any person (whether a party to this Guarantee or not) except
those expressly contained in this Guarantee and the Agreement and
the only remedy or remedies available in respect of any
misrepresentation or untrue statement made to it shall be a claim
for breach of contract under this Guarantee; and
(b) this Clause 15 shall not apply to any statement, representation or
warranty made fraudulently, or to any provision of this Guarantee
which was induced by fraud, for which the remedies available shall
be all those available under the law governing this Guarantee.
Executed as a Deed this 10th day of March, 1998 by the duly authorised
representative of the Guarantor:
/s/ [ILLEGIBLE]
- ----------------------------
Signed (Director)
<PAGE>
[At Entertainment Inc. Letterhead]
DEED OF GUARANTEE AND INDEMNITY
This Deed of Guarantee ("the Guarantee") given by At Entertainment Inc, whose
registered office is at 1 Commercial Plaza, Hartford, Connecticut, 06103-3585
USA ("the Guarantor") to Philips Business Electronics B.V., whose registered
office is at Glaslaan 2, Eindhoven, The Netherlands and Philips Polska Sp zoo
whose registered office is at ul. Marszalkowska 45-49, 00-648 Warsaw, Poland
(collectively defined as "Philips").
In consideration of Philips entering into the Commercial Co-operation Agreement
of this date with Wizja TV Sp zoo ("WTV"), which is attached to this Guarantee
("the Agreement"), the Guarantor as principal obligor and not merely as surety
hereby agrees as follows:
1. To irrevocably and unconditionally agree to pay Philips immediately upon
Phillips' demand in writing an amount or amounts equal to all of the
payments plus VAT which have fallen due under the Agreement and which WTV
has failed to pay to Philips by the date or dates specified in the
Agreement.
2. Any amounts which become payable under this Guarantee shall be paid in
United States Dollars and to such bank account as Philips notifies to the
Guarantor from time to time. The Guarantee is limited to the total of all
payments due by WTV to Philips under the Agreement (as may be amended by
Philips and WTV from time to time) plus VAT.
3. To indemnify and to keep Philips indemnified against any reasonable costs
or expenses which WTV may incur in enforcing this Guarantee.
4. As a separate and independent obligation that any of the Liabilities which
are not recoverable from WTV by reason of any legal limitation or
incapacity on or of WTV or any other fact or circumstance (whether or not
known to WTV or the Guarantor) but to which Philips is entitled, shall be
recoverable from the Guarantor on demand as though the same had been
incurred by the Guarantor and the Guarantor were the principal obligor in
respect thereof.
5. Until the Liabilities have been paid in full the Guarantor shall not prove
in competition with Philips in the liquidation or insolvency of WTV nor
shall the Guarantor apply for the appointment of an administrator or
administrative receiver over the undertaking of WTV.
6. Philips shall be entitled to grant time or make any arrangement or
agreement whatsoever or grant a further indulgence to WTV without
prejudicing Philips' rights under this Guarantee or releasing the
Guarantor in any way whatsoever from it.
7. Any release or compromise by WTV of its obligations hereunder shall be
voidable by Philips if any payment or security which Philips may receive
or have received is set aside or proves unenforceable for whatever reason.
<PAGE>
8. This Guarantee shall continue to bind the Guarantor notwithstanding any
amalgamation or merger that may be effected by Philips with any other
company. The benefit of this Guarantee and all rights conferred may be
assigned to and enforced by any such company and proceeded on in the same
manner to all intents and purposes as if such company had been named
instead of or in addition to Philips. The Guarantor shall not assign its
obligations and/or liabilities under this Guarantee without Philips' prior
written consent (not to be unreasonably withheld).
9. This Guarantee shall remain in full force and effect notwithstanding any
change in the Guarantor's constitution or in the constitution of Philips.
10. No failure to delay on Philips' part in exercising any power or right
under this Guarantee or against Guarantor shall operate as a waiver
thereof nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or of any other such
right or power.
11. Valid service of any notice or demand under this Guarantee must be in
writing and sent by recorded delivery post to the addresses referred to
herein.
12. This Guarantee shall be governed by English law and the parties submit to
the exclusive jurisdiction of the English courts for that purpose. If any
provision of this Guarantee is found by a court of competent jurisdiction
to be unenforceable for any reason, the remainder of this Guarantee shall
continue in full force and effect.
13. Interest will be payable on sums outstanding under this Guarantee from the
date of demand until the date of payment at the rate of 4% pa above the
base rate from time to time of National Westminster Bank Plc calculated on
a weekly basis.
14. This Guarantee constitutes the entire agreement and understanding between
the parties with respect to all matters described herein and excludes any
terms implied by law which may be excluded by contract. The Guarantor
acknowledges that:
(a) it does not enter into this Guarantee on the basis of and does not
rely, and has not relied, upon any statement or representation
(whether negligent or innocent) or warranty or other provision (in
any case whether oral, written express or implied) made or agreed to
by any person (whether a party to this Guarantee or not) except
those expressly contained in this Guarantee and the Agreement and
the only remedy or remedies available in respect of any
misrepresentation or untrue statement made to it shall be a claim
for breach of contract under this Guarantee; and
(b) this Clause 14 shall not apply to any statement, representation or
warranty made fraudulently, or to any provision of this Guarantee
which was induced by fraud, for which the remedies available shall
be all those available under the law governing this Guarantee.
<PAGE>
15 Any notice to be sent by Philips to the Guarantor shall be in writing to
the following addresses:
Guarantor: @ Entertainment Inc.
1 Commercial Plaza
Hartford
Connecticut 06103-3585
USA
Telephone: +1 860 549 1674
Attention: Robert Fowler III
Copy 1 Baker & McKenzie
Attn: Marc Paul
815 Connecticut Avenue NW
Washington DC 20008-4078
USA
Telephone: +1 202 452 7000
Fax: +1 202 452 7074
Copy 2 At Entertainment Ltd
The Maidstone Studios
Vinters Park
Maidstone
Kent MEI4 5NZ
UK
Telephone: +44 (0)1622 684 556
Fax: +44 (0)1622 684 539
Attention: Mr David Warner
Executed as a Deed this 10th day of March 1998 by the duly authorised
representatives of the Guarantor:
/s/ [ILLEGIBLE]
- -----------------------------
Signed (Director)
<PAGE>
SCHEDULE 8.6
Dealer criteria
In order for a person to become a Philips Polska Dealer ("Applicant"), a
thorough check is executed on the following subjects, and the Applicant is rated
on each of these on a scale of 1-10 for each of the following points. If the
Applicant receives a total grade of more than 25 Applicant can become a Dealer.
1. Localisation - where is the Applicant's point of Sale located (eg. busy
area/centre of the city/shopping centre/weakly covered geographical area).
Applicant must have a minimum size of the store, depending on the local
competition. Applicant must have an area of 2m squared available for selling the
Network Service.
2. Other brands sold/other authorisation - if an Applicant is selling our main
competing brands Philips should be there as well.
3. Turnover level - a minimal level of additional turnover in the city/region
must be able to be achieved by appointing Applicant, depending on many factors
such as broadness of offered products etc. Furthermore, the Applicant must be in
good business and financial standing.
4. Quality of customer service - Applicant must have sufficient selling skills
and the interior of the PoS must meet average Polish expectations.
5. Commitment - Applicant must take part in co-operative merchandising and
other local promotion activities and attend the Dealer training courses.
<PAGE>
SCHEDULE 11: INSTALLATION SPECIFICATION
DECODER SYSTEM INSTALLATION PROCESS
1. Make an appointment with a client
2. Conduct the site survey:
a) locate a position with direct line of sight to the satellite and
plan the overall installation.
b) Check for the possibilities of antenna mounting:
- Roof-top
- Side-wall
- Balcony
- Free-standing pole
3. Install mount accessories
4. Assemble the antenna dish holder and mount the LNB
5. Attach the antenna dish to the mounted pole
6. Position the antenna towards the satellite:
a) Refer to the aiming map or aiming table to find the elevation,
azimuth, and polarisation offset angle
b) Use the compass and an inclinometer to confirm a direct sight to the
satellite
c) Connect the signal meter to the LNB. Fine-tune the antenna
positioning
7. Lay out the TV-SAT cable:
a) Plant the cable route from the LNB to the Decoder paying attention
to laying the cable neatly
b) Mount cable holders
c) Lay out the cable
8. Install F-connectors:
a) Strip both cable ends using coaxial cable stripper
b) Install the F-connectors using the crimping tool
<PAGE>
c) Check the installed connectors with a multimeter for any
short-circuits
d) Seal all the external electrical connections and the LNB with an
insulation tape
9. Attach the cable to the LNB and Decoder
10. Set up the customer's audio-video equipment with the Decoder. Attach the
Decoder in a configuration wanted by the customer
11. Program the Decoder and customers TV set and VCR
12. Instruct the client upon the Decoder programming
13. Fill-in the Installation Protocol. Customer has his own part of the
Installation Protocol for evaluation and remarks. Both parties - installer
and customer - sign the Installation Protocol and get a copy of it.
INSTALLATION USING CUSTOMER'S EXISTING SATELLITE DISH
We have to use our LNB converter (Due to the Decoder's supply DC voltage for the
LNB, we can't take responsibility for operation of a Decoder with other
converters):
Exchange the converter
Exchange the TV-SAT cable (otherwise PPS/PBE cannot guarantee the highest
quality of programs reception)
All the rest of the procedure steps remain unchanged
ACCESS TO THE INSTALLATION SITE
Within an urban area +/-30 km - free of charge
Longer distances - paid according to the established rate per km
Distances above 50 km are not economical/time efficient
INSTALLATION TIME
About 3 hours including accessing the site
3 installation per day on average
INSTALLATION TOOLKIT
1. Basic tool case (with keys, screwdrivers, knife, etc.)
2. F-connectors crimping tool
3. Coaxial cable stripper
4. Multimeter
5. Compass and inclinometer
6. Satellite Signal Level meter
7. Satellite angle co-ordinates table or map (azimuth, elevation and
polarisation offset)
<PAGE>
8. Drilling machine + set of drills for concrete, metal and wood
9. Long power supply cord extender (about 40m)
10. Ladder (6m minimum)
ADDITIONAL REQUIREMENTS AND RECOMMENDATIONS
2-person installer teams are recommended
Installers must have a valid labour-safety check-ups for working on heights
<PAGE>
[Logo]
WIZJA TV
STYLE GUIDE
--------------------------
<PAGE>
STATEMENT OF PURPOSE
- --------------------------------------------------------------------------------
The world of entertainment is made new every day. And with change comes
opportunity. But taking advantage of opportunities in this everchanging world,
and maintaining extraordinary leadership, requires vision.
What's happening and what's next is what fuels the world of entertainment.
