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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-22877
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@ ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 06-1487156
(State or Other Jurisdiction (I.R.S. Employer of Identification No.)
Incorporation or Organization)
ONE COMMERCIAL PLAZA 06103-3585
HARTFORD, CONNECTICUT (Zip Code)
(Address of Principal
Executive Offices)
</TABLE>
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Registrant's telephone number, including area code (860) 549-1674
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock Nasdaq National Market
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
____________________________________________________________________
(TITLE OF CLASS)
Indicate by check mark (X) whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____ X ____ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in Rule
405.) At March 18, 1999, the aggregate market value was:
$162,971,763
The number of shares outstanding of @ Entertainment, Inc.'s common stock as of
December 31, 1998, was:
Common Stock 33,310,000
As of March 18, 1999 the aggregate market value of the shares of common
stock of the registrant outstanding was $309,005,000. This figure is based on
the closing price by the Nasdaq National Market for a share of the registrant's
common stock on March 18, 1999, which was $9 1/4 as reported in the Wall Street
Journal on March 19, 1999. The number of shares of the registrant's common stock
outstanding as of March 18, 1999 was 33,406,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
@ Entertainment, Inc., a Delaware corporation whose common stock is listed
on the National Association of Securities Dealers Automated Quotation System
("Nasdaq") National Market and traded under the symbol ATEN ("@ Entertainment"),
was established in May 1997. References to the "Company" mean @ Entertainment
and its consolidated subsidiaries, including Poland Communications, Inc.
("PCI"), At Entertainment Limited ("@EL"), Sereke Holding B.V. ("Sereke"), Wizja
TV Sp. z o.o. ("Wizja TV Sp. z o.o."), Ground Zero Media Sp. z o.o. ("GZM"), At
Media Sp. z o.o. ("At Media") and @ Entertainment Programming, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. Words
such as "believes," "expects," "intends," "plans," "anticipates," "likely,"
"will,""may," "shall" and similar expressions are intended to identify such
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company (or entities in which
the Company has interests), or industry results, to differ materially from
future results, performance or achievements expressed or implied by such
forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Annual
Report on Form 10-K. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, conditions or circumstances.
The risks, uncertainties and other factors that might cause such differences
include, but are not limited to: (i) general economic conditions in Poland and
in the pay television business in Poland; (ii) changes in regulations the
Company operates under; (iii) uncertainties inherent in new business strategies,
including the Company's satellite television business, new product launches and
development plans, which the Company has not used before; (iv) rapid technology
changes; (v) changes in, or failure or inability to comply with government
regulations; (vi) the development and provision of programming for new
television and telecommunications technologies; (vii) the continued strength of
competitors in the multichannel video programming distribution industry and
satellite services industry and the growth of satellite delivered programming;
(viii) future financial performance, including availability, terms and
deployment of capital; (ix) the ability of vendors to deliver required
equipment, software and services on schedule at the budgeted cost; (x) the
Company's ability to attract and hold qualified personnel; (xi) changes in the
nature of strategic relationships with joint ventures; (xii) the overall market
acceptance of those products and services, including acceptance of the pricing
of those products and services; (xiii) possible interference by satellites in
adjacent orbital positions with the satellites currently being used for the
Company's satellite television business; and (xiv) acquisition opportunities.
EXCHANGE RATE
In this Annual Report on Form 10-K, references to "U.S. dollars" or "$" are
to U.S. currency, references to "Deutsche-Marks" or "DM" are to German currency,
and references to "zloty" or "PLN" are to Polish currency. The Company has
presented its primary consolidated financial statements in accordance with
generally accepted accounting principles in the U.S. in U.S. dollars. Amounts
originally measured in zloty for all periods presented have been translated into
U.S. dollars.
For your convenience, this Annual Report contains certain zloty amounts not
derived from the consolidated financial statements which have been translated
into U.S. dollars. Readers should not assume that the zloty amounts actually
represent such U.S. dollar amounts or could be, or could have been,
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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 3.504 = $1.00, the exchange rate quoted
by the National Bank of Poland at noon on December 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.
ITEM 1. 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. Over the past
three years, the Company has experienced rapid growth in revenues and
subscribers, both through acquisitions and through expansion of its own cable
networks, resulting in an average increase in revenues of 42% and total cable
subscribers of 33% per year.
On June 5, 1998, the Company launched its Wizja TV programming package,
originally 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 attracting new subscribers 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, on September 18, 1998 the Company launched a
complementary digital satellite direct-to-home (known in the pay television
business as "D-DTH" television) service allowing subscribers to receive Wizja TV
via a satellite dish. The Company's multi-channel Polish-language D-DTH service
was the first D-DTH service available in Poland. The Company has entered into an
agreement with Philips Business Electronics B.V. to supply the reception system
which include a satellite dish, digital set top box and related hardware and to
distribute the Company's D-DTH service through the Philips retail network in
Poland. As of December 31, 1998 the Company had sold retailers approximately
125,000 D-DTH packages, which include the rental of the D-DTH reception system,
installation and a one-year subscription to the Company's D-DTH service. As of
December 31, 1998, Philips had sold and installed approximately 95,400 of these
packages to consumers. With the launch of the Company's D-DTH service, the
Company has started the transmission of Wizja TV, which currently consists of 19
channels (of which 17 are primarily Polish language), on both its D-DTH system
and its cable networks.
BUSINESS STRATEGY
The Company's principal objective is to enhance its position as the leading
provider of pay television in Poland by capitalizing on favorable opportunities
that it believes exist in Poland in the cable television, 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 goals,
the Company intends to do the following:
- Develop and control the content of its programming;
- Increase its distribution capabilities through internal growth and through
acquisitions;
- Control its management of subscribers by using advanced information
systems; and
- Establish Wizja TV as the leading brand name in the Polish pay television
industry.
CABLE TELEVISION
The Company operates the largest cable television system in Poland with
approximately 1,592,000 homes passed and approximately 935,300 total subscribers
as of December 31, 1998. The Company's cable subscribers are located in regional
clusters encompassing eight of the ten largest cities in Poland, including
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those cities which the 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 expansion and acquisitions. On December 31, 1998 the
Company had invested more than $144 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 U.S. 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 it would
gain significant market advantages 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:
PROVIDE COMPELLING PROGRAMMING. The Company provides the Wizja TV
programming package, which currently consists of 19 television channels of
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 expects that it will continue to experience subscriber termination rates
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
small 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 subscriber termination rates (also known
in the cable television industry as "churn"). The Company believes its ability
to successfully command higher prices reflects its higher levels of customer
service, broader selection of quality programming and the greater technical
quality of its cable television networks.
EXPAND REGIONAL CLUSTERS. The Company's strategy is to continue to expand
the coverage areas of its regional clusters, both through selected building of
its existing networks 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 building 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 build its system in parallel to competitors ("overbuild") 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
building costs and realize significant synergies from leveraging its existing
infrastructure and asset base, both in terms of personnel and in terms of
capital costs. Because the Company has a management structure and operating
systems in place in each of its regional clusters, it is able to realize
significant cash flow margins from each dollar of revenue generated through the
addition of subscribers to its existing regional clusters.
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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 the percentage of homes passed which
subscribe ("subscriber penetration") in its regional clusters. Once a building
with multiple apartment units is passed by the Company's cable television
networks, the Company can add subscribers who generate average annual
subscription revenue of approximately $80.0 in return for an average capital
investment of approximately $20 per subscriber. The Company plans to increase
subscriber penetration by (A) 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, (B) continuing to enhance the Company's program offerings,
particularly through expanding Wizja TV's channel line-up, and (C) 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, eliminating redundant satellite signal
receivers, 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 satellite signal receivers or,
if required, rebuilding them to the Company's standards. The Company also
intends to reduce the number of employees through consolidation of its existing
clusters of regional operations from eight to four, and through centralizing its
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 all D-DTH customers and is expected to be operational for all cable
customers by the end of 1999. 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 minimized building and reduced 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 following table
illustrates certain operating data of each of the Company's existing regional
clusters. The Company is planning to consolidate its existing eight clusters
down to four.
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OVERVIEW OF THE COMPANY'S EXISTING CABLE SYSTEMS(1)
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<CAPTION>
BASIC AVERAGE MONTHLY
TOTAL SUBSCRIBERS BASIC SUBSCRIPTION REVENUE PER
REGION TOTAL HOMES HOMES PASSED SUBSCRIBERS (2) PENETRATION (2) BASIC SUBSCRIBER
- ----------------------- ----------- ------------- --------------- ----------- --------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Gdansk................. 280,000 239,856 154,315 121,846 50.80% $ 7.80
Szczecin............... 160,000 76,050 64,714 48,639 63.96% 5.90
Katowice............... 1,200,000 498,903 252,954 204,249 40.94% 6.61
Krakow................. 400,000 144,114 71,866 62,179 43.15% 7.41
Warsaw................. 800,000 259,050 127,485 103,536 39.97% 7.63
Lublin................. 120,000 90,244 74,160 38,536 42.70% 7.25
Wrochaw................ 624,000 222,300 145,698 119,239 53.64% 5.05
Bydgoszcz.............. 134,000 61,464 44,148 40,155 65.33% 4.90
----------- ------------- ------- ----------- ----- -----
TOTAL.................. 3,718,000 1,591,981 935,340 738,379 46.38% $ 6.68(3)
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(1) All data at or for the year ended December 31, 1998.
(2) Includes "basic" and "intermediate" packages. For a description of these
packages, see the section entitled "Service and Fees" that follows.
(3) Represents a weighted average for the Company based on the total number of
basic subscribers at December 31, 1998.
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 discussions with other companies
and assesses opportunities on an ongoing basis. The Company may be required to
apply for the approval of the Polish Anti-Monopoly Office with respect to any
acquisitions it wishes to consummate.
SERVICES AND FEES
The Company charges cable television subscribers an initial installation fee
and fixed monthly fees for their choice of service packages and for other
services such as premium channels and rental of remote control devices. The
Company currently offers three packages of cable television service: a "basic
package" throughout the Company's cable television systems, and "broadcast" and
"intermediate" packages in selected areas of Poland. On December 31, 1998,
approximately 74.7% of the Company's subscribers received the "basic package",
approximately 4.3% received the "intermediate package" and approximately 21.0%
received the "broadcast package" of service.
BASIC PACKAGE. The "basic package" includes approximately 30 to 70
channels. This package generally includes 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, Wizja TV,
including the Company's proprietary Polish-language channel, Atomic TV. The
Company's "basic package" offerings vary by location. With the launch of Wizja
TV across the Company's cable networks on June 5, 1998, all of the Wizja TV
programming, other than Wizja 1 and the HBO Poland service, a Polish-language
premium movie channel owned in part by Home Box Office, became part of the
"basic package."
INTERMEDIATE PACKAGE. The "intermediate package" includes approximately 17
to 24 channels. This package is offered for monthly fees equal to approximately
one-half of the amount charged for the "basic package." The "intermediate
package" is designed to compete with small cable operators on a basis of price,
using a limited programming offering. The Company's "intermediate package"
offerings vary by location.
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BROADCAST PACKAGE. The "broadcast package" includes 6 to 12 broadcast
channels with clear reception for monthly fees, which are substantially less
than the amounts charged for the "intermediate package."
PREMIUM AND OTHER SERVICES. For an additional monthly charge, certain of
the Company's cable networks currently offer three premium television
services--Wizja 1, the HBO Poland service (a Polish-language premium movie
channel owned in part by Home Box Office) and Canal+ Polska--to customers on a
monthly basis. For 1998, the Company experienced churn in premium services with
penetration falling by 8,464 subscribers or 18.8% from 1997. The Company is
planning to encrypt the HBO service on cable and install analog decoders for all
premium channel subscribers during 1999. 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 $21 for buildings with multiple apartments and approximately $42
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 not disconnected approximately
17,000 non-paying subscribers in one of its rebuilt networks. For the year ended
December 31, 1998, the Company's churn rate was 15.25% due primarily to the
implementation of its current pricing strategy. This pricing strategy 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 expects
that it will continue to experience churn rates above historical levels during
the implementation of its current pricing strategy. The Company expects to offer
promotional incentives in certain areas of the country from time to time in
connection with its marketing.
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 90
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 debts
expense has historically averaged approximately 1.3% of revenue.
SALES AND MARKETING
The Company's sales and marketing process is divided into four parts:
- 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 cooperative authorities rather than upon the issuance
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of an operating area development permit for a region by the government. The
cooperative 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 a multiple apartment complex, is
followed by negotiations with the relevant cooperative authority, and ultimately
involves reaching an agreement with the cooperative authority to allow
construction and installation of the cable television network. The Company's
strategy is to identify those geographic areas and apartment complexes 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 cooperative 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, cooperative and association
publications, billboards, bus shelter posters and taxi placards) to build
general awareness and recognition of the advantages of its cable television
services, direct sales is the primary focus of the Company's marketing efforts.
The distribution of promotional materials (via direct mail, leaflets and door
hangers) begins several days in advance of the arrival of the Company's sales
force. The materials provide for telephone and mail response, but are designed
so that the potential customer expects a direct sales visit. The Company's sales
force consists of native Poles who are trained in professional sales skills,
personal interaction, product knowledge and appearance. All sales persons are
compensated by direct sales commissions and incentive bonuses. Such employees
are hired, trained and managed by Company managers whose incentive compensation
is tied directly to sales results. New market sales tend to be highly seasonal,
with the fourth calendar quarter being the most active sales period.
REMARKETING SALES. After new areas have been marketed, Company remarketing
efforts focus on attracting new subscribers and selling additional products and
services, such as premium channels and stereo services, to existing subscribers.
Direct door-to-door remarketing sales are enhanced through advertising on 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 people 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 has established a customer service facility within the call
center for both the cable and D-DTH businesses. The call center provides
telemarketing and sales and service support and includes 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 all D-DTH customers and is expected to be operational for all cable
customers by the end of 1999.
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 67% of its subscribers, are among the
most technologically advanced in Poland and are comparable to modern cable
television networks in the U.S. 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.
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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 satellite receivers 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 combination of
fiber optic and coaxial cables in groups of 2,000 homes. The Company uses a
"switched-star" configuration for its cable television networks by installing a
discreet drop cable which runs from a secure lockbox to each home (as opposed to
a loop system which feeds multiple homes from a single cable), allowing the
Company to more efficiently disconnect non-paying customers, add or remove
service options to individual homes and audit its systems to detect theft of
signal. Where required, high-quality tuners are used in cable television
subscriber homes. The Company intends to introduce set-top decoders for all
premium channel subscribers during 1999, allowing premium signals to be
encrypted for increased security.
The Company's cable television networks were constructed with the
flexibility and capacity to be cost-effectively reconfigured. These networks
could be 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 telephone licenses, utilizing excess capacity from the Company's
cable networks.
The Company has been able to avoid constructing its own underground conduits
in certain areas by entering into a series of agreements with regional and local
branches of the Polish national telephone company (known in the Polish
telecommunications industry as "TPSA") which permit the Company to use TPSA's
conduit infrastructure for an indefinite period of time or for fixed 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. As of December 31, 1998, approximately 56.5% of the
Company's cable television plant had been constructed utilizing pre-existing
conduits of TPSA. A substantial portion of the Company's contracts with TPSA
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 (and
without penalty) if:
- the Company does not have a valid permit from the Polish State Agency of
Radio Communications 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;
- the Company's cable network serviced by the conduit does not meet the
technical specifications required by the Polish Communications Act of
1990;
- the Company does not have a contract with the cooperative authority
allowing for the installation of the cable network; or
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- the Company does not pay the rent required under the conduit agreement.
As of December 31, 1998, TPSA was legally entitled to terminate conduit
agreements covering approximately 74,000 or 8% of the Company's subscribers.
The Company estimates that at the end of December 1998 it had over 4,378
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 buildings with multiple
apartment units and cable television subscribers to its existing networks for
building 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 apartment building or additional subscribers in buildings with multiple
apartments to existing apartment networks averages approximately $200 per
subscriber (subscribers in apartment buildings represent more than 96% of the
Company's total subscribers). The Company believes that several primary factors
contribute to its favorable cost structure. The significant density of homes per
kilometer of cable plant in the Company's core markets and the Company's conduit
agreements substantially reduce its build costs. Moreover, the Company believes
that the size of its construction program allows it to negotiate attractive
construction labor contracts and discounts on materials.
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D-DTH
The Company has expanded its distribution capacity with the launch of its
D-DTH broadcasting service for Poland, targeted at homes that are not
subscribers to the Company's cable service. The programming provided is the
Company's Wizja TV programming package. The Company's multi-channel
Polish-language D-DTH service, which was the first D-DTH service available in
Poland, is being broadcast to Poland from its transmission facilities in
Maidstone, U.K. As of December 31, 1998, the Company had sold to Philips'
authorized retailers approximately 125,000 D-DTH packages, which include the
rental of the D-DTH reception system, installation and a one-year subscription
to the Company's D-DTH service. As of December 31, 1998, Philips had sold and
installed approximately 95,400 of these packages to consumers.
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. The Company will make D-DTH
reception systems available to the first 380,000 subscribers at a promotional
price. This strategy is designed to achieve high penetration of the Polish
market. The launch of the D-DTH service is supported by the Company's
development of Wizja TV, which the Company believes, responds to the demand for
high-quality Polish-language programming in Poland.
The Company broadcasts digital programming from its Maidstone facility
through its satellite transmission facilities to one of three transponders
leased by it on the Astra 1E and 1F satellites. These satellites then retransmit
the signals to the D-DTH reception systems of the Polish subscribers and to the
Company's cable networks. In the future, the Company will also transmit the
signals to other Polish cable operators, if any, having distribution agreements
with the Company.
D-DTH SERVICES AND FEES
The Company began broadcasting to Poland from its transmission facilities in
Maidstone, U.K. 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 on a
full-scale basis on September 18, 1998.
The Company expects to be able to offer event pay per view service to its
D-DTH subscribers by late 1999. The Company also 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 electronic
programming guide, 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, this guide will be linked to the
Company's subscriber magazine, "Twoja Wizja," which is described in the
"Programming" section that follows. 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, should
the Company decide to pursue such ancillary sources of revenue in the future.
The Company currently charges its D-DTH subscribers an up-front fee of
approximately $135 plus applicable taxes. This fee includes the D-DTH reception
system rental, installation, and a one-year's subscription for all channels
(other than any premium channels). Subscribers to the Company's premium channels
pay $5 per month for the HBO Poland service and $1 per month for Wizja 1. After
the first year of service, subscribers will be required to pay a fee in advance
for the service plus separate amounts to receive premium channels.
SALES AND MARKETING
To promote the launch of Wizja TV on its D-DTH system, the Company has
substantially completed a $20 million nationwide marketing campaign, which the
Company believes is the largest single-year product
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launch expenditure to date in Poland. The marketing campaign primarily utilizes
terrestrial television, press, radio and outdoor poster sites. The Company's
paid advertising spots began on September 1, 1998 and the Company launched its
D-DTH service on a full-scale basis on September 18, 1998, with an aim to
establishing a base of approximately 500,000 targeted initial subscribers. 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 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 1,200 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 used in the Company's D-DTH service.
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 has established a customer service facility
within the call center for both its cable and D-DTH businesses. The call center
provides telemarketing and sales and service support and includes specialized
billing software with on-line real time access to all D-DTH customer accounts,
designed to provide better access to customer information and to improve
customer service. The Company believes the call center will allow it to offer a
high level of customer service at relatively low cost to its D-DTH subscribers.
The Company's D-DTH service targets homes that are not subscribers to its
cable television service. The Company does not believe that there is much
incentive for the Company's existing cable subscribers to switch from the
Company's cable service to its D-DTH service, because with their cable service
they are 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 offers, 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,
particularly if they are subscribers who will receive D-DTH reception systems at
the promotional prices the Company is now charging, and they do not
substantially increase the amount of their monthly fees payable to the Company.
TECHNOLOGY AND INFRASTRUCTURE
The Company's D-DTH service is 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 Maidstone, U.K. to the Astra satellites in geosynchronous orbits
("uplinked"). The satellites 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 U.K. and
elsewhere. Most of the tailoring for the local market ("localization") of the
Company's proprietary programs on Wizja TV undertaken by the Company will occur
in Poland. Localization principally consists of adding voices or dubbing into
Polish for the Company's proprietary channels on Wizja TV. 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 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 contract with British Telecommunications plc ("BT")
for the provision and maintenance of uplink equipment at Maidstone. Other than
the BT uplink equipment, the Company owns
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all the required broadcasting equipment at its facility in Maidstone. The
Company's Wizja TV programming is currently transmitted to the Company's
transponders on Astra satellites 1E and 1F.
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 networks, and will also be received by the cable networks of other cable
operators, if any, having distribution agreements with the Company. Once the
D-DTH signal has been received at the cable networks, 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.
Philips will initially provide the following critical components and
services used in the Company's D-DTH satellite transmission system and will be
the primary point of contact for subscribers to the Company's D-DTH service:
- the Philips' digital integrated receiver decoders;
- a smartcard-based proprietary conditional access system which uses Philips
CryptoWork-Registered Trademark- technology;
- a satellite receiving dish and related equipment;
- installation; and
- support services.
The Company's agreement with Philips provides for the following:
- Philips will be the exclusive supplier 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 will not be able 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. 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. However, there can be no assurance that the Company
will be able to secure such additional suppliers, if necessary.
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 transmitted to satellites. The signal from the satellite is received by a
subscriber through an antenna and integrated receiver decoder, and is decrypted
via a smartcard inserted into a decoder, which is usually integrated with a
receiver into the integrated receiver decoder 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
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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 analog direct-to-home industries has been widely
reported. 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 remain effective.
The Company believes that the Astra satellites,
CryptoWorks-Registered Trademark- encryption technology and the integrated
receiver decoder together constitute a reliable, end-to-end cost-effective D-DTH
system. However, certain other large European providers of D-DTH services have
selected different satellites, encryption technology and decoders.
SATELLITES. The Company currently broadcasts and expects to broadcast all
of its proprietary programming and that of most of third party programmers from
its transmission facility in the U.K. by cable to an earth station transmitting
antenna, located at its Maidstone site. The uplink facility transmits the
Company's programming signal via a transponder on an orbiting satellite
transponder to the cable system 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") for the lease of three transponders on two
satellites, Astra 1E and 1F. The leases for the one transponder on the Astra 1E
satellite and two transponders on the Astra 1F 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 contracts remaining after December 31, 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 permitting
it to gain access to additional transponders in preference to certain other
Astra customers. The Company does not, however, have the right to pre-empt other
customers if its transponders stop working. A "protected customer" has
pre-emption rights if its transponders stop working and its service would be
moved on to the transponder carrying a pre-emptible customer's service.
While the Company has sufficient channel capacity to broadcast 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
Company's ability 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. 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.
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PROGRAMMING
The Company believes that there is 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. Its programming
strategy is based upon four elements.
ESTABLISH AND EXPAND PROGRAMMING PACKAGE. Wizja TV's current channel
line-up includes four channels, Atomic TV, Wizja1, Wizja Pogoda, and Twoja
Wizja, that are owned and operated by the Company and 15 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, and eventually
to introduce tiered packages containing a variety of combinations of 21 or more
channels.
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. The Company intends to continue to use exclusive agreements, where
practicable, in expanding the programming available on Wizja TV.
USE PROGRAMMING TO DRIVE DISTRIBUTION. The Company intends to use its
programming to increase penetration of its cable television 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.
DEVELOP AND EXPAND PROPRIETARY CHANNELS. The Company intends to develop and
expand its sports programming through Wizja Sport. In addition, to developing
additional proprietary programming, the Company has entered into and intends to
enter into joint ventures and other similar arrangements with other programming
companies.
WIZJA TV PROGRAMMING PACKAGE
The Company has also entered into long-term exclusive agreements to
broadcast to Poland live coverage of certain sports events, including the
following:
- certain of the Polish national soccer team's games;
- certain European matches of Lech Poznan, a Polish Premier League soccer
team;
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- European soccer matches, including matches from the Dutch and Portuguese
leagues;
- Polish Speedway League events;
- Speedway Grand Prix World Championships;
- 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.
These events have been initially carried on Wizja 1 or Twoja Wizja, and they
will be carried on Wizja Sport when it is established. When established, Wizja
Sport will initially provide approximately 12 hours of local and international
sporting events 7 days a week. The Company believes that Wizja Sport will be the
first channel in the Polish market principally dedicated to Polish sports
programming. Wizja Sport is expected to be launched by late 1999. The Company's
ability to broadcast certain of these sporting events on an exclusive basis may
be limited by pending regulatory changes.
Several of the sports rights contracts 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 or highlights basis. The Company is currently in negotiations with other
sports rights holders to purchase the rights to additional local and
international sports events.
The Company has purchased exclusive rights from third parties for
programming on 9 of the current 19 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. On December 31, 1998, the Company was
committed to pay approximately $214.3 million in guaranteed minimum payments
over the next seven years in respect of broadcasting and programming agreements,
of which approximately $37.2 million was committed through the end of 1999. In
addition, the Company is continuing to negotiate additional agreements with
channel and program 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 addition, some of the agreements impose certain limitations, including:
- the channel must be received by 100% of subscribers to the Company's D-DTH
service and by all "basic package" subscribers of the Company's cable
system or by most of its cable subscribers;
- 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;
- the programming the Company may purchase for Wizja TV may be restricted;
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- 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);
- suppliers of programming to a channel supplier may require the Company 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;
- The Company may be required to install encryption decoder-based technology
in homes of cable subscribers receiving premium services; and
- 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.
The terms of the Company's agreements with third parties for programming on
Wizja TV range from 2 to 7 years.
As opportunities permit, the Company intends to expand the channel offerings
on Wizja TV. The Company is considering adding more thematic channels to its
programming package. These channels may be based on themes such as sports,
movies, news, weather, lifestyle, gameshows or children's programming. The
Company expects it will own and develop certain of these additional thematic
channels.
PROPRIETARY PROGRAMMING
Wizja TV contains four channels, Atomic TV, Wizja 1, Wizja Pogoda and Twoja
Wizja, 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 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 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 Productions Limited, an independent production
company. In February and March 1998, the Company acquired the remaining 55%
interest in GZM 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, Wizja Pogoda as the weather channel, and Twoja Wizja as the
programming directory 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. A description of the
Company's sports programming is set forth in "Business-- Programming--The Wizja
TV Programming Package."
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The Company has entered into additional program license agreements for
high-quality programming for exhibition on Wizja 1. These agreements are with
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. It is also
investing in new Polish productions.
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
publishing 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 expired in February 1999 and the Company has
no intention of extending this option.
As opportunities arise in the rapidly developing pay television market in
Poland, the Company intends to consider adding more thematic channels to its
programming package. 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
proprietary cable channel in the spring of 1996, generated substantial cable
television viewer and advertising interest, and was offered as a separate
channel in April 1997.
In certain instances, the Company has acquired equity interests in
programming 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 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 premium movie channels
are available in Poland, Canal+ and the HBO Poland service. 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 for the exclusive distribution on its
D-DTH system, and non-exclusive distribution across its cable networks, for the
HBO Poland service, a Polish-language premium movie channel owned in part by
Home Box Office. HBO currently has exclusive rights in Poland to movies from
Warner Bros., Columbia TriStar International Television and Buena Vista
International.
The HBO Poland service was launched on the Company's cable network in
September 1996. To date, the service has generated significant subscriber
interest. On December 31, 1998, the service had achieved a penetration rate of
5.2% across the Company's cable networks. The Company began distribution of the
HBO Poland service in Warsaw in April and in Gdansk and Krakow in May 1997, and
rolled out this service to most of the Company's remaining cable systems by the
end of 1997. The HBO Poland service
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was launched on the Company's D-DTH system in July 1998 and on December 31, 1998
the service had experienced a churn rate of 20.5% for non-promotional
subscribers of the Company's D-DTH system.
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 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 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.
In October 1998, the Company established At Media Sp. z o.o. in Poland, a
wholly owned subsidiary, to develop advertising opportunities for the Wizja TV
programming package. At Media, currently offers commercial airtime on 12 of the
Company's 19 channels on Wizja TV to major advertising agencies and advertisers
in the Polish market. At Media also offers advertising spots in its listing
magazine "Twoja Wizja". At Media is also in the process of developing a database
of Wizja TV subscribers, which is being marketed to major advertisers and
advertising agencies.
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 subscribers. 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 more reasonable price than
the programming and prices available through alternative delivery systems.
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
videocassette recorders. The extent of this type of competition depends upon,
among other things, the price, variety and quality of programming offered by pay
television services and the popularity of television itself.
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CABLE TELEVISION. In the cable television industry, the Company believes
that competition for subscribers is primarily based on price, program offerings,
customer service, and quality and reliability of cable networks.
Operators of small cable networks, which are active throughout Poland, 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 these operators often do not
meet the technical standards for cable systems under Polish law, enforcement of
regulations governing technical standards has historically been poor. Regardless
of the enforcement of these laws and regulations, the Company expects that
operators of small cable networks 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 at least three cable systems
(including Aster City Cable Sp. z o.o.) and Multimedia Polska S.A., a Polish
entity. 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 subscribers,
such as terrestrial broadcast television signals and A-DTH television services,
and with a multi-channel multi-point distribution system and D-DTH services
(including the Company's own D-DTH service).
D-DTH. The Company's D-DTH business will compete with traditional cable
systems, including its own, and terrestrial broadcast and analog direct-to-home
("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). TKP, in conjunction
with other Polish broadcasting entities such as Polsat S.A. (a Polish private
broadcaster), Telewizja Polska S.A. (the Polish national public broadcaster),
Polskie Media S.A. (a Polish regional broadcaster) and Aster City Cable (a
Warsaw-based cable television operator owned by Bresnan), launched a
multi-channel D-DTH service in Poland in November 1998 under the name Cyfra+.
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. Some 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.
PROGRAMMING. In the programming business, the Company competes with other
television companies, both free (broadcast) television 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. The
Company also competes with other programming creators for the hiring of
personnel with creative and production talent for the development of
programming. If 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. If the
Company cannot negotiate exclusive agreements with suppliers of its programming
or these agreements become unenforceable, the Company will not be able to
preclude its competitors from obtaining access to such programming. If the
Company's competitors have access to the same programming as the Company, the
Company's programming line-up will be less unique and less attractive to
subscribers.
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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 Atomic TV, 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.
EMPLOYEES
At December 31, 1998, the Company had approximately 1,385 permanent
full-time employees and approximately 49 part-time employees. In addition, as of
that date the Company employed approximately 91 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 56 employees by the end of 1999,
the majority of whom will be administrative, post-production and technical
personnel located at the Company's facility in the U.K. and customer service
representatives in the call center in Poland. The Company expects that certain
functions, such as satellite transmission and receiving 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.
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REGULATION
The Company is subject to regulation in Poland, the U.K. and the European
Union
POLAND
GENERAL
The operation of cable and digital satellite direct-to-home broadcasting
("D-DTH") television systems in Poland is regulated under the Polish
Communications Act of 1990 (the "Communications Act") and the Polish Radio and
Television Act of 1992 (the "Television Act"). These are administered by:
- The Polish Minister of Communications;
- The Polish State Agency of Radio Communications ("PAR");
- The Polish National Radio and Television Council (the "Council"); and
Cable television operators in Poland are required to obtain permits from PAR
to install and operate cable television systems and must register certain
programming that they transmit over their networks with the Council.
In contrast to cable television regulatory schemes in the U.S. and in
certain other Western nations, neither the Minister of Communications nor PAR
currently has the authority to regulate the rates charged by operators of cable
television and D-DTH services. However, excessive rates could be challenged by
the Polish 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 Law on Copyright and Neighboring Rights of 1994
(the "Copyright Act") which provides intellectual property rights protection to
authors and producers of programming. Under the terms of the Television Act,
broadcasters in Poland are regulated by, and must obtain a broadcasting license
from the Council.
Because the Company's D-DTH service was the first D-DTH service available in
Poland, there are likely to be issues of first impression not currently
addressed under Polish law with respect to certain aspects of its 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. Such regulatory changes could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMMUNICATIONS ACT
PERMITS. The Communications Act and the required permits issued by PAR set
forth the terms and conditions for providing cable television services,
including:
- the terms of the permits;
- the area covered by the permits;
- technological requirements for cable television networks; and
- restrictions on ownership of cable television operators.
If a cable operator breaches the terms of its permits or the provisions of
the Communications Act, or if such operator 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 cable operator's cable networks.
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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.
FOREIGN OWNERSHIP RESTRICTIONS. The Communications Act and applicable
Polish regulatory restrictions provide that permits may only be issued to and
held by Polish citizens, 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.
THE COMPANY'S PERMITS AND NEW CORPORATE ORGANIZATIONAL STRUCTURE. Prior to
the creation of PAR and the permit system, one of the Company's subsidiaries,
Polska Telewizja Kablowa S.A. ("PTK S.A."), received a license to operate cable
television systems in Warsaw, Krakow and the areas surrounding these cities
under the Polish Foreign Commercial Activity Act.
To comply with the foreign ownership requirements discussed above the
Company created a new entity, Polska Telewizja Kablowa Operator Sp. z o.o. ("PTK
Operator"), which does and will operate the Company's new or existing cable
networks whose permits are subject to the foreign ownership restrictions
discussed above. The Company's operating subsidiary Poland Communications Inc.
("PCI") will hold a 49% ownership stake in PTK Operator while the remaining 51%
will be held by a Polish entity. PCI will, in turn, hold 49% of the Polish
entity, and the remaining 51% interest in the Polish entity is expected to be
owned in part by a Polish financial company. The Company believes that this
ownership and operating structure complies with the requirements of Polish law.
PAR has granted several permits to the Company and its competitors, based on the
lease of assets, for networks using an ownership and operating structure
substantially similar to the one described above.
Specifically, subsidiaries of the Company have received approximately 106
permits from PAR, covering approximately 674,200 of the Company's approximately
738,400 basic and intermediate subscribers at December 31, 1998, including
approximately 11,701 subscribers for whom the Company's permits are deemed
extended under Polish law pending PAR's response to the Company's permit renewal
applications. 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 64,200 basic and intermediate subscribers at December 31, 1998
located in areas for which subsidiaries of the Company do not currently have
valid permits, approximately 78% 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 cooperative authorities and the upgrade of the acquired network to meet
technical standards where necessary and satisfying foreign ownership
limitations), and approximately 22% are located in areas serviced by networks
for which subsidiaries of the Company have permit applications pending. These
subsidiaries of the Company have 9 permit applications pending. There can be no
assurance that PAR will issue any or all of the permits for which such
subsidiaries have applied.
The Company may be subject to penalties if PAR or other Polish regulatory
authorities determine that all or part of the Company's ownership and operating
structure violates Polish regulatory restrictions on foreign ownership. The
Company would also be subject to penalties if PAR chooses to take action against
it for operating cable television networks in areas not covered by valid
permits.
Any such actions by PAR or other Polish regulatory authorities would have a
material adverse effect on the Company's business, financial condition and
results of operations.