Knowing what people want, anticipating their needs, and delivering on their
expectations is what WIZJA TV is all about.
[Logo]
BRANDING
- --------------------------------------------------------------------------------
begins in the home
WIZJA TV is a home entertainment experience enjoyed by the entire family. It is
intimate. It is emotional. And we want to be invited back into the homes of our
subscribers time and time again. Solid brand Identification can guarantee the
opportunity for this to happen.
If we are consistent, if we exude quality in all our communications -- we will
instill a sense of trust and familiarity into the hearts of our customers and
become their frequent, honored guests. Effective branding communicates our
image, our personality, our manners, our vitality and our commitment.
[Logo]
Introduction
<PAGE>
DECISIONS, DECISIONS
- --------------------------------------------------------------------------------
For the first time, Poland will have access to many new and exciting programming
options.
Choice is one of the compelling benefits WIZJA TV brings to the marketplace.
This means that clarity and simplicity are important components in all our
communications.
Your new WIZJA TV Style Guide is designed to set forth some rules and style
guidelines for on-air promotion producers, broadcast and print designers so that
everyone has the tools to create consistent, memorable WIZJA TV brand identity.
[Logo]
Introduction
<PAGE>
STYLE GUIDE
- --------------------------------------------------------------------------------
Table of Contents
LOGO USAGE 1.0 Table of Contents
1.1 Glossary of Terms
1.2 Platform Logo
1.3 Channel Logo
1.3 Sub-Brand Logos
1.4 Corporate Logos
1.5 Reproduction Art
- --------------------------------------------------------------------------------
COLOR PALETTES 2.0 Table of Contents
2.1 Platform Identity
2.1 Corporate Identity
2.3 Channel Identity
2.4 Sub-Brand Identities
- --------------------------------------------------------------------------------
BROADCAST 3.0 Table of Contents
3.0 Promo Package
3.0 Block Lead IDs
3.0 Signature IDs
3.0 Reklamas
[Logo]
STYLE GUIDE
<PAGE>
LOGO USAGE
- --------------------------------------------------------------------------------
Table of Contents
Glossary of Terms 1.1
- --------------------------------------------------------------------------------
Platform Logo 1.2 WIZJA TV
- --------------------------------------------------------------------------------
Channel Logo 1.3 WIZJA1
Sub-Brand Logos 1.3 WIZJA1 SPORT
WiZJA1 FILMY
WIZJA1 WOW
- --------------------------------------------------------------------------------
Corporate Logos 1.4 @ENTERTAINMENT, inc.
At ENTERTAINMENT, Ltd.
1.4 Usage without logo mark
- --------------------------------------------------------------------------------
Reproduction Art 1.5 WIZJA TV
1.5 WIZJA1
1.6 WIZJA1 SPORT
1.6 WIZJA1 FILMY
1.7 WIZJA1 WOW
l.8 @ENTERTAINMENT, inc.
1.8 At ENTERTAINMENT, Ltd.
[Logo]
LOGO USAGE
1.0
<PAGE>
GLOSSARY OF TERMS
- ---------------------------
[LOGO]
WIZJATV Platform A platform is the arena that presents all
of the offered channels to the viewer.
WIZJA TV is a broadcast platform.
[LOGO]
WIZJA1 Channel A channel is a destination on the platform.
WIZJA 1 is the flagship channel of WIZJA
TV 1. The channel WIZJA 1 contains several
content themed sub-brands (programming
blocks).
[LOGO] Sub-Brand Sub-brands (programming blocks)
WIZJA1 are content-themed divisions of a
SPORT channel. WIZJA I sport, WIZJA I Filmy and
WIZJA I Wow are content-themed sub-brands
[LOGO] resented on the channel WIZJA I.
WIZJA1
FILMY WIZJA 1 Sport hosts sporting events
interviews.
[LOGO] WIZJA 1 Filmy hosts blockbuster and classic
WIZJA films.
WOW WIZJA 1 Wow hosts children's programming
blocks.
[LOGO] Corporate Logos These are the @Entertainment, Inc., and
@ENTERTAINMENT, At Entertainment, Ltd. logos. The Corporate
INC. Logos represent WIZJA TV within the corporate
structure and they represent the same
entity under legal conditions.
[LOGO]
A+ ENTERTAINMENT
Ltd.
Reproduction These are camera ready logo sheets provided
Art for digital scanning of authorized logo
configurations.
[GRAPHIC] PANTONE-Registered The Pantone Matching System is an
Trademark- international printing language
MATCHING SYSTEM providing an accurate method for the
(PMS) selection and reproduction of color
through its ink numbering and mixing
formulas.
[SYMBOL] CMYK Cyan (C), Magenta (M), Yellow (Y) and Black
(K) constitute the four process ink colors
used in various combinations to recreate
any color for printed materials. A CMYK
conversion form a PMS specification is only
an approximation and should be avoided when
possible.
GLOSSARY OF TERMS
1.1
<PAGE>
PLATFORM LOGO
- --------------------------------------------------
GENERAL USAGE
The logos in this style guide are the most current configurations. Use of these
configurations in their specified color enables consistent recognition by the
viewer. Do not distort or reconstruct these logos in any way. Reproduction art
is provided at the end of this section.
| [LOGO]
Use of this logo as a positive image in blue | WIZJATV
and black is the most acceptable. For a | Positive Image on White
complete Pantone-Registered Trademark- | or light colors
Matching System (PMS) specification and CMYK |---------------------------
color breakdown, please refer to page 2.1 | [LOGO]
in the COLOR PALETTES section of this guide. | WIZJATV
| Positive Image on Screen
| UNDER 20% Threshold
|---------------------------
| [LOGO]
| WIZJATV
| Black on White
| or light colors
|---------------------------
| [LOGO]
| WIZJATV
| Negative Image on Black
| or dark colors
PLATFORM LOGOS
1.2
<PAGE>
CHANNEL LOGO
- --------------------------------------------------
General Usage
The Channel Logo, when reproduced within the Platform Identity, shares the same
usage regulations as the Platform Logo on page 1.2. An alternate Channel
Identify palette may be applied when the logo is used independent of the
Platform Identity. Please refer to page 2.3 in the COLOR PALETTES section of
this guide for usage specifications.
Reproduction art is provided at the end of this section.
| [LOGO]
| WIZJA1
| Positive Image of White
| or light colors
|-------------------------
|
|
|
SUB - BRAND LOGOS
- --------------------------------------------------
General Usage
The Sub-Brand Logos, when reproduced within the Platform Identity, share the
same usage regulations as the Platform Logo on page 1.2. Alternate Sub-Brand
identity palettes may be applied when the logos are used independent of the
Platform Identity. Please refer to pages 2.4 to 2.8 in the COLOR PALETTES
section of this guide for usage specifications.
Reproduction art is provided at the end of this section.
[LOGO] [LOGO] [LOGO]
| WIZJAT1 WIZJAT1 WIZJAT1
| SPORT FILMY WOW
| Positive Image on White or light colors
|---------------------------------------------------------------
CHANNEL AND SUB-BRAND LOGOS
1.3
<PAGE>
CORPORATE LOGOS
- --------------------------------------------------
General Usage
These Corporate Logos represent the same entity under different legal
conditions. Representation of this Corporate Identity requires careful
regulation to insure the correct logo is placed in the appropriate situation.
The @ Entertainment, inc, logo is used for investor relations and by Bob Fowler
and the Senior Executive. The At Entertainment, Ltd. logo is used for all other
applications. Strict fines are imposed should an incorrect logo appear. If you
are uncertain of which logo qualifies for a particular application, please
contact The Maidstone Studios +44[0] 1622 684410.
The Corporate Logo shares the same usage regulations as the Platform Logo on
page 1.2. Reproduction art is provided at the end of this section.
Use of this logo as a positive image in blue | [LOGO]
and black is the most acceptable. For a | @ENTERTAINMENT inc.
complete Pantone-Registered Trademark- | Positive Image of White
Matching System (PMS) specification and | or light colors
CMYK color breakdown, please refer to page |-------------------------------
2.1 in the COLOR PALETTES section of |
this guide. | [LOGO]
| AtENTERTAINMENT
Ltd.
Positive Image on White
or light colors
CORPORATE LOGOS
- --------------------------------------------------
Usage without logo mark
When used in conjunction with the Platform, Channel or Sub-Brand Logos in
printed materials, the Corporate Logo type appears without the mark. Adjustments
to this logo type have been made to insure legibility of the characters when the
logo appears at a small size. These adjustments are provided with specific size
parameters as Reproduction Art at the end of this section.
|
| @ENTERTAINMENT
| Inc.
|-------------------------------
|
| AtENTERTAINMENT
Ltd.
CORPORATE LOGOS
1.4
<PAGE>
REPRODUCTION ART
- --------------------------------------------------
If Reproduction Art provided in this guide is damaged or missing, please
contact the Art Department at The Maidstone Studios +44 [0] 1622 684410. For
a complete Pantone-Registered Trademark- Matching System (PMS) specification
and CMYK color breakdown, please refer to pages 2.1 and 2.3 in the COLOR
PALETTES section of this guide.
[LOGO] [LOGO]
WIZJATV WIZJATV
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
WIZJATV WIZJATV WIZJATV
Not to be reproduced above 15mm or below 8mm
[LOGO] [LOGO]
WIZJA1 WIZJA1
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
WIZJA1 WIZJA1 WIZJA1
Not to be reproduced above 20mm or below 8mm
REPRODUCTION ART
1.5
<PAGE>
REPRODUCTION ART
- --------------------------------------------------
If Reproduction Art provided in this guide is damaged or missing, please
contact the Art Department at The Maidstone Studios +44 [0] 1622 684410. For
a complete Pantone-Registered Trademark- Matching System (PMS) specification
and CMYK color breakdown, please refer to pages 2.1 and 2.4 to 2.5 in the
COLOR PALETTES section of this guide.
[LOGO] [LOGO]
WIZJA1 WIZJA1
SPORT SPORT
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
WIZJA1 WIZJA1 WIZJA1
SPORT SPORT SPORT
Not to be reproduced above 20mm or below 10mm
[LOGO] [LOGO]
WIZJA1 WIZJA1
FILMY FILMY
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
WIZJA1 WIZJA1 WIZJA1
FILMY FILMY FILMY
Not to be reproduced above 15mm or below 10mm
REPRODUCTION ART
1.6
<PAGE>
REPRODUCTION ART
- --------------------------------------------------
If Reproduction Art in this guide is damaged or missing, please contact the
Art Department at The Maidstone Studios +44 [0] 1622 684410. For a complete
Pantone-Registered Trademark- Matching System (PMS) specification and CMYK
color breakdown, please refer to pages 2.1 and 2.6 to 2.8 in the COLOR
PALETTES section of this guide.
[LOGO] [LOGO]
WIZJA1 WIZJA1
WOW WOW
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
WIZJA1 WIZJA1 WIZJA1
WOW WOW WOW
Not to be reproduced above 20mm or below 10mm
REPRODUCTION ART
1.7
<PAGE>
REPRODUCTION ART
- --------------------------
If Reproduction Art provided in this guide is damaged or missing, please
contact the Art Department at The Maidstone Studios +44 [0] 1622 684410. For
a complete Pantone-Registered Trademark- Matching System (PMS) specification
and CMYK color breakdown, please refer to pages 2.1 in the COLOR PALETTES
section of this guide.
[LOGO] [LOGO]
@ENTERTAINMENT @ENTERTAINMENT
inc. inc.
Not to be reproduced below 15mm
[LOGO] [LOGO] [LOGO]
@ENTERTAINMENT @ENTERTAINMENT @ENTERTAINMENT
inc. inc. inc.
Not to be reproduced above 18mm or below 9mm
[LOGO] [LOGO]
AtENTERTAINMENT AtENTERTAINMENT
Ltd. Ltd.
Not to be produced below 15mm
[LOGO] [LOGO] [LOGO]
AtENTERTAINMENT AtENTERTAINMENT AtENTERTAINMENT
Ltd. Ltd. Ltd.
Not to be reproduced above 18mm or below 9mm
REPRODUCTION ART
1.8
<PAGE>
COLOR PALETTES
---------------------------------------
Table of Contents
Platform/Corporate
Identity 2.1 Primary
2.1 Metallic
2.2 Complimentary
----------------------------------------------------
Channel Identity 2.3 WIZJA1
[LOGO]
----------------------------------------------------
Sub-Brand Identities 2.4 WIZJA1 SPORT
2.5 WIZJA1 FILMY
2.6 WIZJA1 WOW - Teen
2.7 WIZJA1 WOW - Tween
2.6 WIZjA1 WOW - Preschool
----------
COLOR PALETTES
2.0
<PAGE>
PLATFORM/CORPORATE IDENTITY
---------------------------------------
Primary Color Palette
The color of an identity is as important as its logo for
consistent recognizability. Methodical use of the
Pantone-Registered Trademark- Matching System (PMS)
specification assures this consistency.
The CMYK identification is only an approximation for
the PMS specification and should be avoided when
possible. When reproducing CMYK color for print, the
paper on which it is printed and/or the ink which is
used may effect the hue. These guidelines are provided as
a reference. Every effort should be made to match these
target colors.
[GRAPHIC] [GRAPHIC]
The only authorized identity blue.
---------------------------------
[GRAPHIC] [GRAPHIC]
The only authorized identity black.
[LOGO]
CORPORATE IDENTITY
---------------------------------------
Metallic Color Palette
To provide flexibility in promotional materials and
special printed pieces, the metallic palette may be used.
There are no CMYK equivalents to Pantone-Registered
Trademark- Metallics.
This metallic blue may be used as a
replacement to the authorized identity [GRAPHIC]
blue when the use of a metallic ink is
appropriate to a printed communication.
---------------------------------
This metallic silver may be used to as
a replacement or in conjunction with [GRAPHIC]
the neutral palette.
----------
CORPORATE IDENTITY
2.1
<PAGE>
PLATFORM/CORPORATE IDENTITY
---------------------------------------
Complimentary Color Palette
This palette is provided to compliment the primary color
palette in printed materials. As accents, these colors
must never replace or dominate the corporate identity
blue.
The CMYK identification is only an approximation for the
Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed and/or the ink which as used may effect the
hue. These guidelines are provided as a reference. Every
effort should be made to match these target colors.
Accent [GRAPHIC] [GRAPHIC]
---------------------------------
Dark Neutral [GRAPHIC] [GRAPHIC]
[LOGO]
---------------------------------
Light Neutral [GRAPHIC] [GRAPHIC]
---------------------------------
----------
CORPORATE IDENTITY
2.2
<PAGE>
CHANNEL IDENTITY
---------------------------------------
The Channel Identity is the flagship channel and a
destination on the WIZJA TV platform. This Channel
Identity contains several content-themed Sub-Brands:
Sport, Filmy and Wow. Reproduction art is provided on
page 1.5 in the LOGO USAGE section of this guide.
When used independently
of the Platform Identity,
this alternate Channel [LOGO]
Identity palette may be
used. See below for a Positive Image on White
complete Pantone-Registered or light colors
Trademark- Matching System
(PMS) and CMYK color
breakdown.
---------------------------------
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Logo and "1" [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
CHANNEL LOGO
2.3
<PAGE>
SUB-BRAND IDENTITIES
---------------------------------------
Sport
The Sport Sub-Brand represents content-themed programming
in the Channel Identity. Reproduction art is provided on
page 1.6 in the LOGO USAGE section of this guide.
When used independently
of the Platform Identity, [LOGO]
this alternate Sport Sub-
Brand Identity palette may
be used. See below for a Positive Image on White
complete Pantone-Registered or light color
Trademark- Matching System
(PMS) and CMYK color breakdown. ----------------------
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Logo and "1" and Sub- [GRAPHIC] [GRAPHIC]
Brand
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
SUB-BRAND LOGOS
2.4
<PAGE>
SUB-BRAND IDENTITIES
---------------------------------------
Filmy
The Filmy Sub-Brand represents content-themed programming
in the Channel Identity. Reproduction art is provided on
page 1.6 in the LOGO USAGE section of this guide.
When used independent
of the Platform Identity, [LOGO]
this alternate Filmy Sub-
Brand Identity palette may
be used. See below for a Positive Image on White
complete Pantone-Registered or light color
Trademark- Matching System
(PMS) and CMYK color breakdown. ----------------------
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Logo and "1" and [GRAPHIC] [GRAPHIC]
Sub-Brand
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
SUB-BRAND LOGOS
2.5
<PAGE>
SUB-BRAND IDENTITIES
---------------------------------------
Wow Teen
The Wow Sub-Brand represents blocks of programming
within the Channel Identity and is divided into 3
content-themed categories: Teen, Tween and Preschool.
Each block uses the same Sub-Brand Logo. Three
age-specific color palettes provide the only
distinction between these blocks of programming. Wow
Teen represents age-specific programming in the Wow
Sub-Brand Identity. Reproduction art is provided on
page 1.6 in the LOGO USAGE section of this guide.
When used independently
of the Platform Identity,
this alternate Wow Sub- [LOGO]
Brand Identity palette
may be used. This color Positive Image on White
palette represents the or light color
Teen Programming in the
WIZJA1 WOW Sub-Brand. ---------------------------------
See below for a
complete Pantone [LOGO]
-Registered Trademark-
Matching System (PMS) and
CMYK color breakdown. Negative Image on Accent
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Brow and "1" [GRAPHIC] [GRAPHIC]
---------------------------------
Ball and Sub-head [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
SUB-BRAND LOGOS
2.6
<PAGE>
SUB-BRAND IDENTITIES
---------------------------------------
Wow Tween
The Wow Sub-Brand represents blocks of programming within
the Channel Identity and is divided into 3 content-themed
categories: Teen, Tween and Preschool Each block uses the
same Sub-Brand Logo. Three age-specific color palettes
provide the only distinction between these blocks of
programming. Wow Tween represents age-specific programming
in the Wow Sub-Brand Identity. Reproduction art is
provided on page 1.6 in the LOGO USAGE section of this
guide.
When used independent
of the Platform Identity,
this alternate Wow Sub- [LOGO]
Brand Identity palette
may be used. This color Positive Image on White
palette represents the or light color
Tween Programming in the
WIZJA1 WOW Sub-Brand. ---------------------------------
See below for a
complete Pantone [LOGO]
-Registered Trademark-
Matching System (PMS) and
CMYK color breakdown. Negative Image on Accent
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Brow and "1" [GRAPHIC] [GRAPHIC]
---------------------------------
Ball and Sub-head [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
SUB-BRAND LOGOS
2.7
<PAGE>
SUB-BRAND IDENTITIES
---------------------------------------
Wow Preschool
The Wow Sub-Brand represents blocks of programming
within the Channel Identity and is divided into 3
content-themed categories: Teen, Tween and Preschool.
Each block uses the same Sub-Brand Logo. Three
age-specific color palettes provide the only
distinction between these blocks of programming. Wow
Teen represents age-specific programming in the Wow
Sub-Brand Identity. Reproduction art is provided on
page 1.6 in the LOGO USAGE section of this guide.
When used independent
of the Platform Identity,
this alternate Wow Sub- [LOGO]
Brand Identity palette
may be used. This color Positive Image on White
palette represents the or light color
Pre-School Programming in
the WIZJA1 WOW Sub- ---------------------------------
Brand. See below for a
complete Pantone [LOGO]
-Registered Trademark-
Matching System (PMS) and
CMYK color breakdown. Negative Image on Accent
[LOGO] The CMYK Identification is only an approximation for
the Pantone-Registered Trademark- Matching System (PMS)
specification and should be avoided when possible. When
reproducing CMYK color for print, the paper on which it
is printed, and/or the ink which is used may effect the
hue. These guidelines are provided as a reference.
Every effort should be made to match these target
colors.
Brow and "1" [GRAPHIC] [GRAPHIC]
---------------------------------
Ball and Sub-head [GRAPHIC] [GRAPHIC]
---------------------------------
Accent [GRAPHIC] [GRAPHIC]
----------
SUB-BRAND LOGOS
2.8
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
January 22, 1998
Enclosed you will find the Interim Style Guide which will serve your
needs until its permanent replacement arrives shortly. Please take note
of a few points before using this guide.
1. The reproduction art pages of this Interim Guide are not of
reproduction quality These pages are output on color laser and are not
intended to be used for reproduction, only to serve as instructional
guides. In the event that reproduction art of one of the logos is needed,
refer to the attached disk containing digital artwork of each logo.
2. The line weights of the type and logos vary from the ideal weight of
reproduction art, again due to the nature of the color laser output.
3. The PMS and CMYK colors are not accurate. Please refer to the numbers
in the color formulas for accurate reproduction in printing (i.e. PMS-293
or C100 M55 YO KO).
<PAGE>
DEALER MATERIALS
10.1
Dealer materials
presenting the brand
Dealers play an important role in presenting the
Philips brand in the market in relation to
competing brands and should extend the
consistency and prominence of the corporate
identity.
<PAGE>
DEALER MATERIALS
10.2
Contents
page
10.3 General Principles
10.4 Dealer stationery
10.6 Dealer advertising
10.7 Dealer signs
10.8 Dealer vehicles
<PAGE>
DEALER MATERIALS
10.3
General principles
use of the Philips housemarks Dealers are permitted to use the Philips
wordmark and shield emblem in the following
ways.