TELEVISION ACT
THE POLISH NATIONAL RADIO AND TELEVISION COUNCIL. The Council, an
independent agency of the Polish government, was created under the Television
Act to regulate broadcasting in Poland. The Council has
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regulatory authority over both the programming that cable television operators
transmit over their networks and the broadcasting operations of broadcasters.
REGISTRATION OF PROGRAMMING. Under the Television Act, cable television
operators must register each channel and the programming, which will be aired on
that channel with the Chairman of the Council prior to transmission. In general,
the Chairman of the Council will refuse registration of programming if:
- the applicant is not legally entitled to use the cable network over which
the programming will be distributed (i.e., does not have a PAR permit
covering the network);
- 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
- the transmission of the programming over the cable network would violate
the Television Act or other provisions of applicable Polish law.
The Company's subsidiaries 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. The Chairman of the Council may revoke the
registration of any of the Company's programming, or may not register all
additional programming that the Company desires to transmit over the Company's
networks. In addition, the Council may take action regarding unregistered
programming that the Company transmits over cable networks for which the Company
does not yet have PAR permits. Such actions could include the levying of
monetary fines against the Company, and the seizure of equipment involved in
transmitting such unregistered programming as well as criminal sanctions against
the Company's management. These actions could have a material adverse effect on
the Company's business, financial condition and results of operations.
RESTRICTIONS ON FOREIGN OWNERSHIP OF POLISH 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. Companies that engage
in broadcasting in Poland are required to obtain a broadcasting license from the
Chairman of the Council under the Television Act. The Council may revoke a
broadcasting license for, among other things:
- violations of the Television Act;
- violations of the terms of the broadcasting license; or
- violations of restrictions on foreign ownership of broadcasters.
If the Polish regulatory authorities were to conclude that the Company's
ownership or distribution structure is not to in compliance with Poland's
regulatory restrictions on foreign ownership, the Company could be forced to
incur significant costs in order to bring its ownership structure and
distribution system into compliance with the applicable regulations and the
Company may be forced to dispose of its ownership interests in various entities.
These regulatory restrictions may materially adversely affect the Company's
ability to enter into relationships with other entities that produce, broadcast
and distribute programming in Poland, which in turn 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 AND THEIR
POSSIBLE IMPACT ON THE COMPANY. 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 transmission to the
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satellite 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. While there have been no court rulings on this
issue, a subsidiary of Canal+ has filed suit against HBO Polska Sp. z o.o. and
certain Polish cable operators (including subsidiaries of the Company) alleging
violations of the Television Act. See "Item 3. Legal Proceedings."
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. While all of the content and programs which the
Company distributes across its cable networks and its D-DTH system are
distributed via satellite systems which are located outside of Poland, much of
the programming is produced or assembled entirely in Poland. The Company
believes that the ownership structure of entities involved in the process
described in the preceding sentence, as well as the operating strategy discussed
above, are not subject to Poland's regulatory restrictions on foreign ownership,
licensing requirements, restrictions and regulations on the operation of cable
networks and the broadcasting of programming.
The Company could become subject to significantly increased regulations and
restrictions with respect to its business in the event that the Polish
regulatory authorities were to:
- determine that Polish regulations apply to the satellite broadcasting of a
program directed at a Polish audience, if the transmission is made by a
foreign broadcaster from outside of Poland;
- determine that the ownership and operation structure that the Company has
implemented with respect to the development, production and transmission
of programming across its cable networks and its D-DTH system does not
comply with applicable regulations regarding the ownership and operation
of Polish broadcasters and cable operators;
- determine that an entity which produces or assembles programming entirely
in Poland, and which provides such programming to a third-party for
transmission from abroad is a broadcaster for purposes of the Television
Act;
- undertake to regulate the D-DTH market in general or by attempting to
impose standards on encryption technology or integrated reception systems;
- adopt regulations specifying requirements for Polish or European content
of programs of distributed by non-Polish broadcasters through cable
networks or D-DTH systems in Poland; or
- change the 1989 European Convention of Transfrontier Television so that
Poland would be able to waive the protection of freedom of reception of
programs broadcast from outside of Poland by foreign broadcasters in order
to avoid Polish broadcasting regulations.
Such a determination or determinations could require the Company to:
- secure additional licenses from the Chairman of the Council and permits
from PAR;
- modify the nature and content of its programming;
- pay fines or other penalties for lack of compliance with these
regulations; or
- comply with Polish regulations governing the production and transmission
of programming across cable networks and across a D-DTH system.
The burden of complying with any such future regulations or any failure to
so comply could have a material adverse effect on the Company's business,
results of operations and financial conditions.
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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 Polish Copyright Act, which governs
the 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"), 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 collective rights organizations such as ZAIKS and ZASP 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 its cable
subsidiaries operate under a contract with ZAIKS. In the event that a cable or
D-DTH operator transmits programming in violation of a Polish copyright, either
the copyright holder or the collective rights organization which the copyright
holder is a member of may sue the cable or D-DTH operator for an injunction
preventing further violations or an accounting for profits or damages. 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" for a discussion of the penalties and consequences
associated with violations of the Communications Act and of a television
operator's permits.
PROTECTION OF RIGHTS OF FOREIGN AUTHORS AND PRODUCERS OF
PROGRAMMING. Foreign authors of programming receive protection under the
Copyright Act for programming that is either:
- originally published in Poland;
- originally published simultaneously in Poland and abroad; or
- originally published in Polish-language form.
In addition, foreign authors of programming receive Polish copyright
protection under the terms of the Berne Convention of 1886 as amended in Paris
in 1971 (the "Berne Convention"), which was adopted by Poland in 1994.
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 these types of payments, such as CNN, Eurosport and the Cartoon
Network.
ANTI-MONOPOLY ACT
Competition in Poland is governed by the Anti-Monopoly Act. The
Anti-Monopoly Act established the Anti-Monopoly Office which is responsible for
the detection and regulation of monopolistic and other anti-competitive
practices. The current Polish anti-monopoly laws with respect to the cable,
D-DTH and programming industries are not well established, and the Anti-Monopoly
Office has not articulated
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comprehensive standards that may be applied in an antitrust review in such
industries. In general, the Anti-Monopoly Act prohibits such anti-competitive
arrangements and practices as:
- monopolistic agreements;
- abuse of dominant market position;
- price-fixing arrangements;
- division of market arrangements; and
- creation of market entry barriers.
If detected, the Anti-Monopoly Office may deem agreements which embody or
employ such practices, as null and void. A finding by the Anti-Monopoly Office
that the Company's past, present or future operations, agreements or strategic
actions constituted violations of the anti-monopoly laws could adversely impact
its business, strategy, financial condition or results of operations.
EXCLUSIVE PROGRAMMING AGREEMENTS. An important factor in determining the
commercial value of programming which is distributed by a cable or D-DTH
operator is whether such programming is widely available or if such programming
is only available on a limited or exclusive basis. Many of the programming
agreements that the Company has entered into for its cable networks and its
D-DTH service contain exclusivity clauses which restrict or prohibit the
provider of such programming from providing such programming to other cable or
D-DTH operators. Although such exclusivity clauses are not specifically
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. A decision by the Anti-Monopoly Office
to deem one or more of these programming agreements as void due to the fact that
it contains an illegal exclusivity clause could have a material adverse effect
on the Company's business and financial results in that such a decision would
potentially reduce the commercial value of these contracts and could reduce the
consumer of appeal of the programming offered on the Company's cable networks
and its D-DTH system.
MARKET DOMINANCE. Although the Anti-Monopoly Act does not preclude an
enterprise from occupying a dominant market position, any activities by such
enterprise is subject to 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 have 40% or more of the
market share of the relevant market and do not face significant competition are
usually deemed to have market dominance, and therefore face greater scrutiny
from the Anti-Monopoly Office. The Anti-Monopoly Office has been granted the
power to review a company's past and present activities, including its pricing
policies, for potential anti-competitive behavior.
PRE-NOTIFICATION OF TRANSACTIONS. The Anti-Monopoly Act requires parties to
certain types of transactions to notify the Anti-Monopoly Office prior to the
consummation of the proposed transaction. 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. Sanctions for failure to notify the Anti-Monopoly office include the
imposition of fines on parties to the transaction at issue. The Company believes
that it may be required to obtain the Anti-Monopoly Office's approval for future
acquisitions, but the Anti-Monopoly Office may not approve the Company's future
acquisitions and dispositions.
RECENT ANTI-MONOPOLY OFFICE FINDINGS WITH RESPECT TO THE COMPANY AND ITS
SUBSIDIARIES. From time to time, the Company receives inquiries from and is
subject to review by various divisions of the Anti-Monopoly Office. The
Anti-Monopoly Office recently issued a decision that PCI, the Company's major
cable operating subsidiary, 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 a different frequency. A
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number of PCI's subscribers, whose television sets are not equipped to receive
the new frequency, received several different channels to replace the channels
which had been moved. The Company appealed both the finding of dominance and the
finding that PCI acted improperly by moving certain channels to another
frequency. The Anti-Monopoly Court modified the Anti-Monopoly Office's decision
by ruling that PCI had abused its dominant position by moving certain channels
to the new frequency without termination of its agreements with subscribers
whose television sets are not equipped to receive the new frequency. The
Anti-Monopoly Court did not impose a fine on the Company or its subsidiaries.
The Company estimates that less than 1% of its subscribers in the area under
review have such television sets and would be affected by the ruling if, in the
future, the Company finds it necessary for technical reasons to move channels to
another frequency. The Company is appealing both the finding of dominance and
the finding that the Company must terminate some of its agreements with certain
subscribers before moving channels to another frequency.
In another market, the Anti-Monopoly Office recently issued a decision that
PCI had achieved a dominant position and abused that dominant position by: (1)
failing to create a uniform system for customer complaints, (2) increasing rates
without providing subscribers a detailed basis for the price increases, and (3)
changing the programming line-up without sufficient notice to subscribers. The
Anti-Monopoly Office did not impose a fine in connection with its decision. The
Company is appealing both the finding of dominance and the finding that it acted
improperly in its relations with subscribers.
In another market, the Anti-Monopoly Office recently issued a decision that
PCI had achieved a dominant position and abused that dominant position by
issuing to subscribers an offer for the extended basic package in a certain
form. The Anti-Monopoly Office imposed a fine of 26,700 zloty (approximately
$7,600 at the December 31, 1998 conversion rate). The Company is appealing the
fine, the finding of dominance, and the finding that the form of its offer to
subscribers was improper.
UNITED KINGDOM
BROADCASTING REGULATION
All of the channels in the Company's D-DTH service are or will be regulated
by U.K authorities (primarily the Independent Television Commission) as
satellite television services ("STS"). Under the U.K. Broadcasting Act 1990 (the
"Broadcasting Act"), satellite broadcasters established in the U.K. are required
to obtain an STS license. The Company has received an STS license for Atomic TV,
Wizja 1, Twoja Wizja, Wizja Sport, and Wizja Pogoda. For most of the other
channels on Wizja TV, the relevant channel supplier is required to obtain an STS
license from the Independent Television Commission. The Independent Television
Commission has wide discretion to vary the conditions of licenses issued under
the Broadcasting Act or amend its codes (including codes on electronic
programming guides, advertising and content) to which U.K.-licensed broadcasters
are subject. Under the terms of its Astra transponder agreements, the Company
cannot carry programming if the channel supplier does not have a valid broadcast
license for that programming. An STS license is issued for an initial period of
10 years but can be renewed.
The Independent Television Commission has issued a direction to all STS
license holders following its investigation into competition issues relating to
the practice of channel bundling in the U.K. and has concluded that a number of
anti-competitive factors exist in the current pay television market which
restrict viewer choice. Under the direction, STS licensees are not allowed (in
specified circumstances) to:
- maintain or enter into certain agreements which contain minimum carriage
guarantees (where the licensee is required to carry the channel to a
minimum percentage of subscribers); or
- maintain certain tiering obligations (where the licensee requires a
channel to be included in a certain tier) or arrangements with similar
effects.
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The Independent Television Commission has not explicitly prohibited the
practice of requiring subscribers to buy basic channel packages before being
allowed to buy premium channels. However, it is requiring licensees to permit
subscribers to buy all available premium channels available from any basic
package. The Company believes that the Independent Television Commission will
not apply the direction to the channels in the Wizja TV package.
The Broadcasting Act classifies some persons as "disqualified persons" who
are not permitted to hold STS licenses, including (A) any bodies whose objects
are wholly or mainly of a political or religious nature and advertising
agencies, or (B) any person owned by more than 5% by a disqualified person or
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. If any person with an interest in
excess of 5% of the Company's issued capital stock is or becomes a disqualified
person or is or becomes associated with such a disqualified person, or if the
Company or any person with an interest in the Company's capital stock does or
were to fall within the scope of the restriction, then the Company may not be
entitled to hold STS licenses.
In issuing STS licenses, the Independent Television Commission follows the
"establishment" test set out in the European Union's ("EU") Television Without
Frontiers Directive which provides that each EU broadcaster should be regulated
primarily by the authorities in the member state of the EU where that
broadcaster is established, without regard to the country or countries within
the EU in which its transmits signal is received. Meanwhile, the 1989 European
Convention on Transfrontier Television currently provides that the country in
which a broadcaster transmits its programming to a satellite (or the country
which grants the broadcast frequency or satellite capacity) has jurisdiction
over that broadcaster. However, the 1989 European Convention on Transfrontier
Television was recently amended and if this amendment is implemented, the 1989
European Convention on Transfrontier Television would conform to the
"establishment" test and authorities in a receiving state would invariably have
the power to regulate a broadcaster whose services are intended to be received
in that state.
REGULATION OF COMPETITION
Today, U.K. law controls agreements which affect competition through the
Restrictive Trade Practices Act 1976 (the "Restrictive Trade Practices Act"),
resale price maintenance through the Resale Price Act 1973 (the "RPA")
monopolies and mergers through the Fair Trading Act 1973 (the "Fair Trading
Act"), and unilateral anti-competitive practices through the Competition Act of
1980 (the "CA"). The Company is not involved in any current proceedings relating
to competition law before the U.K. courts, nor are any investigations which
involve the Company underway before any authority exercising powers under the
Restrictive Trade Practices Act, the RPA, the CA or Fair Trading Act.
A new Competition Act which substantially reforms U.K. competition law,
replacing most of the current legislation except the Fair Trading Act was given
royal assent on November 9, 1998. Under this act, companies have until March 1,
2000 to prepare for the new regime to come into effect. The new regime will
introduce provisions based on Articles 85 and 86 of the EC Treaty and will give
the U.K. authorities broad investigative powers. For a more detailed description
of Articles 85 and 86, see the discussion in "European Union--Regulation of
Competition" that follows.
EUROPEAN UNION
BROADCASTING REGULATION
TELEVISION WITHOUT FRONTIERS DIRECTIVE. The Television Without Frontiers
Directive sets forth the following basic principles for the regulation of
broadcasting activity in the EU:
- Each EU broadcasting service should be regulated by the authorities of one
member state (the "home member state") and some minimum standards should
be required by each member state of
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all broadcasting services which that state's authorities regulate. (The
U.K., which is regarded as the Company's "home member state" for the
purposes of its D-DTH services because At Entertainment Limited is
established in the U.K. and is the licensed broadcaster of its proprietary
channels, has adopted a variety of statutory and administrative measures
based on the Directive to give effect to the requirements of the
Directive.)
- Each member state is required to ensure "where practicable and by
appropriate means" that broadcasters reserve "a majority proportion of
their transmission time" for European works. The Directive does not define
the term "where practicable and by appropriate means" and the European
Commission has been receiving comments on the interpretation of this
Directive.
- Each member states is required to 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. (Polish-language programming
the Company produces or commissions will be counted for the purposes of
determining whether any service broadcast by the Company complies with
these quotas.)
- There are restrictions on advertising including restrictions on the timing
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.
- There are restrictions on the content of programs to the extent necessary
(A) to protect minors and (B) to prevent the incitement of hatred on he
grounds of race, sex, religion or nationality.
1989 EUROPEAN CONVENTION ON TRANSFRONTIER TELEVISION. In addition to the
Television Without Frontiers Directive, the 1989 European Convention on
Transfrontier Television is the other primary source of European regulation
affecting television broadcasting in Europe. The 1989 European Convention on
Transfrontier Television contains provisions that are substantially similar to
the Television Without Frontiers Directive. The 1989 European Convention on
Transfrontier Television is effective in those countries which have ratified it.
Both the U.K. and Poland have ratified the 1989 European Convention on
Transfrontier Television. The 1989 European Convention on Transfrontier
Television currently provides that the country in which a broadcaster transmits
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 Television Without Frontiers Directive nor the 1989 European
Convention on Transfrontier Television contains any requirements or restrictions
regarding foreign ownership of broadcasters.
A change to the 1989 European Convention on Transfrontier Television was
agreed by member states of the 1989 European Convention on Transfrontier
Television on September 9, 1998. This amendment will be effective if and when
all member states have signed the amendment or automatically on October 1, 2000,
unless a member state objects to such amendment coming into force. This
amendment, if it becomes effective, would have three significant effects:
- First, it would bring the 1989 European Convention on Transfrontier
Television into conformity with the Television Without Frontiers
Directive's "establishment" test, providing that a broadcaster should be
regulated primarily by the authorities in the 1989 European Convention on
Transfrontier Television country in which the broadcaster is established.
- Second, this amendment would provide that when a broadcaster engages in
conduct that constitutes an "abuse of rights", the broadcaster would
become subject to the laws of the country of reception. Under this
amendment, an "abuse of rights" would occur when a broadcaster's channel
is wholly or
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principally directed at a country, other than that where it is
established, for the purpose of evading the laws of that country in the
areas covered by the 1989 European Convention on Transfrontier Television.
(The Company believes that its broadcasting into Poland from the U.K.
would not constitute an "abuse of rights" under this amendment because it
has valid business reasons for broadcasting from the U.K. and it has not
established its broadcasting facilities in the U.K. in order to evade
Polish laws in the areas covered by the 1989 European Convention on
Transfrontier Television. An adverse decision on this issue, if this
amendment becomes effective and Poland decides to invoke it against the
Company's broadcasts emanating from the U.K. could prevent the Company
from broadcasting its programming package.)
- Third, this amendment would allow parties to the 1989 European Convention
on Transfrontier Television 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 1989 European Convention on Transfrontier Television country from
seeing the event live or on a deferred coverage basis on free (broadcast)
television, and also to ensure that broadcasters under the jurisdiction of
one 1989 European Convention on Transfrontier Television country cannot
purchase exclusive rights to major events specified by another 1989
European Convention on Transfrontier Television country which would
deprive a large proportion of the public in such member countries of the
1989 European Convention on Transfrontier Television from seeing the
specified event on a live or deferred coverage basis on free (broadcast)
television. (If this amendment becomes effective and if it were applied to
the Polish pay television rights to certain sporting events purchased on
an exclusive basis by us, the Company may lose the right to broadcast such
events in Poland on an exclusive basis and may not be able to acquire the
exclusive Polish pay television rights to such events and to similar
events in the future.)
The 1989 European Convention on Transfrontier Television currently provides
that where a broadcaster under the jurisdiction of one member country of the
1989 European Convention on Transfrontier Television transmits advertisements
which are directed specifically at audiences in another member country of the
1989 European Convention on Transfrontier Television, such advertisements must
comply with the advertising rules of the receiving member state. This rule will
require advertisements inserted in the channels the Company distributes to
comply with both Polish advertising rules as well as the rules applicable in the
jurisdiction in which the broadcaster is licensed.
TELEVISION WITHOUT FRONTIERS DIRECTIVE ON THE USE OF STANDARDS IN
TRANSMISSION OF TELEVISION SIGNALS. The EU Directive on the Use of Standards in
Transmission of Television Signals 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 electronic programming guides can be made competitively
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 Company's D-DTH broadcasting services since they are not transmitted to
viewers in the EU, Poland would be required to implement the provisions of that
the Directive if it joined the EU. In addition, because At Entertainment Limited
(as the Company's license holding company) will be subject to the jurisdiction
of the Independent Television Commission and will be established in the U.K., it
is possible that, in the future, Oftel may seek to assert jurisdiction over the
activities of this subsidiary in these areas including in relation to
conditional access services.
TELEVISION WITHOUT FRONTIERS DIRECTIVE ON THE LEGAL PROTECTION OF
CONDITIONAL ACCESS SERVICES. In November 1998, the European Commission adopted a
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. It requires EU member states to
prohibit the manufacture, import, distribution, rental, sale, possession,
installation, maintenance, replacement or marketing of illicit devices. If
Poland joins the EU, it would also have to implement such protections.
30
<PAGE>
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 member states of
the European Community/European Economic Area. Article 85 (2) voids the
offending provision or the entire agreement, if the offending parts are not
severable. 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. Such an exemption may only be granted by the European
Commission and notification to that body is essential to secure this protection.
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. Generally speaking, a market
share of as little as 40% can raise concern that a form may be dominant.
However, dominance is not unlawful PER SE; only the abuse of a dominant position
is prohibited by Article 86. 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 power to fine heavily (up to 10% of a
group's annual worldwide turnover) in relation to a breach of Article 85 or in
relation to abusive conduct under Article 86. Agreements or practice that breach
these provisions will be void and unenforceable in national courts and third
parties that suffer loss as a result of a breach of Article 85 or Article 86 can
sue for damages and/or seek injunction relief. The Company does not believe that
any of its current agreements infringe Article 85(1) or Article 86 and therefore
does not intend to bring them to the attention of the European Commission. 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 Television Without Frontiers Directive and EC competition law in
their then current versions.
ITEM 2. PROPERTIES
On December 31, 1998, the Company owned equipment used for its cable
television and D-DTH businesses, including 108 satellite receivers for cable
networks, and approximately 4,378 kilometers of cable plant. The Company has
approximately 210 lease agreements for offices, storage spaces and land adjacent
to the buildings. The total area leased amounts to approximately 30,100 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 1,800 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.
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The Company has entered into conduit leases with TPSA (the Polish national
telephone company) 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
cables. 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 cooperative 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. For a list of the reasons for which TPSA can terminate a conduit
agreement, the proportion of the Company's cable subscribers serviced by
conduits leases subject to immediate termination and the consequences to the
Company of the loss of those conduit leases, see "Business--Cable Operations--
Technology and Intrastructure."
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 acquires other cable television networks.
In connection with the establishment of its D-DTH service and the
development of its programming business, the Company has leased office space and
premises providing satellite receiving (to receive programs from suppliers),
production, post-production and program packaging facilities. The space is
located in Maidstone, U.K.
The Company believes that its existing owned properties, lease agreements
and conduit agreements are adequate for the Company's D-DTH and programming
operations, although additional space may be needed in the future for the
Company's programming production activities.
ITEM 3. 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 HBO television programming in Poland
without a license from the Polish National Radio and Television Council as
required by the Polish 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 Polish National Radio and Television
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 Polish National Radio and
Television 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 encoding 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.
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On April 17, 1998, the Company signed a letter of intent with Telewizyjna
Korporacja Partycypacyjna S.A. ("TKP") and the shareholders of TKP, namely,
Canal+ S.A., Agora S.A., and PolCom Invest S.A. which 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 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 package 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 TKP to pay the Company the $5 million break-up fee
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 the arbitration
proceedings TKP and its shareholders contend that the Company breached the
letter of intent, that such breach was the cause of the parties' failure to
agree and execute the definitive agreements, and that the Company is therefore
liable for $10 million in damages under the letter of intent. In its response
the Company denies these allegations and claims that TKP is liable for at least
$15 million in damages pursuant to the letter of intent.
This $15 million figure is composed of a claim for a $5 million break-up
fee, $5 million in damages due to the claim that TKP and its shareholders
breached the letter of intent, thereby causing the parties' failure to agree and
execute the definitive agreements, and at least $5 million as an indemnification
for liabilities incurred by the Company as a result of certain actions taken
with respect to assets to be acquired or contracts to be assumed by TKP.
The Company does not believe that the arbitration proceedings will have a
material adverse effect on its business, financial condition or results of
operations.
For a discussion of certain Anti-Monopoly Office's findings relating to the
Company, see "Regulation--Poland--Anti-Monopoly Act."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
@ Entertainment, Inc.'s common stock is traded on the Nasdaq National Market
under the trading symbol "ATEN". The high and low sales prices for @
Entertainment's common stock for each full quarterly period during 1998 are as
follows:
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
March 31, 1998.............................................................................. $ 14.563 $ 10.250
June 30, 1998............................................................................... $ 19.000 $ 11.000
September 30, 1998.......................................................................... $ 14.125 $ 8.375
December 31, 1998........................................................................... $ 9.125 $ 3.875
</TABLE>
@ Entertainment has not paid cash dividends on its common stock since its
initial public equity offering.
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 of Incorporation ("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 (i) 70,000,000 shares are common stock, (ii) 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, (iii) 50,000 shares are cumulative
preference stock of which 45,000 shares have been designated Series A 12%
Cumulative Preference Shares and 5,000 shares have been designated Series B 12%
Cumulative Preference Shares. 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 18, 1999, there were 33,406,000 shares of Common Stock, 45,000
shares of Series A 12% Cumulative Preference Shares, and 5,000 shares of Series
B 12% Cumulative Preference Shares outstanding and fully paid. In addition,
there were warrants to purchase 9,138,179 shares of common stock and 3,298,000
options to purchase common 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.
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CUMULATIVE PREFERENCE SHARES
At March 18, 1999, there were 45,000 Series A 12% Cumulative Preference
Shares and 5,000 Series B 12% Cumulative Preference Shares of @Entertainment
outstanding (collectively, the "Cumulative Preference Shares") with an aggregate
liquidation preference of $50 million plus an amount equal to the accumulated
and unpaid dividends.
This summary of the material provisions of the Cumulative Preference Shares
is not complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the certificate of designation relating thereto (the
"Certificate of Designation"), a copy of which is available upon request from
the Company. Whenever particular defined terms of the Certificate of Designation
not otherwise defined herein are referred to, such defined terms shall be
incorporated herein by reference. The Cumulative Preference Shares are fully
paid and non-assessable, and the holders thereof do not have any subscription or
preemptive rights related thereto.
RANKING
RANKING OF CUMULATIVE PREFERENCE SHARES. The Cumulative Preference Shares
rank (i) senior to the Common Stock and to each other class of capital stock or
series of preference shares of the Company established after January 27, 1999
the terms of which expressly provide that such class or series will rank junior
as to dividend distributions and distributions upon the liquidation, winding-up
and dissolution of the Company (collectively referred to with the common stock
as "Junior Securities"); (ii) on a parity with each other class of capital stock
or series of preference shares issued by the Company the terms of which
expressly provide that such class or series will rank on a parity with the
Cumulative Preference Shares as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Securities"), and (iii) junior to each other class of
capital stock or series of preference shares issued by the Company the terms of
which expressly provide that such class or series will rank senior to the
Cumulative Preference Shares as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (any such series of
preference shares, collectively referred to as "Senior Securities"). The
Cumulative Preference Shares are junior to all liabilities and obligations
(whether or not for borrowed money) of the Company, except where liabilities to
holders of Cumulative Preference Shares are actual liabilities of the Company
(in which case they will rank equal with liabilities of other unsecured
debtors). The respective definitions of Junior Securities, Parity Securities or
Senior Securities shall also include any rights or options exercisable for or
convertible into any of the Junior Securities, Parity Securities or Senior
Securities, as the case may be. The Cumulative Preference Shares shall be
subject to the creation of Junior Securities, Parity Securities and Senior
Securities.
PROHIBITED ACTIVITIES. The Certificate of Designation provides that the
Company and the Board of Directors may not (i) authorize, create (by way of
reclassification or otherwise), issue or designate any Parity Securities or
Senior Securities or any obligation or security convertible or exchangeable
into, or evidencing the right to purchase, shares of any class or series of
Parity Securities or Senior Securities or (ii) repurchase, redeem or otherwise
retire, set aside funds for payment (except as provided below with respect to
the payment of dividends) with respect to any Junior Securities or Parity
Securities at any time if any Cumulative Preference Shares are outstanding
(except if such Junior Securities are repurchased, redeemed or otherwise retired
solely in exchange for other Junior Securities, and/or except if such Parity
Securities are repurchased, redeemed or otherwise retired solely in exchange for
other Parity Securities), without the approval of the holders of at least
66 2/3% of the shares of Cumulative Preference Shares.
DIVIDENDS
CALCULATION OF DIVIDENDS. Holders of Cumulative Preference Shares are
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, preferential dividends on
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<PAGE>
the Cumulative Preference Shares at a rate of 12% per annum. The right to
dividends on the Cumulative Preference Shares are cumulative (whether or not
earned or declared) from January 27, 1999 and will, to the extent not paid, bear
additional cumulative dividends. The initial liquidation preference is $50
million in the aggregate (the "Initial Liquidation Preference"). All accumulated
unpaid dividends on the Initial Liquidation Preference shall compound
semi-annually at the annual dividend rate of 12% from the preceding dividend
payment date (from the date of original issuance in the case of the first
dividend period). Dividends (whether or not earned or declared) will cumulate on
a daily basis from the original issue date and will be payable semi-annually in
arrears on March 31 and September 30 of each year, commencing on March 31, 1999
(each a "Dividend Payment Date") to holders of record on the fifteenth day
immediately preceding the relevant Dividend Payment Date. The Initial
Liquidation Preference plus any accumulated and unpaid dividends are referred to
herein as "Accreted Liquidation Preference." In addition, the Cumulative
Preference Shares will have a dividend preference in respect of any accumulated
and unpaid cash dividends thereon over unpaid dividends accrued on the Junior
Securities until such dividends on the Cumulative Preference Shares are paid in
full in cash.
Dividends payable for each full Dividend Period for the Cumulative
Preference Shares shall be computed by dividing the annual rate by two. The
amount of dividends payable for the initial Dividend Period, or any other period
shorter or longer than a full Dividend Period, on the Cumulative Preference
Shares shall be computed on the basis of twelve 30-day months and a 360-day
year. Holders of Cumulative Preference Shares shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
dividends, as herein provided, on the Cumulative Preference Shares.
ADDITIONAL DIVIDEND OBLIGATION. If (i) any dividend (or portion thereof)
payable on any Dividend Payment Date after March 31, 2004 is not declared or
paid in full in cash on such Dividend Payment Date, (ii) the Company fails to
pay at the final stated maturity (giving effect to any extensions thereof) the
principal amount of any Indebtedness (as defined in the Indentures) of the
Company, or the final stated maturity of such Indebtedness is accelerated, if
the aggregate principal amount of such Indebtedness that is in default for
failure to pay principal at the final stated maturity (giving effect to any
extensions thereof) or that has been accelerated, aggregates $25 million or more
at any time, (iii) the Company fails to comply for 30 days with its obligations
to provide to the holders of the Cumulative Preference Shares the information
described in "--Certain Covenants--Reports" and fails to cure such
non-compliance within 30 days of receipt of notice from any holder of Cumulative
Preference Shares, or (iv) a Shelf Registration Statement (as such term is
defined in the Preference Registration Rights Agreement dated January 27, 1999
between the Company and the initial holders of the Cumulative Preference Shares)
covering the resale of the Cumulative Preference Shares (x) is not declared
effective on or before July 7, 1999 or (y) is unavailable during any 360-day
period for a period of more than 60 consecutive days or two periods of more than
an aggregate of 90 days, the rate at which dividends shall accrue on the
Cumulative Preference Shares shall increase to an annual rate of 13% of the
Accreted Liquidation Preference per share of Cumulative Preference Shares;
provided however that such annual rate of 13% shall only apply during the period
that begins on the date on which the deficiency described in (i), (ii), (iii) or
(iv) above has occurred and until the Company has cured the deficiency under
(i), (ii), (iii) or (iv) of this paragraph, as the case may be.
So long as any Cumulative Preference Shares are outstanding, no dividends,
except as described in the next succeeding sentence, shall be declared or paid
or set apart for payment on Parity Securities for any period unless (a) in each
case (i) full cumulative dividends have been or contemporaneously are declared
and paid in full in cash or declared and (ii) a sum sufficient for the payment
thereof set apart for such payment on the Cumulative Preference Shares for all
Dividend Periods terminating on or prior to the date of payment of the dividend
on such class or series of Parity Securities, or (b) unless approved by the
holders of at least 66 2/3% of the Cumulative Preference Shares. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon the Cumulative Preference Shares and all
dividends declared upon any other Parity Securities shall be declared ratably in
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proportion to the respective amounts of dividends accumulated and unpaid on the
Cumulative Preference Shares and accumulated and unpaid on such Parity
Securities.
So long as any shares of the Cumulative Preference Shares are outstanding,
no dividends (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Junior
Securities) shall be declared or paid or funds set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, repurchased or otherwise retired, nor may funds be set
apart for payment with respect thereto (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Company, directly or indirectly (except by conversion into or exchange for
Junior Securities), unless (a) in each case (i) the full cumulative dividends on
all outstanding shares of the Cumulative Preference Shares and any other Parity
Securities shall have been paid or set apart for payment for all past Dividend
Periods with respect to the Cumulative Preference Share and all past dividend
periods with respect to such Parity Securities and (ii) sufficient funds shall
have been paid or set part for the payment of the dividend for the current
Dividend Period with respect to the Cumulative Preference Shares and the current
dividend period with respect to such Parity Securities or (b) unless approved by
the holders of at least 66 2/3% of Cumulative Preference Shares.
RECORD HOLDERS ELIGIBLE TO RECEIVE DIVIDEND PAYMENT AND METHOD OF
PAYMENT. On each dividend payment date, the Company shall deliver to the
transfer agent for the Cumulative Preference Shares (for delivery to holders of
Cumulative Preference Shares) a notice stating the amount of accumulated and
unpaid dividends through and including such dividend payment date. Dividends
declared on the Cumulative Preference Shares will be payable to the record
holders thereof as they appear on the register for such Cumulative Preference
Shares on the appropriate record dates, which will be 15 days prior to the
relevant dividend payment dates. Subject to any applicable fiscal or other law
or regulation, it is currently intended that each such payment with respect to
the Cumulative Preference Shares will be made by wire transfer to the accounts
of the holders of the Cumulative Preference Shares designated by such holders,
including through direction to The Depositary Trust Company or its nominee
("DTC"). All payments in respect of the Cumulative Preference Shares will be
made in US Dollars. If any date on which dividends are payable on the Cumulative
Preference Shares is not a date on which banks in The City of New York are open
for business, and on which foreign exchange dealings may be conducted in such
cities (a "business day"), then payment of the dividend on such date shall be
made on the next business day.
RESTRICTIONS ON COMPANY'S ABILITY TO PAY CASH DIVIDENDS. All of the
Indentures which govern the Company's outstanding indebtedness do, and any
future debt instruments are expected to, further restrict the Company's ability
to pay dividends in cash.
REDEMPTION
MANDATORY REDEMPTION. On January 30, 2010 (the "Mandatory Redemption
Date"), the Company will be required to redeem all outstanding Cumulative
Preference Shares, at a price in US Dollars equal to the Initial Liquidation
Preference thereof plus all accumulated and unpaid dividends thereon (if any) to
the date of redemption. The Company will not be required to make sinking fund
payments with respect to the Cumulative Preference Shares.
Holders of the Cumulative Preference Shares will not be able to require the
Company to redeem the Cumulative Preference Shares prior to the Mandatory
Redemption Date unless all senior indebtedness of the Company then outstanding
under the Indentures shall have been redeemed. If, pursuant to the preceding
sentence, the holders of the Cumulative Preference Shares are allowed to require
the Company to redeem the Cumulative Preference Shares prior to the Mandatory
Redemption Date, they may do so only (i) in the event that there occurs a Change
in Control of the Company, as such term is defined in any of the Indentures,
(ii) with the proceeds from certain asset sales of over $25 million (in the
event that the
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Company does not use such proceeds as described in "Limitation on Sale of
Assets", as such limitation is described in any of the Indentures) or (iii) when
all bank indebtedness then outstanding and all senior indebtedness then
outstanding pursuant to the Indentures of the Company is redeemed or repaid. In
the event that the terms and conditions in both of the preceding sentences are
satisfied for causing a redemption of the Cumulative Preference Shares, then the
Company shall within 15 days after the date of the event that gives rise to such
redemption obligation mail written notice to all of the holders of record of the
Cumulative Preference Shares indicating that such holders may request that their
shares be redeemed and indicating a record date for such redemption, which date
shall not be less than 45 nor more than 75 days after the date of such notice.
After receipt of such notice, a holder of record may require that the Company
redeem his Cumulative Preference Shares by providing the Company with a written
response not more than 15 days after the date of such notice and such written
response shall provide the number of shares of Cumulative Preference Shares that
such holder proposes to tender for redemption. The Company shall, not more than
75 days after the date of its notice to holders, cause the redemption to occur,
to the extent that the Company shall have funds legally available for such
payment in full.
Cumulative Preference Shares which have been issued and reacquired in any
manner, including shares purchased or redeemed, shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
unauthorized and unissued shares of the class of Preference Shares undesignated
as to series and may be redesignated and reissued as part of any series of the
Preference Shares; PROVIDED that no such issued and reacquired shares of
Cumulative Preference Shares shall be reissued or sold with the same rights as
the Cumulative Preference Shares, expect in compliance with the provisions of
the Certificate of Designation.
If the Company is unable or shall fail to discharge its obligation to redeem
all outstanding shares of Cumulative Preference Shares on the Mandatory
Redemption Date (the "Mandatory Redemption Obligation"), the Mandatory
Redemption Obligation shall be discharged as soon as the Company is able to
discharge such Mandatory Redemption Obligation. If and so long as any Mandatory
Redemption Obligation with respect to the Cumulative Preference Shares shall not
be fully discharged, the Company shall not (i) directly or indirectly, redeem,
purchase, or otherwise acquire any Parity Security or discharge any mandatory or
optional redemption, sinking fund or other similar obligation in respect of any
Parity Securities (except in connection with a redemption, sinking fund or other
similar obligation to be satisfied PRO RATA with the Cumulative Preference
Shares) or (ii) declare or make any Junior Securities Distribution, or, directly
or indirectly, discharge any mandatory or optional redemption, sinking fund or
other similar obligation in respect of the Junior Securities.
OPTIONAL REDEMPTION. The Company at its option may, but shall not be
required to, redeem in US Dollars for cash the Cumulative Preference Shares,
including any Series B Cumulative Preference Shares, at any time on or after
March 31, 2000, in whole or in part, at the redemption price of 112% of the sum
of (i) the Initial Liquidation Preference thereof and (ii) accumulated and
unpaid dividends, if any, to the date of redemption.
No optional redemption may be authorized unless on or prior to such
redemption full unpaid cumulative dividends shall have been paid or a sum set
apart for such payment on the Cumulative Preference Shares. The Company's
ability to effect an optional redemption will be subject to contractual and
other restrictions thereto and to its ability to pay dividends. In the case of
an optional redemption, the Cumulative Preference Shares to be redeemed will be
redeemed on a pro rata basis (or on as nearly a pro rata basis as practicable).
PROCEDURE FOR REDEMPTION. On and after the redemption date, unless the
Company defaults in the payment of the applicable redemption price, dividends
will cease to accumulate on Cumulative Preference Shares called for redemption
and paid for and all rights of holders of such Cumulative Preference Shares will
terminate except for the right to receive the redemption price. The Company will
send a written notice
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of redemption by first class mail to each holder of record of Cumulative
Preference Shares, not fewer than 30 days nor more than 60 days prior to the
date fixed for such redemption.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of Cumulative Preference Shares will be entitled to be
paid, out of the assets of the Company available for distribution, the Initial
Liquidation Preference in US Dollars, plus an amount in cash equal to any
accumulated, declared and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up or other similar proceeding of the
Company (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Securities,
including, without limitation, on the Common Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Company the amounts
payable with respect to the Cumulative Preference Shares and all other Parity
Securities are not paid in full, the holders of the Cumulative Preference Shares
and the Parity Securities will share equally and ratably in any distribution of
assets of the Company in proportion to the full liquidation preference and
accumulated and unpaid dividends to which each is entitled. The initial
liquidation preference of the Cumulative Preference Shares will be $50 million
in the aggregate. After payment of the full amount of the liquidation
preferences and accumulated and unpaid dividends to which they are entitled,
holders of Cumulative Preference Shares will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with or into one or
more corporations or other entities shall be deemed to be a liquidation,
dissolution or winding-up of the Company.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Cumulative
Preference Shares although such liquidation preference will be substantially in
excess of the par value of such shares of Cumulative Preference Shares. In
addition, the Company is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon the surplus of
the Company solely because the liquidation preference of the Cumulative
Preference Shares will exceed its par value. Consequently, there will be no
restriction upon the surplus of the Company solely because the liquidation
preference of the Cumulative Preference Shares will exceed its par value, and
there will be no remedies available to holders of the Cumulative Preference
Shares before or after the payment of any dividend, other than in connection
with the liquidation of the Company, solely by reason of the fact that such
dividend would reduce the surplus of the Company to an amount less than the
difference between the liquidation preference of the Cumulative Preference
Shares and its par value.
VOTING RIGHTS
RIGHT OF HOLDERS OF CUMULATIVE PREFERENCE SHARE AND HOLDERS OF SERIES B
CUMULATIVE PREFERENCE SHARES, IF ANY, TO VOTE. Holders of Cumulative Preference
Shares (including holders of Series B Cumulative Shares, if any) have no voting
rights with respect to general corporate matters except as provided by law or as
set forth in the Certificate of Designation. The Certificate of Designation
provides for notice and a vote by such holders of Cumulative Preference Shares
(including holders of Series B Cumulative Shares, if any) in certain matters.
The holders of at least 66 2/3% of the then outstanding shares of Cumulative
Preference Shares (including outstanding Series B Cumulative Preference Shares,
if any) must affirmatively approve or consent to any resolution which proposes
to (i) authorize, create or issue or designate any class of Senior Securities or
Parity Securities, (ii) waive compliance with any provision of the Certificate
of Designation (except for such provisions which require the consent or approval
of all holders of the Cumulative Preference Shares, including the Series B
Cumulative Preference Shares, if any) or
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(iii) repurchase, redeem or otherwise retire, set aside funds for payment
(except as provided below with respect to the payment of dividends) with respect
to any Junior Securities or Parity Securities at any time if any Cumulative
Preference Shares, including any Series B Cumulative Preference Shares, are
outstanding (except if such Junior Securities are repurchased, redeemed or
otherwise retired solely in exchange for other Junior Securities, and/or except
if such Parity Securities are repurchased, redeemed or otherwise retired solely
in exchange for other Parity Securities). In addition all holders of the then
outstanding shares of Cumulative Preference Shares, voting as a single class,
must affirmatively approve or consent to any resolution which proposes to
modify, change, affect or amend in any manner the economic or ranking provisions
of the Cumulative Preference Shares so as to adversely affect the rights,
preferences or privileges of the Cumulative Preference Shares.
In exercising the voting rights, each share of Cumulative Preference Shares
shall have one vote per share, except that when any other series of Preference
Shares shall have the right to vote with the Cumulative Preference Shares as a
single class on any matter, the Cumulative Preference Shares and such other
series shall have with respect to such matters one vote per $1,000 of stated
liquidation preference. Except as otherwise required by applicable law or as set
forth herein, the shares of Cumulative Preference Shares shall not have any
relative, participating, optional or other special voting rights and powers and
the consent of the holders thereof shall not be required for the taking of any
corporate action.
Under Delaware law, holders of Cumulative Preference Shares are entitled to
vote as a class upon a proposed amendment to the certificate of incorporation,
whether or not entitled to vote thereon by the certificate of incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely.
BOARD REPRESENTATION. The holders of the Series A Cumulative Preference
Shares shall have the right to appoint two directors to the Board (such
directors referred to herein as the "Series A Directors") so long as the holders
of the Series A Cumulative Preference Shares hold at least 30% of the Cumulative
Preference Shares (including the Series B Cumulative Preference Shares) and at
least 30% of the sum of the outstanding Preference Warrants and the shares of
Common Stock issued upon exercise of any Preference Warrants.
BOARD APPROVAL REQUIRED FOR CERTAIN MATTERS. A majority of the Board of the
Company, including at least one of the two Series A Directors, must approve the
following resolutions before they can become effective and binding on the
Company: (a) any resolution to reduce the capital of the Company by way of a
reduction of capital paid up on the Cumulative Preference Shares, to vary or
abrogate any of the rights attaching to the Cumulative Preference Shares,
including any resolution for the creation or issuance of any class or series of
shares ranking prior to or on a parity with the Cumulative Preference Shares
with respect to dividends or the distribution of assets on a winding-up or
liquidation of the Company, (b) any resolution proposing the liquidation,
winding-up or reorganization of the Company, or the sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Company or the
consolidation or merger of the Company with or into one or more corporations or
other entities, (c) any resolution to sell, assign, convey, lease, transfer or
otherwise dispose of assets or property of the Company if the value of such
disposed assets of property is more that $25 million (other than in the case of
any such disposition by the Company or any Restricted Subsidiary to any
Restricted Subsidiary or by any Restricted Subsidiary to the Company), (d) any
resolution to sell, assign, convey, or transfer, or otherwise dispose of the
capital stock of any of the Significant Subsidiaries (as defined in the
Indentures) if the value of such capital stock is more than $10 million (other
than in the case of any such disposition by the Company or any Restricted
Subsidiary to any Restricted Subsidiary or by any Restricted Subsidiary to the
Company), (e) any resolution or resolutions proposing to incur senior bank
indebtedness or unsubordinated indebtedness which alone or in aggregate amount
to $125 million or more, (f) any resolution proposing the declaration of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary, or (g) any resolution proposing to materially alter the stated
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maturity of the senior unsubordinated debt outstanding under the Indentures or
the terms of the restrictive covenants of the Indentures.
SALE OR TRANSFER OF SERIES A CUMULATIVE PREFERENCE SHARES. If the holders
of the Series A Cumulative Preference Shares cease to hold at least 30% of the
Company's Cumulative Preference Shares (including Series B Cumulative Preference
Shares), and at least 30% of the sum of the outstanding Preference Warrants and
the shares of Common Stock issued upon exercise of any Preference Warrants, the
rights of the holders of the Series A Cumulative Preference Shares set forth
under "--Board Representation" and "--Board Approval Required for Certain
Matters" will terminate forever.
In exercising the voting rights, each share of Cumulative Preference Shares
shall have one vote per share, except that when any other series of Preference
Shares shall have the right to vote with the Cumulative Preference Shares as a
single class on any matter, the Cumulative Preference Shares and such other
series shall have with respect to such matters one vote per $1,000 of stated
liquidation preference. Except as otherwise required by applicable law or as set
forth herein, the shares of Cumulative Preference Shares shall not have any
relative, participating, optional or other special voting rights and powers and
the consent of the holders thereof shall not be required for the taking of any
corporate action.
If the holders of the Series A Cumulative Preference Shares sell, transfer,
pledge, dispose or encumber in any manner any Series A Cumulative Preference
Shares, such Series A Cumulative Preference Shares will be automatically
converted on a share-for-share basis into Series B Cumulative Preference Shares.
The Series B Cumulative Preference Shares shall have substantially identical
rights and preferences as the Series A Cumulative Preference Shares, except that
the Series B Cumulative Preference Shares will not have any of the rights to
appoint directors or require board approval for certain matters.
HOLDERS OF CUMULATIVE PREFERENCE SHARES, INCLUDING HOLDERS OF THE SERIES B
CUMULATIVE PREFERENCE SHARES, IF ANY, HAVE THE RIGHT TO ELECT TWO ADDITIONAL
DIRECTORS TO THE COMPANY'S BOARD OF DIRECTORS UNDER CERTAIN CIRCUMSTANCES. The
Certificate of Designation provides that if the Company fails to fulfill any
mandatory or optional redemption obligation with respect to the Cumulative
Preference Shares, including any Series B Cumulative Preference Shares, the
number of directors constituting the Board of Directors will be increased by two
directors, and the holder of Cumulative Preference Shares and Series B
Cumulative Preference Shares, if any, voting as a class, shall be entitled to
elect the additional two directors to the expanded Board of Directors. Such
right will continue until such time as the Company has cured the deficiency
described above. Any vacancy occurring in the office of a director elected by
holders of the Cumulative Preference Shares may be filled by the remaining
director elected by such holders unless and until such vacancy shall be filled
by such holders.
CERTAIN COVENANTS
REGISTRATION RIGHTS. The Company has agreed with Morgan Grenfell Private
Equity Ltd. ("MGPE"), for the benefit of the holders of the Cumulative
Preference Shares that the Company will, at its cost, use its best efforts to
have declared effective, by July 7, 1999, a shelf registration statement with
respect to resales of any Cumulative Preference Shares. The Company will use
reasonable efforts to keep such registration statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act with respect to all holders of Cumulative Preference Shares. The Company
will be permitted to suspend the availability of the shelf registration
statement for a period not to exceed 60 days in any 360-day period or two
periods not to exceed an aggregate of 90 days in any 360-day period if the Board
of Directors determines that such suspension would be in the best interests of
the Company. In lieu of paying dividends at the annual rate of 12% referenced
above, dividends will accrue on the Cumulative Preference Shares at an annual
rate of 13% of the Accreted Liquidation Preference per share if such shelf
registration statement is not effective within the time period set forth above
or is unavailable for periods in excess of those permitted above until such
effectiveness or availability. A holder who sells Cumulative Preference Shares
pursuant to the shelf registration statement generally will be required to give
the Company notice in
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advance of such sale, be named as a selling stockholder in the related
prospectus, deliver a prospectus to purchasers and be bound by those provisions
of the Preference Registration Rights Agreement which are applicable to such
holder (including indemnification provisions). The Company will pay all expenses
of the registration statement, provide to each registered holder copies of such
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the Cumulative Preference
Shares.
PRE-EMPTIVE RIGHTS. The holders of the warrants, which were initially sold
in conjunction with the sale of the Cumulative Preference Shares (the
"Preference Warrants"), have the right of first refusal to purchase, at the same
per share price and on the same terms and conditions, a pro rata share of
certain securities which may be issued by @Entertainment in the future.
REPORTS. The Company shall provide to MGPE, and to any other holder of the
Cumulative Preference Shares from whom it receives a written request, the same
information (including financial statements) that is contained in reports and
other information which the Company is required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company shall supply the Transfer Agent, MGPE and each
holder of Cumulative Preference Shares from whom it receives a written request,
or shall supply to the Transfer Agent for forwarding to each such holder,
without cost to such holder, copies of such reports or other information.
TRANSFER AGENT AND REGISTRAR
Bankers Trust Company is the transfer agent and registrar (the "Transfer
Agent") for the Cumulative Preference Shares.
BLANK CHECK PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue additional 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 additional 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
additional 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.
CERTAIN ADDITIONAL VOTING PROVISIONS
Stockholders' rights and related matters are governed by the Delaware
General Corporation Law ("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.
Article VIII of the Certificate contains provisions (the "Fair Price
Provisions") which require the approval (an "Unaffiliated 66 2/3% Vote") of the
holders of 66 2/3% of those shares that are not beneficially owned or controlled
by a stockholder who owns directly or indirectly 10% or more of the outstanding
voting shares of @Entertainment (a "Related Person") as a condition to specified
business combinations (the "Business Combinations") with or proposed by any
Related Person, except where the transaction (i) has been approved by two-thirds
of the directors who are not affiliated with the Related Person (the "Continuing
Directors") or (ii) meets certain minimum price criteria and procedural
conditions. The term Related Person is defined to exclude (i) @Entertainment or
any subsidiary or any other ownership interest which is directly or indirectly
owned by @Entertainment; (ii) any person whose acquisition of stock was
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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 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
43
<PAGE>
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.
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 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
44
<PAGE>
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).
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company for
each of the years in the five-year period ended December 31, 1998. The selected
consolidated financial data set forth below have been derived from the
consolidated financial statements of the Company and the notes thereto prepared
in conformity with generally accepted accounting principles as applied in the
United States, which have been audited by the Company's independent public
accountants (the "Consolidated Financial Statements"). The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. $ 8,776 $ 18,557 $ 24,923 $ 38,138 $ 61,859
Operating expenses:
Direct operating expenses............................... (2,119) (5,129) (7,193) (14,621) (61,874)
Selling, general and administrative
expenses (1).......................................... (2,818) (4,684) (9,289) (49,893) (74,494)
Depreciation and amortization........................... (3,459) (5,199) (9,788) (16,294) (26,304)
--------- --------- --------- ---------- ----------
Operating income/(loss)................................... 380 3,545 (1,347) (42,670) (100,813)
Interest and investment income............................ 78 174 1,274 5,754 3,355
Interest expense.......................................... (2,327) (4,373) (4,687) (13,902) (21,957)
Equity in losses of affiliated companies.................. -- -- -- (368) (6,310)
Foreign exchange loss, net................................ (27) (17) (761) (1,027) (130)
Loss before income taxes,
minority interest and extraordinary item.............. (1,896) (671) (5,521) (52,213) (125,855)
Income tax (expense)/ benefit............................. (803) (600) (1,273) 975 (210)
Minority interest......................................... 316 (18) 1,890 (3,586) --
--------- --------- --------- ---------- ----------
Loss before extraordinary item............................ (2,383) (1,289) (4,904) (54,824) (126,065)
Extraordinary item--loss on early extinguishment of debt
(2)..................................................... -- -- (1,713) -- --
--------- --------- --------- ---------- ----------
Net loss................................................ (2,383) (1,289) (6,617) (54,824) (126,065)
Accretion of redeemable preferred stock................... -- -- (2,870) (2,436) --
Preferred stock dividend.................................. (1,811) -- (1,738) -- --
(Excess)/deficit of carrying value of preferred stock
(over)/ under consideration paid(3)..................... -- -- 3,549 (33,806) --
--------- --------- --------- ---------- ----------
Net loss applicable to holders of common stock............ $ (4,194) $ (1,289) $ (7,676) $ (91,066) $ (126,065)
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Basic and diluted loss per common share................... $ (0.31) $ (0.10) $ (0.44) $ (3.68) $ (3.78)
--------- --------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents..................................... $ 2,493 $ 2,343 $ 68,483 $ 105,691 $ 13,055
Property, plant and equipment, net............................ 33,235 52,320 84,833 117,579 213,054
Total assets.................................................. 47,376 68,058 217,537 307,096 348,874
Total notes payable........................................... 35,988 59,405 130,074 130,110 263,954
Redeemable preferred stock.................................... -- -- 34,955 -- --
Total stockholders' equity.................................... 1,479 190 31,048 152,355 33,656
</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
45
<PAGE>
Financial Condition and Results of Operations" and note 15 to the
Consolidated Financial Statements.
(2) See Note 11 to the Consolidated Financial Statements.
(3) Represents the amount paid to preferred stockholders in excess of or less
than the carrying value of such shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Until the limited launch of the Company's D-DTH business on July 1, 1998 and
subsequent full-scale launch on September 18, 1998, the Company's revenues were
derived entirely from its cable television business and programming related
thereto. The Company's revenue increased 62.5% from $38.1 million in the year
ended December 31, 1997 to $61.9 million in the year ended December 31, 1998.
This increase was due primarily to internal growth in subscribers through
increased penetration and new network expansion, increases in cable subscription
rates, the launch of the Wizja TV programming package and advertising sales.
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 operation of its D-DTH business and Wizja TV.
The Company generated an operating loss of $100.8 million for the year ended
December 31, 1998, primarily due to the significant costs associated with the
development and launch of the Company's D-DTH and programming businesses,
promotion of those businesses, and the development, production and acquisition
of programming for Wizja TV.
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 and D-DTH programming platform, 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.
SEGMENT RESULTS OF OPERATIONS
The Company classifies its business into three fundamental areas: (1) cable
television, (2) digital direct-to-home television and programming, and (3)
corporate and other. Information about the operations of the Company in these
different business segments is set forth below based on the nature of the
services offered.
The following table presents the segment results of the Company's operations
for the years ended December 31, 1998, 1997 and 1996. In addition to other
operating statistics, the Company measures its financial performance by EBITDA,
an acronym for earnings before interest, taxes, depreciation and amortization.
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), gains and losses from the sale of assets other than in a normal
course of business and minority interest. The items excluded from EBITDA are
significant components in understanding and
46
<PAGE>
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
media 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 cash flows from
operations as a measure of liquidity.
SEGMENT RESULTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
REVENUES OPERATING LOSS EBITDA
------------------------------- --------------------------------- ---------
YEAR ENDED DECEMBER 31, 1998 1997 1996 1998 1997(3) 1996 1998
- ------------------------------------------------ --------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cable(1)........................................ 52,971 38,138 24,923 (23,066) (20,308) (1,347) (1,431)
D-DTH and Programming........................... 22,320 -- -- (69,047) (10,210) -- (64,378)
Corporate and Other............................. -- -- -- (8,700) (12,152) -- (8,700)
Inter Segment Elimination(2).................... (13,432) -- -- -- -- -- --
--------- --------- --------- --------- ----------- --------- ---------
Total........................................... 61,859 38,138 24,923 (100,813) (42,670) (1,347) (74,509)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- ------------------------------------------------ --------- ---------
<S> <C> <C>
Cable(1)........................................ 5,387 8,441
D-DTH and Programming........................... (10,186) --
Corporate and Other............................. (3,475) --
Inter Segment Elimination(2).................... -- --
--------- ---------
Total........................................... (8,274) 8,441
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) In 1997, the cable segment included the activities of Mozaic Entertainment,
Inc., a subsidiary which provided programming content for the cable
business. In 1998, the Company's programming activities related solely to
the developement of the Wizja TV platform and have been included solely in
the D-DTH and Programming segment. For the year ended December 31, 1997,
Mozaic Entertainment, Inc. revenues, operating loss and EBITDA were
$563,000, $2,071,000 and $(2,071,000), respectively. For the year ended
December 31, 1998, Mozaic Entertainment, Inc. was dormant.
(2) Includes $12,932,000 of Wizja TV programming fees charged to the cable
segment by the D-DTH and programming segment in 1998.
(3) The year ended December 31, 1997 included a nonrecurring non-cash
compensation expense charge relating to the granting of certain management
stock options of $9,425,000, in the cable segment and $8,677,000 in the
corporate and other segment.
Unless otherwise indicated, the separate business discussions that follow
provide comparisons of actual 1998 results with the actual results for 1997.
CABLE SEGMENT OVERVIEW
The Company's revenues in its cable segment have been and will continue to
be derived primarily 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 packages and for other services, such as premium channels,
tuner rentals and additional outlets, all of which are included in monthly
subscription fees. Through its cable segment, the Company currently offers
broadcast, intermediate (in limited areas) and basic packages of cable service.
At December 31, 1998, approximately 74.7% of the Company's cable subscribers
received its basic package. For the year ended December 31, 1998, approximately
89% of the Company's cable revenue was derived from monthly subscription fees.
Revenue from installation fees is deferred to the extent it exceeds direct
selling costs and the amortized to income over the estimated average period that
new subscribers are expected to remain connected to the Company's cable system.
When the Company began operations in 1990, revenue from installation fees
exceeded revenue from monthly subscription fees because of the significant
number of new installations and the high amount of the installation fees
relative to the small existing subscriber base. As the Company's cable
subscriber base has grown, aggregate monthly subscription revenue has increased
and installation fees, while currently increasing on an absolute basis, have
declined as a percentage of total revenue. The Company expects that installation
fees will continue to constitute a declining portion of the Company's revenue.
47
<PAGE>
During 1998, management completed several strategic actions in support of
its cable business and operating strategy. On June 5, 1998, the Company began
providing the Wizja TV programming package, with its initial 11 channel
primarily Polish-language programming, to its basic cable subscribers. Since
that date, the basic Wizja TV package has been expanded to 19 channels.
Management believes that this selection of high quality primarily
Polish-language programming will provide it with a significant competitive
advantage in increasing its cable subscriber penetration rates.
The Company has implemented a pricing strategy designed to increase revenue
per cable subscriber and to achieve real profit margin increases in U.S. dollar
terms. The Company has increased the monthly price for the "basic" package
service to reflect the increased channel availability, and premium channels such
as Wizja 1 (which is owned by the Company) and HBO Poland service (a
Polish-language premium movie channel owned in part by Home Box Office) are each
offered to cable customers for an additional monthly charge. 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. For the year
ended December 31, 1998, the Company's churn rate increased to 15.25%. For the
year ended December 31, 1998, the Company experienced churn in premium services
with penetration falling by 8,494 subscribers or 18.8% from December 31, 1997.
The Company is planning to encrypt the HBO Poland service on cable and install
analog decoders for all premium channel subscribers during 1999.
The cable segment generated operating losses of $1.3 million for 1996, $20.3
million for 1997 and $23.1 million for 1998, primarily due to the purchase of
Wizja TV programming in 1998 from the Company's D-DTH and programming segment
for $12.9 million increased levels of acquisitions and related costs, increases
in depreciation and amortization due to the growth in cable systems and goodwill
from acquisitions. In addition, for the year ended December 31, 1997 the Company
recorded a one-time charge in the cable segment for non-cash compensation
related to stock options of $9.4 million.
An analysis of cable subscriber growth is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Homes passed.......................................................... 1,591,981 1,408,099 1,088,540
Basic subscribers..................................................... 698,342 606,630 437,999
Subscriber growth
Organic........................................................... 196,714 135,019 98,213
Through acquisitions.............................................. 7,478 110,919 108,657
Churn............................................................. (112,480)(1) (77,307)(1) (25,747)
------------ ------------ ------------
Total net growth.................................................. 91,712 168,631 181,123
------------ ------------ ------------
Basic penetration..................................................... 43.9% 43.1% 40.2%
Intermediate subscribers.............................................. 40,037 29,653 22,626
------------ ------------ ------------
Basic and intermediate subscribers.................................... 738,379 636,283 460,625
------------ ------------ ------------
Broadcast subscribers................................................. 196,961 132,618 78,717
------------ ------------ ------------
Total Subscribers..................................................... 935,340 768,901 539,342
------------ ------------ ------------
Premium subscribers--HBO.............................................. 36,615 45,109 --
Premium penetration--HBO.............................................. 5.2% 7.4% 0.0%
Basic revenue / basic subscribers/month............................... $ 5.69 $ 4.99 $ 4.36
Total revenue/ basic subscribers/month................................ $ 6.75 $ 6.08 $ 6.35
</TABLE>
- ------------------------
(1) The increases in churn were mainly due to: increases in subscription rates
and the disconnection of non-paying customers.
48
<PAGE>
D-DTH AND PROGRAMMING SEGMENT OVERVIEW
D-DTH. The principal objectives of the Company for the D-DTH and
programming segment is to develop, acquire and distribute high-quality
Polish-language programming that can be commercially exploited throughout Poland
through D-DTH and cable television exhibition, and to develop and maximize
advertising sales.
The Company's D-DTH roll-out strategy is to lease D-DTH Reception Systems to
up to 380,000 initial subscribers at promotional prices in the start-up phase of
its D-DTH service. The launch of its D-DTH service has been supported by the
Company's development of the Wizja TV programming package, which the Company
believes addresses the demand for high-quality Polish-language programming in
Poland.
As of December 31, 1998, the Company had sold to Philips' authorized
retailers approximately 125,000 D-DTH packages, which include the rental of the
D-DTH reception system, installation and a one-year subscription to the
Company's D-DTH service. As of December 31, 1998, Philips had sold and installed
approximately 95,400 of these packages to consumers. In September 1998, the
number of Philips authorized electronics retailers distributing the Wizja TV
package increased from 70 to 550, and since November more than 1,200 retailers
have been distributing the Wizja TV package. Each store is staffed with
personnel specifically trained by the Company to provide information on the
Wizja TV packages. Installation personnel are also trained to complete each
customer's installation within 48 hours of order placement.
PROGRAMMING. 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. To promote the launch of Wizja TV, the Company has substantially
completed a $20 million nationwide marketing campaign which the Company believes
is the largest single-year product launch expenditure to date in Poland. Wizja
TV's current channel line-up includes four channels, Atomic TV, Wizja 1, Wizja
Pogoda and Twoja Wizja, that are owned and operated by the Company, and 15
channels that are produced by third parties, nine of which are broadcast under
exclusive agreements for pay television in Poland.
The Company currently distributes Atomic TV and intends to distribute the
Wizja TV programming package to third party cable operators in Poland on a
per-subscriber fee basis. The Company exchanged letters and continue
negotiations with two major cable associations in Poland, representing an
aggregate of approximately 2.6 million subscribers (including the Company's
cable subscribers), with the objective of making the Wizja TV programming
package available for distribution within the cable networks of other providers
which are members of the associations.
The Company expects to incur substantial operating losses and negative 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 subscriber base. To date, the
Company has relied primarily on funds raised in its initial public equity
offering in August 1997, its 14 1/2% Senior Discount Notes offering in July
1998, its Series C Senior Discount Notes offering in January 1999, its 14 1/2%
Senior Discount Notes offering in January 1999, and its Cumulative Preference
Shares offering in January 1999 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 D-DTH business. The Company's business plan anticipates
spending up to approximately $150 million to provide D-DTH reception systems to
the 380,000 initial subscribers at a price that is significantly decreased by
promotional incentives in order to increase the number of subscribers.
49
<PAGE>
An analysis of D-DTH subscribers is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
D-DTH 1998
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Boxes sold to dealers............................................................................... 125,167
Installed subscribers............................................................................... 95,378
Churn............................................................................................... --
Total Subscribers................................................................................... 95,378
Premium subscribers--HBO--promotional (1)........................................................... 76,633
Premium subscribers--HBO--paying.................................................................... 15,555
HBO churn (2)....................................................................................... 3,190
HBO churn (2)....................................................................................... 20.5%
</TABLE>
(1) The Company currently offers a three-month trial period of the HBO Poland
service to each new D-DTH subscriber.
(2) The churn figures relate only to paying subscribers.
1998 COMPARED TO 1997
CABLE SEGMENT
CABLE TELEVISION REVENUE. Revenue increased $14.9 million or 39.1% from
$38.1 million in the year ended December 31, 1997 to $53.0 million in the year
ended December 31, 1998. This increase was primarily attributable to a 16%
increase in the number of basic and intermediate subscribers from approximately
636,300 at December 31, 1997 to approximately 738,000 at December 31, 1998, as
well as an increase in monthly subscription rates. The Company introduced the
Wizja TV programming package on its cable systems for basic subscribers on June
5, 1998, and after an initial free period, increased prices significantly in
September 1998. Approximately 91.85% of the increase in basic subscribers was
the result of build-out of the Company's existing cable networks and the
remainder was due to acquisitions.
Revenue from monthly subscription fees represented 84.0% of cable television
revenue for the year ended December 31, 1997 and 88.9% for the year ended
December 31, 1998. During the year ended December 31, 1998, the Company
generated approximately $3.1 million of additional premium subscription revenue
as a result of providing the HBO Poland service and Canal+ premium movie
channels to cable subscribers as compared to $1.0 million for the year ended
December 31, 1997.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $23.0
million, or 194.9 %, from $11.8 million for the year ended December 31, 1997 to
$34.8 million for the year ended December 31, 1998, principally as a result of
the purchase in 1998 of the Wizja TV programming package from the Company's
D-DTH and programming segment, higher levels of technical personnel and
increased maintenance expenses associated with recently acquired networks as
well as the increased size of the Company's cable television system. Direct
operating expenses increased from 31.0% of revenues for the year ended December
31, 1997 to 65.7% of revenues for the year ended December 31, 1998. However,
without considering the intersegment charge for the Wizja TV programming
package, direct operating expenses as a percentage of revenue would have been
41.0% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $10.7 million or 35.3% from $30.3 million for
the year ended December 31, 1997 to $19.6 million for the year ended December
31, 1998. A portion of this decrease was attributable to non-recurring, non-cash
compensation expense of approximately $9.4 million recorded in the year ended
December 31, 1997 in connection with stock options granted to certain key
executives. Selling, general and administrative expenses decreased from 79.5% of
revenues for the year ended December 31, 1997 to 37% for the year ended December
31, 1998. However, without considering the non-cash compensation expense related
to the stock options described above, selling, general and administrative
expenses as percentage of revenues
50
<PAGE>
would have been 54.9% in 1997. This percentage decrease was attributable to
operating efficiencies realized by the Company in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$5.3 million, or 32.5%, from $16.3 million for the year ended December 31, 1997
to $21.6 million for the year ended December 31, 1998 principally as a result of
depreciation and amortization of additional cable television systems and related
goodwill acquired and the continued build-out of the Company's cable networks.
Depreciation and amortization expense as a percentage of revenues decreased from
42.8% for the year ended December 31, 1997 to 40.8% for the year ended December
31, 1998.
Each of these factors contributed to an operating loss of $20.3 million for
the year ended December 31, 1997 and $23.1 million for the year ended December
31, 1998.
D-DTH AND PROGRAMMING SEGMENT
D-DTH AND PROGRAMMING REVENUE. D-DTH and programming revenue amounted to
$22.3 million for the year ended December 31, 1998. Revenue from the supply of
the Wizja TV programming package to the Company's cable systems, which
eliminates on consolidation, represented $12.9 million or 57.8% of D-DTH revenue
for the year ended December 31, 1998.
Since the Company only commenced the broadcast of its Wizja TV programming
package over its cable systems on June 5, 1998 and through its D-DTH service in
July 1998, there were no revenues related to this segment in 1997.
Revenue from subscription fees, after elimination of revenue from the cable
segment represented 88.6% of D-DTH revenue for the year ended December 31, 1998.