In advertising and promotional materials which
are exclusively devoted to Philips products, the
housemark configuration should be used in
accordance with the directives given in chapter
3.
In advertising and promotional materials which
also promote products of other brands, either
the Philips wordmark, the shield emblem or the
housemark configuration may he used.
stationery On letterheads, business cards etc. dealers are
permitted to use only the Philips shield emblem.
authorised dealer statement Dealers may state on stationery, advertising and
promotional materials that they are authorised
dealers for Philips products.
agreement A standard Dealer Agreement Letter stating the
rights and duties of the dealer is available
from Corporate Patents and Trademarks.
<PAGE>
DEALER MATERIALS
10.4
Dealer stationery
Philips shield emblem Dealers are permitted to use only the Philips
shield emblem on their stationery, appearing
less prominently than their own logos or trading
styles. Dealers are not allowed to use a design
which is similar to that of the Philips
stationery.
sufficient prominence The Philips shield emblem should be positioned
separately from the dealer's own information,
and not combined with any other logo or graphic
element. To ensure that this requirement is met,
a sufficiently large clear zone must be left
around the shield emblem.
If the Philips shield emblem appears together
with other brand names or logos, it should be
reproduced at a size that gives it at least the
same prominence.
colour The Philips shield emblem must appear only in
black, white or Pantone Process Blue.
the name Philips If a list of companies appears in a particular
typeface, the word Philips may be included in
the same type style.
authorized dealer A dealer may state on stationery that he is an
authorized dealer for Philips products, by using
the statement: "Authorized Philips dealer".
Examples of suggested stationery and business
card layouts are shown opposite.
<PAGE>
DEALER MATERIALS
10.5
[GRAPHIC]
<PAGE>
DEALER MATERIALS
10.6
Dealer advertising
use of the Philips housemarks Where dealer advertisements are exclusively
devoted to Philips products, the housemark
configuration should be used in accordance with
the directives given in Chapter 3.
Where dealer advertisements and other
promotional materials also promote products of
other brands, either the Philips wordmark, the
shield emblem or the housemark configuration
may be used. In these cases the dealer's own
house style may override the Philips corporate
identity rules regarding the size and
positioning of the housemarks.
sufficient prominence The choice of whether to use the housemark
configuration, the wordmark or the shield emblem
will be determined by the available space. The
objective is the best possible prominence of at
least one of the housemarks. Examples of
advertisement layouts are shown below. Even if
space is limited, care should be taken to
maintain a sufficiently large clear zone around
the housemark or configuration.
authorized dealer statement A dealer may state in advertising and
promotional materials that he is an authorized
dealer for Philips products, by using the
statement: "Authorized Philips dealer".
colour The Philips housemarks must appear only in
black, white or Pantone Process Blue on a
regular background. The contrast with the
background must be as great as possible.
[GRAPHIC] [GRAPHIC]
<PAGE>
DEALER MATERIALS
10.7
Dealer signs
use of the Philips housemarks Dealers are permitted to use either the Philips
wordmark, shield emblem or configuration. The
choice of which housemark to use will be
determined by the available space, as shown in
the examples below. The objective is the best
possible prominence of at least one of the
housemarks.
colour The mandatory colours for all signs are white
housemarks against a Pantone Process Blue
background.
[GRAPHIC] [GRAPHIC]
[GRAPHIC] [GRAPHIC]
<PAGE>
DEALER MATERIALS
10.8
Dealer vehicles
use of the Philips housemarks Dealers are permitted to use either the Philips
wordmark or shield emblem. The choice of which
housemark to use will be determined by the
available space. The objective is to use the
available space as effectively as possible for
the best presentation of the Philips brand.
colour The Philips housemarks must appear only in
black, white or Pantone Process Blue. The
contrast with the background must be as great as
possible, and the background must be regular.
vehicle colouring Similarity of dealer vehicle colouring to
that of Philips should be avoided.
An example of housemark application on a dealer
vehicle is shown below.
[GRAPHIC]
<PAGE>
ADVERTISING
3.1
Advertising
one personality
The value and recognition of the Philips brand
will be strengthened by a common positioning
being presented in a coherent and distinctive
way.
<PAGE>
ADVERTISING
3.2
Contents
page
3.3 One company, one brand, one personality
3.4 Printed advertising
3.10 TV commercials
<PAGE>
ADVERTISING
3.3
One company, one brand, one personality
This chapter describes the ingredients
that on the one hand create a recognizable
and distinctive visual identity for the
Philips brand, while on the other hand
allow maximum freedom for creative
expression of the advertising message.
a common "Positioning" is defined as the Company's
Philips positioning strategic proposition to its customers. The
positioning should explain what the Company
offers to the world, and forms the
strategic basis for all communications,
both internal and external.
The Philips positioning is defined as:
"Philips innovations affect people's lives
positively".
It must be emphasized that this is not a
Company slogan. It should therefore not be
used literally in advertising and other
communication media.
The key words in the positioning statement
are:
"Innovations"
Philips has an excellent record of
innovations, covering a wide product
range. These innovations translate
advanced technology into human benefits.
"Affect people's lives positively"
Philips innovations have a positive impact
on many aspects of people's lives; at home,
at work, in entertainment, communication,
information, health care etc.
This is a unique positioning which
distinguishes Philips from our major
competitors.
Consistent use of this positioning theme
for the Philips brand and products, in
combination with clear, direct
communication, will maximize impact and
improve the overall Philips image.
For more detailed information see "Philips
Company and Brand Positioning", available
from the Corporate Identity Manual
Secretariat.
<PAGE>
ADVERTISING
3.4
Printed advertising
This part covers advertisements in printed
media such as newspapers and magazines.
The aim is to achieve the maximum
recognition in printed advertising by
following a consistent approach wherever
possible to layout and typography.
housemark configuration The housemark configuration must be used
mandatory use in all advertisements, exactly as shown
and described in this chapter. Therefore
this manual must always be seen as an
integral part of briefings to advertising
agencies, designers, or any other
suppliers who are instrumental in the
creation and production of Philips
advertising.
housemark configuration The configuration is always positioned at
positioning the bottom right. The clear zone defines
the distance from the bottom and right
hand edges as shown below.
[GRAPHIC BOX]
[LOGO] PHILIPS
housemark configuration The size of the housemark configuration
size is measured over the width of the
wordmark. On all formats except extremely
tall/narrow ones, the width of the
wordmark (X) is determined by simply
adding the height (H) and width (W) of the
advertising space and dividing the result
by 10.
width of wordmark (X)= height (H) + width (W)
----------------------
10
minimum width The minimum width of the wordmark in
advertisements is 25 mm.
<PAGE>
ADVERTISING
3.5
[GRAPHIC BOX]
H + W
X = -----------
10
[LOGO] PHILIPS
Example of vertical format. The rule is
suitable for all proportions except
extremely narrow/tall ones, where the
configuration should fill the available
width as shown on the right.
[GRAPHIC BOX]
[LOGO] PHILIPS
[GRAPHIC BOX]
H + W
X = -----------
10
[LOGO] PHILIPS
Example of a horizontal format. The rule
is suitable for all proportions.
<PAGE>
ADVERTISING 3.6 In a double page
advertisement, as shown below, the
configuration must appear at the bottom
right hand corner of the right hand page.
The width is measured over one page only.
[GRAPHIC BOX]
H + W
X = -----------
10
[LOGO] PHILIPS
Double page advertisement
housemark configuration The housemark configuration must appear
colour in black, white or Pantone Process Blue on
a regular and contrasting background.
non-Roman Script When necessary an additional word Philips
in non-Roman script may be positioned to
the left of the housework configuration as
shown.
[GRAPHIC BOX]
[LOGO] PHILIPS
<PAGE>
ADVERTISING
3.7
main typeface The main typographical character is
determined by typesetting headlines,
headings and other text requiring extra
emphasis in one of the following
versions of the Gill Sans typeface
Gill Sans bold
Gill Sans bold condensed
Gill Sans regular
Gill Sans light
typesetting style All text must be set in upper and lower
Gill Sans case Gill Sans. Capitals and italic should
only be used for abbreviations or when
extra emphasis of a few words is
essential. Extremes of letter spacing,
either very tight or wide must be avoided.
typeface for body text Continuous body text of approximately 40
to 70 characters per line must be typeset
in one of the following versions of
Garamond.
Garamond semibold
Garamond regular
typesetting style Continuous body text must be set in upper
Garamond and lower case, ranged left, centred or
justified. Leading (space between lines)
will depend on the column width, but
should be at least 2 points.
More detailed information on typesetting
and examples are presented in chapter 2.
<PAGE>
ADVERTISING
3.8
PD signature Although not usually necessary, an
activity designation of a business unit,
PD or separate legal entity approved by PD
or NO management, may be used. It should
be positioned at the bottom left in Gill
Sans bold upper and lower case, ranged
left. The letter size for all activity
designations is determined by aligning a
3-line designation such as Philips Medical
Systems with the shield emblem at the top
and bottom as shown below.
An activity designation must always
consist of the name Philips followed by a
generic description of the pertinent
activity.
[GRAPHIC BOX]
Philips
Medical [LOGO] PHILIPS
Systems
[GRAPHIC BOX]
Philips
Semiconductors [LOGO] PHILIPS
<PAGE>
ADVERTISING
3.9
optional large wordmark An additional large wordmark of at least 3
times the height of the wordmark in the
housemark configuration, may be positioned
in black, white, Pantone Process Blue or
grey horizontally at the top left of the
advertisement if required. A clear zone of
at least 1/3P of the large wordmark must
be maintained below and, where applicable,
to the right of the large wordmark.
Only an additional large wordmark in a
horizontal position is allowed.
[GRAPHIC BOX]
[LOGO] PHILIPS
<PAGE>
ADVERTISING
3.10
TV commercials
It is mandatory to use the housemark
configuration at the end of a commercial.
housemark configuration The size of the housemark configuration is
size and positioning measured over the width of the wordmark.
This must be a minimum of 1/4 of the total
width of the screen. The positioning of
the configuration is free.
housemark configuration The housemark configuration should appear
colour in white, black or Pantone Process Blue on
a regular and contrasting background.
time The configuration must appear in view at
the end of the commercial for at least 5%
of the duration of the commercial,
for a minimum of 1 second.
[GRAPHIC BOX]
1/4 of screen width minimum
[LOGO] PHILIPS
typography During the whole commercial, all text
should be typeset in one of the four
versions of Gill Sans bold, bold
condensed, regular or light.
<PAGE>
SCHEDULE 20.3
List of Third party Subcontractors/Sublicencees
[***]
CONFIDENTIAL
[*** CONFIDENTIAL TREATMENT REQUESTED; OMITTED
PORTIONS FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE>
[LOGO] PHILIPS
Philips Business Electronics
- --------------------------------------------------------------------------------
P.O. Box 80006, 5600 JD
Eindhoven, The Netherlands
POWER OF ATTORNEY
Philips Business Electonics B.V. acting through its authorised representatives
Mr. A.J. van den Heuvel, CFO and Statutory Director, and Mr. Th. Peek, CTO and
Statutory Director, hereby authorises
Mr Willem de Zocte, General Manager LoB Digital Receivers,
and
Mr. Bob Tollenaar, Program Manager LoB Digital Receivers
jointly and severally with the right of substitution
to sign in the name and on behalf of our corporation an agreement entitled
"Commercial Cooperation Agreement" with WizjaTV S.P. z o.o. of Warsaw, Poland,
an affilliate of @Entertainment Inc, related to the sale and distribution of
Philips branded digital receivers for use in the Polish territory, including a
guarantee to be provided by our corporation for the performance of Philips
Polska S.P. z o.o. of its obligations thereunder.
This power of attorney expires on March 30, 1998.
Signature: Signature:
/s/ A.J. van den Heuvel /s/ Th. Peek
- ----------------------- -----------------------
By: A.J. van den Heuvel By: Th. Peek
Date: 26.02.98 Date:
<PAGE>
[LOGO] PHILIPS
Philips Polska Sp. z o.o
- --------------------------------------------------------------------------------
uL. Marslalhowsha 45149
00-648 Warslawa
POWER OF ATTORNEY
Philips Polska sp. z o.o. acting through its authorised representatives Mr
Jacob Cornelis van Oust Statutory Director, and Mr Zbigniew Jerzy Zduleczny
Statutory Director, hereby authorizes Mr Bob Tollenaar in the name and on
behalf of our corporation a commercial cooperation agreement with Wizja TV sp. z
o.o. of ul. Ostrobramska 75 (Promenada) 04-175 Warsaw, Poland.
A copy of which is attached hereto.
This power of attorney expires on April 30, 1998.
Signature: Signature:
PHILIPS-POLSKA Sp. z o.o. PHILIPS-POLSKA Sp. z o.o.
/s/ J.C. van Oust /s/ Zbigniew Zduleczny
- ----------------------- -----------------------
[ILLEGIBLE] General Manager
[ILLEGIBLE]
By: By:
Date: 27.02.98 Date:
<PAGE>
1
Exhibit 10.32
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 10.33
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
Page 1
<PAGE>
($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
Page 2
<PAGE>
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 3
<PAGE>
Exhibit 11.1
@ENTERTAINMENT, INC.
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
For the years ended December 31, 1995, 1996, and 1997
and the three months ended March 31, 1997 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
------------------------------- -------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net loss applicable to
common shareholders................. $ (1,289) $ (7,676) $(91,066) $(4,551) $(17,296)
Basic weighted average number of......
common shares outstanding........... 11,037 17,271 24,771 18,948 33,310
Nominal issuance...................... 2,437 346 -- -- --
------------------------------- -------------------
13,474 17,617 24,771 18,948 33,310
------------------------------- -------------------
Net loss per share.................... $ (0.10) $ (0.44) $ (3.68) $ (0.24) $ (0.52)
------------------------------- -------------------
------------------------------- -------------------
</TABLE>
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
1. ETV Sp. z o.o. Poland
2. Telewizja Kablowa GOSAT Sp. z o.o. Poland
3. Ground Zero Media Sp. z o.o. Poland
4. Otwocka Telewizja Kablowa Sp. z o.o. Poland
5. Polska Telewizja Kablowa S.A. Poland
6. Polska Telewizja Kablowa Krakow S.A. Poland
7. Polska Telewizja Kablowa Lublin S.A. Poland
8. Polska Telewizja Kablowa Operator Sp. z o.o. Poland
9. Polska Telewizja Kablowa Szczecin Sp. z o.o. Poland
10. Polska Telewizja Kablowa Warszawa S.A. Poland
11. Poltelkab Sp. z o.o. Poland
12. ProCable Sp. z o.o. Poland
13. Szczecinska Telewizja Kablowa Sp. z o.o. Poland
14. Telkat Sp. z o.o. Poland
15. TV Kabel Sp. z o.o. Poland
16. At Entertainment Limited United Kingdom
17. Poland Communications, Inc. New York
18. Poland Cablevision (Netherlands) B.V. Netherlands
19. Sereke Holding B.V. Netherlands
20. Wizja TV Sp. z o.o. Poland
21. KOLOR-SAT Sp. z o.o. Poland
(application for a PAR permit pending)
22. WPTS Sp. z o.o. Poland
23. @Entertainment Programming, Inc. Delaware
<PAGE>
Exhibit 23.1
[LETTERHEAD]
The Board of Directors
@ Entertainment, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Summary Consolidated Financial Data", "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
KPMG Polska Sp. z o.o.
Warsaw, Poland
August 4, 1998
<PAGE>
Exhibit 25
_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
______________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)____________
_______________________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
New York 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
organization if not a U.S. national bank)
130 Liberty Street
New York, New York 10006
(Address of principal (Zip Code)
executive offices)
</TABLE>
Bankers Trust Company
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
_______________________
@ENTERTAINMENT
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 06-1487156
(State or other jurisdiction of I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
One Commercial Plaza
Hartford, CT 06103-3585
(Address of Registrant's principal executive offices)
14 1/2% Series B Discount Notes due 2008
(Title of the indenture securities)
_______________________________________________________________________________
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising
authority to which it is subject.
<TABLE>
<CAPTION>
<S> <C>
Name Address
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
Item 3.-15. Not Applicable
Item 16. List of Exhibits.
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1 - Restated Organization Certificate of Bankers Trust Company dated August 7, 1990,
Certificate of Amendment of the Organization Certificate of Bankers Trust
Company dated June 21, 1995 - Incorporated herein by reference to Exhibit 1 filed
with Form T-1 Statement, Registration No. 33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated March 20, 1996, incorporated
by reference to Exhibit 1 filed with Form T-1 Statement, Registration No. 333-25843
and Certificate of Amendment of the Organization Certificate of Bankers Trust
Company dated March 18, 1998, copy attached.
Exhibit 2 - Certificate of Authority to commence business - Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047.
Exhibit 3 - Authorization of the Trustee to exercise corporate trust powers - Incorporated herein
by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust Company, as amended on November 18, 1997.
Copy attached.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit 5 - Not applicable.
Exhibit 6 - Consent of Bankers Trust Company required by Section 321(b) of the Act - Incorporated
herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 22-18864.
Exhibit 7 - The latest report of condition of Bankers Trust Company dated as of March 31, 1998.
Copy attached.
Exhibit 8 - Not Applicable.
Exhibit 9 - Not Applicable.
</TABLE>
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State of New
York, on the 30th day of July, 1998.
BANKERS TRUST COMPANY
By: /s/ Dorothy Robinson
---------------------
Dorothy Robinson
Assistant Vice President
4
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY Under
Section 8005 of the Banking Law," dated March 18, 1998, providing for an
increase in authorized capital stock from $2,351,666,670 consisting of
135,166,667 shares with a par value of $10 each designated as Common Stock
and 1,000 shares with a par value of $1,000,000 each designated as Series
Preferred Stock to $2,501,666,670 consisting of 150,166,667 shares with a par
value of $10 each designated as Common Stock and 1,000 shares with a par
value of $1,000,000 each designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of
New York, this 26th day of March in the Year of our Lord one thousand
nine hundred and ninety-eight.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and Secretary, and a Vice President and an Assistant Secretary of
Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock
in conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock
outstanding, which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion, Three Hundred and Fifty-One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($2,351,666,670), divided
into One Hundred Thirty-Five Million, One Hundred Sixty-Six Thousand, Six
Hundred Sixty-Seven (135,166,667) shares with a par value of $10 each
designated as Common Stock and 1000 shares with a par value of One Million
Dollars ($1,000,000) each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion Five Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($2,501,666,670), divided into One
Hundred Fifty Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (150,166,667) shares with a par value of $10 each designated as
Common Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
<PAGE>
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all
outstanding shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
18th day of March, 1998.
James T. Byrne, Jr.
-------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
-------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is Vice
President and an Assistant Secretary of Bankers Trust Company, the
corporation described in the foregoing certificate; that she has read the
foregoing certificate and knows the contents thereof, and that the statements
herein contained are true:
Lea Lahtinen
------------------------
Lea Lahtinen
Sworn to before me this 18th day
of March, 1998
Sandra L. West
- --------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission expires September 19, 1998
<PAGE>
BY-LAWS
NOVEMBER 18, 1997
Bankers Trust Company
New York
<PAGE>
BY-LAWS
of
Bankers Trust Company
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be
held at the office of the Company in the Borough of Manhattan, City of New
York, on the third Tuesday in January of each year, for the election of
directors and such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either
in person or by proxy, stockholders owning a majority of the capital stock of
the Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall
direct the proceedings and the order of business. The Secretary shall act as
secretary of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate
powers exercised by a Board of Directors consisting of such number of
directors, but not less than ten nor more than twenty-five, as may from time
to time be fixed by resolution adopted by a majority of the directors then in
office, or by the stockholders. In the event of any increase in the number of
directors, additional directors may be elected within the limitations so
fixed, either by the stockholders or within the limitations imposed by law,
by a majority of directors then in office. One-third of the number of
directors, as fixed from time to time, shall constitute a quorum. Any one or
more members of the Board of Directors or any Committee thereof may
participate in a meeting of the Board of Directors or Committee thereof by
means of a conference telephone or similar communications equipment which
allows all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in person at
such a meeting.
<PAGE>
All directors hereafter elected shall hold office until the next annual
meeting of the stockholders and until their successors are elected and have
qualified. No person who shall have attained age 72 shall be eligible to be
elected or re-elected a director. Such director may, however, remain a
director of the Company until the next annual meeting of the stockholders of
Bankers Trust New York Corporation (the Company's parent) so that such
director's retirement will coincide with the retirement date from Bankers
Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes
his responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board
of Directors may be filled by the affirmative vote of a majority of the
directors then in office, and the directors so elected shall hold office for
the balance of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board
of Directors. In his absence, the Chief Executive Officer or, in his absence,
such other director as the Board of Directors from time to time may designate
shall preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for
the conduct of its meetings and the management of the affairs of the Company
as it may deem proper, not inconsistent with the laws of the State of New
York, or these By-Laws, and all officers and employees shall strictly adhere
to, and be bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from
time to time on the third Tuesday of the month. If the day appointed for
holding such regular meetings shall be a legal holiday,the regular meeting to
be held on such day shall be held on the next business day thereafter.