Advertising and other revenue for the year ended December 31, 1998 represented
11.3% of D-DTH revenue after elimination of inter-segment revenues.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $37.6
million, from $2.8 million for the year ended December 31, 1997 to $40.4 million
for the year ended December 31, 1998. These costs principally were the result of
the following: programming costs for the Wizja TV platform of $22.6 million,
expenses associated with the establishment of a satellite up-link and studio
facility located in Maidstone, U.K., the $4.1 million in costs for the
development of the Wizja TV brand name, 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 and D-DTH
customers in Poland. Direct operating expenses amounted to 181.2% of revenues
for the year ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $38.9 million or 525.7% from $7.4 million for
the year ended December 31, 1997 to $46.3 million for the year ended December
31, 1998. As a percentage of revenue, selling, general and administrative
expenses amounted to approximately 207.6% for the year ended December 31, 1998.
The increase in selling, general and administrative expenses was attributable
mainly to an increase in sales and marketing expenses incurred in preparation
for launch and operation of the Company's D-DTH service and Wizja TV programming
package, installation and distribution costs associated with the sale of Wizja
TV programming packages an increase in the number of administrative staff
associated with the Maidstone facility, a $5 million payment to Philips to
compensate it for costs incurred as a result of a temporary suspension of
production of the D-DTH reception systems, as well as an increase in
professional fees associated with obtaining long-term programming contracts and
broadcast/exhibition rights, and negotiations with TKP, a Polish pay television
provider, regarding a potential joint venture.
DEPRECIATION AND AMORTIZATION. The Company incurred $4.7 million in
depreciation and amortization for the year ended December 31, 1998. Depreciation
and amortization expense as a percentage of revenues amounted to 21.1% for the
year ended December 31, 1998.
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Each of these factors contributed to an operating loss of $69.1 million for
the year ended December 31, 1998 compared to an operating loss of $10.2 million
for the year ended December 31, 1997.
CORPORATE AND OTHER SEGMENT
Corporate and other consists of corporate overhead costs which primarily
include remuneration of corporate employees, costs associated with operation of
the Company's corporate officers, consulting fees and certain legal costs.
Corporate expenses amounted to $8.7 million for the year ended December 31, 1998
compared with $12.2 million for the year ended December 31, 1997. Included in
1997 costs is an $8.7 million non-cash compensation expense relating to stock
options granted to certain key executives.
NON OPERATING RESULTS
INTEREST EXPENSE. Interest expense increased $8.1 million, or 58.3%, from
$13.9 million for the year ended December 31, 1997 to $22.0 million for the year
ended December 31, 1998 mainly as a result of the accretion of interest on the
$252 million aggregate principal amount at maturity of the Company's 14 1/2%
Senior Discount Notes due 2008, which were issued on July 14, 1998.
INTEREST AND INVESTMENT INCOME. Interest and investment income decreased
$2.4 million, or 41.4%, from $5.8 million for the year ended December 31, 1997
to $3.4 million for the year ended December 31, 1998, primarily due to reduction
of cash balances resulting from the increased payments and expenses described
above and decrease in interest rates.
EQUITY IN LOSSES OF AFFILIATED COMPANIES. The Company recorded $6.3 million
of equity in losses of affiliated companies for the year ended December 31,
1998. The amount relates to the equity accounting of the Company's 50%
investment in Twoj Styl, a publishing company, and its 20% investment in Fox
Kids Poland Ltd., a channel content provider.
FOREIGN EXCHANGE LOSS, NET. For the year ended December 31, 1998 foreign
exchange loss amounted to $0.1 million. For the year ended December 31, 1997
foreign exchange loss amounted to $1.0 million.
MINORITY INTEREST. No minority interest was recorded for the year ended
December 31, 1998, compared to minority interest expense of $3.6 million for the
corresponding period in 1997. The 1997 expense represents a fourth quarter
adjustment to write-off certain receivable balances that were not recoverable.
All minority interests were eliminated in 1998 as the minority interest share of
the losses exceeded the value of the minority interest investments.
NET LOSS. For the years ended December 31, 1997 and 1998, the Company had
net losses of $54.9 million and $126.1 million, respectively. These losses were
the result of the factors discussed above.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased from a loss of $91.1 million for the year ended December
31, 1997 to a loss of $126.1 million for the year ended December 31, 1998 due to
the factors discussed above. For the year ended December 31, 1997, net loss
applicable to common stockholders included the excess of consideration paid for
preferred stock over the carrying amount of such stock of $33.8 million and $2.4
million related to the accretion of redeemable preferred stock.
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1997 COMPARED TO 1996
CABLE SEGMENT
CABLE TELEVISION REVENUE. Revenue increased $13.2 million or 53.0% from
$24.9 million in the year ended December 31, 1996 to $38.1 million in the year
ended December 31, 1997. This increase was primarily attributable to a 45.2%
increase in the number of basic and intermediate subscribers from approximately
460,000 at December 31, 1996 to approximately 636,000 at December 31, 1997, as
well as an increase in monthly subscription rates. Approximately 69.3% of the
increase in basic subscribers was the result of acquisitions and the reminder
was due to expansion of the Company's existing cable networks.
Revenue from monthly subscription fees represented 87.2% of cable television
revenue for the year ended December 31, 1996 and 90.1% of cable television
revenue in 1997. Installation fee revenue for the year ended December 31, 1997
decreased by 6.3% compared to the year ended December 31, 1996, from $3.2
million to $3.0 million. During the year ended December 31, 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 Poland service pay movie channel to cable
subscribers.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $4.6
million, or 63.9%, from $7.2 million in 1996 to $11.8 million in 1997,
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks as well as the
increased size of the Company's cable television system. Direct operating
expenses increased from 28.9% of revenues for the year ended December 31, 1996
to 30.9% of revenues for the year ended December 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $21.0 million or 225.8% from $9.3 million for
the year ended December 31, 1996 to $30.3 million for the year ended December
31, 1997. A portion of this increase was attributable to non-recurring, non-cash
compensation expense of $9.4 million recorded in the year ended December 31,
1997 in related with stock options 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, and the cost of launching the
distribution of the HBO Poland service premium pay movie channel. Compensation
expense also increased as the Company established in 1997 a management team of
senior executives who have significant experience in the cable television and
programming business.
As a percentage of revenue, selling, general and administrative expenses
increased from 37.3% for 1996 to approximately 79.5% 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 54.8% in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$6.5 million, or 66.3%, from $9.8 million for the year ended December 31, 1996
to $16.3 million for the year ended December 31, 1997 principally as a result of
depreciation and amortization of additional cable television systems and the
continued build-out of the Company's cable networks. Depreciation and
amortization expense as a percentage of revenues increased from 39.3% for the
year ended December 31, 1996 to 42.7% for the year ended December 31, 1997.
Each of these factors contributed to an operating loss of $1.3 million and
$20.3 million for the years ended December 31, 1996 and 1997, respectively.
D-DTH AND PROGRAMMING SEGMENT
D-DTH AND PROGRAMMING REVENUE. The Company generated no D-DTH and
programming revenue for the years ended December 31, 1997 and 1996 since the
Company only commenced the broadcast of its
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Wizja TV programming package over its cable systems on June 5, 1998 and through
its D-DTH service in July 1998.
DIRECT OPERATING EXPENSES. The D-DTH and programming segment incurred
direct operating expenses of approximately $2.8 million for the year ended
December 31, 1997. There were no direct operating expenses related to this
segment in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The D-DTH and programming
segment incurred selling, general and administrative expenses of approximately
$7.4 million for the year ended December 31, 1997. There were no selling,
general and administrative expenses related to this segment in 1996.
DEPRECIATION AND AMORTIZATION. The D-DTH and programming segment incurred
$24,000 of depreciation and amortization charges of D-DTH tangible assets in the
year ended December 31, 1997. There was no depreciation and amortization expense
related to this segment in 1996.
Each of these factors contributed to an operating loss which amounted to
$10.2 million for the year ended December 31, 1997. There was neither operating
loss nor gain related to this segment in 1996.
CORPORATE AND OTHER SEGMENT
Corporate and other consists of corporate overhead costs. Corporate expenses
for the year ended December 31, 1997 amounted to $12.2 million which included
$8.7 million of non-cash compensation expense relating to stock options granted
to certain key executives.
NON OPERATING RESULTS
INTEREST EXPENSE. Interest expense increased $9.2 million, or 195.7%, from
$4.7 million for the year ended December 31, 1996 to $13.9 million for the year
ended December 31, 1997 mainly due to the inclusion of a full year's interest on
the Poland Communications, Inc. 9 7/8% Senior Notes due 2003 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 for the year ended December 31, 1996
to $5.8 million for the year ended December 31, 1997, primarily due to the
income derived from the investment of a portion of the net proceeds from the
issuance the Poland Communications, Inc. 9 7/8% Senior Notes in October 1996 and
the Company's initial public equity offering in August 1997.
FOREIGN EXCHANGE LOSS, NET. For the year ended December 31, 1997 foreign
exchange loss amounted to $1.0 million compared to a foreign exchange loss of
$761,000 for the year ended December 31, 1996, primarily due to less favorable
exchange rate fluctuations.
MINORITY INTEREST. Minority interest in subsidiary loss was $3.6 million
for the year ended December 31, 1997, resulting from a fourth quarter adjustment
to write off certain receivable balances that were not recoverable, compared to
minority interest in subsidiary income of $1.9 million for the corresponding
period in 1996.
EXTRAORDINARY ITEM. During 1996 the Company prepaid a loan from Overseas
Private Investment Corporation ("OPIC"), resulting in an extraordinary loss of
$1.7 million, consisting of a prepayment penalty of $147,000 and non-cash charge
of $1,566,000 to write off deferred financing costs.
NET LOSS. For the year ended December 31, 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.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased from a loss of $7.7 million for the year ended December
31, 1996 to a loss of $91.1 million for the year ended December 31, 1997 due to
the excess of consideration paid for preferred stock over the carrying amount of
such stock of $33.8 million and the factors discussed above. For the year ended
December 31,
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1997, net loss applicable to common stockholders included $2.4 million related
to the accretion of redeemable preferred stock.
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 Company's principal
stockholders, (ii) borrowings under available credit facilities, (iii) cash
flows from operations, (iv) the sale of $130 million aggregate principal amount
of 9 7/8% Senior Notes due 2003 issued by Poland Communications, Inc. ("PCI"),
the Company's primary cable operator, (v) the sale of approximately $200 million
of common stock through the Company's initial public equity offering in August
1997, (vi) the sale in July 1998 of $252 million aggregate principal amount at
the maturity of the 14 1/2% Senior Discount Notes due 2008 with gross proceeds
of approximately $125 million, (vii) the sale of $36,001,321 principal amount at
maturity of its Series C Discount Notes in January 1999 with gross proceeds of
$9.8 million, (viii) the sale in January 1999 of $256.8 million principal amount
at maturity of its 14 1/2% Senior Discount Notes due 2009 with gross proceeds of
$100.0 million, and (ix) the sale of the Series A 12% Cumulative Preference
Shares, the Series B 12% Cumulative Preference Shares and Warrants in January
1999 with gross proceeds of $50.0 million.
FINANCING. During 1996, PCI issued common and preferred stock to certain
principal stockholders for approximately $82 million. On March 29, 1996, PCI
consummated a transaction in which ECO Holdings III Limited Partnership
purchased shares of common and preferred stock of PCI for a price of $65
million. On March 29, 1996, Polish Investment Holdings L.P. 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 American Bank in Poland S.A.
("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 are repayable on
August 20, 1999.
On October 31, 1996, $130 million aggregate principal amount of 9 7/8%
Senior Notes were sold by PCI to initial purchasers pursuant to a purchase
agreement. The initial purchasers subsequently completed a private placement of
these notes. These notes were issued pursuant to an indenture.
Pursuant to the indenture governing the PCI Notes (the "PCI Indenture"), PCI
is subject to certain restrictions and covenants, including, without limitation,
covenants with respect to the following matters:
- limitation on additional indebtedness;
- limitation on restricted payments;
- limitation on issuances and sales of capital stock of subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation on guarantees of indebtedness by subsidiaries;
- purchase of the notes issued by PCI upon a change of control;
- limitation on sale of assets;
- limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- limitation on lines of business; and
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- consolidations, mergers, and sale of assets.
The Company is in compliance with these 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 Company as of December 31, 1998 because certain financial
ratios did not meet the minimums provided in the PCI Indenture. Pursuant to the
AmerBank credit facility, PCI is subject to certain informational and notice
requirements but is not subject to restrictive covenants.
In August 1997, @Entertainment raised approximately $200 million through its
initial public equity offering. @Entertainment used $60 million to purchase all
of PCI's outstanding Series A Preferred Stock and its Series C Preferred Stock
held by affiliates of the principal stockholders.
On July 14, 1998, $252 million principal amount at maturity of 14 1/2%
Senior Discount Notes due were sold by @Entertainment to initial purchasers
pursuant to a purchase agreement, with gross proceeds to the Company of
approximately $125 million. The initial purchasers subsequently completed a
private placement of the 14 1/2% Senior Discount Notes. The 14 1/2% Senior
Discount Notes were issued pursuant to an indenture.
On January 19, 1999 the Company sold $36,001,321 principal amount at
maturity of its Series C Senior Discount Notes due 2008 to an initial purchaser
pursuant to a purchase agreement for gross proceeds of approximately $9.8
million. The Series C Senior Discount Notes were issued pursuant to an
indenture.
On January 22, 1999 the Company also sold $256.8 million principal amount at
maturity of its 14 1/2% Senior Discount Notes due 2009 to initial purchasers
pursuant to a purchase agreement for gross proceeds of approximately $96.0
million. The 14 1/2% Senior Discount Notes were issued pursuant to an indenture.
Pursuant to the indentures governing the 14 1/2% Senior Discount Notes sold
on July 14, 1998 and the Series C Senior Discount Notes sold on January 19, 1999
and the 14 1/2% Senior Discount Notes sold on January 22, 1999, the Company is
subject to certain restrictions and covenants, including, without limitation,
covenants with respect to the following matters:
- limitation on indebtedness;
- limitation on restricted payments;
- limitation on issuances and sale of capital stock of restricted
subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation of guarantees of indebtedness by subsidiaries;
- purchase of the notes upon a change of control;
- limitation on sale of assets;
- limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- consolidations, mergers, and sale of assets; and
- limitation on lines of business.
The Company is in compliance with these covenants.
On January 22, 1999 the Company also sold Series A 12% Cumulative Preference
Shares, Series B 12% Cumulative Preference Shares and Warrants to Morgan
Grenfell Private Equity Ltd. and to certain members of the Chase Family, with
gross proceeds of approximately $48.2 million.
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On December 31, 1998, on a pro forma basis after giving effect to the
January 1999 offering of the 14 1/2% Senior Discount Notes and the Series C
Senior Discount Notes and the application of the net proceeds therefrom, the
Company would have had, on a consolidated basis, approximately $366 million
aggregate principal amount of indebtedness outstanding.
The Company had positive cash flows from operating activities in 1996 of
$6.1 million, primarily due to the increase of cash received from subscribers
and the deferral of the payment of interest expense.
The Company had negative cash flows from operating activities of $18.8
million for the year ended December 31, 1997 and $70.7 million for the year
ended December 31, 1998, primarily due to the significant operating costs
associated with the development and launch 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, purchase of D-DTH equipment including set top decoders, and the
purchase of other property, plant, and equipment was $42.5 million in 1997 and
$115.0 million in 1998. The increase primarily relates to the Company's
acquisition of additional cable networks and capital expenditures associated
with the expansion of its existing cable networks and the development of its
D-DTH service and Wizja TV programming platform. The Company spent $7.9 million
in the year ended December 31, 1997 and $72.4 million in the year ended December
31, 1998 to acquire D-DTH equipment.
On December 31, 1998, the Company was committed to pay at least $550.1
million in guaranteed payments (including but not limited to payments for D-DTH
reception systems and payments of guaranteed minimum amounts due under
programming agreements and satellite transponder leases) over the next nine
years of which at least approximately $238.0 million was committed through the
end of 2000.
Cash used for the acquisition of subsidiaries, net of cash received, was
$13.3 million in 1996, $18.0 million in 1997 and $27.0 million for the year
ended December 31, 1998. The Company spent approximately $3.9 million in 1996,
$5.9 million in 1997 and $8.1 million in the year ended December 31, 1998, to
upgrade major acquired networks to meet the Company's technical standards.
The Company intends to use:
- the net proceeds of its sale of the 14 1/2% Senior Discount Notes due
2009, which was approximately $96.0 million (after deducting offering
expenses and the initial purchasers' discount),
- the net proceeds of the sale of the Series A 12% Cumulative Preference
Shares, the Series B 12% cumulative Preference Shares and Warrants, which
was approximately $48.7 million (after deducting offering expenses and
commissions), and
- the net proceeds of the sale of the Series C Senior Discount Notes, which
was approximately $9.4 million (after deducting offering expenses and the
initial purchaser's discount)
for the following purposes:
- to fund capital expenditures, operating losses and working capital
primarily related to the development and operation of its D-DTH business,
and
- for general corporate purposes and certain other investments, including
the possible acquisition of cable television networks and certain minority
interests in subsidiaries which are held by unaffiliated third parties.
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 these three recent offerings may be
reallocated and some portion thereof may be used to fund participation in the
joint venture.
The Company believes that the net proceeds of these three recent offerings
and cash on hand will provide the Company with sufficient capital to fulfill its
current business plan and to fund these
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commitments until it achieves positive cash flow from operations. The Company
expects that it will require additional external funding for its business
development plan in years subsequent to 1999 if it continues to provide D-DTH
reception systems (other than the 380,000 initial subscribers) at the
promotional prices the Company is now charging in the start-up phase of its
D-DTH service. The Company will need to attract a substantial number of
additional subscribers beyond the 380,000 initial subscribers in order to repay
principal and interest on its outstanding notes. Future sources of financing for
the Company could include public or private debt or equity offerings or bank
financing or any combination thereof, subject to the restrictions contained in
the indentures governing the Company's senior indebtedness.
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 its recent offerings, 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 financing or refinancing 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.
YEAR 2000 COMPLIANCE
The Company's cable television, D-DTH and programming operations are
dependent upon computer systems and other technological devices with imbedded
microprocessor chips that are intended to utilize dates and process data beyond
December 31, 1999. In January 1997, the Company developed a plan to address the
impact that potential year 2000 problems may have on Company operations and to
implement necessary changes to address such problems. During the course of the
development of its Y2K plan, the Company has identified certain critical
operations, which need to be year 2000 compliant for the Company to operate
effectively. These critical operations include accounting and billing systems,
customer service and service delivery systems, and field and headend devices.
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 system and an agreement to purchase specialized billing
software for the Company's new customer service and billing center. The vendors
of new accounting system and of the billing software have confirmed to the
Company that these products are year 2000 compliant. The Company has completed
the testing phase of the new accounting system, and the implementation phase was
substantially completed at the end of 1998. The Company has implemented the new
billing software for D-DTH subscribers and expects implementation of the billing
software to be completed for the majority of its cable subscribers by the end of
1999.
The Company believes that its most significant Y2K risk is its dependency
upon third party programming, software, services and equipment, because the
Company does not have the ability to control third parties in their assessment
and remediation procedures for potential Y2K problems. Should these parties not
be prepared for Y2K conversion, their products or services may fail and may
cause interruptions in, or limitations upon, the Company's provision of the full
range of its D-DTH and/or cable service to its customers. In an effort to
prevent any such interruptions or limitations, the Company is in the process of
communicating with each of its material third party suppliers of programming,
software, services and equipment to determine the status of their Y2K compliance
programs. The Company expects to complete this process by September 30, 1999,
and it anticipates that all phases of its Y2K plan will be completed by December
31, 1999.
The Company has not yet developed a contingency plan to address the
situation that may result if the Company or its third party suppliers are unable
to achieve Y2K compliance with regard to any products or services utilized in
the Company's operations. The Company does not intend to decide on the
development of such a contingency until has gathered all of the relevant Y2K
compliance data from its third party suppliers.
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The Company has not yet determined the full cost of its Y2K plan and its
related impact on the financial condition of the Company. The Company has to
date not incurred any replacement and remediation costs for equipment or systems
as a result of Y2K non-compliance. Rather, due to the rapid growth and
development of its cable system and its D-DTH service, the Company had made
substantial capital investments in equipment and systems for reasons other than
year 2000 concerns. The total cost of the Company's new accounting system and
billing software package is estimated to be approximately $2,400,000.
The Company believes that any Y2K compliance issues it may face can be
remedied without a material financial impact on the Company, but no assurance
can be made in this regard until all of the data has been gathered from the
Company's third party suppliers. At this date the Company cannot predict the
financial impact on its operations if Y2K problems are caused by products or
services supplied to the Company by such third parties.
CURRENT OR ACCUMULATED EARNINGS AND PROFITS
For the fiscal year ended December 31, 1998, the Company had no current or
accumulated earnings and profits. Therefore, none of the interest which accreted
during the fiscal year ended December 31, 1998 with respect to the Company's
14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Discount Notes
due 20008, will be deemed to be a "Dividend Equivalent Portion" as such term is
defined in Section 163(e)(5)(B) of the Internal Revenue Code, as amended.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
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
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 does not affect the Company's financial position or
results of operations.
SFAS No. 131, "Disclosures about Segment of an Enterprise and Related
Information," established 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.
The Company (effective for the year ended December 31, 1998), has adopted
SFAS No. 131 "Disclosures About Segment of an Enterprise and Related
Information". Pursuant to the provisions of this statement, the Company has
reported information relating to operating segments within its annual financial
statements and will provide comparative interim financial information beginning
in 1999.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which establishes
standards of accounting for these transactions. SFAS No. 133 is effective for
the Company beginning on July 1, 1999. The Company currently has no derivative
instruments or hedging activities.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk (I.E.,the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is foreign
exchange rate risk from fluctuations in the Polish zloty currency exchange rate.
The Company's long term debt is primarily subject to a fixed rate, and therefore
variations in the interest rate do not have a material impact on net interest
expense.
FOREIGN EXCHANGE AND OTHER INTERNATIONAL MARKET RISKS
Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically affect
economic growth, inflation, interest rates, governmental actions and other
factors. These changes, if material, can cause the Company to adjust its
financing and operating strategies. The discussion of changes in currency
exchange rates below does not incoporate these other important economic factors.
International operations constitute 100% of the Company's 1998 consolidated
operating loss. Some of the Company's operating expenses and capital
expenditures are expected to continue to be denominated in or indexed in 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 it to use
a larger portion of its revenue to service its U.S. dollar denominated
obligations and contractual commitments.
The Company estimates that a 10% change in foreign exchange rates would
impact reported operating loss by approximately $3.7 million. In other terms a
10% depreciation of the Polish zloty and British pound against the U.S. dollar,
would result in a $3.7 million decrease in the reported operating loss. This was
estimated using 10% of the Company's operating loss after adjusting for unusual
impairment and other items including U.S. dollar denominated or indexed
expenses. The Company believes that this quantitative measure has inherent
limitations because, as discussed in the first paragraph of this section, it
does not take into account any governmental actions or changes in either
customer purchasing patterns or the Company's financing or operating strategies.
The Company does not generally hedge translation risk. While the Company may
consider entering into transactions to hedge the risk of exchange rate
fluctuations, there is no assurance that it will be able to obtain hedging
arrangements on commercially satisfactory terms. Therefore, shifts in currency
exchange rates may have an adverse effect on the Company's financial results and
on its ability to meet its U.S. dollar denominated debt obligations and
contractual commitments.
Poland has historically 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 20% in 1996, approximately 14.9% in 1997, and
approximately 11.8% in 1998. 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 by approximately 0.4% for the year
ended December 31, 1998. For the first quarter of 1999 the zloty has depreciated
against the U.S. dollar by approximately 13%. 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.
60
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1998 and 1997, and the
related consolidated statements of operations, comprehensive loss, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles in the United States of America.
KPMG
Warsaw, Poland
March 29, 1999
62
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 13,055 $ 105,691
Accounts receivable, net of allowance for doubtful accounts of $1,095,000 in 1998 and
$766,000 in 1997 (note 4)............................................................. 7,408 4,544
Programming and broadcast rights (note 6)............................................... 9,030 894
Other current assets (note 7)........................................................... 21,063 13,104
---------- ----------
Total current assets................................................................ 50,556 124,233
---------- ----------
Property, plant and equipment:
Cable television systems assets......................................................... 175,053 134,469
D-DTH equipment......................................................................... 68,419 --
Construction in progress................................................................ 2,739 6,276
Vehicles................................................................................ 2,792 2,047
Other................................................................................... 16,119 7,940
---------- ----------
265,122 150,732
Less accumulated depreciation........................................................... (52,068) (33,153)
---------- ----------
Net property, plant and equipment................................................... 213,054 117,579
Inventories for construction.............................................................. 8,869 8,153
Intangible assets, net (note 8)........................................................... 43,652 26,318
Notes receivable from affiliates.......................................................... -- 691
Investment in affiliated companies (note 9)............................................... 19,956 21,628
Other assets, net (note 7)................................................................ 12,287 8,494
---------- ----------
Total assets.............................................................................. $ 348,374 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses................................................... $ 40,464 $ 14,721
Accrued interest (note 11).............................................................. 2,140 2,175
Deferred revenue........................................................................ 4,366 1,257
Income taxes payable.................................................................... 3,794 1,765
Current portion of notes payable (note 11).............................................. 6,500 --
---------- ----------
Total current liabilities............................................................. 57,264 19,918
---------- ----------
Notes payable, less current portion (note 11)............................................. 257,454 130,110
---------- ----------
Total liabilities..................................................................... 314,718 150,028
---------- ----------
Minority interest......................................................................... -- 4,713
Commitments and contingencies (notes 18 and 19)
Stockholders' equity (note 1):
Preferred stock, $.01 par value; Authorized 20,000,000 shares; none issued and
outstanding........................................................................... -- --
Common stock, $.01 par value; Authorized 70,000,000 shares in 1998 and 1997; issued and
outstanding 33,310,000 shares in 1998 and 1997........................................ 333 333
Paid-in capital......................................................................... 237,954 230,339
Accumulated other comprehensive income.................................................. (467) (218)
Accumulated deficit..................................................................... (204,164) (78,099)
---------- ----------
Total stockholders' equity............................................................ 33,656 152,355
---------- ----------
Total liabilities and stockholders' equity............................................ $ 348,374 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
64
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues...................................................................... $ 61,859 $ 38,138 $ 24,923
Operating expenses:
Direct operating expenses (note 13)......................................... 61,874 14,621 7,193
Selling, general and administrative expenses (note 15)...................... 74,494 49,893 9,289
Depreciation and amortization............................................... 26,304 16,294 9,788
----------- ---------- ---------
Total operating expenses...................................................... 162,672 80,808 26,270
----------- ---------- ---------
Operating loss.............................................................. (100,813) (42,670) (1,347)
Interest and investment income................................................ 3,355 5,754 1,274
Interest expense (note 11).................................................... (21,957) (13,902) (4,687)
Equity in losses of affiliated companies...................................... (6,310) (368) --
Foreign exchange loss, net.................................................... (130) (1,027) (761)
----------- ---------- ---------
Loss before income taxes, minority interest and
extraordinary item........................................................... (125,855) (52,213) (5,521)
Income tax (expense)/benefit (note 10)........................................ (210) 975 (1,273)
Minority interest............................................................. -- (3,586) 1,890
----------- ---------- ---------
Loss before extraordinary item................................................ (126,065) (54,824) (4,904)
Extraordinary item-loss on early extinguishment of debt (note 11)............. -- -- (1,713)
----------- ---------- ---------
Net loss.................................................................... (126,065) (54,824) (6,617)
Accretion of redeemable preferred stock....................................... -- (2,436) (2,870)
Preferred stock dividends (note 1)............................................ -- -- (1,738)
(Excess)/deficit of consideration paid for preferred stock (over)/under
carrying amount (note 1).................................................... -- (33,806) 3,549
----------- ---------- ---------
Net loss applicable to holders of common stock................................ $ (126,065) $ (91,066) $ (7,676)
----------- ---------- ---------
----------- ---------- ---------
Basic and diluted loss per common share:
Loss before extraordinary item.............................................. $ (3.78) $ (3.68) $ (0.34)
Extraordinary item.......................................................... -- -- (0.10)
----------- ---------- ---------
Net loss (note 14).......................................................... $ (3.78) $ (3.68) $ (0.44)
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss...................................................................... $ (126,065) $ (54,824) $ (6,617)
Other comprehensive income:
Translation adjustment...................................................... (249) (218) --
----------- ---------- ---------
Comprehensive loss............................................................ $ (126,314) $ (55,042) $ (6,617)
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
66
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK OTHER
------------------------ ---------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPTIAL INCOME DEFICIT
----------- ----------- --------- ----------- --------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance January 1, 1996............... 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 15)......................... -- -- -- -- 18,102 -- --
----------- ----------- --------- ----------- --------- ------ ------------
Balance December 31, 1997............. -- -- 33,310,000 333 230,339 (218) (78,099)
Translation adjustment.............. -- -- -- -- -- (249) --
Net loss............................ -- -- -- -- -- -- (126,065)
Warrants attached to Senior Discount
Notes (note 11)................... -- -- -- -- 7,615 -- --
----------- ----------- --------- ----------- --------- ------ ------------
Balance December 31, 1998............. -- $ -- 33,310,000 $ 333 $ 237,954 $ (467) $ (204,164)
----------- ----------- --------- ----------- --------- ------ ------------
----------- ----------- --------- ----------- --------- ------ ------------
<CAPTION>
TOTAL
---------
<S> <C>
Balance January 1, 1996............... $ 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 15)......................... 18,102
---------
Balance December 31, 1997............. 152,355
Translation adjustment.............. (249)
Net loss............................ (126,065)
Warrants attached to Senior Discount
Notes (note 11)................... 7,615
---------
Balance December 31, 1998............. $ 33,656
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (126,065) $ (54,824) $ (6,617)
Adjustments to reconcile net loss to net cash (used in)/ provided by
operating activities:
Minority interest.......................................................... -- 3,586 (1,890)
Depreciation and amortization.............................................. 26,304 16,294 9,788
Amortization of notes payable discount and issue costs..................... 9,182 1,040 166
Non-cash portion of extraordinary item..................................... -- -- 1,566
Gain on sale of investment securities...................................... -- (358) --
Non-cash stock option compensation expense................................. -- 18,102 --
Equity in profits of affiliated companies.................................. 6,310 368 --
Other...................................................................... 2,196 -- --
Changes in operating assets and liabilities:
Accounts receivable...................................................... (2,780) (3,191) (796)
Other current assets..................................................... (7,959) (2,101) (1,862)
Programming and broadcast rights......................................... (8,136) (894) --
Accounts payable and accrued expenses.................................... 25,185 5,757 3,379
Income taxes payable..................................................... 2,026 (2,707) 334
Accrued interest......................................................... (35) -- 2,175
Deferred revenue......................................................... 3,104 155 (131)
---------- --------- ---------
Net cash (used in)/ provided by operating activities................... (70,668) (18,773) 6,112
---------- --------- ---------
Cash flows from investing activities:
Construction and purchase of property, plant and equipment............... (114,992) (39,643) (26,581)
Repayment of notes receivable from affiliates............................ -- 2,521 --
Issuance of notes receivable from affiliates............................. -- (721) (2,491)
Purchase of investment securities........................................ -- -- (25,940)
Proceeds from maturity of investment securities.......................... -- 25,473 --
Purchase of other assets................................................. -- (10,200) (6,000)
Investments in affiliated companies...................................... (5,228) (21,420) (580)
Purchase of subsidiaries, net of cash received (note 5).................. (26,990) (20,852) (13,269)
---------- --------- ---------
Net cash used in investing activities.................................. (147,210) (64,842) (74,861)
---------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock...................................... -- 183,292 81,001
Redemption of preferred stock............................................ -- (60,000) (8,500)
Costs to obtain loans.................................................... (5,960) (1,749) (6,513)
Proceeds from issuance of notes payable.................................. 123,985 -- 136,074
Repayment of notes payable............................................... (398) (720) (27,893)
Proceeds from issuance of warrants....................................... 7,615 -- --
Repayments to affiliates................................................. -- -- (39,280)
---------- --------- ---------
Net cash provided by financing activities.............................. 125,242 120,823 134,889
---------- --------- ---------
Net (decrease)/increase in cash and cash equivalents................... (92,636) 37,208 66,140
Cash and cash equivalents at beginning of year................................. 105,691 68,483 2,343
---------- --------- ---------
Cash and cash equivalents at end of year....................................... $ 13,055 $ 105,691 $ 68,483
---------- --------- ---------
---------- --------- ---------
Supplemental cash flow information:
Cash paid for interest....................................................... $ 13,014 $ 12,873 $ 2,338
---------- --------- ---------
Cash paid for income taxes................................................... $ 589 $ 1,732 $ 1,184
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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. PCI was founded in 1990 by David
T. Chase, a Polish-born investor.
@ Entertainment, Inc. and its subsidiaries (the "Company") offer pay
television services to business and residential customers in Poland. Its
revenues are derived primarily from monthly basic and premium service fees for
cable and digital satellite direct-to-home ("D-DTH") television services
provided primarily to residential, rather than business, customers. In September
1998, the Company launched its D-DTH broadcasting service throughout Poland. In
addition to developing and acquiring programming for distribution on its cable
and D-DTH television networks, the Company commenced distribution of a branded
digital encrypted package of Polish-language programming under the brand name,
Wizja TV in June and September 1998 on its cable and D-DTH television networks,
respectively.
At December 31, 1998, @ Entertainment wholly owned PCI, @ Entertainment
Programming, Inc. ("@EPI")--United States corporations, At Entertainment Limited
("@EL"), At Entertainment Services Limited ("@ES")--United Kingdom corporations,
Sereke Holding B.V. ("Sereke")--a Netherlands corporation and Wizja TV Sp. z
o.o., Gound Zero Media Sp. z o.o. ("GZM") and Wizja TV Spoka Produkcyjna Sp. z
o.o., which are Polish corporations. PCI owns 92.3% of the capital stock of
Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands corporation and
first-tier subsidiary of PCI. @ 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". As of December 31, 1998, 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 were 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 were 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 had redemption provisions; the series B preferred
stock were also convertible into common stock.
69
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 initial public offering. 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.
70
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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
The Company generated an operating loss of $100,813,000 and negative cash
flows from operations of $70,668,000 for the year ended December 31, 1998,
primarily due to the significant costs associated with the development and
launch of the Company's D-DTH and programming businesses, promotion of those
businesses, and the development, production and acquisition of programming for
Wizja TV. Furthermore, 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, and the continued
development of the cable business. As at December 31, 1998, the Company was
committed to pay at least $550,100,000 in guaranteed payments over the next nine
years of which at least approximately $254,200,000 million was committed through
the end of 2000. As at December 31, 1998 the Company had cash of $13,055,000.