Special meetings of the Board of Directors may be called upon at least two
day's notice whenever it may be deemed proper by the Chairman of the Board
or, the Chief Executive Officer or, in their absence, by such other director
as the Board of Directors may have designated pursuant to Section 3 of this
Article, and shall be called upon like notice whenever any three of the
directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE>
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of
not less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the
Executive Committee. In his absence, the Chief Executive Officer or, in his
absence, such other member of the Committee as the Committee from time to
time may designate shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented
to the Board of Directors at its next subsequent meeting. All acts done and
powers and authority conferred by the Executive Committee from time to time
shall be and be deemed to be, and may be certified as being, the act and
under the authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may
act only by the concurrent vote of not less than one-third of its members, at
least one of whom must be a director other than an officer. Any one or more
directors, even though not members of the Executive Committee, may attend any
meeting of the Committee, and the member or members of the Committee present,
even though less than a quorum, may designate any one or more of such
directors as a substitute or substitutes for any absent member or members of
the Committee, and each such substitute or substitutes shall be counted for
quorum, voting, and all other purposes as a member or members of the
Committee.
SECTION 2. There shall be an Audit Committee appointed annually by
resolution adopted by a majority of the entire Board of Directors which shall
consist of such number of directors, who are not also officers of the
Company, as may from time to time be fixed by resolution adopted by the Board
of Directors. The Chairman shall be designated by the Board of Directors, who
shall also from time to time fix a quorum for meetings of the Committee. Such
Committee shall conduct the annual directors' examinations of the Company as
required by the New York State Banking Law; shall review the reports of all
examinations made of the Company by public authorities and report thereon to
the Board of Directors; and shall report to the Board of Directors such other
matters as it deems advisable with respect to the Company, its various
departments and the conduct of its operations.
In the performance of its duties, the Audit Committee may employ or retain,
from time to time, expert assistants, independent of the officers or
personnel of the Company, to make studies of the Company's assets and
liabilities as the Committee may request and to make an examination of the
accounting and auditing methods of the Company and its system of internal
protective controls to the extent considered necessary or advisable in order
to determine that the operations of the Company, including its fiduciary
departments, are being audited by the General Auditor in such a manner as to
provide prudent and adequate protection. The Committee also may direct the
General Auditor to make such investigation as it deems necessary or advisable
with respect to the Company, its various departments and the conduct of
its operations. The Committee shall hold regular quarterly meetings and
during the intervals thereof shall meet at other times on call of the
Chairman.
<PAGE>
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or
continue the powers and duties of such Committees. Each Committee appointed
pursuant to this Article shall serve at the pleasure of the Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a
Chairman of the Board and a Chief Executive Officer; and shall also elect a
President, and may also elect a Senior Vice Chairman, one or more Vice
Chairmen, one or more Executive Vice Presidents, one or more Senior Managing
Directors, one or more Managing Directors, one or more Senior Vice
Presidents, one or more Principals, one or more Vice Presidents, one or more
General Managers, a Secretary, a Controller, a Treasurer, a General Counsel,
one or more Associate General Counsels, a General Auditor, a General Credit
Auditor, and one or more Deputy Auditors, who need not be directors. The
officers of the corporation may also include such other officers or assistant
officers as shall from time to time be elected or appointed by the Board.
The Chairman of the Board or the Chief Executive Officer or, in their
absence, the President, the Senior Vice Chairman or any Vice Chairman, may
from time to time appoint assistant officers. All officers elected or
appointed by the Board of Directors shall hold their respective offices
during the pleasure of the Board of Directors, and all assistant officers
shall hold office at the pleasure of the Board or the Chairman of the Board
or the Chief Executive Officer or, in their absence, the President, the
Senior Vice Chairman or any Vice Chairman. The Board of Directors may
require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive
Officer of the Company who may also hold the additional title of Chairman of
the Board, President, Senior Vice Chairman or Vice Chairman and such person
shall have, subject to the supervision and direction of the Board of
Directors or the Executive Committee, all of the powers vested in such Chief
Executive Officer by law or by these By-Laws, or which usually attach or
pertain to such office. The other officers shall have, subject to the
supervision and direction of the Board of Directors or the Executive
Committee or the Chairman of the Board or, the Chief Executive Officer, the
powers vested by law or by these By-Laws in them as holders of their
respective offices and, in addition, shall perform such other duties as shall
be assigned to them by the Board of Directors or the Executive Committee or
the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal
controls. Subject to the Board of Directors, the General Auditor shall have
and may exercise all the powers and shall perform all the duties usual to
such office and shall have such other powers as may be prescribed or assigned
to him from time to time by the Board of Directors or vested in him by law or
by these By-Laws. He shall perform such other duties and shall make such
investigations, examinations and reports as may be prescribed or required by
the Audit Committee. The General Auditor shall have unrestricted access to
all records and premises of the Company and shall delegate such authority to
his subordinates. He shall have the duty to report to the Audit Committee on
all matters concerning the internal audit
<PAGE>
program and the adequacy of the system of internal controls of the Company
which he deems advisable or which the Audit Committee may request.
Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the Company to the Audit Committee at least
quarterly on any matters concerning the internal audit program and the
adequacy of the system of internal controls of the Company that should be
brought to the attention of the directors except those matters responsibility
for which has been vested in the General Credit Auditor. Should the General
Auditor deem any matter to be of special immediate importance, he shall
report thereon forthwith to the Audit Committee. The General Auditor shall
report to the Chief Financial Officer only for administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive
Officer and, through the Audit Committee, to the Board of Directors for the
systems of internal credit audit, shall perform such other duties as the
Chief Executive Officer may prescribe, and shall make such examinations and
reports as may be required by the Audit Committee. The General Credit
Auditor shall have unrestricted access to all records and may delegate such
authority to subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan
or plans of position evaluation and salary administration as shall be
approved from time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of
the Board, the Chief Executive Officer or any person authorized for this
purpose by the Chief Executive Officer, shall appoint or engage all other
employees and agents and fix their compensation. The employment of all such
employees and agents shall continue during the pleasure of the Board of
Directors or the Executive Committee or the Chairman of the Board or the
Chief Executive Officer or any such authorized person; and the Board of
Directors, the Executive Committee, the Chairman of the Board, the Chief
Executive Officer or any such authorized person may discharge any such
employees and agents at will.
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section
7018 of the New York Banking Law, indemnify any person who is or was made, or
threatened to be made, a party to an action or proceeding, whether civil or
criminal, whether involving any actual or alleged breach of duty, neglect or
error, any accountability, or any actual or alleged misstatement, misleading
statement or other act or omission and whether brought or threatened in any
court or administrative or legislative body or agency, including an action by
or in the right of the Company to procure a judgment in its favor and an
action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
Company is servicing or served in any capacity at the request of the Company
by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Company, or is serving or served such other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, or
any appeal therein; provided, however, that no indemnification shall be
provided to any such person if a judgment or other final adjudication adverse
to the director or officer establishes that (i) his acts were committed in
bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he
was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company
is permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided
by, the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to
any person referred to in Section 1 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action
or proceeding referred to in Section 1, upon receipt of a written undertaking
by or an behalf of such person to repay such amount(s) if a judgment or other
final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of
action so adjudicated, or (ii) he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the
election of its directors is held by the Company, or (ii) any employee
benefit plan of the Company or any corporation referred to in clause (i) in
any capacity shall be deemed to be doing so at the request of the Company. In
all other cases, the provisions of this Article V will apply (i) only if the
person serving another corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise so served at the specific request
of the Company, evidenced by a written communication signed by the Chairman
of the Board, the Chief Executive Officer or the
<PAGE>
President, and (ii) only if and to the extent that, after making such efforts
as the Chairman of the Board, the Chief Executive Officer or the President
shall deem adequate in the circumstances, such person shall be unable to
obtain indemnification from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect
at the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or
advancement of expense pursuant to this Article V (i) is a contract right
pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
Company and the director or officer, (ii) is intended to be retroactive and
shall be available with respect to events occurring prior to the adoption
hereof, and (iii) shall continue to exist after the rescission or restrictive
modification hereof with respect to events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company,
the claimant may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim and, if successful in whole or part,
the claimant shall be entitled also to be paid the expenses of prosecuting
such claim. Neither the failure of the Company (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of or reimbursement or advancement of expenses to the claimant is proper in
the circumstance, nor an actual determination by the Company (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 1 shall be entitled to indemnification only as provided
in Sections 1 and 3, notwithstanding any provision of the New York Banking
Law to the contrary.
<PAGE>
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the
Company and such officers as the Chairman of the Board, the Chief Executive
Officer or the Secretary may from time to time direct in writing, to be
affixed to certificates of stock and other documents in accordance with the
directions of the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the
books of the Company by the registered holder in person, or by power of
attorney, duly executed, witnessed and filed with the Secretary or other
proper officer of the Company, on the surrender of the certificate or
certificates of such shares properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE>
I, Josephine Dorato, Assistant Secretary of Bankers Trust Company, New York,
New York, hereby certify that the foregoing is a complete, true and correct
copy of the By-Laws of Bankers Trust Company, and that the same are in full
force and effect at this date.
/s/Josephine Dorato
-----------------------------------
Josephine Dorato
ASSISTANT SECRETARY
DATED: July 30, 1998
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: |0|0|6|2|3
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
------------
C400
------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository
institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency
and coin (1) .......................................... 0081 1,458,000 1.a.
b. Interest-bearing balances (2) ......................... 0071 2,253,000 1.b.
2. Securities:
a. Held-to-maturity securities (from
Schedule RC-B, column A) .............................. 1754 0 2.a.
b. Available-for-sale securities (from
Schedule RC-B, column D) .............................. 1773 6,444,000 2.b.
3. Federal funds sold and securities purchased
under agreements to resell ............................... 1350 30,836,000 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income
(from Schedule RC-C) ........................... RCFD 2122 19,993,000 4.a.
b. LESS: Allowance for loan and lease losses ...... RCFD 3123 647,000 4.b.
c. LESS: Allocated transfer risk reserve .......... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income
allowance, and reserve (item 4.a minus 4.b
and 4.c) .............................................. 2125 19,346,000 4.d.
5. Trading Assets (from schedule RC-D) ...................... 3545 45,690,000 5.
6. Premises and fixed assets (including
capitalized leases) ...................................... 2145 791,000 6.
7. Other real estate owned (from Schedule RC-M) ............. 2150 184,000 7.
8. Investments in unconsolidated subsidiaries and
associated companies (from Schedule RC-M) ................ 2130 104,000 8.
9. Customers' liability to this bank on acceptances
outstanding .............................................. 2155 542,000 9.
10. Intangible assets (from Schedule RC-M) ................... 2143 81,000 10.
11. Other assets (from Schedule RC-F) ........................ 2160 5,339,000 11.
12. Total assets (sum of items 1 through 11) ................. 2170 113,068,000 12.
-----------------------------------
</TABLE>
- -----------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State ZIP: New York, NY 10006 12
FDIC Certificate No.: |0|0|6|2|3
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals
of columns A and C from Schedule RC-E,
part I) RCON 2200 26,465,000 13a.