Given the above noted factors at December 31, 1998, management planned and
successfully completed debt and equity offerings in January, 1999 which
generated net proceeds to the Company of approximately $154,000,000 (see note
20). The Company believes that the net proceeds of these three recent offerings
and cash on hand will provide the Company with sufficient capital to fulfill its
current business plan and to fund guaranteed payments until it achieves positive
cash flow from operations. The Company's current business plan include the
following key assumptions:
(a) achieve rapid penetration of the Polish market by distributing D-DTH
Reception Units to 380,000 initial subscribers at prices significantly
decreased by promotional incentives. The Company continues to review its
business plan with respect to the level of promotional incentives it will
provide. During 1998 the Company reduced its plans with respect to the
initial subscribers receiving significant promotional incentives from
500,000 to 380,000.
(b) the requirement to purchase 500,000 D-DTH Reception Units from Philips prior
to June 30, 2000. The Company continues to re-negotiate the terms of their
agreement with Philips, and during 1998 negotiated an extension of the date
by which the 500,000 Reception Units must be purchased, from December 31,
1999 to June 30, 2000.
71
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
2. FINANCIAL POSITION AND BASIS OF ACCOUNTING (CONTINUED)
(c) a change in the cable strategy focus from acquisition and build-out of cable
networks to increased subscriber penetration in existing networks. While the
Company still plans build-out of the cable network in strategic areas, the
Company believes the most profitable means of expanding its cable television
business is to leverage its investment in its cable networks by increasing
the percentage of homes passed which subscribe in its regional clusters.
Should management decide to change their business plan, including changes in
the above noted assumptions, they are confident that they can raise additional
financing. Future sources of financing for the Company could include public or
private debt or equity offerings or bank financing or any combination thereof,
subject to the restrictions contained in the indentures governing the Company's
senior outstanding indebtedness. However, there can be no assurance that the
Company will be able to do so on satisfactory terms, if at all.
Based on the above noted financial position and business plans, management
is confident that they will be able to continue as a going concern through June
30, 2000. Accordingly, 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.
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 maturates 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
CABLE TELEVISION REVENUES:
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 system, is recognized to the extent of
72
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
D-DTH SUBSCRIPTION REVENUES:
During 1998, the Company commenced sale of its Wizja TV Package (consisting
of a one-year rental of a D-DTH reception system, installation and a one-year
subscription to the Company's D-DTH service) to retail customers for one
up-front payment at the time of installation. The Company recognizes
subscription revenues at the time of installation to the extent of direct
selling costs incurred, and the balance is deferred and amortized to income over
the remaining term of the subscription.
OTHER REVENUES:
Advertising revenues are recognized when advertisements are aired under
broadcast contracts.
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 their
worldwide income. The Polish, United Kingdom and Netherlands corporations are
foreign corporations which are not expected to be engaged in a trade or business
within the U.S. or to derive income from U.S. sources and accordingly, are not
subject to U.S. income tax.
FOREIGN TAXATION:
The Polish 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 Polish companies
are exempt from import duties on certain in-kind capital contributions.
The Polish 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes assets used in the development and
operation of the Company's D-DTH and cable television systems and set-top boxes.
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 D-DTH and cable television systems. When material, the
Company capitalizes interest costs incurred during the period of construction in
accordance with SFAS
73
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No. 34, "CAPITALIZATION OF INTEREST COST". During 1998, the Company capitalized
approximately $664,000 in interest. During 1997 and 1996, no interest costs were
capitalized.
Cable and D-DTH subscriber related costs and general and administrative
expenses are charged to operations when incurred.
Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television system assets................................... 10 years
D-DTH system assets.............................................. 5 years
Settop boxes..................................................... 5 years
Vehicles......................................................... 5 years
5-10
Other property, plant and equipment.............................. 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 construction in the various cable television systems.
GOODWILL AND OTHER INTANGIBLES
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, with the exception of amounts paid
relating to non-compete agreements. The portion of the purchase price relating
to the non-compete agreements is amortized over the term of the underlying
agreements, generally five years.
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 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.
PROGRAMMING AND BROADCAST RIGHTS
During 1997 and 1998, 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".
74
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Costs incurred to obtain financing have been deferred and amortized over the
life of the loan using the effective interest method. The amortization of
deferred financing costs is included in interest expense.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies are accounted for using the equity
method. Where the purchase price exceeds the fair value of the Company's
percentage of net assets acquired, the difference is amortized over the expected
period to be benefited as a charge to equity in profits of affiliated companies.
Where the expected period to be benefited is limited by licensing agreements,
the difference is amortized over the term of the licensing agreement.
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 the rates of exchange at balance sheet date. Gains
and losses on foreign currency transactions are included in the consolidated
statement of operations.
The financial statements of foreign subsidiaries are translated to U.S.
dollars using (i) exchange rates in effect at period end for assets and
liabilities, and (ii) average exchange rates during the period for results of
operations. Adjustments resulting from translation of financial statements are
reflected in accumulated other comprehensive income as a separate component of
stockholders' equity.
Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for non-monetary items of its Polish subsidiaries
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 non-monetary items into the local currency at
current exchange rates. As a result of this change, the Company's functional
currency bases exceeded the local currency tax bases of nonmonetary items. The
difference between the new functional currency and the tax bases have been
recognized as temporary differences.
75
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to January 1, 1998 the financial statements of foreign subsidiaries
were translated into U.S. dollars using (i) exchange rates in effect at period
end for monetary assets and liabilities, (ii) exchange rates in effect at
transaction dates (historical rates) for non monetary assets and liabilities,
and (iii) average exchange rates during the period for revenues and expenses,
other than those revenues and expenses that relate to non monetary assets and
liabilities (primarily amortization of fixed assets and intangibles) which are
translated using the historical exchange rates applicable to those non monetary
assets and liabilities. Adjustments resulting from translation of financial
statements were reflected as foreign exchange gains or losses in the
consolidated statements of operations.
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, accounts payable and accrued expenses and notes payable.
At December 31, 1998 and 1997, the carrying value of cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses on
the accompanying consolidated balance sheets approximates fair value due to the
short maturity of these instruments.
At December 31, 1998, the fair value of the Company's notes payable balance
approximates $230,194,000 based on the last trading price of the notes payable
in 1998.
At December 31, 1997, the fair value of the Company's notes payable
approximated $128,420,000 based on the last trading price of the notes payable
in 1997.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of long-lived assets (mainly
property, plant and equipment, intangibles and certain other assets) on a
regular basis 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.
ADVERTISING COSTS
All advertising costs of the Company are expensed as incurred.
76
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements to conform to the 1998 consolidated financial statement
presentation.
4. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO AMOUNTS BALANCE AT
JANUARY 1 EXPENSE WRITTEN OFF DECEMBER 31
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1996
Allowance for Doubtful Accounts........... $ 510 $ 358 $ 323 $ 545
1997
Allowance for Doubtful Accounts........... $ 545 $ 494 $ 273 $ 766
1998
Allowance for Doubtful Accounts........... $ 766 $ 1,383 $ 1,054 $ 1,095
</TABLE>
5. ACQUISITIONS
During 1998, the Company made several acquisitions of which details follow.
In each case, the acquisition was accounted for using the purchase method,
whereby the purchase price was allocated to the underlying assets and
liabilities based on their proportionate share of fair values on the date of
acquisition and any excess to goodwill. The results of operations of each of the
businesses acquired are included in the Company's consolidated financial
statements since the date of acquisition.
In February 1998, PCI acquired a cable television business for an aggregate
consideration of approximately $1,574,000. 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
Bank Rozwoju Exportu S.A. (refer to note 11).
In February and March 1998, the Company acquired the remaining 55% equity
interest in an affiliated company for approximately $9,389,000. The purchase
price exceeded the fair value of the net liabilities acquired by approximately
$9,945,000.
On July 16, 1998, the Company purchased the remaining 45.25% interest in a
subsidiary of the Company which was held by unaffiliated third parties for an
aggregate purchase price of approximately $10,655,000, of which approximately
$9,490,000 relates to non-compete agreements. The purchase price, excluding the
amount paid relating to the non-compete agreements, exceeded the fair value of
the assets acquired by $604,000. The portion of the purchase price relating to
the non-compete agreements will be amortized over the five-year term of the
agreements.
On August 15, 1998, PCI purchased the remaining approximately 50% minority
interest in a subsidiary of the Company which was held by unaffiliated third
parties for aggregate consideration of approximately $5,372,000. The purchase
price exceeded the fair value of the assets acquired by $1,104,000.
Additionally, during 1998 the Company acquired certain cable television
system assets and subscriber lists for aggregate consideration of approximately
$2,000,000. The purchase price did not materially exceed the fair value of the
assets acquired.
77
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
5. ACQUISITIONS (CONTINUED)
Had these acquisitions occurred on January 1, 1997, the Company's pro-forma
consolidated results for the years ended December 31, 1998 and 1997, would not
be materially different from those presented in the consolidated statements of
operations.
Effective January 1, 1997, PCI 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, PCI 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.
During 1997, the Company acquired certain cable television system assets and
subscriber lists 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 have been accounted
for as purchases with the purchase price allocated among the assets acquired and
liabilities assumed based upon their 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.
6. PROGRAMMING AND BROADCAST RIGHTS
Programming and broadcast rights include approximately $9,030,000 and
$894,000 related to certain broadcast rights purchased as of December 31, 1998
and 1997, respectively, but not yet available for viewing.
7. OTHER CURRENT AND NON-CURRENT ASSETS
Included in other current assets are $8,785,000 and $1,322,000 of VAT
receivables as of December 31, 1998 and 1997, respectively.
Also included in other current assets at December 31, 1998 and 1997 are
prepayments of $8,300,000 and $9,000,000, respectively, to Philips Business
Electronics B.V. ("Philips") toward the supply of decoders, satellite dishes and
services used in the Company's D-DTH satellite transmission system ("Reception
Systems").
78
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
7. OTHER CURRENT AND NON-CURRENT ASSETS (CONTINUED)
Included in other non-current assets at December 31, 1998 and 1997 are
deferred financing costs of $12,146,000 and $7,122,000, respectively relating to
the Company's notes payable (refer to note 11).
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 Plc. As a final agreement was never
consummated, the amount was expensed in 1998.
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Conduit and franchise agreements........................................ $ 5,409 $ 5,391
Goodwill................................................................ 27,510 13,338
Non-compete agreements.................................................. 19,006 9,406
Other................................................................... 1,336 1,543
--------- ---------
53,261 29,678
Less accumulated amortization........................................... (9,609) (3,360)
--------- ---------
Net intangible assets................................................... $ 43,652 $ 26,318
--------- ---------
--------- ---------
</TABLE>
9. INVESTMENTS IN AFFILIATED COMPANIES
Investment in affiliated companies at December 31, 1998 consist of 20% of
the common stock of Fox Kids Poland Ltd. ("FKP") and 50% of the common stock of
Twoj Styl Sp. z o.o. ("Twoj Styl"). At December 31, 1997 investments in
affiliated companies also included 45% of the common stock of GZM. During 1998,
the Company acquired the remaining interest in GZM (refer to note 5).
In December 1997, the Company acquired a 20% interest in FKP, a joint
venture formed to provide programming to the Company for an aggregate purchase
price of approximately $10,000,000. The purchase price exceeded the fair value
of the Company's ownership percentage of net assets by approximately
$10,000,000. This difference is being amortized over five years as a charge to
equity in profits of affiliated companies. During 1998, the Company contributed
an additional $4,926,000 to the joint venture which was accounted for as an
additional investment in affiliated companies. For the years ended December 31,
1998 and 1997, the Company recorded losses related to this investment of
$6,343,000 and $0, respectively.
In December 1997, the Company acquired a 50% interest in Twoj Styl, a
magazine publishing company for an aggregate purchase price of approximately
$11,100,000. In 1998, the Company paid approximately $302,000 for stamp duty and
professional fees, which was added to the cost of the investment. The purchase
price exceeded the fair value of the Company's ownership percentage of net
assets by approximately $9,600,000. This difference is being amortized over ten
years as a charge to equity in profits of affiliated companies. For the years
ended December 31, 1998 and 1997, the Company recorded a (loss)/profit related
to this investment of $(181,000) and $152,000, respectively. In addition, the
Company agreed to provide additional future financing to Twoj Styl, either debt
or equity, of up to
79
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
9. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
$7,700,000 to develop Polish- language programming and ancillary services. As of
December 31, 1998, no additional financing had been provided.
It was not practicable to estimate the market value of the investments in
affiliated companies due to the nature of these investments, the relatively
short existence of the affiliated companies and the absence of quoted market
price for the affiliated companies.
10. INCOME TAXES
Income tax (expense)/benefit consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Year ended December 31, 1998:
U.S. Federal............................................... $ -- $ -- $ --
State and local............................................ -- -- --
Foreign.................................................... (210) -- (210)
--------- ---------- ---------
$ (210) $ -- $ (210)
--------- ---------- ---------
--------- ---------- ---------
Year ended December 31, 1997:
U.S. Federal............................................... $ 1,438 $ -- $ 1,438
State and local............................................ -- -- --
Foreign.................................................... (463) -- (463)
--------- ---------- ---------
$ 975 $ -- $ 975
--------- ---------- ---------
--------- ---------- ---------
Year ended December 31, 1996:
U.S. Federal............................................... $ (714) $ -- $ (714)
State and local............................................ (531) -- (531)
Foreign.................................................... (28) -- (28)
--------- ---------- ---------
$ (1,273) $ -- $ (1,273)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Sources of loss before income taxes and minority interest are presented as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic loss............................................. $ (52,341) $ (20,628) $ (2,602)
Foreign loss.............................................. (73,154) (31,585) (4,632)
----------- ---------- ---------
$ (125,855) $ (52,213) $ (7,234)
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
10. INCOME TAXES (CONTINUED)
Income tax (expense)/benefit for the years ended December 31, 1998, 1997,
and 1996 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,
---------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax benefit............................. $ 43,061 $ 17,752 $ 2,460
Non-deductible expenses..................................... (1,635) (101) (17)
Change in valuation allowance............................... (30,299) (15,424) (3,504)
Adjustment for change in functional currency bases.......... (11,311) -- --
Adjustment to deferred tax asset
for enacted changes in tax rates.......................... (695) (789) --
Foreign tax rate differences................................ 606 (463) (184)
Other....................................................... 63 -- (28)
---------- ---------- ---------
$ (210) $ 975 $ (1,273)
---------- ---------- ---------
---------- ---------- ---------
</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,
---------------------
<S> <C> <C>
1998 1997
---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Foreign net operating loss carryforward............................... $ 27,930 $ 6,471
Domestic net operating loss carry forward............................. 7,459 --
Interest income....................................................... 2,650 1,946
Service revenue....................................................... 2,101 1,948
Accrued liabilities................................................... 4,061 2,964
Deferred costs........................................................ 6,447 2,001
Stock options......................................................... 2,950 2,950
Deferred interest..................................................... 2,183 --
Unrealized foreign exchange losses.................................... 9,066 5,614
Other................................................................. 1,393 139
---------- ---------
Total gross deferred tax assets......................................... 66,240 24,033
Less valuation allowance................................................ (54,332) (24,033)
---------- ---------
Net deferred tax assets................................................. $ 11,908 $ --
---------- ---------
---------- ---------
Deferred tax liabilities:
Fixed assets depreciation............................................. $ (11,786) $ --
Other................................................................. (122) --
---------- ---------
Total gross deferred tax liabilities.................................. $ (11,908) $ --
---------- ---------
---------- ---------
Net deferred tax liability............................................ $ -- $ --
---------- ---------
---------- ---------
</TABLE>
81
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
10. INCOME TAXES (CONTINUED)
The net increase in the valuation allowance for the years ended December 31,
1998, 1997 and 1996 was $30,299,000, $3,504,000 and $667,000, respectively. In
assessing the realiability 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 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
realize the benefits of these deductible differences, net of the existing
valuation allowances at December 31, 1998.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1998 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. For losses incurred in
U.S. taxable years from 1998, loss carryforwards can be applied against taxable
income two years retroactively and twenty years into the future.
At December 31, 1998, the Company has foreign net operating loss
carryforwards of approximately $104,087,000, which will expire as follows:
<TABLE>
<CAPTION>
(IN
YEAR ENDING DECEMBER 31, THOUSANDS)
- ----------------------------------------------------------------------------------- -------------
<S> <C>
1999............................................................................... $ 28,066
2000............................................................................... 26,814
2001 and thereafter................................................................ 49,207
-------------
$ 104,087
-------------
-------------
</TABLE>
11. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
@ Entertainment Notes, net of discount....................................................... $ 125,513 $ --
PCI Notes, net of discount................................................................... 129,627 129,578
American Bank in Poland S.A. ("AmerBank") revolving credit loan.............................. 6,500 --
Bank Rozwoju Exportu S.A. Deutsche--Mark facility............................................ 1,912 --
Other........................................................................................ 402 532
--------- ---------
263,954 130,110
less: current portion........................................................................ 6,500 --
Notes payable, net of current portion........................................................ $ 257,454 $ 130,110
</TABLE>
82
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
@ ENTERTAINMENT NOTES
On July 14, 1998, the Company sold 252,000 units (collectively, the "Units")
to two initial purchasers pursuant 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 initially entitling
the holder thereof to purchase 1.81 shares of common stock, par value $0.01 per
share (the "Common Stock") at an exercise price of $13.20 per share, subject to
adjustment.
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 $117,485,000 has been allocated to the
initial accreted value of the Notes and approximately $7,615,000 has been
allocated to the Warrants. The portion of the proceeds that is allocable to the
Warrants was accounted for as part of paid-in capital. The allocation was made
based on the relative fair values of the two securities at the time of issuance.
Net proceeds to the Company after deducting initial purchasers' discount and
offering expenses were approximately $118,972,000.
The Notes are unsubordinated and unsecured obligations. Cash interest on the
Notes will not accrue prior to July 15, 2003. Thereafter cash interest will
accrue at a rate of 14.5% per annum and will be payable semiannually in arrears
on January 15 and July 15 of each year, commencing January 15, 2004. The Notes
will mature on July 15, 2008. At any time prior to July 15, 2001, the Company
may redeem up to a maximum of 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, plus accrued and unpaid interest,
if any, to the date of redemption with some or all of the net cash proceeds of
one or more public equity offerings; provided, however, that not less than 75%
of the originally issued aggregate principal amount at maturity of the Notes
remains outstanding immediately after giving effect to such redemption. The
effective interest rate of the Notes is approximately 16.5%.
The Warrants initially entitle the holders thereof to purchase an aggregate
of 1,824,514 shares of Common Stock, representing, in the aggregate,
approximately 5% of the outstanding Common Stock on a fully-diluted basis
immediately after giving effect to the sale of the Units. The Warrants are
exercisable at any time and will expire on July 15, 2008.
Pursuant to the Indenture governing the Notes (the "Indenture"), the Company
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
issuance and sales of capital stock of restricted subsidiaries; (iv) limitation
on transactions with affiliates; (v) limitation on liens; (vi) limitation on
guarantees of indebtedness by restricted subsidiaries; (vii) purchase of Notes
upon a change of control; (viii) limitation on sale of assets; (ix) limitation
on dividends and other payment restrictions affecting restricted subsidiaries;
(x) limitation on investments in unrestricted subsidiaries; (xi) limitation on
lines of business; and (xii) consolidations, mergers and sales of assets. The
Company is in compliance with these covenants.
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, 1998 and 1997 the Company accrued interest expense
of $2,140,000 and $2,175,000, respectively.
83
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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.
The PCI Notes are net of unamortized discount of $373,000 and $422,000 at
December 31, 1998 and 1997, respectively. The effective interest rate of the PCI
Notes is approximately 11.3%.
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 $160,450,000 and $134,509,000 at December 31, 1998 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
restricted subsidiaries; (x) limitation on investments in unrestricted
subsidiaries; (xi) limitation on lines of business; and (xii) consolidations,
mergers and sales of assets. The Company is in compliance with these covenants.
Condensed parent only financial statements of @ Entertainment, Inc. are
provided in Note 12 in compliance with the requirements of Rules 5-04 and 12-04
of the Securities and Exchange Commission's Regulation S-X.
AMERICAN BANK IN POLAND S.A. REVOLVING CREDIT LOAN
The revolving credit loan allowing the Company to borrow up to a maximum
principal amount of $6,500,000 on or before December 31, 1998, was fully drawn
as of December 31, 1998. The facility bears interest at LIBOR plus 3.0% (8.0% as
at December 31, 1998), is repayable in full on August 20, 1999, and is secured
by promissory notes en blanc from certain of the Company's subsidiaries, and
pledges of the shares of certain of the Company's subsidiaries.
BANK ROZWOJU EKSPORTU S.A. DEUTSCHE-MARK FACILITY
The Deutsche-Mark facility represents a credit facility of DM 3,948,615 of
which approximately DM 3,204,000 was outstanding at December 31, 1998. The
facility bears interest at LIBOR plus 2.0% (5.3% as at December 31, 1998), is
repayable in full on December 27, 2002, and is ultimately secured by a pledge of
the common shares of one of the Company's subsidiaries.
Interest expense relating to notes payable was in the aggregate
approximately $21,535,000, $13,902,000 and $4,687,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
During 1996, the Company recorded an extraordinary loss related to the early
retirement of debt. The extraordinary loss was comprised of a $147,000
prepayment penalty and a $1,566,000 write-off of deferred financing costs.
84
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
12. 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,
-----------------------------------
1998 1997 1996
--------- ------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Operating costs and expenses:
Selling, general and administrative expenses................................... $ 8,700 $ 14,662 $ 1,061
--------- ------------- ---------
Operating loss................................................................. (8,700) (14,662) (1,061)
Interest and investment income................................................. 8,458 2,489 1,076
Interest expense............................................................... (8,608) -- (2,612)
Foreign exchange gain, net..................................................... 36 -- --
Equity in losses of affiliated companies....................................... (117,251) (42,651) (2,775)
--------- ------------- ---------
Loss before income taxes....................................................... (126,065) (54,824) (5,372)
Income tax expense............................................................. -- -- (1,245)
--------- ------------- ---------
Net loss....................................................................... (126,065) (54,824) (6,617)
Accretion of redeemable preferred stock........................................ -- (2,436) (2,870)
Preferred stock dividend....................................................... -- -- (1,738)
(Excess)/ deficit of carrying value of preferred
stock (over)/ under consideration paid......................................... -- (33,806) 3,549
--------- ------------- ---------
Net loss applicable to holders of common stock................................. $(126,065) $ (91,066) $ (7,676)
--------- ------------- ---------
--------- ------------- ---------
</TABLE>
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net loss......................................................................... $(126,065) $ (54,824) $ (6,617)
Other comprehensive income:
Translation adjustment......................................................... (249) (218) --
--------- --------- ---------
$(126,314) $ (55,042) $ (6,617)
--------- --------- ---------
--------- --------- ---------
</TABLE>
85
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
CONDENSED BALANCE SHEETS
12. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C>
1998 1997
----------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................ $ 3,070 $ 71,565
Accounts receivable, net................................................................. 168 290
Other current assets..................................................................... 1,123 74
----------- ----------
Total current assets................................................................. 4,361 71,929
Other assets............................................................................. 17,230 11,252
Net investment in restricted net assets of wholly-owned subsidiaries..................... 102,344 121,977
Net investment in unrestricted net assets of wholly-owned subsidiaries................... 37,312 (51,822)
----------- ----------
Total assets............................................................................. $ 161,247 $ 153,336
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses.................................................... $ 2,078 $ 981
Notes payable............................................................................ 125,513 --
----------- ----------
Total liabilities........................................................................ 127,591 981
Stockholders' equity:
Preferred stock, $0.01 par value; Authorized 20,000,000 shares; none issued and
outstanding.......................................................................... -- --
Common stock, $.01 par value; Authorized 70,000,000 shares in 1998 and 1997; issued and
outstanding 33,310,000 shares in 1998 and 1997....................................... 333 333
Paid-in capital........................................................................ 237,954 230,339
Accumulated other comprehensive income................................................. (467) (218)
Accumulated deficit.................................................................... (204,164) (78,099)
----------- ----------
Total stockholders' equity............................................................... 33,656 152,355
----------- ----------
Total liabilities and stockholders' equity............................................... $ 161,247 $ 153,336
----------- ----------
----------- ----------
</TABLE>
86
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
12. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ACCUMULATED OTHER
---------------------- ---------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT TOTAL
----------- --------- --------- ----------- --------- ----------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance January 1,
1996................. 985 $ 10,311 11,037 $ 4,993 $ 1,544 $ -- $ (16,658) $ 190
Net loss........... -- -- -- -- -- -- (6,617) (6,617)
Stock dividend..... 166 1,738 -- -- (1,738) -- -- --
Issuance of
stock............ -- -- 7,911 (4,992) 53,837 -- -- 48,845
Preferred stock
redemption....... (1,151) (12,049) -- -- 3,549 -- -- (8,500)
Accretion of
redeemable
preferred
stock............ -- -- -- -- (2,870) -- -- (2,870)
Reorganization..... -- -- 18,929,052 188 (188) -- -- --
----------- --------- --------- ----------- --------- ------ ------------ ---------
Balance January 1,
1997................. -- $ -- 18,948,000 $ 189 $ 54,134 $ -- $ (23,275) $ 31,048
Net loss........... -- -- -- -- -- -- (54,824) (54,824)
Translation
adjustment....... -- -- -- -- -- (218) -- (218)
Net proceeds from
initial public
offering......... -- -- 9,500,000 95 183,197 -- -- 183,292
Purchase of PCI
series A and C
redeemable
preferred
stock............ -- -- -- -- (33,806) -- -- (33,806)
Accretion of
redeemable
preferred
stock............ -- -- -- -- (2,436) -- -- (2,436)
Conversion of
series B
redeemable
preferred
stock............ -- -- 4,862,000 49 11,148 -- -- 11,197
Stock option
compensation
expense.......... -- -- -- -- 18,102 -- -- 18,102
----------- --------- --------- ----------- --------- ------ ------------ ---------
Balance December 31,
1997................. -- $ -- 33,310,000 $ 333 $ 230,339 $ (218) $ (78,099) $ 152,573
Net loss........... -- -- -- -- -- -- (126,065) (126,065)
Translation
adjustment....... -- -- -- -- -- (249) -- (249)
Warrants attached
to Senior
Discount Notes... -- -- -- -- 7,615 -- -- 7,615
----------- --------- --------- ----------- --------- ------ ------------ ---------
Balance December 31,
1998................. -- $ -- 33,310,000 $ 333 $ 237,954 $ (467) $ (204,164) $ 34,123
----------- --------- --------- ----------- --------- ------ ------------ ---------
----------- --------- --------- ----------- --------- ------ ------------ ---------
</TABLE>
87
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
12. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ ENTERTAINMENT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (126,065) $ (54,824) (6,617)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Amortization of notes payable discount and issue costs.................. 8,301 1,040 164
Loss of subsidiaries.................................................... 117,070 42,651 12,862
Gain on sale of investment securities................................... -- (358) --
Non-cash stock option compensation expense.............................. -- 8,677 --
Equity in losses of affiliated companies................................ (181) -- --
Changes in operating assets and liabilities:
Accounts receivable................................................... 122 (142) (35)
Other current assets.................................................. (1,049) 114 (1,300)
Other assets.......................................................... (121) -- --
Accounts payable and accrued expenses................................. 1,097 (2,008) 2,855
Income taxes payable.................................................. -- (4,472) 4,472
----------- ---------- -----------
Net cash (used in)/provided by operating activities................. (826) (9,322) 12,401
----------- ---------- -----------
Cash flows from investing activities:
Proceeds from maturity of investment securities....................... -- 25,473 (25,115)
Investment in, and loans and advances to affiliated companies......... (186,809) (111,670) (122,337)
Purchase of other assets.............................................. -- (11,252) (8,200)
----------- ---------- -----------
Net cash used in investing activities............................... (186,809) (97,449) (155,652)
----------- ---------- -----------
Cash flows from financing activities:
Net proceeds from issuance of stock................................... -- 183,292 81,001
Redemption of preferred stock......................................... -- (60,000) (8,500)
Costs to obtain loans................................................. (5,960) -- (6,513)
Proceeds from issuance of notes payable............................... 117,485 -- 136,074
Proceeds from issuance of warrants.................................... 7,615 -- --
Repayment of notes payable............................................ -- -- (10,000)
----------- ---------- -----------
Net cash provided by financing activities........................... 119,140 123,292 192,062
----------- ---------- -----------
Net (decrease)/increase in cash and cash equivalents................ (68,495) 16,521 48,811
Cash and cash equivalents at beginning of year.............................. 71,565 55,044 6,233
----------- ---------- -----------
Cash and cash equivalents at end of period.................................. $ 3,070 $ 71,565 55,044
----------- ---------- -----------
----------- ---------- -----------
Supplemental cash flow information:
Cash paid for interest................................................ $ -- $ -- $ 2,338
----------- ---------- -----------
----------- ---------- -----------
Cash paid for income taxes............................................ $ -- $ -- $ 1,184
----------- ---------- -----------
</TABLE>
88
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
13. 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.
PROGRAMMING
Programming is provided to the Company by certain of its affiliates. The
Company incurred programming fees from these affiliates of $418,000, $559,000
and $ 412,000 for the years ended December 31, 1998, 1997 and 1996.
PRINT MEDIA SERVICES
An affiliate of the Company provides print media services to the Company.
The Company incurred operating costs related to these services of $4,355,000 for
the year ended December 31, 1998. The Company did not incur any costs from this
affiliate prior to 1998.
14. PER SHARE INFORMATION
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 year. The effect of potential common shares (stock options and
warrants outstanding) is antidilutive, accordingly, dilutive loss per share is
the same as basic loss per share.
The Company has presented historical loss per common share information
assuming the common stock exchange of 1 to 1,000 shares 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,
-----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ----------
Net loss attributable to common stockholders (in thousands).................. $ (126,065) $ (91,066) $ (7,676)
----------- ---------- ----------
----------- ---------- ----------
Weighted average number of common shares outstanding (in thousands).......... 33,310 24,771 17,271
Nominal issuance (in thousands).............................................. -- -- 346
----------- ---------- ----------
Basic weighted average number of common shares outstanding (in thousands).... 33,310 24,771 17,617
----------- ---------- ----------
----------- ---------- ----------
Loss per share-basic and diluted............................................. $ (3.78) $ (3.68) $ (0.44)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
15. 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, subject to adjustment in
accordance with the 1997 Plan. At December 31, 1998, options for 3,924,000
shares had been
89
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
15. STOCK OPTION PLAN (CONTINUED)
granted. 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.
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 the 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>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------ -----------------
<S> <C> <C>
Balance at January 1, 1996........................................................ -- $ --
Granted........................................................................... 241,000 $ 1.99
------------ ------
Balance at December 31, 1996 (none exercisable)................................... 241,000 $ 1.99
Granted........................................................................... 2,083,000 $ 5.98
------------ ------
Balance at December 31, 1997 (none exercisable)................................... 2,324,000 $ 5.57
Granted........................................................................... 1,600,000 $ 12.31
------------ ------
Balance at December 31, 1998 (2,643,000 exercisable).............................. 3,924,000 $ 8.32
------------ ------
</TABLE>
No options were exercised or forfeited during 1998.
At December 31, 1998 the range of exercise prices, weighted-average
remaining contractual life and number exercisable of outstanding options was as
follows:
<TABLE>
<CAPTION>
WEIGHTED- AVERAGE
WEIGHTED- CONTRACTUAL WEIGHTED-
RANGE OF NUMBER OF AVERAGE REMAINING LIFE NUMBER AVERAGE
EXERCISE PRICES SHARES EXERCISE PRICE (YEARS) EXERCISABLE EXERCISE PRICE
- ----------------------------------------- ---------- --------------- ----------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
1.99-3.79................................ 1,912,000 3.51 5.44 1,912,000 3.51
12.00-15.24.............................. 2,012,000 12.89 8.98 731,900 12.46
---------- ----------
3,924,000 8.32 2,643,900 5.98
---------- ----------
---------- ----------
</TABLE>
90
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
15. STOCK OPTION PLAN (CONTINUED)
The per share weighted-average fair value of stock options granted during
1998 was $4.22 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected volatility 43.0%,
expected dividend yield 0.0%, risk-free interest rate of 5.72%, and an expected
life of 4 years.
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>
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net loss-as reported...................................................... $ (126,065) $ (54,824) $ (6,617)
Net loss-pro forma........................................................ $ (131,511) $ (56,607) $ (6,617)
Basic and diluted net loss per share--as reported......................... $ (3.78) $ (3.68) $ (0.44)
Basic and diluted loss per share-pro forma................................ $ (3.95) $ (3.75) $ (0.44)
</TABLE>
16. 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 the United Kingdom 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, 1998 are $2,725,000 in 1999, $2,806,000 in
2000, $2,890,000 in 2001 and $2,977,000 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 1999, $576,000 in 2000,
$576,000 in 2001, $576,000 in 2002 and $1,728,000 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,
91
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
16. LEASES (CONTINUED)
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.
Minimum future lease commitments for the aforementioned conduit leases
relate to 1999 only, as all leases are cancelable in accordance with the
aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $622,000 for the six months ending June 30, 1999.
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 $182 million for all three
transponders for the term of their leases. The future minimum lease payments
applicable to the transponders approximate $20,250,000 in 1999, $20,250,000 in
2000, $20,250,000 in 2001, $20,250,000 in 2002 and $101,250,000 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. 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, 1998, 1997 and 1996 was $10,521,000, $3,696,000 and
$892,000, respectively.
17. SEGMENT INFORMATION
@Entertainment and its subsidiaries operate in three business segments: (1)
cable television, (2) digital direct-to-home television and programming, and (3)
corporate functions. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
accounts for intersegment sales and transfers as if the sales or transfers were
to third parties, that is, at current market prices. In addition to other
operating statistics, the Company measures its financial performance by EBITDA,
an acronym for earnings before interest, taxes depreciation and amortization.
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), gains and losses from the sale of assets other than in a 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 media companies. EBITDA is not a U.S.
GAAP measure of loss
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
17. SEGMENT INFORMATION (CONTINUED)
or cash flow from operations and should not be considered as an alternative to
cash flows from operations as a measure of liquidity.
<TABLE>
<CAPTION>
D-DTH AND
1998 CABLE PROGRAMMING CORPORATE TOTAL
- --------------------------------------------------------------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues from external customers............................... $ 52,971 $ 8,888 $ -- $ 61,859
Intersegment revenues.......................................... -- 13,432 -- 13,432
Operating loss................................................. (23,066) (69,047) (8,700) (100,813)
EBITDA......................................................... (1,431) (64,378) (8,700) (74,509)
Depreciation and amortization.................................. (21,635) (4,669) -- (26,304)
Investment in equity method investees.......................... -- 8,533 11,373 19,956
Segment total assets........................................... 193,785 132,998 21,591 348,374
Expenditures for segment assets................................ 42,639 72,353 -- 114,992
1997
- ---------------------------------------------------------------
Revenues from external customers............................... $ 38,138 $ -- $ -- $ 38,138
Intersegment revenues.......................................... -- -- -- --
Operating loss................................................. (20,308) (10,210) (12,152) (42,670)
EBITDA......................................................... 5,387 (10,186) (3,475) (8,274)
Net loss....................................................... (35,087) (7,668) (12,069) (54,824)
Significant non-cash items:
Stock option compensation expense.............................. 9,425 -- 8,677 18,102
Investment in equity method investees.......................... -- 10,876 11,252 21,628
Segment total assets........................................... 187,449 36,466 83,181 307,096
Expenditures for segment assets................................ 33,786 5,857 -- 39,643
</TABLE>
In 1997, the cable segment includes the activities of Mozaic Entertainment,
Inc., a subsidiary which provided programming content for the cable business. In
1998, the Company's programming activity related solely to the development of
the Wizja TV platform and has been included in the D-DTH and programming
segment. For the year ended December 31, 1997, Mozaic Entertainment, Inc.
revenues and operating loss were $563,000 and $2,071,000, respectively. For the
year ended December 31, 1998, Mozaic Entertainment, Inc. was dormant. During
1996 the Company operated in one business segment (cable).
Total long-lived assets for the years ended December 31, 1998 and 1997 for
the Company analyzed by geographical location is as follows:
<TABLE>
<CAPTION>
TOTAL REVENUES LONG-LIVED ASSETS
------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997
--------- --------- --------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Poland.................................................. $ 61,859 $ 38,138 $ 24,923 $ 257,625 $ 152,614
United Kingdom.......................................... -- -- -- 20,208 7,930
Other................................................... -- -- -- 29 --
--------- --------- --------- ---------- ----------
Total................................................... $ 61,859 $ 38,138 $ 24,923 $ 277,862 $ 160,544
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
17. SEGMENT INFORMATION (CONTINUED)
All of the Company's revenue is derived from activities carried out in
Poland. Long-lived assets consist of property, plant, and equipment, inventories
for construction, intangible assets, and other assets.
18. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has concluded an agreement with Philips, whereby Philips will
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 December 31, 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.
As of December 31, 1998, the Company had an aggregate minimum commitment toward
the purchase of the Reception Systems of approximately $129,213,000 up to June
30, 2000.
PROGRAMMING, BROADCAST AND EXHIBITION RIGHT COMMITMENTS
The Company has entered into long-term programming agreements and agreements
for the purchase of certain exhibition or broadcast rights with a number of
third party content providers for its D-DTH and cable systems. The agreements
have terms which range from one to seven 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 December 31, 1998, the Company had an aggregate minimum commitment in
relation to these agreements of approximately $214,299,000 over the next seven
years, approximating $37,198,000 in 1999, $38,428,000 in 2000, $40,627,000 in
2001, $44,837,000 in 2002 and $53,209,000 in 2003 and thereafter.
CONSULTING AGREEMENTS
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.
REGULATORY APPROVALS
The Company is in the process of 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
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DECEMBER 31, 1998, 1997 AND 1996
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the operator's cable networks. Management of the Company does not believe that
these pending approvals result in a significant risk to the Company.
LITIGATION AND CLAIMS
On April 17, 1998, the Company signed a letter of intent with Telewizyjna
Korporacja Partycypacyjna S.A. ("TKP") and the shareholders of TKP, namely,
Canal+ S.A., Agora S.A., and PolCom Invest S.A. which 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 intend 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 package 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 TKP to pay the Company the $5 million break-up fee
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 the arbitration
proceedings TKP and its shareholders contend that the Company breached the
letter of intent, that such breach was the cause of the parties' failure to
agree and execute the definitive agreements, and that the Company is therefore
liable for $10 million in damages under the letter of intent. In its response
the Company denies these allegations and claims that TKP is liable for at least
$15 million in damages pursuant to the letter of intent.
This $15 million figure is composed of a claim for a $5 million break-up
fee, $5 million in damages due to the claim that TKP and its shareholders
breached the letter of intent, thereby causing the parties' failure to agree and
execute the definitive agreements, and at least $5 million as an indemnification
for liabilities
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
incurred by the Company as a result of certain actions taken with respect to
assets to be acquired or contracts to be assumed by TKP. The Company does not
believe that the arbitration proceedings will have a material adverse effect on
its business, financial condition or results of operations.
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.
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 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 380,000 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.
SUPPLIER AGREEMENT
Certain critical components and services used in the Company's D-DTH
satellite transmission system, including 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
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 development and operation 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.
The Company's agreement with Philips provides for full distribution,
installation and servicing through more than 1,200 Philips authorized
electronics retailers located throughout Poland. Philips has 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.
PIRACY
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 such as 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.
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, 1998, approximately
56.5% 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
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. 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.
YEAR 2000
The Company's cable television, D-DTH and programming operations are
dependent upon computer systems and other technological devices with imbedded
microprocessor chips that are intended to utilize dates and process data beyond
December 31, 1999. In January 1997, the Company developed a plan to address the
impact that potential year 2000 problems may have on Company operations and to
implement necessary changes to address such problems (the "Y2K Plan"). During
the course of the development of its Y2K Plan, the Company has identified
certain critical operations, which need to be year 2000 compliant for the
Company to operate effectively. These critical operations include accounting and
billing systems, customer service and service delivery systems, and field and
headend devices.
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 system and an agreement to purchase specialized billing
software for the Company's new customer service and billing center. The vendors
of the new accounting system and of the billing software have confirmed to the
Company that these products are year 2000 compliant. The Company has completed
the testing phase of the new accounting system, and the implementation phase was
substantially completed at the end of 1998. The Company has implemented the new
billing software for D-DTH subscribers and expects implementation of the billing
software to be completed for the majority of its cable subscribers by the end of
1999.
The Company believes that its most significant year 2000 risk is its
dependency upon third party programming, software, services and equipment,
because the Company does not have the ability to control third parties in their
assessment and remediation procedures for potential year 2000 problems. Should
these parties not be prepared for year 2000 conversion, their products or
services may fail and may cause interruptions in, or limitations upon, the
Company's provision of the full range of its D-DTH and/or cable service to its
customers. In an effort to prevent any such interruptions or limitations, the
Company is in the process of communicating with each of its material third party
suppliers of programming, software, services and equipment to determine the
status of their year 2000 compliance programs. The Company expects to complete
this process by September 30, 1999, and it anticipates that all phases of its
Y2K Plan will be completed by December 31, 1999.
The Company has not yet developed a contingency plan to address the
situation that may result if the Company or its third party suppliers are unable
to achieve year 2000 compliance with regard to any products or services utilized
in the Company's operations. The Company does not intend to decide on the
development of such a contingency until it has gathered all of the relevant Year
2000 compliance data from its third party suppliers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
The Company has not yet determined the full cost of its Y2K Plan and its
related impact on the financial condition of the Company. The Company has to
date not incurred any replacement or remediation costs for equipment or systems
as a result of year 2000 non-compliance. Rather, due to the rapid growth and
development of its cable system and its D-DTH service, the Company had made
substantial capital investments in equipment and systems for reasons other than
year 2000 concerns. The total cost of the Company's new accounting system and
billing software package is estimated to be approximately $2,400,000.
The Company believes that any year 2000 compliance issues it may face can be
remedied without a material financial impact on the Company, but no assurance
can be made in this regard until all of the data has been gathered from the
Company's third party suppliers. At this date the Company cannot predict the
financial impact on its operations if year 2000 problems are caused by products
or services supplied to the Company by such third parties.
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 1998 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. SUBSEQUENT EVENTS
UNITS OFFERING
On January 22, 1999, the Company sold 256,800 Units to two initial
purchasers pursuant to a purchase agreement, each Unit consisting of $1,000
principal amount at maturity of 14 1/2% Senior Discount Notes due 2009 and four
warrants, each initially entitling the holder thereof to purchase 1.7656 shares
of common stock, par value $0.01 per share at an exercise price of $19.125 per
share, subject to adjustment.
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 $100,003,000 of which $92,551,000 has been allocated to the
initial accreted value of the Notes and approximately $7,452,000 has been
allocated to the Warrants. The portion of the proceeds that is allocable to the
Warrants will be accounted for as part of paid-in capital. The allocation was
made based on the relative fair values of the two securities at the time of
issuance. Net proceeds to the Company after deducting initial purchasers'
discount and offering expenses were approximately $96,000,000.
The Notes are unsubordinated and unsecured obligations. Cash interest on the
Notes will not accrue prior to February 1, 2004. Thereafter cash interest will
accrue at a rate of 14.5% per annum and will be payable semiannually in arrears
on August 1 of each year and February 1 of each year, commencing August 1, 2004.
The Notes will mature on February 1, 2009. At any time prior to February 1,
2002, the Company may redeem up to a maximum of 35% of the originally issued
aggregate principal amount at maturity of the Notes at a redemption price equal
to 117.5% of the accreted value thereof at the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption with some or all of the net
cash proceeds of one or more public equity offerings; provided, however, that
not less than 65% of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
20. SUBSEQUENT EVENTS (CONTINUED)
originally issued aggregate principal amount at maturity of the Notes remains
outstanding immediately after giving effect to such redemption.
The Warrants initially entitle the holders thereof to purchase 1,813,665
shares of Common Stock, representing, in the aggregate, approximately 5% of the
outstanding Common Stock on a fully-diluted basis (using the treasury stock
method) immediately after giving effect to the offering and Preference Offering.
The Warrants are exercisable at any time and will expire on February 1, 2009.
Pursuant to the Indenture governing the Notes, the Company 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
issuance and sales of capital stock of restricted subsidiaries; (iv) limitation
on transactions with affiliates; (v) limitation on liens; (vi) limitation on
issuance of guarantees of indebtedness by restricted subsidiaries; (vii)
purchase of Notes upon a change of control; (viii) limitation on sale of assets;
(ix) limitation on dividends and other payment restrictions affecting restricted
subsidiaries; (x) limitation on investments in unrestricted subsidiaries; (xi)
limitation on lines of business; and (xii) consolidations, mergers and sales of
assets. The Company is in compliance with these covenants.
Costs associated with the Notes offering of approximately $3,875,000,
including the initial purchasers' discount will be capitalized and amortized
over the term of the Notes.
Also on January 22, 1999 @Entertainment sold Series A 12% Cumulative
Preference Shares and Series B 12% Cumulative Preference Shares (collectively,
the "Cumulative Preference Shares") and warrants (each a "Preference Warrant")
for total gross proceeds of $50 million (before deducting commissions and
offering costs of approximately $1.8 million). Dividends (whether or not earned
or declared) will cumulate on a daily basis from the original issue date and
will be payable semi-annually in arrears on March 31, and September 30 of each
year, commencing on March 31, 1999 (each a "Dividend Payment Date") to holders
of record on the fifteenth day immediately preceding the relevant Dividend
Payment Date. The Company at its option may, but shall not be required to,
redeem in US Dollars for cash the Cumulative Preference Shares, including any
Series B Cumulative Preference Shares, at any time on or after March 31, 2000,
in whole or in part, at the redemption price of 112% of the sum of (i) the
Initial Liquidation Preference ($50 million in the aggregate) and (ii)
accumulated and unpaid dividends, if any, to the date of redemption. On January
30, 2010, the Company will be required (subject to contractual and other
restrictions on the ability to redeem capital stock) to redeem all outstanding
Cumulative Preference Shares, including any Series B Cumulative Preference
Shares, at a price in US Dollars equal to the Initial Liquidation Preference
thereof plus all accumulated and unpaid dividends thereon (if any) to the date
of redemption. The Company will not be required to make sinking fund payments
with respect to the Cumulative Preference Shares. The Preference Warrants
initially entitle the holders thereof to purchase an aggregate of 5.5 million
shares of Common Stock at an exercise price of $10.00 per share. The preferred
shares will be classified outside of stockholders' equity.
SERIES C NOTES OFFERING
On January 20, 1999, the Company sold $36,001,321 aggregate principal amount
at maturity of its Series C Notes due 2008. The Series C 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
20. SUBSEQUENT EVENTS (CONTINUED)
Company. The Series C Notes were issued at a discount to their aggregate
principal amount at maturity and generated gross proceeds to the Company of
approximately $9.8 million. Net proceeds to the Company after deducting the
initial purchaser's discount and offering expenses were approximately $9.4
million. The original issue discount will accrete from January 20, 1999 until
the stated maturity of the Series C Notes on July 15, 2008. In addition, cash
interest on the Series C Notes will accrue from July 15, 2004 at a rate of 7.0%
per annum on the principal amount at maturity, and will be payable semiannually
in arrears on July 15 and January 15 of each year commencing January 15, 2005.
Prior to July 15, 2004 there will be no accrual of cash interest on the Series C
Notes. The Series C Notes will mature on July 15, 2008.
Pursuant to the Series C Indenture, the Company 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 issuance and sales
of capital stock of restricted subsidiaries; (iv) limitation on transactions
with affiliates; (v) limitation on liens; (vi) limitation on guarantees of
indebtedness by restricted subsidiaries; (vii) purchase of Notes upon a change
of control; (viii) limitation on sale of assets; (ix) limitation on dividends
and other payment restrictions affecting restricted subsidiaries; (x) limitation
on investments in unrestricted subsidiaries; (xi) limitation on lines of
business; and (xii) consolidations, mergers and sales of assets. The Company is
in compliance with these covenents.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
101
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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....................................... 69 Chairman of the Board of Directors
Robert E. Fowler, III................................ 40 Chief Executive Officer and Director
Arnold L. Chase...................................... 47 Director
Samuel Chisholm...................................... 59 Director
David Chance......................................... 41 Director
Agnieszka Holland.................................... 50 Director
Scott A. Lanphere.................................... 33 Director
Jerzy Z. Swirski..................................... 41 Director
Donald Miller-Jones.................................. 54 Chief Financial Officer, Vice President and Treasurer
Dorothy E. Hansberry................................. 46 Vice President and General Counsel of PCI
David Keefe.......................................... 49 Chief Executive Officer of PCI
Warren L. Mobley, Jr................................. 50 Chief Operating Officer and Vice President of
Marketing and Sales of PCI
Przemyslaw A. Szmyt.................................. 36 Senior Vice President Business Development, General
Counsel and Secretary
David Warner......................................... 52 Chief Executive Officer of @EL
</TABLE>
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 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 were affiliated with PCI.
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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 British Sky Broadcasting Plc. 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 served as a Director at Morgan
Grenfell Private Equity Ltd. since October 1998. Mr. Lanphere served as a
Director of Investments for Advent International plc from December 1994 to
October 1998, 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. Mr. Miller-Jones has served as a
non-executive director of Parallel Pictures Group plc since January 1999.
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 to August 1995, Ms.
Hansberry acted as resident legal advisor to the Polish Anti-Monopoly Office.
From
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October 1980 to May 1996, she worked as a senior trial attorney in the Antitrust
Division of the U.S. Department of Justice.
WARREN L. MOBLEY, JR. has served as Chief Operating Officer of PCI since
December 1998, and has served as Vice President of Marketing and Sales since May
1998. From March 1997 to May 1998 Mr. Mobley served as President of World
Channel Ltd. From March 1993 to February 1997, Mr. Mobley served as Vice
President of Development of United International Holdings Asia.
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 Senior Vice President of Business
Development of @Entertainment since January 1999 and 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 Executive Officer of @EL since November
1998. Mr. Warner served as the Chief Operating Officer of @EL from April 1997
until November 1998. 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 eleven 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. Morgan Grenfell
Private Equity Ltd. ("MGPE"), the principal initial holder of all of the
outstanding 12% Series A Cumulative Preference Shares, has the right to appoint
two directors to the Company's Board of Directors. It is expected that MGPE will
make such appointments shortly, and that Mr. Lanphere (a Director of MGPE) will
be one of MGPE's appointees to the Company's Board of Directors. In addition,
under the terms of the 12% Series A Cumulative Preference Shares, holders of
such shares may have the right, in the future, to appoint additional directors
to the Board of Directors.
@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 in 2001; the second class
consists of three directors (Messrs. D. Chase and Lanphere and Ms. Holland)
whose terms shall expire in 1999; and the third class consists of three
directors (Messrs. Fowler, Chisholm and Chance) whose terms shall expire in
2000. 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
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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. In addition, under the terms of the Certificate of Designation
governing the Cumulative Preference Shares issued pursuant to the Cumulative
Preference Shares Offering, certain matters will require the approval of the
majority of the Board of Directors of the Company including at least one of the
Board members appointed by MGPE, and any resolution adversely affecting the
economic or ranking provisions relating to the Cumulative Preference Shares will
require the affirmative approval or consent of all the holders of the
outstanding Cumulative Preference Shares.
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.
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
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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. In 1998 the Audit Committee met once.
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. In 1998 the Compensation Committee met once.
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 $5,000 for attendance at
each of the five regular meetings of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer, each of the other four most highly compensated executive officers of
the Company and a former executive officer who would have been one of the four
most highly compensated executive officers at the end of the fiscal year 1998
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company for the last three fiscal years, to the extent that
those officers were in the employ of the Company. Columns relating to long-term
compensation have been omitted from the table as the Company did not have
capital stock-related award plans and there has been no compensation arising
from long-term incentive plans during the years reflected in the table.
<TABLE>
<CAPTION>
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS/SAR ($)
- --------------------------------------------- --------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Fowler, III........................ 1998 325,000 43,750 -- 58,568(2)
Chief Executive Officer and Director 1997 337,500 381,250 -- 1,268,000
1996 66,000(1) 66,000(1) --
Donald Miller-Jones.......................... 1998 114,457 -- 50,423(7) 200,000 --
Chief Financial Officer, 1997 -- -- -- --
Vice President and Treasurer 1996 -- -- --
David Keefe.................................. 1998 220,000 200,000 68,175(8) 250,000 --
Chief Executive Officer of PCI 1997 -- -- -- -- --
1996 -- -- -- -- --
George Z. Makowski(3)........................ 1998 169,770 -- 34,300(6) -- --
1997 156,000 175,000(4) 68,400(5) 385,000 --
1996 -- -- -- -- --
David Warner................................. 1998 182,061 93,168 62,580(9) 75,000
Chief Executive Officer--@EL 1997 120,708 248,500 -- 131,000
1996 -- -- -- --
Przemyslaw Szmyt............................. 1998 182,216 40,000 -- -- --
Senior Vice President of Business 1997 146,667 70,000(4) -- 131,000 --
Development, General Counsel and 1996 -- -- -- -- --
Secretary
</TABLE>
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- ------------------------
(1) Represents only that portion of annual compensation attributable to services
performed on behalf of the Company. Additional compensation may have been
provided by companies that are affiliated with @Entertainment and
beneficially owned by the Chase Family for services rendered to those
companies.
(2) Represents amounts paid to Mr. Fowler in connection with the purchase of Mr.
Fowler's previous residence. See "Certain Relationships and Related
Transactions--Purchase of House."
(3) Mr. Makowski was the Chief Operating Officer of PCI. Mr. Makowski's
employment with PCI was terminated, effective as of May 1998.
(4) Represents one-time bonus paid upon completion of @Entertainment's initial
public equity offering.
(5) Represents amounts paid pursuant to housing and tuition allowances.
(6) Represents amounts paid pursuant to housing allowance.
(7) Represents amounts paid to purchase car.
(8) Includes amounts paid pursuant to housing allowance.
(9) Represents amounts contributed to private pension fund and car allowance.
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 Company's reorganization. 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 has paid 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 five-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, 1999. Pursuant to such
agreement, Mr. Szmyt serves as Senior Vice President of Business Development,
General Counsel and Secretary of @Entertainment. He is eligible to receive an
annual bonus at the discretion of the Chief Executive Officer 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 six months'
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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 $192,050, based
on the exchange rate of L1.00=$1.67 at December 31, 1998), and receives an
annual performance-based bonus of up to L45,000 (approximately $75,150 based on
the exchange rate of L1.00=$1.67 at December 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 $204,900 based on
the exchange rate of L1.00=$1.67 at December 31, 1998), and an allowance of
L30,000 (approximately $51,000 based on the exchange rate of L1.00=$1.70 of June
8, 1998) for the purchase of an automobile. The allowance was paid to Mr.
Miller-Jones in July 1998. Mr. Miller-Jones is also eligible to receive an
annual performance based bonus during his first year of up to L30,500
(approximately $50,900, based on the exchange rate of L1.00=$1.67 at December
31, 1998). Of such amount, Mr. Miller-Jones is guaranteed to receive at least
L18,300 (approximately $30,600, based on the exchange rate of L1.00=$1.67 at
December 31, 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).
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, effective
January 1, 1998, with Samuel Chisholm and David Chance (each individually a
"Consultant"), pursuant to which the Company pays 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
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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 pays 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 Option Committee to perform such functions in
the future. Currently, approximately 11 individuals (including Messrs. Fowler
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 December
31, 1998, options for 3,924,000 shares had been granted and 512,000 shares
remained available for future grants. The exercise price of all incentive stock
options granted under the 1997 Plan must be at least equal to the fair market
value of the Common Stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
stock of @Entertainment, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the maximum term of an incentive stock option must not exceed five years.
The term of all 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.
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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.
The following table lists all grants of Options under the 1997 Plan to the
Named Executive Officers during 1998 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>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS/SARS EXECUTIVES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR (%) ($) DATE ($)(1)
- ------------------------------------------- ------------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Donald Miller-Jones........................ 200,000 12.50% $ 14.30 6/8/08 975,000
David Keefe................................ 250,000 15.63% $ 12.00 1/1/08 1,029,266
David Warner............................... 75,000 4.69% $ 12.24 1/26/08 317,303
Przemyslaw Szmyt........................... 75,000 4.69% $ 12.24 1/26/08 317,303
Samuel Chisholm............................ 500,000 31.25% $ 12.00 1/1/08 2,058,532
David Chance............................... 500,000 31.25% $ 12.00 1/1/08 2,058,532
</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 43.0%; the risk-free rate of return was 5.62%, 5.77%,
5.42%, 5.42%, 5.77% and 5.77% for Messrs. Miller-Jones, Keefe, Warner,
Szmyt, Chisholm and Chance, 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, 1998. 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, 1998.
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/ 3,913,298/0
Donald Miller-Jones.................... -- -- /200,000 --
David Keefe............................ -- -- 125,000/125,000 --
George Z. Makowski..................... -- -- 385,000/ 1,143,142/0
David Warner........................... -- -- 26,200/179,800 --
Przemyslaw Szmyt....................... -- -- 26,200/179,800 --
Samuel Chisholm........................ -- -- 250,000/250,000 --
David Chance........................... -- -- 250,000/250,000 --
</TABLE>
110
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of @Entertainment's common stock, par value $.01 per share ("Common
Stock"), at March 15, 1999 by: (i) each person known by @Entertainment to own
beneficially 5% or more of @Entertainment's Common Stock, (ii) the directors,
the Chief Executive Officer and the four other highest paid executive officers
("Named Executive Officers") of the Company and a former executive officer who
would have been one of the four most highly compensated executive officers of
the Company at the end of the fiscal year 1998 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING
- ------------------------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Arnold L. Chase(1)(2)(18)
One Commercial Plaza
Hartford, Connecticut 06103.................................................. 9,926,000 29.5%
Chase Polish Enterprises, Inc(1)
One Commercial Plaza
Hartford, Connecticut 06103.................................................. 9,703,000 29.1%
Cheryl A. Chase(1)(3)(19)(21)
One Commercial Plaza
Hartford, Connecticut 06103.................................................. 10,546,000 31.5%
Polish Investments Holding L.P.(1)
One Commercial Plaza
Hartford, Connecticut 06103.................................................. 9,703,000 29.1%
Advent International Group(4)
75 State Street
Boston, MA 02109............................................................. 5,216,431 15.6%
Morgan Grenfell Private Equity Limited(17)
23 Great Winchester Street
London, EC2P 2AX
England...................................................................... 4,950,000 12.9%
Goldman, Sachs & Co.(15)
85 Broad Street
New York, NY 10004........................................................... 2,630,706 7.9%
The Goldman Sachs Group, L.P.(15)
85 Broad Street
New York, NY 10004........................................................... 2,630,706 7.9%
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase(5).............................................................. -- --
Robert E. Fowler, III(6)(7).................................................... 1,301,000 3.8%
Arnold L. Chase(1)(2)(18)...................................................... 9,926,000 29.5%
Scott A. Lanphere.............................................................. -- --
Jerzy Z. Swirski(8)............................................................ -- --
Samuel Chisholm(9)............................................................. 250,000 *
David Chance(10)............................................................... 250,000 *
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING
- ------------------------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Agnieszka Holland.............................................................. -- --
Przemyslaw Szmyt(7)(12)........................................................ 53,200 *
David Warner(7)(13)............................................................ 51,200 *
Donald Miller-Jones(11)........................................................ 5,000 *
David Keefe(16)................................................................ 156,250 *
George Z. Makowski(7)(14)...................................................... -- --
ALL DIRECTORS AND OFFICERS AS A GROUP (15 PERSONS):............................ 11,987,650(20) 35.6%
</TABLE>
- ------------------------
* less than 1%.
(1) This amount includes 9,703,000 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
9,703,000 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.
(2) 3,000 of these shares are held by Arnold L. Chase as custodian for his son.
(3) This amount includes 733,000 shares of Common Stock owned by the Cheryl A.
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) Includes the ownership by the following venture capital funds managed by
Advent International Corporation; 206,019 shares owned by Advent
Euro-Italian Direct Investment Program Limited Partnership, 838,856 shares
owned by Advent Private Equity Fund-Central Europe Limited Partnership,
1,447,024 shares owned by Advent Global GECC Limited Partnership, 2,110,420
shares owned by Global Private Equity II Limited Partnership, 239,522 shares
owned by Global Private Equity II-Europe Limited Partnership, 324,308 shares
owned by Global Private Equity II-PGGM Limited Partnership, and 50,282
shares owned by Advent Partners Limited Partnership. In its capacity as
manager of these funds, Advent International Corporation exercises sole
voting and investment power with respect to all shares held by these funds.
(5) Does not include 505,000 shares of Common Stock and warrants to purchase
110,000 shares of Common Stock owned by Rhoda L. Chase, the wife of David T.
Chase.
(6) 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.
(7) Messrs. Fowler, Makowski, Szmyt and Warner, in connection with the Initial
Public Equity Offering, entered into agreements with Goldman, Sachs & Co.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated in which the parties
have agreed, in part, 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.
(8) Mr. Swirski disclaims beneficial ownership of the shares held by the Advent
International Group.
112
<PAGE>
(9) 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. Mr. Chisholm's options with respect to 250,000 shares have
vested and are immediately exercisable as of the date hereof.
(10) 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. Mr. Chance's options with respect to 250,000 shares have
vested and are immediately exercisable as of the date hereof.
(11) 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 the date hereof.
(12) 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 $12.24 per
share, subject to the terms and conditions of a stock option agreement which
options vest ratably over a three year period. Mr. Szmyt's options with
respect to 51,200 shares have vested and are immediately exercisable as of
the date hereof.
(13) 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 $12.24 per share,
subject to the terms and conditions of a stock option agreement which
options vest ratably over a three year period. Mr. Warner's options with
respect to 51,200 shares have vested and are immediately exercisable as of
the date hereof.
(14) Mr. Makowski was the Chief Operating Officer of PCI. Mr. Makowski's
employment was terminated effective as of May 1998.
(15) 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.
(16) Mr. Keefe has been granted options to purchase 250,000 shares of Common
Stock at a price of $12.00 per share, subject to the terms and conditions of
a stock option agreement, which options vest quarterly over a two year
period. Mr. Keefe's options with respect to 156,250 shares are immediately
exercisable as of the date hereof.
(17) MGPE holds warrants to purchase 4,950,000 shares of Common Stock, which
warrants are immediately exercisable as of the date hereof.
(18) Includes warrants to purchase 220,000 shares of Common Stock which are
immediately exercisable as of the date hereof.
(19) Includes warrants to purchase 110,000 shares of Common Stock which are
immediately exercisable as of the date hereof.
(20) Includes 2,264,650 options which are vested and immediately exercisable as
of the date hereof.
(21) Does not include warrants to purchase 110,000 shares of Common Stock owned
by The Darland Trust, of which Cheryl A. Chase and her children are
beneficiaries.
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<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of @Entertainment's Series A 12% Cumulative Preference Shares, par
value $0.01 per share ("Series A Preference Shares"), at March 15, 1999 by: (i)
each person known by @Entertainment to own beneficially 5% or more of the issued
and outstanding Series A Preference Shares, (ii) the directors, the Chief
Executive Officer, the four other highest paid executive officers ("Named
Executive Officers") of the Company, and a former executive officer who would
have been one of the four most highly compensated executive officers of the
Company at the end of the fiscal year 1998, 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.
The terms of the Series A Cumulative Preference Shares provide Morgan
Grenfell Private Equity Limited ("MGPE"), the initial holder of such shares,
certain rights of appointing members of the Board of Directors (both immediately
and in the future) and certain special voting rights (including at the Board of
Directors level, where the approval of a majority of directors, including at
least one MGPE Director (as defined) of the @Entertainment Board of Directors
will be required for certain matters).
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF SERIES A
SERIES A 12% CUMULATIVE
12% CUMULATIVE PREFERENCE
PREFERENCE SHARES
NAME OF BENEFICIAL OWNER SHARES OUTSTANDING
- -------------------------------------------------------------------------------- --------------- -------------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Morgan Grenfell Private Equity Limited
23 Great Winchester Street
London, EC2P 2AX
England....................................................................... 45,000 100%
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase.................................................................. -- --
Robert E. Fowler, III........................................................... -- --
Arnold L. Chase................................................................. -- --
Scott A. Lanphere............................................................... -- --
Jerzy Z. Swirski................................................................ -- --
Samuel Chisholm................................................................. -- --
David Chance.................................................................... -- --
Agnieszka Holland............................................................... -- --
Przemyslaw Szmyt................................................................ -- --
David Warner.................................................................... -- --
Donald Miller-Jones............................................................. -- --
David Keefe..................................................................... -- --
George Z. Makowski.............................................................. -- --
ALL DIRECTORS AND OFFICERS AS A GROUP (15 PERSON):.............................. -- --
</TABLE>
- ------------------------
114
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of @Entertainment's Series B Cumulative Preference Shares, par value
$0.01 per share ("Series B Preference Shares"), at March 15, 1999 by: (i) each
person known by @Entertainment to own beneficially 5% or more of the issued and
outstanding Series B 12% Cumulative Preference Shares, (ii) the directors, the
Chief Executive Officer, the Named Executive Officers of the Company, and a
former executive officer who would have been one of the four most highly
compensated executive officers of the Company at the end of the fiscal year
1998, 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF SERIES B
SERIES B 12% CUMULATIVE
12% CUMULATIVE PREFERENCE
PREFERENCE SHARES
NAME OF BENEFICIAL OWNER SHARES(3) OUTSTANDING(3)
- -------------------------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Arnold L. Chase
One Commercial Plaza
Hartford, Connecticut 06103................................................... 2,000 40%
Cheryl A. Chase
One Commercial Plaza
Hartford, Connecticut 06103 1,000 20%
Rhoda L. Chase
One Commercial Plaza
Hartford, Connecticut 06103 1,000 20%
The Darland Trust(2)
P.O. Box 472
St. Peter's House, Le Bordage St. 1,000 20%
Peter Port
Guernsey GYI6AX
Channel Islands
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase(1)............................................................... -- --
Robert E. Fowler, III........................................................... -- --
Arnold L. Chase................................................................. 2,000 40%
Scott A. Lanphere............................................................... -- --
Jerzy Z. Swirski................................................................ -- --
Samuel Chisholm................................................................. -- --
David Chance.................................................................... -- --
Agnieszka Holland............................................................... -- --
Przemyslaw Szmyt................................................................ -- --
David Warner.................................................................... -- --
Donald Miller-Jones............................................................. -- --
ALL DIRECTORS AND OFFICERS AS A GROUP (15 PERSONS):............................. 2,000 40%
</TABLE>
- ------------------------
(1) Does not include 1,000 shares of Series B Preference Shares owned by Rhoda
L. Chase, the wife of David T. Chase.
(2) A trust of which Cheryl A. Chase and her children are the beneficiaries.
(3) Pursuant to the Certificate of Designations, Preferences and Rights of
Series A 12% Cumulative Preference Shares and Series B 12% Cumulative
Preference Shares, upon the sale of shares of Series A Preference Shares,
such shares will be automatically converted into shares of Series B
Preference Shares. Therefore, these figures do not include up to 45,000
shares of Series B Preference Shares which will be issued upon the sale and
automatic conversion of shares of Series A Preference Shares.
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<PAGE>
ITEM 13. 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.
@ENTERTAINMENT REGISTRATION RIGHTS AGREEMENT
@Entertainment entered into a registration rights agreement (the
"Stockholder Registration Rights Agreement") with PIHLP, ECO, Mr. Roger
Freedman, the Steele LLC, AESOP and CACMT (collectively, the "Rightsholders") on
June 22, 1997. ECO, PIHLP, Mr. Freedman, the Aesop Fund L.P. ("AESOP"), Cheryl
Anne Chase Marital Trust ("CACMT") and the Steele LLC, 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.
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
116
<PAGE>
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
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 expired on December 31, 1998, but were automatically
extended for successive one-year periods as no party gave notice on or before
January 31, 1999.
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,
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<PAGE>
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 was due to terminate on December 31, 1998, but was automatically
renewed for successive one-year periods as no written notice of termination was
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 (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.
In September 1998 @Entertainment paid 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, effective
January 1, 1998, with Samuel Chisholm and David Chance (each individually a
"Consultant"), pursuant to which the Company pays 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.
PURCHASE AND SALE AGREEMENT FOR CUMULATIVE PREFERENCE SHARES
On January 22, 1999 @Entertainment sold Cumulative Preference Shares and
Warrants to MGPE, Arnold Chase, Cheryl Chase and Rhoda Chase for total gross
proceeds of $50 million (less an aggregate commission of $1.5 million to be paid
by @Entertainment to the purchasers). MGPE purchased $45 million of the 12%
Series A Cumulative Preference Shares. Mr. Scott Lanphere is a director of the
Company and is also a director at MGPE. Mr. Lanphere was primarily responsible
for negotiating the terms of
118
<PAGE>
purchase of the Preference Securities. Arnold Chase, who is a director of the
Company, purchased $2 million of the 12% Series B Cumulative Preference
Shares--$1 million directly and $1 million through the Darland Trust. Cheryl
Chase, who is the sister of Arnold Chase and the daughter of David Chase, the
Chairman of the Board of Directors of @Entertainment, purchased $2 million of
the 12% Series A Cumulative Preference Shares--$1 million directly and $1
million through the Darland Trust. Rhoda Chase who is the mother of Arnold Chase
and the wife of David Chase, purchased $1 million of the 12% Series B Cumulative
Preference Shares. David Chase, Arnold Chase and Mr. Lanphere did not vote as
directors of the Company on the resolutions proposing the acceptance of the
terms of the Preference Securities and the sale of such securities to MGPE,
Arnold Chase, Cheryl Chase and/or Rhoda Chase.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
The financial statements as set forth under Item 8 of this report on Form
10-K are incorporated herein by reference. Financial statement schedules have
been omitted since they are either not required, not applicable, or the
information is otherwise included.