(1) Noninterest-bearing(1) RCON 6631 3,005,000 13.a.(1)
(2) Interest-bearing RCON 6636 23,460,000 13.a.(2)
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule RC-E
part II) RCFN 2200 21,993,000 13.b.
(1) Noninterest-bearing RCFN 6631 1,712,000 13.b.(1)
(2) Interest-bearing RCFN 6636 20,281,000 13.b.(2)
14. Federal funds purchased and securities sold under agreements
to repurchase RCFD 2800 12,125,000 14.
15. a. Demand notes issued to the U.S. Treasury RCON 2840 15.a.
b. Trading liabilities (from Schedule RC-D) RCFD 3548 25,701,000 15.b.
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less RCFD 2332 6,773,000 16.a.
b. With a remaining maturity of more than one year
through 3 years A547 3,754,000 16.b.
c. With a remaining maturity of more than three years A548 2,212,000 16.c.
17. Not Applicable. 17.
18. Bank's liability on acceptances executed and outstanding RCFD 2920 542,000 18.
19. Subordinated notes and debentures (2) RCFD 3200 1,308,000 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 6,135,000 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 107,008,000 21.
22. Not Applicable
22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 1,000,000 23.
24. Common stock RCFD 3230 1,352,000 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 544,000 25.
26. a. Undivided profits and capital reserves RCFD 3632 3,583,000 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities RCFD 8434 (41,000) 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 (378,000) 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 6,060,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 113,068,000 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement
below that best describes the most comprehensive level of
auditing work performed for the bank by independent external Number
auditors as of any date during 1997 RCFD 6724 1 M.I
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ---------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 58,587
<SECURITIES> 0
<RECEIVABLES> 4,152
<ALLOWANCES> 732
<INVENTORY> 10,471
<CURRENT-ASSETS> 72,825
<PP&E> 177,059
<DEPRECIATION> (37,828)
<TOTAL-ASSETS> 303,794
<CURRENT-LIABILITIES> 28,809
<BONDS> 132,297
0
0
<COMMON> 333
<OTHER-SE> 137,826
<TOTAL-LIABILITY-AND-EQUITY> 303,794
<SALES> 0
<TOTAL-REVENUES> 12,686
<CGS> 0
<TOTAL-COSTS> (27,044)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,649
<INCOME-PRETAX> (16,814)
<INCOME-TAX> 333
<INCOME-CONTINUING> (17,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,296)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
@ Entertainment, Inc.
OFFER TO EXCHANGE
14 1/2% Series B Senior Discount Notes due 2008
for any and all of its outstanding
14 1/2% Senior Discount Notes due 2008
Pursuant to the Prospectus, dated ______ __, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________,
1998 UNLESS EXTENDED ("THE EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery to: Bankers Trust Company, Exchange Agent
By Mail or by Hand
Four Albany Street
7th Floor
New York, New York 10006
Attention: Corporate Trust Trustee Administration
Telephone: 212-250-6573
By Facsimile: 212-250-0933
Delivery of this instrument to an address other than as set
forth above, or transmission of instructions via facsimile other than as set
forth above, will not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated _________, 1998 (the "Prospectus"), of @ Entertainment, Inc.,
a Delaware corporation ("@Entertainment"), and this Letter of Transmittal (the
"Letter"), which together constitute @Entertainment's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 14 1/2% Series B Senior
Discount Notes due 2008 (the "Exchange Notes") for each $1,000 principal amount
of its outstanding 14 1/2% Senior Discount Notes due 2008 (the "Old Notes") of
which $252 million in aggregate principal amount are outstanding from the
holders thereof.
With respect to the Old Notes accepted for exchange, the
holders of such Old Notes will receive Exchange Notes in such aggregate
principal amount equal to that of the surrendered Old Notes. The Exchange
Notes will bear interest at the same rate and on the same terms as the Old
Notes. Consequently, interest on the Exchange Notes will be payable
semi-annually in cash in arrears on January 15 and July 15 of each year,
commencing January 15, 2004, at the rate of 14 1/2% per annum. Accreted Value
on the Exchange Notes will accrue from July 14, 1998 (the "Issue Date").
Holders whose Old Notes are accepted for exchange will not receive Accreted
Value thereon, but because the Accreted Value of the Exchange Notes is
calculated from the Issue Date, there will be no forfeiture of Accreted Value
by the holders of the Old Notes whose Old Notes are accepted for exchange in
the Exchange Offer.
<PAGE>
This Letter is to be completed by a holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder of Old Notes promptly
and instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter and
delivering its Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a properly
completed power of attorney power from the registered holder of Old Notes. The
transfer of record ownership may take considerable time.
The undersigned has completed the appropriate boxes below and
signed this letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
List below the Old Notes to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and aggregate
principal amount of the Old Notes should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF
OLD NOTES 1 2 3
- ----------------------------------------------- ---------------- --------------------- ----------------------
Aggregate Principal
Amount
of 14 1/2%% Senior Aggregate Principal
Name(s) and Address(es) of Registered Holder(s) Certificate Discount Notes due Amount
(Please fill in, if blank) Number(s)* 2008 Tendered**
- ----------------------------------------------- ---------------- --------------------- ----------------------
<S> <C> <C> <C>
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
Total
---------------- --------------------- ----------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2.
- -------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------
Account Number Transaction Code Number
-------------------------- -------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Names(s) of Registered Holder(s)
---------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------------
Name of Institution which guaranteed delivery
--------------------------------
<PAGE>
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
-------------------------
Transaction Code Number
--------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the
Exchange Offer, the undersigned hereby tenders to @Entertainment the
aggregate Specified Amount of Old Notes indicated above. Subject to, and
effective upon, the acceptance for exchange of the Old Notes tendered hereby,
the undersigned hereby sells, assigns and transfers to, or upon the order of,
@Entertainment all right, title and interest in and to such Old Notes as are
being tendered hereby, and hereby appoints the Exchange Agent as the true and
lawful agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as agent of @Entertainment) of such holder of Old Notes, in
order to (i) transfer ownership of such Old Notes on the account books
maintained by The Depositary Trust Company (together, in any such case, with
all accompanying evidences of transfer and authenticity) to @Entertainment,
(ii) present and deliver such Old Notes for transfer on the books of
@Entertainment and (iii) receive all benefits and otherwise exercise all
rights and incidents of beneficial ownership with respect to such Old Notes,
all in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to tender, sell, assign and transfer
the Old Notes tendered hereby and that @Entertainment will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same is accepted
by @Entertainment. The undersigned hereby further represents that any Exchange
Notes acquired in exchange for Old Notes tendered hereby will have been acquired
in the ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, that neither the holder of such
Old Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder of such Old Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act"), of @Entertainment.
The undersigned also acknowledges that this Exchange Offer
is being made based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") which lead @Entertainment to believe
that the Exchange Notes issued in exchange for the Old Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of
@Entertainment within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. If any
holder is an affiliate of @Entertainment or is engaged in or has any
arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements
of the Securities Act.
The undersigned will, upon request, execute and deliver any
additional documents deemed by @Entertainment to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the Old Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the Exchange Notes (and, if
applicable, substitute certificates
<PAGE>
representing Old Notes for any Old Notes not exchanged) to the undersigned at
the address shown above in the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION
OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY
(See Instructions 3 and 4) INSTRUCTIONS
(See Instructions 3 and 4)
<S> <C>
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Notes not exchanged and/or for Old Notes not exchanged and/or
Exchange Notes are to be issued in the Exchange Notes are to be sent to someone
name of and sent to someone other than the other than the person or persons whose
person or persons whose signature(s) signature(s) appear(s) on this Letter
appear(s) on this Letter above, or if Old above or to such person or persons at an
Notes delivered by book-entry transfer address other than shown in the box
which are not accepted for exchange are to entitled "Description of Old Notes"
be returned by credit to an account above.
maintained at the Book-Entry Transfer
Facility other than the account indicated
above.
Mail: Exchange Notes and/or Old Notes
Issue: Exchange Notes and/or Old Notes to:
to:
Name(s) Name(s)
----------------------------------------- -------------------------------------
(Please Type or Print) (Please Type or Print)
----------------------------------------- --------------------------------------
(Please Type or Print) (Please Type or Print)
Address Address
----------------------------------------- --------------------------------------
- ------------------------------------------------ ---------------------------------------------
(Zip Code) (Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes
delivered by book-entry transfer to
the Book-Entry Transfer Facility set
forth below.
(Book-Entry Transfer Facility
Account Number, if applicable)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF
TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX
ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING
HOLDERS)
(Complete Accompanying Substitute Form W-9 on
reverse side)
<TABLE>
<CAPTION>
<S> <C>
Dated:.................................................... 1998
X .......................................................
X .......................................................
Signature(s) of Owner
Area Code and telephone Number ..........................
</TABLE>
<PAGE>
If a holder is tendering any Old Notes, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s):
------------------------------------------
--------------------------------------------------
(Please Type or Print)
Capacity:
-----------------------------------------
Address:
-----------------------------------------
-------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
--------------------------
(Authorized Signature)
--------------------------------------------------
(Title)
--------------------------------------------------
(Name and Firm)
--------------------------------------------------
Dated: , 1998
---------------------------------------
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer of
14 1/2% Series B Senior Discount Notes due 2008
for any and all of its outstanding
14 1/2% Senior Discount Notes due 2008
of @ Entertainment, Inc.
1. Delivery of this Letter and Old Notes; Guaranteed Delivery
Procedures.
This letter is to be completed by securityholders either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Securityholders whose certificates for Old Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date,
or who cannot complete the procedure for book-entry transfer on a timely
basis, may tender their Old Notes pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus. Pursuant to such procedures, (i) such tender must
be made through an Eligible Institution, (ii) prior to the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by @Entertainment (by
telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, must be received by the Exchange Agent
within five NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Notes are sent by mail, it is suggested that
registered mail, properly insured, with return receipt requested, be used and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to securityholders who tender
by book-entry transfer).
If less than all of the Old Notes evidenced by a submitted
certificate is to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Aggregate Amount Tendered." A reissued certificate
representing the balance of nontendered Old Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box on this Letter,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter is signed by the registered holder of the
Old Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or
more joint owners, all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
<PAGE>
When this Letter is signed by the registered holder or holders
of the Old Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered
holder or holders of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter or any or any certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
@Entertainment, proper evidence satisfactory to @Entertainment of their
authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on
bond powers required by this Instruction 3 must be guaranteed by a firm which is
a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States (an
"Eligible Institution").