(b) Reports on Form 8-K
The Company filed the following Reports on Form 8-K during the quarter ended
December 31, 1998:
Report on Form 8-K filed on November 6, 1998, regarding the press release
dated November 5, 1998 relating to @Entertainment's financial results for the
quarter ended September 30, 1998.
Report on Form 8-K filed on December 23, 1998, regarding the press release
dated December 23, 1998 relating to a preliminary agreement with an
institutional investor for the proposed sale of $50,000,000 of redeemable
preferred stock of @Entertainment.
(c) Exhibit Listing
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
3.1 Certificate of Incorporation of @Entertainment, Inc. dated 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 Amended and Restated By-Laws of @Entertainment, Inc. as amended through January 1999.
4.1 Indenture dated as of 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).
4.2 Indenture dated as of July 14, 1998 by and between @Entertainment and Bankers Trust Company relating to
@Entertainment's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior Discount Notes
due 2008 (Incorporated by reference to Exhibit 4.11 of @Entertainment's Registration Statement on Form
S-4, Registration No. 333-60659).
4.3 Form of Indenture dated as of January 20, 1999 between @Entertainment and Bankers Trust Company relating
to @Entertainment's Series C Senior Discount Notes due 2008.
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
4.4 Form of Indenture dated as of January 27, 1999 between @Entertainment and Bankers Trust Company relating
to @Entertainment's 14 1/2% Senior Discount Notes due 2009 and its 14 1/2% Series B Senior Discount
Notes due 2009.
4.5 Warrant Agreement, dated as of July 14, 1998 by and between @Entertainment and Bankers Trust Company,
relating to 1,008,000 warrants to purchase an aggregate of 1,824,514 shares of Common Stock.
(Incorporated by reference to Exhibit 4.1 of @Entertainment's Registration Statement on Form S-3,
Registration No. 333-64715).
4.6 Warrant Agreement, dated as of January 27, 1999 by and between @Entertainment and Bankers Trust Company,
relating to 1,027,200 warrants to purchase an aggregate of 1,813,665 shares of Common Stock.
4.7 Form of Preference Warrant Agreement, dated as of January 27, 1999 by and between @Entertainment and
Bankers Trust Company, relating to 5,500,000 warrants to purchase an aggregate of 5,500,000 shares of
Common Stock.
4.8 Registration Rights Agreement dated as of October 31, 1996 among PCI and Merrill Lynch, Pierce, Fenner
and Smith Incorporated. (Incorporated by reference to Exhibit 10.1 of PCI's Registration Statement on
Form S-4, Registration No. 333-20307).
4.9 Registration Rights Agreement, dated as of July 14, 1998 among @Entertainment and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and J.P. Morgan Securities Inc. (Incorporated by reference to Exhibit 10.1
to @Entertainment's Registration Statement on Form S-4, Registration Number 333-60659)
4.10 Form of Registration Rights Agreement, dated January 27, 1999 among @Entertainment and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities and Deutsche Bank
Securities Inc.
4.11 Preference Registration Rights Agreement, dated as of January 27, 1999 among @Entertainment and Morgan
Grenfell Private Equity Limited on behalf of Morgan Grenfell Development Capital Syndication Limited,
Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
4.12 Warrant Registration Rights Agreement dated as of July 14, 1998 between @Entertainment and Merrill Lynch
& Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.
(Incorporated by reference to Exhibit 4.2 to @Entertainment's Registration Statement on Form S-3,
Registration Number 333-64715)
4.13 Warrant Registration Rights Agreement dated as of January 27, 1999 between @Entertainment and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities and Deutsche
Bank Securities Inc.
4.14 Form of Preference Warrant Registration Rights Agreement, dated as of January 27, 1999 among
@Entertainment and Morgan Grenfell Private Equity Limited on behalf of Morgan Grenfell Development
Capital Syndication Limited, Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
4.15 Certificate of Designations, Preferences and Rights of Series A 12% Cumulative Preference Shares and
Series B 12% Cumulative Preference Shares.
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
10.1 Purchase Agreement dated October 24, 1996 between PCI and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated relating to $130,000,000 aggregate principal amount of PCI's 9 7/8% Senior
Notes due 2003 (Incorporated by reference to Exhibit 1.1 of PCI's Registration Statement on Form S-4,
Registration No. 333-20307).
10.2 Form of Underwriting Agreement, dated July 30, 1997 related to the sale of shares of Common Stock.
10.3 Purchase Agreement dated as of July 8, 1998 between and among @Entertainment and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. relating to 252,000
units consisting of 14 1/2% Senior Discount Notes Due 2008 and 1,008,000 warrants to purchase 1,824,514
shares of Common Stock (Incorporated by reference to Exhibit 1.1 to @Entertainment's Registration
Statement on Form S-4, Registration No. 333-60659).
10.4 Purchase Agreement dated January 19, 1999 between @Entertainment and Merrill Lynch International
relating to @Entertainment's Series C Senior Discount Notes due 2008.
10.5 Purchase Agreement dated January 22, 1998 between @Entertainment and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Deutsche Bank Securities Inc. relating to 256,800 units
consisting of 14 1/2% Senior Discount Notes due 2009 and 1,027,000 warrants to purchase an aggregate of
1,813,665 shares of Common Stock.
10.6 Form of Purchase Agreement dated January 22, 1999, between @Entertainment and Arnold Chase, Cheryl
Chase, and Rhoda Chase relating to 5000 shares of Series B 12% Cumulative Preference Stock and 5,000
warrants to purchase an aggregate of 550,000 shares of Common Stock.
10.7 Form of Purchase Agreement dated January 22, 1999, between @Entertainment and Morgan Grenfell Private
Equity Limited on behalf of Morgan Grenfell Development Capital Syndication Limited relating to 45,000
shares of Series A 12% Cumulative Preference Stock and 45,000 Warrants to Purchase an Aggregate of
4,950,000 Shares of Common Stock.
10.8 Employment Agreement, dated as of January 1, 1997, between PCI and Robert E. Fowler, III, including
Stock Option Agreement. Assigned to @Entertainment as of June 23, 1997. (Incorporated by reference to
Exhibit 10.7 of PCI's Registration Statement on Form S-4, Registration No. 333-20307).
10.9 Consulting Agreement, dated as of February 7, 1997, between PCI and Przemyslaw A. Szmyt, as amended.
Assigned to @Entertainment as of June 23, 1997. (Incorporated by reference to Exhibit 10.11 to
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.10 Stock Option Agreement dated as of June 22, 1997 between @Entertainment and Przemyslaw A. Szmyt, as
amended March 31, 1998.
10.11 Amendment to Consulting Agreement, effective January 1, 1998, between PCI and Przemyslaw A. Szmyt,
assumed by @Entertainment as of June 23, 1997.
10.12 Amendment to Consulting Agreement, dated March 1, 1999 by and between PCI and Przemyslaw Szmyt assumed
by @Entertainment as of June 23, 1997.
10.13 Stock Option Agreement dated as of January 26, 1998 between @Entertainment and Przemyslaw A. Szmyt.
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
10.14 Employment Agreement, dated April 7, 1997, between PCI and David Warner. Assigned to @Entertainment as
of June 23, 1997. (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 of June 22, 1997, between @Entertainment and David Warner, as
amended March 31, 1998.
10.16 Form of Stock Option Agreement dated as of January 26, 1998 between @Entertainment and David Warner.
10.17 Employment Agreement dated as of January 1, 1998, between PCI and Dorothy Hansberry. (Incorporated by
reference to Exhibit 10.19 of @Entertainment's Registration Statement on Form S-4, Registration No.
333-60659)
10.18 Employment Agreement, dated as of June 8, 1998, between @Entertainment and Donald Miller-Jones.
10.19 Stock Option Agreement dated as of June 8, 1998 between @Entertainment and Donald Miller-Jones.
10.20 Consultancy Agreement dated November 17, 1997, between @Entertainment and Samuel Chisholm and David
Chance. (Incorporated by reference to Exhibit 10.22 of @Entertainment's Registration Statement on Form
S-4, Registration No. 333-60659)
10.21 Stock Option Agreement dated as of January 1, 1998, between @Entertainment and Samuel Chisholm.
10.22 Stock Option Agreement dated as at January 1, 1998, between @Entertainment and David Chance.
10.23 Form of Consultancy Agreement dated as at January 23, 1998 between @Entertainment and Agnieszka Holland.
10.24 Employment Agreement, dated January 1, 1998 between PCI and David Keefe. (Incorporated by reference to
Exhibit 10.17 of @Entertainment's Registration Statement on Form S-4, Registration No. 333-60659)
10.25 Stock Option Agreement, dated as at January 1, 1998, between @Entertainment and David Keefe.
(Incorporated by reference to Exhibit 10.18 of @Entertainment's Registration Statement on Form S-4,
Registration No. 333-60659)
10.26 Form of Indemnification Agreement between @Entertainment and its executive officers and directors.
10.27 Commercial Cooperation Agreement between At Entertainment Limited and Philips Business Electronics B.V.
(Incorporated by reference to Exhibit 10.1 to @Entertainment's Annual Report on Form 10-K/A for the year
ended December 31, 1997).
11 Statement re computation of per share earnings (contained in Note 14 to Consolidated Financial
Statements contained in this Annual Report on Form 10-K).
21 Subsidiaries of @Entertainment
27 Financial Data Schedule
</TABLE>
122
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
@ ENTERTAINMENT, INC.
BY: /S/ ROBERT E. FOWLER III
-----------------------------------------
Robert E. Fowler III
CHIEF EXECUTIVE OFFICER AND DIRECTOR
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT E. FOWLER III Chief Executive Officer and
- ------------------------------ Director March 30, 1999
Robert E. Fowler III
Chief Financial Officer
/s/ DONALD MILLER-JONES (Principal Financial and
- ------------------------------ Principal Accounting March 30, 1999
Donald Miller-Jones Officer)
/s/ ARNOLD L. CHASE Director
- ------------------------------ March 30, 1999
Arnold L. Chase
/s/ DAVID T. CHASE Chairman of the Board of
- ------------------------------ Directors March 30, 1999
David T. Chase
- ------------------------------ Director
Scott Lanphere
/s/ JERZY Z. SWIRSKI Director
- ------------------------------ March 30, 1999
Jerzy Z. Swirski
/s/ DAVID CHANCE Director
- ------------------------------ March 30, 1999
David Chance
/s/ SAMUEL CHISHOLM Director
- ------------------------------ March 30, 1999
Samuel Chisholm
/s/ AGNIESZKA HOLLAND Director
- ------------------------------ March 30, 1999
Agnieszka Holland
123
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
of
@ ENTERTAINMENT, INC.
Dated: January 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 OFFICES
Section 1. Registered Office.............................. -1-
Section 2. Other Offices.................................. -1-
ARTICLE II STOCKHOLDERS ............................................... -1-
Section 1. Meetings....................................... -2-
Section 2. Notice of Meetings............................. -2-
Section 3. Manner of Giving Notice; Affidavit of Notice... -2-
Section 4. Stockholder List............................... -2-
Section 5. Stockholder Action............................. -2-
Section 6. Quorum......................................... -2-
Section 7. Notice of Agenda Matters....................... -3-
Section 8. Proxies........................................ -4-
Section 9. Voting......................................... -4-
Section 10. Voting of Certain Shares....................... -4-
Section 11. Treasury Stock................................. -4-
ARTICLE III DIRECTORS ............................................... -5-
Section 1. Powers......................................... -5-
Section 2. Election of Directors.......................... -5-
Section 3. Dividends and Reserves......................... -6-
Section 4. Regular Meetings............................... -6-
Section 5. Special Meetings............................... -6-
Section 6. Quorum......................................... -6-
Section 7. Written Action................................. -7-
Section 8. Waiver of Notice............................... -7-
Section 9. Participation in Meetings by Conference
Telephone...................................... -7-
Section 10. Committees..................................... -7-
Section 11. Fees and Compensation of Directors............. -8-
Section 12. Rules.......................................... -8-
Section 13. Interested Directors........................... -8-
ARTICLE IV OFFICERS.................................................... -8-
Section 1. Offices and Official Positions................. -8-
Section 2. Compensation................................... -9-
Section 3. Succession..................................... -9-
Section 4. Resignations................................... -9-
Section 5. Authority and Duties........................... -9-
Section 6. Approval of Loans to Officers.................. -9-
ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS........................ -9-
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
Section 1. Contracts and Other Instruments ............. -9-
Section 2. Loans ....................................... -10-
Section 3. Checks, Drafts, etc. ....................... -10-
Section 4. Deposits .................................... -10-
ARTICLE VI STOCKS ................................................... -10-
Section 1. Certificates ................................ -10-
Section 2. Transfer..................................... -10-
Section 3. Lost, Stolen or Destroyed Certificates ...... -11-
Section 4. Record Date ................................. -11-
Section 5. Registered Owners ........................... -12-
ARTICLE VII INDEMNIFICATION AND INSURANCE............................. -12-
Section 1. Indemnification ............................. -12-
Section 2. Contract .................................... -13-
Section 3. Non-exclusivity ............................. -13-
Section 4. Indemnification of Employees and Agents ..... -13-
Section 5. Insurance ................................... -13-
ARTICLE VIII GENERAL PROVISIONS ....................................... -14-
Section 1. Fiscal Year ................................. -14-
Section 2. Corporate Seal .............................. -14-
Section 3. Reliance upon Books, Reports and Records .... -14-
Section 4. Time Periods ................................ -14-
Section 5. Dividends ................................... -14-
Section 6. Construction and Definitions ................ -14-
ARTICLE IX AMENDMENTS ............................................... 15-
Section 1. Amendments .................................. -15-
-ii-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
@ ENTERTAINMENT, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of @
ENTERTAINMENT, INC., a Delaware corporation (the "Corporation"), shall be
located in the City of Wilmington, County of New Castle, State of Delaware, and
the name of its registered agent is Corporation Service Company.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Meetings.
a. Time and Place of Meetings. All meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such times and places, either within or outside of the State of
Delaware, as may be authorized by the Board of Directors from time to time and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
b. Annual Meeting. Annual meetings of stockholders shall be
held on a date and time as shall be designated from time to time by the Board of
Directors, at which meeting the stockholders shall elect by plurality vote the
directors to succeed those whose terms expire and shall transact such other
business as may properly be brought before the meeting.
c. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may only be called by the Chairman of the Board of
Directors, the Chief Executive Officer or any two (2) directors. Business
transacted at any special meeting of the stockholders shall be limited to the
purposes stated in the notice of such meeting.
<PAGE>
Section 2. Notice of Meetings. Written notice of every meeting of
the stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting, except as otherwise provided herein or by law. When a meeting is
adjourned to another place, date or time, written notice need not be given of
the adjourned meeting if the place, date and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. Notice of the time, place and purpose of any
meeting of the stockholders may be waived in writing either before or after such
meeting and will be waived by any stockholder by such stockholder's attendance
at the meeting in person or by proxy. Any stockholder so waiving notice of such
a meeting shall be bound by the proceedings of any such meeting in all respects
as if due notice thereof had been given.
At a special meeting, notice of which has been given in accordance
with this Section 2, action may not be taken with respect to business, the
general nature of which has not been stated in such notice. At an annual
meeting, action may be taken with respect to business stated in the notice of
such meeting, given in accordance with this Section 2 and with respect to any
other business as may properly come before the meeting.
Section 3. Manner of Giving Notice: Affidavit of Notice. Written
notice of any meeting of stockholders, if mailed, is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation. An affidavit of the Secretary
or an assistant secretary or of the transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
Section 4. Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order, and showing the address of
each such stockholder and the number of shares registered in the name of each
such stockholder. Such list shall be open to examination of any stockholder of
the Corporation during ordinary business hours, for any purpose germane to the
meeting, for a period of at least ten (10) days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of meeting during the entire time thereof, and subject to the
inspection for any purpose germane to the meeting of any stockholder who may be
present.
Section 5. Stockholder Action. Any action required or permitted to
be taken by the stockholders of the Corporation shall be effected at a duly
called annual or special meeting of such holders and shall not be effected by a
consent in writing by such holders; provided, however, that any action required
to be taken by the stockholders of the Corporation may be effected by a
-2-
<PAGE>
consent to such action signed by the holders of the class of stock entitled to
vote thereon if approved by not less than a two-thirds (2/3) vote of the
Continuing Directors (as defined in the Certificate of Incorporation). All such
consents shall be filed with the corporate records of the Corporation.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
Section 7. Notice of Agenda Matters. At any annual or special
meeting of stockholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of Directors
or by any stockholder who complies with the procedures set forth in this Section
7. For business properly to be brought before the annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received by the Secretary of the
Corporation not less than one hundred twenty (120) days prior to the anniversary
date of the Corporation's notice of annual meeting provided with respect to the
previous year's annual meeting; provided, however, that in the event that less
than forty (40) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. To be in property written form, a
stockholder's notice to the Secretary shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder; and (iv) any material interest
of the stockholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 7.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 7; and if
he should so determine, then he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 8. Proxies. At every meeting of the stockholders, each
stockholder having the right to vote thereat shall be entitled to vote in person
or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more
-3-
<PAGE>
than three (3) years prior to such meeting, unless such proxy provides for a
longer period; and it shall be filed with the Secretary of the Corporation
before, or at the time of, the meeting.
Section 9. Voting. The stockholders entitled to vote at any meeting
of stockholders shall be determined in accordance with the provisions of Section
4 of Article VI of these Bylaws, subject to the provisions of Sections 217 and
218 of the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgors and joint owners of stock and to voting trusts and other
voting agreements).
Except as otherwise provided by statute or by the Certificate of
Incorporation, each stockholder shall be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing in
the name of such stockholder on the books of the Corporation on the record date
for the meeting and such votes may be cast either in person or by written proxy.
Every proxy must be executed in writing by the stockholder or his or her duly
authorized attorney. All elections of directors shall be by written ballot,
unless otherwise provided in the Certificate of Incorporation. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock which
has voting power present in person or represented by proxy and which has
actually voted shall decide any question properly brought before such meeting,
unless the question is one upon which by express provision of law, the
Certificate of Incorporation or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 10. Voting of Certain Shares. Shares standing in the name of
another corporation, domestic or foreign, and entitled to vote may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe or,
in the absence of such provision, as the board of directors of such corporation
may determine. Shares standing in the name of a deceased person, a minor or an
incompetent and entitled to vote may be voted by his administrator, executor,
guardian or conservator, as the case may be, either in person or by proxy.
Shares standing in the name of a trustee, receiver or pledgee and entitled to
vote maybe voted by such trustee, receiver or pledgee either in person or by
proxy as provided by Delaware law.
Section 11. Treasury Stock. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by the
Corporation, shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this section shall be
construed to limit the right of the Corporation to vote shares of its own stock
held by it in a fiduciary capacity.
-4-
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors, which
may exercise all such powers of the Corporation and do all such lawful acts
and things as are not by statute or by the Certificate of Incorporation or by
these Bylaws directed or required to be exercised or done by the stockholders.
Section 2. Election of Directors.
a. Number and Term of Office. The Board of Directors shall
consist of at least one (1) and not more than eleven (11) directors. The
authorized number of directors of the Corporation shall be set initially at five
(5), and shall be subject to change as set from time to time pursuant to a
resolution duly adopted by a majority of the Board of Directors then in office.
The directors shall be classified, with respect to the time for which they
severally hold office, into three (3) classes, as nearly equal in number as
possible as determined from time to lime pursuant to a resolution duly adopted
by a majority of the Board of Directors then in office. Upon the effective date
of the Corporation's initial public offering pursuant to the Securities Act of
1933, as amended, the first class shall initially consist of two (2) directors,
the second class shall initially consist of two (2) directors and the third
class shall initially consist of one (1) director. At each annual election held
after such classification, directors shall be chosen for a full term to succeed
those whose terms expire. Any decrease in the authorized number of directors
shall nor be effective until the expiration of the term of the directors then in
office, unless, at the time of such decrease there shall be vacancies on the
Board of Directors which are being eliminated by such decrease.
b. Resignations and Vacancies. Any director may resign at any
time by giving written notice to the Chairman of the Board of Directors, the
Chief Executive Officer or the Board of Directors. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. If, at any other
time than the annual meeting of the stockholders, any vacancy occurs in the
Board of Directors caused by resignation, death, retirement, disqualification or
removal from office of any director or otherwise, or any new directorship is
created by an increase in the authorized number of directors pursuant to Section
2(a) of Article III of these Bylaws, a majority of the directors then in office,
although less than a quorum, may choose a successor, or fill the newly created
directorship, and the director so chosen shall hold office for the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until his successor shall be duly elected and qualified, unless
sooner displaced.
c. Notification of Nominations. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or a proxy committee appointed
by the Board of Directors or by any stockholder entitled to vote in the election
of directors generally. However, any such stockholder may nominate one or more
persons
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<PAGE>
for election as directors at a meeting only if such stockholder has given timely
notice in proper written form of his intent to make such nomination or
nominations. To be timely, a stockholder's notice must be delivered to or mailed
and received by the Secretary of the Corporation not later than one hundred
twenty (120) days prior to such meeting; provided, however, that in the event
that less than forty (40) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth (10th)
day following the date on which such notice of the date of such meeting was
mailed or such public disclosure was made. To be in proper written form, a
stockholder's notice to the Secretary shall set forth: (i) the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (ii) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (iv) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (v) the consent of each nominee
to serve as a director of the Corporation if so elected. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 3. Dividends and Reserves. Dividends on stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, in shares
of stock or otherwise in the form, and to the extent, permitted by law. The
Board of Directors may set apart, out of any funds of the Corporation available
for dividends, a reserve or reserves for working capital or for any other lawful
purpose, and also may abolish any such reserve in the manner in which it was
created.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice immediately after the annual meeting of the
stockholders and at such other time and place as shall from time to time be
determined by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors, the Chief
Executive Officer or any two (2) directors.
Section 6. Quorum. At all meetings of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time to another place, time or date, without
notice other than announcement at the meeting, until a quorum shall be present.
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<PAGE>
Section 7. Written Action. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be) consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board of Directors or
Committee.
Section 8. Waiver of Notice. The transactions of any meeting of the
Board of Directors or any committee, however called and noticed or wherever
held, shall be valid as though had at a meeting duly held after regular call and
notice, if a quorum be present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, or a consent to
hold such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the Corporate records or made a part
of the minutes of the meeting.
Section 9. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 10. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation and each to have such lawfully delegable powers and duties as the
Board of Directors may confer. Each such committee shall serve at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Except as otherwise
provided by law, any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to approving, adopting or recommending to the
stockholders any action or matter expressly required by law to be submitted to
stockholders for approval, or adopting, amending or repealing these Bylaws of
the Corporation. Any committee or committees so designated by the Board of
Directors shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Unless otherwise prescribed by
the Board of Directors, a majority of the members of the committee shall
constitute a quorum for the transaction of business, and the act of a majority
of the members present at a meeting at which there is a quorum shall be the act
of such committee.
Each committee shall prescribe its own rules for calling and holding
meetings and its method of procedure, subject to any rules prescribed by the
Board of Directors, and shall keep a written record of all actions taken by it.
Section 11. Fees and Compensation of Directors. Each director may
receive such fees and other compensation, along with reimbursement of expenses
incurred on behalf of the
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<PAGE>
Corporation or in connection with attendance at meetings, as the Board of
Directors may from time to time determine. No such payment of fees or other
compensation shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving fees and compensation for such
services.
Section 12. Rules. The Board of Directors may adopt such special
rules and regulations for the conduct of their meetings and the management of
the affairs of the Corporation as they may deem proper, not inconsistent with
law, the Certificate of Incorporation or these Bylaws.
Section 13. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers is or are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the directors or officers are present
at or participate in the meeting of the Board of Directors or the committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if: (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. Offices and Official Positions. The officers of the
Corporation shall be chosen by the Board of Directors and may include a Chairman
of the Board of Directors (who must be a director as chosen by the Board of
Directors) and shall include a Chief Executive Officer, one or more Vice
Presidents (if so elected by the Board of Directors), a Secretary and a Chief
Financial Officer. The Board of Directors also may appoint a Treasurer and such
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers as the Board of Directors shall determine. Any two or more offices may
be held by the same person. With the exception of the Chairman of the Board of
Directors, none of the officers need be a director, a stockholder of the
Corporation or a resident of the State of Delaware.
Section 2. Compensation. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed by
the Board of Directors. The
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<PAGE>
Board of Directors may delegate the power to fix the compensation of other
officers and agents of the Corporation to a principal officer of the Corporation
or a committee of the Board of Directors.
Section 3. Succession. The officers of the Corporation shall hold
office until their successors are duly elected and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the Corporation may be filled by the Board of Directors.
Section 4. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer or a
committee of the Board of Directors if the Board of Directors has delegated to
such principal officer or committee the power to appoint and to remove such
officer). The resignation of any officer shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice;
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Authority and Duties. Each of the officers of the
Corporation shall have such authority and shall perform such duties incident to
each of their respective offices and such other duties as may be specified from
time to time by the Board of Directors in a resolution which is not inconsistent
with law, the Certificate of Incorporation or these Bylaws.
Section 6. Approval of Loans to Officers. The Corporation may lend
money to, or guarantee any obligation of, or otherwise assist any officer or any
other employee of the Corporation or of its subsidiary, including any officer or
employee who is a director of the Corporation or its subsidiary, whenever, in
the judgment of the directors, such loan, guaranty or assistance may reasonably
be expected to benefit the Corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts and Other Instruments. The Board of Directors
may authorize any officer or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, or of any division thereof; and such authority may be general
or confined to specific instances.
Section 2. Loans. No loans in aggregate principal amount of ten
million dollars ($10,000,000.00) or more shall be contracted on behalf of the
Corporation, or any division thereof, and no evidence of indebtedness shall be
issued in the name of the Corporation or any division thereof, unless authorized
by a resolution of the Board of Directors. Loans with an aggregate
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<PAGE>
principal amount less than ten million dollars ($10,000,000.00) may be
contracted on behalf of the Corporation, or any division thereof, if signed by
both the Chief Executive Officer and the Chief Financial Officer.
Section 3. Checks, Drafts, etc. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the place of the Corporation, or any division thereof, shall be signed by
such officer or officers, agent or agents of the Corporation, and in such
manner, as shall from time to time be authorized by the Board of Directors.
Section 4. Deposits. All funds of the Corporation, or any division
thereof, not otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other depositories
as the Board of Directors may select.
ARTICLE VI
STOCKS
Section 1. Certificates. Certificates representing shares of stock
of the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and each
such certificate shall exhibit the respective holder's name and the number of
shares and shall be signed by, or in the name of the Corporation by the Chairman
of the Board of Directors or the Chief Executive Officer and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation and shall bear the corporate seal. Where any such certificate is
countersigned by transfer agent or a registrar other than the Corporation or its
employee, the signatures of any such officers of the Corporation and the seal of
the Corporation, if any, upon such certificates may be facsimiles, engraved or
printed.
Section 2. Transfer. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. Lost, Stolen or Destroyed Certificates. The Chief
Executive Officer, the Secretary, or the Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact, satisfactory
to the Chief Executive Officer or the Secretary by the person claiming the
certificate of stock to be lost, stolen or destroyed. As a condition precedent
to the issuance of a new certificate or certificates, the Chief Executive
Officer or the Secretary may require the owner of such lost) stolen or destroyed
certificate or certificates to give the Corporation a bond in such sum and with
such surety or sureties as the Chief
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<PAGE>
Executive Officer or the Secretary may direct as indemnity against any claims
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Subject to the provisions of Section 5 of Article II of these
Bylaws, in order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
this chapter, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, then the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 5. Registered Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and
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to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise required by law.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification. The Corporation, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, including,
without limitation, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware (as that section may be amended
and supplemented from time to time), shall indemnify any director, officer or
trustee which it shall have power to indemnify under Section 145 against any
expenses, liabilities or other matters referred to in or covered by that
section. The indemnification provided for in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) shall continue as to a person
who has ceased to be as director, officer or trustee and (iii) shall inure to
the benefit of the heirs, executors and administrators of such person. The
Corporation's obligation to provide indemnification under this Article shall be
offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the Corporation or
any other person.
Expenses incurred by a director or officer of the Corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director or officer of the Corporation (or was serving at
the Corporation's request as a director or officer of another corporation) shall
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
relevant sections of the General Corporation Law of the State of Delaware.
To assure indemnification under this Article of all such persons who
are determined by the Corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the Corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such
employee benefit plan, including, without limitation, any plan of the
Corporation which is governed by the Act of Congress entitled the "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
Corporation shall be deemed to have requested a person to serve as a fiduciary
of an employee benefit plan where the performance by such person of his duties
to the Corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose
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<PAGE>
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
Section 2. Contract. The provisions of Section 1 of this Article VII
shall be deemed to be a contract between the Corporation and each director and
officer who serves in such capacity at any time while such Bylaw is in effect,
and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter based in
whole or in part upon any such state of facts.
Section 3. Non-exclusivity. The rights of indemnification provided
by this Article VII shall not be deemed exclusive of any other rights to which
any director or officer of the Corporation may be entitled apart from the
provisions of this Article VII.
Section 4. Indemnification of Employees and Agents. The Board of
Directors in its discretion shall have the power on behalf of the Corporation to
indemnify any person, other than a director or officer, made a party to any
action, suit or proceeding by reason of the fact that such person, or such
person's testator or intestate, is or was an employee or agent of the
Corporation.
Section 5. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of the General Corporation Law of
Delaware.
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ARTICLE VIII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
fixed from time to time by resolution of the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may adopt a
corporate seal and use the same by causing it or a facsimile copy thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. Reliance upon Books, Reports and Records. Each director,
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the records of the Corporation and
upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees of
the Board of Directors, or by any other person as to matters the director,
committee member or officer believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
Section 4. Time Periods. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded and the day of the event shall be included.
Section 5. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to statute. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 6. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
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ARTICLE IX
AMENDMENTS
Section 1. Amendments. Subject to the provisions of the Certificate
of Incorporation, these Bylaws may be altered, amended or repealed or new Bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting thereof duly called for that purpose if notice of such
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting. Subject to the laws of the State of Delaware,
the Certificate of Incorporation and these Bylaws, the Board of Directors may,
by majority vote of those present at any meeting at which a quorum is present,
amend these Bylaws, or enact such other bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the Corporation.
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Exhibit 4.3
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
INDENTURE
Dated as of January 20, 1999
---------------------
$36,001,321 aggregate principal amount at maturity
Series C Senior Discount Notes due 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
@ENTERTAINMENT, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 20, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
----------- -----------------
<S> <C>
310(a)(1) ......................................................... 607
(a)(2) ......................................................... 607
(b) ......................................................... 608
312(c) ......................................................... 701
314(a) ......................................................... 703
(a)(4) ......................................................... 1008(a)
(c)(1) ......................................................... 102
(c)(2) ......................................................... 102
(e) ......................................................... 102
315(b) ......................................................... 601
316(a)(last
sentence) ......................................................... 101 ("Outstanding")
(a)(1)(A) ......................................................... 502, 512
(a)(1)(B) ......................................................... 513
(b) ......................................................... 508
(c) ......................................................... 104(d)
317(a)(1) ......................................................... 503
(a)(2) ......................................................... 504
(b) ......................................................... 1003
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 ...................................................1
Accreted Value ..............................................................2
Acquired Indebtedness .......................................................3
Act .........................................................................3
Advent ......................................................................3
Affiliate ...................................................................3
Annualized Pro Forma Consolidated Operating Cash Flow .......................3
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 ......................................................5
Cable/Telecommunications Business ...........................................5
Capital Stock ...............................................................6
Capitalized Lease Obligation ................................................6
Cash Equivalents ............................................................6
Change of Control ...........................................................6
Commission ..................................................................7
Common Stock ................................................................7
Company .....................................................................7
Company Request or Company Order.............................................8
Consolidated Income Tax Expense..............................................8
Consolidated Interest Expense................................................8
Consolidated Net Income......................................................8
Consolidated Operating Cash Flow.............................................9
Corporate Trust Office.......................................................9
</TABLE>
- ----------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
<TABLE>
<S> <C>
Corporation..................................................................9
Cumulative Available Cash Flow...............................................9
Currency Agreement..........................................................10
Default.....................................................................10
Defaulted Interest..........................................................10
Depositary..................................................................10
Disinterested Director......................................................10
DTH Business................................................................10
ECO.........................................................................10
Entertainment/Programming Business..........................................10
Event of Default............................................................10
Exchange Act................................................................10
Exchange Offer..............................................................10
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
Net Cash Proceeds...........................................................14
Officers Certificate........................................................15
Opinion of Counsel..........................................................15
Organizational Contract.....................................................15
Outstanding.................................................................15
Overhead Agreement..........................................................16
Pari Passu Indebtedness.....................................................16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
THE SECURITIES
SECTION 301. TITLE AND TERMS...............................................35
SECTION 302. DENOMINATIONS.................................................36
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING................36
SECTION 304. TEMPORARY SECURITIES..........................................38
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE ..........38
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES...................39
SECTION 307. SPECIAL TRANSFER PROVISIONS...................................41
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES..............44
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED................45
SECTION 310. PERSONS DEEMED OWNERS.........................................47
SECTION 311. CANCELLATION..................................................47
SECTION 312. COMPUTATION OF INTEREST.......................................47
SECTION 313. FORM OF RULE 144A CERTIFICATE.................................48
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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.............................................49
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT ...........51
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE ......................................................52
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM..............................53
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES ..54
SECTION 506. APPLICATION OF MONEY COLLECTED................................54
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
SECTION 511. DELAY OR OMISSION NOT WAIVER..................................56
SECTION 512. CONTROL BY HOLDERS............................................57
SECTION 513. WAIVER OF PAST DEFAULTS.......................................57
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS..............................57
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................................60
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.......................61
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR ............61
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR........................63
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS ..63
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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............................................64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS .........64
SECTION 802. SUCCESSOR SUBSTITUTED.........................................66
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS....................66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS ...........67
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS ..............67
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES..........................68
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.............................69
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 .............70
SECTION 1004. CORPORATE EXISTENCE..........................................72
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS............................72
SECTION 1006. MAINTENANCE OF PROPERTIES....................................72
SECTION 1007. INSURANCE....................................................73
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT..........................73
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS................73
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES...................78
SECTION 1014. LIMITATION ON LIENS..........................................79
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY
SUBSIDIARIES ................................................80
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL 80
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..................................84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION..........................................85
SECTION 1102. APPLICABILITY OF ARTICLE.....................................85
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.........................................86
SECTION 1106. DEPOSIT OF REDEMPTION PRICE..................................87
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE........................87
SECTION 1108. SECURITIES REDEEMED IN PART..................................88
ARTICLE TWELVE[RESERVED]
ARTICLE THIRTEENDEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE ..................................................88
SECTION 1302. DEFEASANCE AND DISCHARGE.....................................89
SECTION 1303. COVENANT DEFEASANCE..........................................89
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................................................92
</TABLE>
<PAGE>
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PAGE
<PAGE>
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PAGE
<PAGE>
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PAGE
<PAGE>
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PAGE
<PAGE>
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<PAGE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
TESTIMONIUM...................................................................93
SIGNATURES AND SEALS..........................................................93
</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>
INDENTURE dated as of January 20, 1999, between
@ENTERTAINMENT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company" or the "Issuer"), 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
Series C Senior Discount Notes due 2008 (herein called 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.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in 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,
<PAGE>
2
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 $1.00 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
Accrual Date Accreted Value
------------ --------------
<S> <C>
ISSUE DATE ..... $ 0.27262
July 15, 1999 $ 0.29712
January 15, 2000 $ 0.32460
July 15, 2000 $ 0.35463
January 15, 2001 $ 0.38743
July 15, 2001 $ 0.42327
January 15, 2002 $ 0.46242
July 15, 2002 $ 0.50519
January 15, 2003 $ 0.55192
July 15, 2003 $ 0.60297
January 15, 2004 $ 0.65875
July 15, 2004 $ 0.68468
January 15, 2005 $ 0.71302
July 15, 2005 $ 0.74397
January 15, 2006 $ 0.77779
July 15, 2006 $ 0.81473
January 15, 2007 $ 0.85510
July 15, 2007 $ 0.89919
January 15, 2008 $ 0.94737
July 15, 2008 $ 1.00
</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
<PAGE>
3
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 on or after July 15, 2008,
$1.00.