Signatures on this Letter need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of Old Notes (which term, for purposes of the Exchange Offer, includes
any participant in the Book-Entry Transfer Facility system whose name appears on
a security position listing as the holder of such Old Notes) who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the
applicable box the name and address to which Exchange Notes issued pursuant to
the Exchange Offer and/or substitute certificates evidencing Old Notes not
exchanged are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Securityholders tendering Old Notes by book-entry transfer may
request that Old Notes not exchanged be credited to such account maintained at
the Book-Entry Transfer Facility as such securityholder may designate hereon. If
no such instructions are given, such Old Notes not exchanged will be returned to
the name or address of the person signing this Letter.
5. Tax Identification Number.
Federal income tax law generally requires that a tendering
holder whose Old Notes are accepted for exchange must provide @Entertainment (as
payor) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which in the case of a tendering holder who is an
individual, is his or her social security number. If @Entertainment is not
provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of Exchange Notes may be
subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old
Notes must provide its correct TIN by completing the Substitute Form W-9 set
forth below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give @Entertainment a completed
Form W-8, Certificate of Foreign Status.
<PAGE>
These forms may be obtained from the Exchange Agent. If the Old Notes are in
more than one name or are not in the name of the actual owner, such holder
should consult the W-9 Guidelines for information on which TIN to report. If
such holder does not have a TIN, such holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking
this box and writing "applied for" on the form means that such holder has
already applied for a TIN or that such holder intends to apply for one in the
near future. If such holder does not provide its TIN to @Entertainment within 60
days, backup withholding will begin and continue until such holder furnishes its
TIN to @Entertainment.
6. Transfer Taxes.
@Entertainment will pay all transfer taxes, if any, applicable
to the transfer of Old Notes to it or its order pursuant to the Exchange Offer.
If, however, Exchange Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old Notes tendered hereby, or if tendered Old
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Old Notes to @Entertainment or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be
necessary for transfer tax stamps to be affixed to the Old Notes specified in
this Letter.
7. Waiver of Conditions.
@Entertainment reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders of Old Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their Old
Notes for exchange.
Neither @Entertainment, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes has been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: @ Entertainment, Inc.
<TABLE>
<CAPTION>
<S> <C>
SUBSTITUTE Part 1--PLEASE
FORM W-9 PROVIDE YOUR TIN IN
Department of THE BOX AT RIGHT TIN:
the Treasury AND CERTIFY BY ------------------
Internal SIGNING AND DATING
Revenue BELOW Social Security Number
Service or
Employer
Identification Number
Payer's Request Part 2--TIN Applied for / /
For Taxpayer
Identification
Number
("TIN") and 11.CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Certification
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be
issued to me).
(2) I am not subject to backup withholding because (a) I am exempt
from backup withholding, or (b) I have not been notified by
the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me that I am
no longer subject to backup withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE DATE
-------------------- -------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION
NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
<PAGE>
Signature Date
- --------------------------------------------------------------------------------
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to
Give the Payor. -- Social Security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payor.
- ------------------------------------------------------------------------------
Give the
For this type of account: name and
SOCIAL SECURITY
number of --
- ------------------------------------ ---------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the account
(joint account) or, if combined funds, the first
individual on the account(1)
3. Husband and wife (joint The actual owner of the account
account) or, if joint funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor is the
account) only contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
- ------------------------------------------------------------------------------
Give the
For this type of account: name and EMPLOYER
IDENTIFICATION
number of --
- ------------------------------------ ---------------------------------
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10 Corporate account The corporation
11 Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state or
local government, school
district, or prison) that
receives agricultural
program payments
- -------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show your individual name. You may also enter your business name. You
may use your Social Security number or employer identification number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
Payees and Payments Exempt from Backup Withholding Payees specifically exempted
from backup withholding on ALL payments include the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under Section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under Section 584(a) of the
Code.
o An exempt charitable remainder trust, or a non- exempt trust described
in Section 4947(a)(1) of the Code.
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under Section
1441 of the Code.
o Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding
including the following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the taxpayer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt- interest dividends
under Section 852 of the Code).
o Payments described in Section 6049(b)(5) of the Code to nonresident
aliens.
o Payments on tax-free covenant bonds under Section 1451 of the Code.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYOR. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYOR A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N of the Code.
Privacy Act Notice. -- Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payors who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payors must be given the numbers whether or not
recipients are required to file tax returns. Payors must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payor.
Certain penalties may also apply.
Penalties
(1) Failure to Furnish Taxpayer Number. -- If you fail to furnish your taxpayer
identification number to a payor, you are subject to a penalty of $50 for each
such failure unless your failure is due to reasonable cause and not to willful
neglect.
(2) Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT 99.2
@ ENTERTAINMENT, INC.
OFFER TO EXCHANGE
14 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
14 1/2% SENIOR DISCOUNT NOTES DUE 2008
TO: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
@ Entertainment, Inc. ("@ Entertainment") is offering, upon and subject to
the terms and conditions set forth in the Prospectus, dated ________, 1998 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of its
14 1/2% Series B Senior Discount Notes due 2008 (the "Exchange Notes") pursuant
to a registration statement of which this Prospectus is a part (the
"Registration Statement") for each $1,000 principal amount of its outstanding 14
1/2% Senior Discount Notes due 2008 (the "Old Notes") of which $252 million in
aggregate principal amount are outstanding as of the date hereof. The Exchange
Offer is being made in order to satisfy certain obligations of @ Entertainment
contained in the Registration Rights Agreement dated as of July 14, 1998 between
@ Entertainment and Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("Merrill") and J.P. Morgan Securities Inc. ("J.P. Morgan") (collectively, the
"Initial Purchasers").
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ________, 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer,
if certificates for Old Notes are not immediately available, or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below), or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
<PAGE>
6. Return envelopes addressed to ____________________, the Exchange Agent
for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, [_______________], 1998 unless extended by
@Entertainment, provided it may not be extended beyond _________________ (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent, and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
@ Entertainment will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. @ Entertainment will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed
to________________, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
@ ENTERTAINMENT, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF @ ENTERTAINMENT, INC. OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS OF BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE>
1
EXHIBIT 99.3
@ENTERTAINMENT, INC.
OFFER TO EXCHANGE
14 1/2% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
14 1/2% SENIOR NOTES DUE 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ________ __, 1998
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of
@Entertainment,Inc. ("@Entertainment") to exchange $1,000 principal amount of
its 14 1/2% Series B Senior Discount Notes due 2008 (the "Exchange Notes"),
which exchange has been registered under the Securities Act of 1933, as amended,
pursuant to a registration statement of which the Prospectus is part, for each
$1,000 principal amount of its outstanding 14 1/2% Senior Discount Notes due
2008 (the "Old Notes") of which $252 million in aggregate principal amount are
outstanding as of the date hereof, upon the terms and subject to the conditions
described in the Prospectus and the Letter of Transmittal. The Exchange Offer is
being made in order to satisfy certain obligations of @Entertainment contained
in the Registration Rights Agreement dated as of July 14, 1998 between
@Entertainment and Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("Merrill") and J.P. Morgan Securities Inc. ("J.P. Morgan") (collectively, the
"Initial Purchasers").
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on _______________________, 1998, unless extended by
@Entertainment. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange Offer."
<PAGE>
3. Any transfer taxes incident to the transfer of Old Notes from the holder to
@Entertainment will be paid by @Entertainment, except as otherwise provided in
the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
______________, 1998, unless extended by @Entertainment, provided it may not be
extended beyond ________.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by
@Entertainment, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount
of Old Notes
14 1/2% SENIOR DISCOUNT NOTES DUE 2008 . . . . . . . . . .
- -------------------------------------
[ ] Please do not tender any Old Notes
held by you for my account.
Dated: , 1998 -------------------------------------------
----------------------
-------------------------------------------
Signature(s)
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
<PAGE>
-------------------------------------------
Area Code and Telephone Number
-------------------------------------------
Tax Identification or Social Security No(s).
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
Exhibit 99.4
NOTICE OF GUARANTEED DELIVERY FOR
@ ENTERTAINMENT, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of @Entertainment, Inc., ("@Entertainment") made pursuant to the
Prospectus, dated ______ __, 1998 (the "Prospectus"), if certificates for
14 1/2% Senior Discount Notes due 2008 of @Entertainment are not immediately
available or if the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach
@Entertainment prior to 5:00 p.m., New York City time, on the Expiration Date of
the Exchange Offer. Such form may be delivered or transmitted by telegram, mail
or hand delivery to __________________ (the "Exchange Agent") as set forth
below. Capitalized terms not defined herein are defined in the Prospectus.
Delivery to: Bankers Trust Company, the Exchange Agent
By Facsimile: By Mail, By Hand and Confirm by Telephone:
Overnight Courier:
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to
@Entertainment the aggregate principal amount of 14 1/2% Senior Discount Notes
due 2008 set forth below, pursuant to the guaranteed delivery procedure
described in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus.
Aggregate Principal
Amount of 14 1/2% Senior Discount Notes due 2008
Tendered:
$
------------------------------------------------
Certificate Nos. (if available):
------------------------------------------------
Aggregate Number of Shares Represented by Old
Certificates(s):
$
------------------------------------------------
If 14 1/2% Senior Discount Notes due 2008 will be
delivered by book-entry transfer to The Depository
Trust Company, provide account number.
Account Number
--------------------------------
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X , 1998
----------------------------------- ----------
X ,1998
----------------------------------- ----------
Signature(s) of Owners(s) or Date
Authorized Signatory
Area Code and Telephone
Number:
----------------------
Must be signed by the holder(s) of 14 1/2% Senior Discount Notes due 2008
as their name(s) appear(s) on certificates for 14 1/2% Senior Discount Notes due
2008 or on a security position listing, or by person(s) authorized to become
registered holder(s) by endorsement and documents transmitted with this Notice
of Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
Please print name(s) and address(es)
Name(s):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------
Address(es):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
GUARANTEE
The undersigned, a member of a registered national securities
exchange, or a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent
in the United States, hereby guarantees that the certificates representing
the shares of 14 1/2% Senior Discount Notes due 2008 tendered hereby in
proper form for transfer, or timely confirmation of the book-entry transfer
of such 14 1/2% Senior Discount Notes due 2008 into the Exchange Agent's
account at The Depository Trust Company pursuant to the procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five New York Stock Exchange trading days after the date
of execution hereof.
- -------------------------------------- --------------------------------------
Name of Firm Authorized Signature
- -------------------------------------- --------------------------------------
Address Title
Name:
- -------------------------------------- --------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
--------------- -------------------------------
<PAGE>
NOTE: DO NOT SEND CERTIFICATES FOR 14 1/2% SENIOR DISCOUNT NOTES DUE 2008 WITH
THIS FORM. CERTIFICATES FOR 14 1/2% SENIOR DISCOUNT NOTES DUE 2003 SHOULD
ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