"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 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
<PAGE>
4
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 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
<PAGE>
5
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 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.
<PAGE>
6
"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 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
<PAGE>
7
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 66b% 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 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.
<PAGE>
8
"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 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
<PAGE>
9
(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 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.
<PAGE>
10
"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 Euroclear System, 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.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"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.
"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
<PAGE>
11
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.
"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 and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"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
<PAGE>
12
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 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 accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of cash 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
<PAGE>
13
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 January 20, 1999.
"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 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.
<PAGE>
14
"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 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.
"Non-U.S. Person" means a person who is not a "U.S. Person"
(as defined in Regulation S).
<PAGE>
15
"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.
"Old Indenture" means the Indenture dated as of July 14, 1998
between the Issuer and Banker Trust Company, as trustee, as in effect on the
Issue Date.
"Old Notes means the Issuer's 14 1/2% Senior Discount Notes
due 2008 issued under the Old Indenture.
"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 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
<PAGE>
16
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.
"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.
<PAGE>
17
"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 and
any successor thereto that is owned by the Persons who beneficially own,
directly and indirectly, ECO 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 the Company or any Restricted Subsidiary
(including 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 or the Old 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 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
<PAGE>
18
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 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
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;
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19
(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 $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
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20
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; (j) investments
by any Restricted Subsidiary in the Issuer; and (k) to the extent not covered in
clauses (a) through (j) 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 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;
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21
(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;
(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;
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22
(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;
(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
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23
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.
"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.
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24
"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.
"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.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee,
means any officer in its corporate trust department or similar group, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Payment" has the meaning provided in Section 1011.
"Restricted Subsidiary" means a Subsidiary other than an
Unrestricted Subsidiary.
"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.
"Series D Indenture" meas that certain indenture that shall be
dated within 30 days from the date hereof between the Company and Bankers Trust
Company, as trustee.
"Series D Notes" means those notes outstanding under the
Series D Indenture.
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25
"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, Mr.
Freedman, Steele LLC, AESOP and CACMT (as such terms are defined in the
Company's C Notes Offering Memorandum dated January 20, 1999) 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 Company and its
Subsidiaries for their most recently completed fiscal year or (b) is or are the
owner(s) of more than 5% of the consolidated assets of the Company and its
Subsidiaries as at the end of such fiscal year, all as calculated in accordance
with GAAP and as shown on the consolidated financial statements of the Company
and its Subsidiaries for such fiscal year.
"Special 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
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26
(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 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.
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27
"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).
"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:
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28
(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 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.
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(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.
(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
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30
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 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.
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31
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.
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. 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.
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32
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.
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 Securities shall be known as the "Series C 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.
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33
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.
Securities offered and sold in offshore transactions in
reliance on Regulation S 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"), registered in the name of the
nominee of the Depositary, 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 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 a Security is sold under an effective
Registration Statement each Global Security and each Physical Security shall
bear the following legend set forth below (the "Private Placement Legend") on
the face thereof until at least the 41st day after the Closing Date and receipt
by the Company and the Trustee of a certificate substantially in the form of
Exhibit B hereto.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER OF THIS SECURITY (1) REPRESENTS THAT IT IS (A) A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
("RULE 144A")) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN THE TIME
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34
PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED
VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM , OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENT OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
<PAGE>
35
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Security shall also bear the following legend on
the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR SYSTEMS ("EUROCLEAR"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF BANKERS TRUST COMPANY OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR
(AND ANY PAYMENT IS MADE TO BANKERS TRUST COMPANY OR SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, BANKERS
TRUST COMPANY, HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO EUROCLEAR OR NOMINEES OF EUROCLEAR OR TO A
SUCCESSOR OF EUROCLEAR OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF
THE INDENTURE.
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
$36,001,321 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 Securities shall be known and designated as the "Series C
Senior Discount Notes due 2008" of the Company. The Stated Maturity of the
Series C Senior Discount Notes due 2008 shall be July 15, 2008. The Series C
Senior Discount Notes due 2008 are issued at a
<PAGE>
36
discount. Original issue discount will accrete from the Issue Date (January 20,
1999) until the stated maturity of the Securities on July 15, 2008. In addition,
except as otherwise set forth herein, the Series C Senior Discount Notes due
2008 will bear cash interest at the rate of 7% per annum on the principal amount
at maturity of $36,001,321 from January 15, 2004, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable on July 15, 2004 and semi-annually thereafter on July 15 and January 15
in each year and at said Stated Maturity, until the principal thereof is paid or
duly provided for. The principal of the Securities shall not accrue cash
interest until January 15, 2004, 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 18 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.
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; provided that at the Issue Date the
Securities may be issued in denomination of $1.00 principal amount at maturity
and any integral amounts thereof. The Company may convert, at its option and to
the extent practical, the Securities to denominations of $1,000 aggregate
principal amount at maturity so long as such conversion is not adverse to the
Holders.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
any of its Chairman, its President or a Vice President, the Chief Executive
Officer or the Chief Financial Officer under its corporate seal reproduced
thereon, the Chief Executive Officer or the Chief Financial Officer 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.
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37
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
SECTION 304. TEMPORARY SECURITIES.
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38
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 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, the Company shall execute, and the Trustee shall
<PAGE>
39
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
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 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
<PAGE>
40
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 a portion of the beneficial interest in the Global Security
to beneficial owners, upon receipt of written instructions from the Depositary,
the Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount at maturity of the 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.
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41
(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.
(g) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to Section 306(b), the Security Registrar shall reflect on its
books and records a decrease in the principal amount at maturity of the relevant
Global Security equal to the principal amount at maturity of such Physical
Securities and the Company shall execute and the Trustee shall authenticate and
deliver one or more Physical Securities having an equal aggregate principal
amount at maturity.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
(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 principal amount thereof that the transferor has
notified the Security Registrar that it has agreed to transfer.
As used in this Indenture,"Form of Regulation S 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) TRANSFERS PURSUANT TO REGULATION S.
Prior to the 41st say following the Closing Date, the
Registrar shall register any transfer of any Note to a Non-U.S. Person
upon the receipt of a certificate substantially in the form of Exhibit
A hereto from the proposed transferor.
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42
(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 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
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43
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, as applicable.
(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.
(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.
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44
(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.
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.
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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 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:
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(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 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
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47
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.
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 REGULATION S CERTIFICATE.
Upon any transfer of the Securities pursuant to Regulation S,
the transferor of such Securities shall deliver to the Trustee a certificate in
the form of Exhibit A hereto.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
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48
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
(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
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(3) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(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
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50
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 aggregate principal
amount at maturity 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;
(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;
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(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 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
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(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 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
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53
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue 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;
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54
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
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
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55
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
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
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56
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
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
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(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.
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
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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, 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
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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;
(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
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Statement of Eligibility on Form T-1 supplied to the Company will be true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 604. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(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
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and hold harmless the Trustee shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture. As security
for the performance of such obligations of the Company, the Trustee shall have a
claim prior to the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the payment of principal of
(and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; PROVIDED, HOWEVER, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
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.
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(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such 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
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manner provided for in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the 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.
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ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not, in a single transaction or through a
series of 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 shall 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
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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 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.
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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 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:
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(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 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
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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 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.
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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.
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
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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 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) two
business days prior to the 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.
Each amount payable according to the preceding paragraph shall
be paid unconditionally by credit transfer in the payment currency and in same
day, freely transferable cleared funds no later than 10:00 a.m. (New York City
time) on the relevant day to such account at such bank as the Paying Agent may
from time to time specify for such purpose by written notice to the Company at
least two business days prior to the date on
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which the Company must effectuate such wire transfer. The Company shall before
10:00 a.m. on the second business day prior to the day on which the Paying Agent
receives payment, procure that the bank effecting payment for it confirm by
telex or SWIFT MT100 message to the Paying Agent the payment instructions
relating to such payment.
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 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
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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.
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.
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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.
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) 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
are required to be filed with the Commission pursuant to such Section 13(a) or
15(d) or any successor provision thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
required by such Section 13(a) or 15(d) of the Exchange Act regardless of
whether the Company is required to file such documents. 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
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law or regulations, promptly upon written request supply copies of such
documents to any holder of Securities.
(b) The Company will disclose the current and accumulated
earnings and profits, if any, for any fiscal year in its annual report on form
10K so long as it is required to file such reports. Thereafter, the Company will
provide such information separately to the Holders who so request by written
notice to the Company.
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 of the following
actions:
(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,
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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 the Company 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 guarantees of any Indebtedness of
any Restricted Subsidiary by the Company or 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:
(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 (i) of the
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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, an amount equal to the
lesser of the Fair Market Value of such Investment and 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 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
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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 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.
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(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
Restricted Subsidiary and after the Old Notes are no longer outstanding, 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 (or if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20 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 (assuming that at least two such Directors
exist), or in the event that at least two members of the Board of Directors are
not 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 (or if an investment
banking firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal
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firm or accounting 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.
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
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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) (ii) the occurrence of any default or breach of any covenant or
agreement under any Indebtedness of the Company arising as a result of the
creation of such guarantee or (iii) 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). In the event that clause (ii) of this paragraph (b) shall apply
immediately after the creation of such guarantee under paragraph (a) above, then
such guarantee need not be created.
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
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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 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.
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(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 (together with and
including any Notes that may be outstanding pursuant to the Series B Indenture),
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 and applied under the Old Indenture for the repurchase
of the Old 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 the Excess
Proceeds, Securities to be purchased will be selected on a PRO RATA basis
(together with and including any Notes that may be outstanding pursuant to the
Series B Indenture). Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset to zero.
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(d) If the Company becomes obligated to make an 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 loans or advances to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to 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 D
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 B attached to 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
<PAGE>
84
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)).
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
<PAGE>
85
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, 2004 on not less
than 30 or more than 60 days' prior notice at the redemption prices (expressed
as percentages of Accreted Value) 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>
YEAR REDEMPTION
- ---- PRICE
----------
<S> <C>
2004............................................................109.000%
2005............................................................106.000
2006............................................................103.000
2007 and thereafter.............................................100.000
</TABLE>
(b) The Company will redeem or purchase Series C Notes in
denominations of $1,000 principal amount at maturity and integral multiples
thereof in accordance with the
<PAGE>
86
terms of this Indenture unless the Series C Notes are in denominations of less
than $1,000 principal amount at maturity. In such events, the Series C Notes
will be redeemed or purchased in multiples of the denomination in which the
Series C Notes are then denominated.
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 $100.
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.
<PAGE>
87
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.
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.
<PAGE>
88
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.
SECTION 1303. COVENANT DEFEASANCE.
<PAGE>
90
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 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
<PAGE>
91
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 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.
<PAGE>
92
(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 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
<PAGE>
93
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: /s/ROBERT E. FOWLER, III
------------------------
Title: CHIEF EXECUTIVE OFFICER
Attest: /s/DONALD MILLER JONES
----------------------
Title: CHIEF FINANCIAL OFFICER
BANKERS TRUST COMPANY
[SEAL] By: /s/IAN HANCOCK
--------------
Title:
<PAGE>
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 (predecessor to
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>
<CAPTION>
DATE MANAGEMENT AGREEMENTS
<S> <C>
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. Z 0.0.
<PAGE>
96
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>
<CAPTION>
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, 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
BORROWER Lender Exclusive of Amount of Loan
Accrued Interest
<S> <C> <C> <C>
Poland Communications, AmerBank-Bank $6,500,000.00 $6,500,000.00
Inc. Amerykanski w
Polsce S.A.
Szczecinska Telewizja Bank Rozwoju DM 3,204,900.00 DM 3,948,615.17
Kablowa Sp. Z o.o. Eksportu S.A.
Telewizja Kablowa Polski Bank $333,334.00 $500,000.00
Gosat Sp. Z o.o. Eksportu S.A.
</TABLE>
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc., the Indenture dated as of October 31, 1996
between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc. and the Indenture dated as of January 20, 1999 between
Bankers Trust Company, as Trustee, and @Entertainment, Inc.
<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 1,818 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.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
2) Limitations on the payment of indebtedness owed to the Company or any
Subsidiary.
The Indenture dates as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
<PAGE>
100
C) LIMITATIONS ON THE ABILITY OF A COMPANY TO MAKE INVESTMENTS IN THE
COMPANY OR ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
4) LIMITATIONS ON TRANSFERRING PROPERTY OR ANY ASSETS TO THE COMPANY OR
ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
<PAGE>
101
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 1,818 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.
<PAGE>
102
<PAGE>
@ENTERTAINMENT, INC.
Series C Senior Discount Note due 2008
ISIN: XS 0094166096
Common Code: 9416609
No.1 $36,001,321
@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 BT Globenet Nominees Limited, or its
registered assigns, the principal sum of THIRTY SIX MILLION ONE THOUSAND THREE
HUNDRED AND TWENTY ONE DOLLARS ($36,001,321) on July 15, 2008.
<TABLE>
<S> <C>
Issue Date: January 20, 1999
Issue Price of Note: $.27262 per $1.00 principal amount at
Maturity
Yield to Maturity: 18 1/2%
Accretion Period: Original issue discount will accrete from
Issue Date up to July 15, 2008.
Cash Interest Payment Dates: January 15 and July 15 of each year
commencing July 15, 2004.
Regular Record Dates: January 1 and July 1 of each year.
</TABLE>
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.
<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: January 20, 1999 @ENTERTAINMENT, INC.
By:
--------------------------------
Title:
By:
--------------------------------
Title:
<PAGE>
A-3
This is one of the Series C Senior Discount Notes due 2008 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE>
A-4
@ENTERTAINMENT, INC.
Series C 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, 2008. In addition, 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 7% per annum on the principal amount at maturity of $36,001,321
commencing on July 15, 2004.
Cash interest will be payable semiannually (to the holders of
record of the 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 July 15, 2004. Except in the case of a Registration Default
(as defined herein), the principal of this Note shall not accrue cash
interest until January 15, 2004, 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 18 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.
Cash Interest on this Note will accrue from the most recent
date to which interest has been paid on this Note or, if no interest has been
paid, from July 15, 2004; PROVIDED that, if there is no existing default in the
payment of 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, 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.
Interest of 7% will be calculated on the principal amount at maturity of
$36,001,321.
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 of 18 1/2%.
<PAGE>
A-5
2. METHOD OF PAYMENT
The Company will pay cash interest (except defaulted interest)
on the principal amount of the Notes on each January 15 and July 15, commencing
July 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; 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
January 20, 1999 (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 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
<PAGE>
A-6
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
$36,001,321.
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, 2004 on not less than 30 or
more than 60 days' prior notice at the redemption prices (expressed as
percentages of Accreted Value) 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>
YEAR REDEMPTION
PRICE
<S> <C>
2004................................................... 109.000%
2005................................................... 106.000
2006................................................... 103.000
2007 and thereafter................................... 100.000
</TABLE>
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 $1.00 principal amount at maturity may be redeemed in
part in integral multiples of $1.00 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 $1.00 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
<PAGE>
A-7
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 $1.00 principal amount at maturity and any integral multiple
thereof. Under the Terms of the Indenture, the Company may convert, at its
option and to the extent practical, the Notes to denominations of $1,000
principal amount at maturity, so long as such conversion is not adverse to
Holders. 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.
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,
<PAGE>
A-8
among other things, cure any ambiguity or inconsistency and make any change that
does not materially adversely affect the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
0Subsidiaries; (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) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount 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.
<PAGE>
A-9
15. 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.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this 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-10
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 the end of the period referred to in Rule 144(k) under the
Securities Act, 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-11
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.
Date:
---------------------------- --------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-12
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>
A-13
EXHIBIT A
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATIONS S
To: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust Trustee Administration
Re: @Entertainment, Inc. (the "COMPANY")
SERIES C SENIOR DISCOUNT NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $36,001,321 aggregate
principal amount at maturity of Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no direct selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. The terms used in this letter have
the meanings set forth in Regulation S.
Very truly yours,
<PAGE>
A-14
[NAME OF TRANSFEROR]
By:
---------------------------------
Name:
Title:
Address:
Date of this Certificate:
--------------------------
<PAGE>
Exhibit4.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
INDENTURE
Dated as of January 27, 1999
---------------------
$256,800,000 aggregate principal amount at maturity
14 1/2% Senior Discount Notes due 2009
and
14 1/2% Exchange Senior Discount Notes due 2009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
@ENTERTAINMENT, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1) .............................................................. 607
(a)(2) .............................................................. 607
(b) .............................................................. 608
312(c) .............................................................. 701
314(a) .............................................................. 703
(a)(4) .............................................................. 1008(a)
(c)(1) .............................................................. 102
(c)(2) .............................................................. 102
(e) .............................................................. 102
315(b) .............................................................. 601
316(a)(last
sentence) .............................................................. 101 ("Outstanding")
(a)(1)(A) .............................................................. 502, 512
(a)(1)(B) .............................................................. 513
(b) .............................................................. 508
(c) .............................................................. 104(d)
317(a)(1) .............................................................. 503
(a)(2) .............................................................. 504
(b) .............................................................. 1003
318(a) .............................................................. 111
</TABLE>
- --------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
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 PROVISIONSOF GENERAL APPLICATION
SECTION 101. DEFINITIONS...............................................................................1
Accreted Value..........................................................................................2
Acquired Indebtedness...................................................................................3
Act.....................................................................................................3
Advent..................................................................................................3
Affiliate...............................................................................................3
Annualized Pro Forma Consolidated Operating Cash Flow...................................................3
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..................................................................................5
Cable/Telecommunications Business.......................................................................5
Capital Stock...........................................................................................6
Capitalized Lease Obligation............................................................................6
Cash Equivalents........................................................................................6
Change of Control.......................................................................................6
Commission..............................................................................................7
Common Stock............................................................................................7
Company.................................................................................................7
Company Request or Company Order........................................................................8
Consolidated Income Tax Expense.........................................................................8
Consolidated Interest Expense...........................................................................8
Consolidated Net Income.................................................................................8
Consolidated Operating Cash Flow........................................................................9
Corporate Trust Office..................................................................................9
- ----------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
Corporation.............................................................................................9
Cumulative Available Cash Flow..........................................................................9
Currency Agreement.....................................................................................10
Default................................................................................................10
Defaulted Interest.....................................................................................10
Depositary.............................................................................................10
Disinterested Director.................................................................................10
DTH Business...........................................................................................10
ECO....................................................................................................10
Entertainment/Programming Business.....................................................................10
Event of Default.......................................................................................10
Exchange Act...........................................................................................10
Exchange Offer.........................................................................................10
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
Net Cash Proceeds......................................................................................14
Officers Certificate...................................................................................15
Opinion of Counsel.....................................................................................15
Organizational Contract................................................................................15
Outstanding............................................................................................15
Overhead Agreement.....................................................................................16
Pari Passu Indebtedness................................................................................16
<PAGE>
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
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
<PAGE>
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
THE SECURITIES
SECTION 301. TITLE AND TERMS..........................................................................35
SECTION 302. DENOMINATIONS............................................................................36
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING...........................................36
SECTION 304. TEMPORARY SECURITIES.....................................................................38
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE......................................38
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES..............................................39
SECTION 307. SPECIAL TRANSFER PROVISIONS..............................................................41
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.........................................44
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED...........................................45
SECTION 310. PERSONS DEEMED OWNERS....................................................................47
SECTION 311. CANCELLATION.............................................................................47
SECTION 312. COMPUTATION OF INTEREST..................................................................47
SECTION 313. FORM OF RULE 144A CERTIFICATE............................................................48
<PAGE>
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........................................................................49
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.......................................51
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE..........................52
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.........................................................53
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES..............................54
SECTION 506. APPLICATION OF MONEY COLLECTED...........................................................54
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
SECTION 511. DELAY OR OMISSION NOT WAIVER.............................................................56
SECTION 512. CONTROL BY HOLDERS.......................................................................57
SECTION 513. WAIVER OF PAST DEFAULTS..................................................................57
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.........................................................57
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...........................................................60
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..................................................61
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR........................................61
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...................................................63
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS..............................63
<PAGE>
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.......................................................................64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.....................................64
SECTION 802. SUCCESSOR SUBSTITUTED....................................................................66
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS...............................................66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.......................................67
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS..........................................67
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.....................................................68
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........................................................69
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.........................................70
SECTION 1004. CORPORATE EXISTENCE.....................................................................72
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.......................................................72
SECTION 1006. MAINTENANCE OF PROPERTIES...............................................................72
SECTION 1007. INSURANCE...............................................................................73
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.....................................................73
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS...........................................73
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
<PAGE>
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES..............................................78
SECTION 1014. LIMITATION ON LIENS.....................................................................79
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES...................80
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL.........................................80
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.............................................................84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.....................................................................85
SECTION 1102. APPLICABILITY OF ARTICLE................................................................85
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....................................................................86
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.............................................................87
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE...................................................87
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............................88
SECTION 1302. DEFEASANCE AND DISCHARGE................................................................89
SECTION 1303. COVENANT DEFEASANCE.....................................................................89
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...........................................................................92
</TABLE>
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<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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<TABLE>
<CAPTION>
Page
<S> <C>
TESTIMONIUM.................................................................................................... 93
SIGNATURES AND SEALS........................................................................................... 93
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
</TABLE>
<PAGE>
INDENTURE dated as of January 27, 1999, between
@ENTERTAINMENT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company" or the "Issuer"), 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 2009 (herein called the "Initial Securities"),
and 14 1/2% Exchange Senior Discount Notes due 2009 (the "Exchange Securities"
and, together with the Initial Securities, the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE>
2
(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
Accrual Date Accreted Value
<S> <C> <C>
ISSUE DATE (JANUARY 27,
1999)................... $ 389.43
AUGUST 1, 1999.......... 428.75
FEBRUARY 1, 2000........ 471.05
AUGUST 1, 2000.......... 517.53
FEBRUARY 1, 2001........ 568.59
AUGUST 1, 2001.......... 624.69
FEBRUARY 1, 2002........ 686.33
AUGUST 1, 2002.......... 754.05
FEBRUARY 1, 2003........ 828.45
AUGUST 1, 2003.......... 910.19
FEBRUARY 1, 2004........ $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
<PAGE>
3
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 on or after February 1, 2004,
$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 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
<PAGE>
4
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 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
<PAGE>
5
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 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.
<PAGE>
6
"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 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
<PAGE>
7
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 66b% 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 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.
<PAGE>
8
"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 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).
<PAGE>
9
"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 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.
<PAGE>
10
"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.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"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.
<PAGE>
11
"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.
"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 and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"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
<PAGE>
12
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 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 accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning provided in the recitals
to this Indenture.
<PAGE>
13
"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 January 27, 1999.
"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 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
<PAGE>
14
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 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,
<PAGE>
15
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.
"Old Indenture" means the Indenture dated as of July 14, 1998
between the Issuer and Bankers Trust Company, as trustee, as in effect on the
Issue Date.
"Old Notes" means the Issuer's 14 1/2% Senior Discount Notes
due 2008 issued under the Old Indenture.
"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 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;
<PAGE>
16
(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.
"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.
<PAGE>
17
"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 and
any successor thereto that is owned by the Persons who beneficially own,
directly and indirectly, ECO 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 the Company or any Restricted Subsidiary
(including 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 or the Old 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 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;
<PAGE>
18
(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 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
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
<PAGE>
19
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 $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
<PAGE>
20
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; (j) investments
by any Restricted Subsidiary in the Issuer; and (k) to the extent not covered in
clauses (a) through (j) 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 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
<PAGE>
21
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;
(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
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22
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;
(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.
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23
"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.
"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
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24
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 January 27, 1999, relating to the Securities and the Company's 14 1/2% Senior
Discount Notes due 2009, 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 15 or July 15 (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.
"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.
<PAGE>
25
"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.
"Series C Indenture" meant the Indenture dated as of January
20, 1999 between the Issuer and Bankers Trust Company, as trustee, as in effect
on the Issue Date.
"Series C Notes" means the Issuers Series C Discount Notes
due 2008 issued under the Series C Indenture.
"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, Mr.
Freedman, Steele LLC, AESOP and CACMT (as such terms are defined in the
Company's Offering Memorandum dated January 22, 1999) 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.
"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).
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26
"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 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
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27
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).
"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.
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28
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 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
<PAGE>
29
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.
(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
<PAGE>
30
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 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.
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31
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.
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
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32
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.
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 2009" and the Exchange Securities shall be known as the
"14 1/2% Exchange Senior Discount Notes due 2009". The Securities and the
Trustee's certificate of authentication shall be
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33
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 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.
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34
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 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
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35
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 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
up to $256,800,000, 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.
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36
The Initial Securities shall be known and designated as the
"14 1/2% Senior Discount Notes due 2009" of the Company. The Exchange
Securities shall be known and designated as the "14 1/2% Exchange Senior
Discount Notes due 2009" of the Company. The Stated Maturity of the Initial
Securities and the Exchange Securities shall be February 1, 2009 and, except
as otherwise set forth herein, they shall bear interest at the rate of 14
1/2% per annum from February 1, 2004, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable on
August 1, 2004 and semi-annually thereafter on February 1 and August 1 in
each year 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
interest until February 1, 2004, 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 17 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 Securities are issued at a discount to their aggregate
principal amount at maturity and will generate gross proceeds to the Company
of $100,003,056 (and net proceeds of $96,752,957). Original issue discount
will accrete from the Issue Date (January 27, 1999) until February 1, 2004.
Based on the issue price thereof, the yield on the Securities is 17 1/2%
(computed on a semiannual bond equivalent basis) calculated from January 27,
1999.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 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
any of its Chairman, its President or a Vice President, the Chief Executive
Officer or the Chief
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37
Financial Officer, under its corporate seal reproduced thereon. 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 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
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38
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 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.
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39
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 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.
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40
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 a portion of the beneficial interest in the Global Security
to beneficial owners, upon receipt of written instructions from the Depositary,
the Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount at maturity of the 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
<PAGE>
41
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.
(g) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to Section 306(b), the Security Registrar shall reflect on its
books and records a decrease in the principal amount at maturity of the relevant
Global Security equal to the principal amount at maturity of such Physical
Securities and the Company shall execute and the Trustee shall authenticate and
deliver one or more Physical Securities having an equal aggregate principal
amount at maturity.
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
<PAGE>
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, as applicable.
(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
<PAGE>
46
such Person as it appears in the Security Register at the close of business on
the Regular Record Date for such interest payment or (ii) transfer to an account
located in the United States maintained by the payee.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered at 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.
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.
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48
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
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company,
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49
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.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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50
(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;
(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;
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51
(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 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
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52
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 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
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53
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
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54
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
and take such other actions, including participating as a member of any
official creditors committee appointed in the matter as it may deem
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
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55
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
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56
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 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.
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57
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.
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.
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58
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, 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
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59
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;
(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.
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60
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 interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
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(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of investigating or defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; PROVIDED, HOWEVER, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in
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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 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.
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(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
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
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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).
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
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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 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
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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 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
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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 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.
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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 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.
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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.
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.
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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 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
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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 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
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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.
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
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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.
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) 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
are required to be filed with the Commission pursuant to such Section 13(a) or
15(d) or any successor provision thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
required by such Section 13(a) or 15(d) of the Exchange Act regardless of
whether the Company is required to file such documents. The Company shall also
in any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to
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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.
(b) The Company will disclose the current and accumulated
earnings and profits, if any, for any fiscal year in its annual report on form
10K so long as it is required to file such reports. Thereafter, the Company will
provide such information separately to the Holders who so request by written
notice to the Company.
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 of the following
actions:
(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);
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(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 the Company 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 guarantees of any Indebtedness of
any Restricted Subsidiary by the Company or 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:
(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
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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 (i) 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, an amount equal to the lesser of the Fair Market Value of
such Investment and 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 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
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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 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
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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
Restricted Subsidiary and after the Old Notes are no longer outstanding, 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 (or if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20 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
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transactions has been approved by a majority of the Disinterested Directors of
the Board of Directors (assuming that at least two such Directors exist), or in
the event that at least two members of the Board of Directors are not
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 (or if an investment
banking firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting 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.
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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) (ii) the occurrence of any default or breach of any covenant or
agreement under any Indebtedness of the Company arising as a result of the
creation of such guarantee or (iii) 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). In the event that clause (ii) of this paragraph (b) shall apply
immediately after
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the creation of such guarantee under paragraph (a) above, then such guarantee
need not be created.
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
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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 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 (together with and including any Series C Notes that may be
outstanding pursuant to the Series C Indenture), 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 and applied under the Old Indenture and the Series C Indenture for the
repurchase of the Old Notes and Series C Notes, respectively. 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
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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 the Excess Proceeds, Securities to be
purchased will be selected on a PRO RATA basis (together with and including the
Series C Notes that may be outstanding pursuant to the Series C Indenture). 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 loans or advances to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to 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 D
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
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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 B
attached to 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.
<PAGE>
85
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)).
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 February 1, 2004 on not
less than 30 or more than 60 days' prior notice at the redemption prices
(expressed as percentages of principal amount at
<PAGE>
86
maturity) set forth below, together with accrued interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on
February 1 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>
YEAR REDEMPTION
- ---- PRICE
----------
<S> <C>
2004...................................................................108.750%
2005...................................................................105.833
2006...................................................................102.917
2007 AND THEREAFTER....................................................100.000
</TABLE>
(b) At any time or from time to time prior to February 1, 2002
the Company may redeem up to a maximum of 35% 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 117.5% 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 65% 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
<PAGE>
87
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.
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
<PAGE>
88
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.
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.
<PAGE>
89
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR
COVENANT DEFEASANCE.
The Company may, at its option 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,
<PAGE>
90
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.
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
<PAGE>
91
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 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
<PAGE>
92
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 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
<PAGE>
93
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 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:
By
-------------------------
Title:
BANKERS TRUST COMPANY
[SEAL] By
-------------------------
Title:
<PAGE>
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 o.o., WCCI and PCBV.
05/26/95 Service Agreement among PTK-Inzynier (predecessor to
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>
<CAPTION>
DATE MANAGEMENT AGREEMENTS
<S> <C>
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. Z o.o.
01/11/95 Management Agreement between WCCI and Telkat.
<PAGE>
96
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>
<CAPTION>
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, 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
BORROWER LENDER EXCLUSIVE OF AMOUNT OF LOAN
ACCRUED INTEREST
<S> <C> <C> <C>
Poland Communications, Inc. AmerBank-Bank $6,500,000.00 $6,500,000.00
Amerykanski w
Polsce S.A.
Szczecinska Telewizja Bank Rozwoju DM 3,204,900.00 DM 3,948,615.17
Kablowa Sp. Z o.o. Eksportu S.A.
Telewizja Kablowa Polski Bank $333,334.00 $500,000.00
Gosat Sp. Z o.o. Eksportu S.A.
</TABLE>
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc., the Indenture dated as of October 31, 1996
between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc. The Indenture dated as of January 20, 1999 between Bankers
Trust Company, as Trustee, and @ Entertainment, Inc. The Indenture dated as of
January 27, 1999 between Bankers Trust Company, as Trustee, and @Entertainment,
Inc.
<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 1,818 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.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
2) Limitations on the payment of indebtedness owed to the Company or any
Subsidiary.
The Indenture dates as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
<PAGE>
100
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.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
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.
4) LIMITATIONS ON TRANSFERRING PROPERTY OR ANY ASSETS TO THE COMPANY OR
ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
<PAGE>
101
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 1,818 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.
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.1 $200,000,000
@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 CEDE & CO., or its registered assigns,
the principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000), on February 1,
2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C> <C>
Issue Date: January 27, 1999
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
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.
<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:
By:
----------------------------
Title:
<PAGE>
A-3
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
A-4
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on February 1,
2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. 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).
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 15 and July 15 immediately preceding the Interest Payment Date)
on each Interest Payment Date, commencing August 15, 2004. Except in the case
of a Registration Default (as defined herein), the principal of this Note
shall not accrue interest until February 1, 2004, 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 17 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 January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th 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 130th 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 160th 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 160th 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
<PAGE>
A-5
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 70-day period described in
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 130-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 160-day period or
the effectiveness of a Shelf Registration Statement after the 160-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 cash interest has been paid, from
February 1, 2004; PROVIDED that, if there is no existing default in the
payment of 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.
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) on the principal amount of the Notes on each February 1 and
August 1 commencing August 1, 2004 to the persons who are Holders (as
reflected in the Note Register at the close of business on the January 15 and
July 15 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 February 1, 2009.
<PAGE>
A-6
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
January 27, 1999 (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 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 $256,800,000.
5. OPTIONAL REDEMPTION AND 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 February 1, 2004 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
<PAGE>
A-7
forth below, together with accrued interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on February 1 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>
YEAR REDEMPTION
PRICE
- ---- ----------
<S> <C>
2004....................................................... 108.750%
2005....................................................... 105.833
2006....................................................... 102.917
2007 AND THEREAFTER........................................ 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% 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
117.5% 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 65% 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.
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
<PAGE>
A-8
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.
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
<PAGE>
A-9
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.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of 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) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
<PAGE>
A-10
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.
15. 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.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness
<PAGE>
A-11
represented by this Note, upon compliance by the Company with certain conditions
set forth in the Indenture.
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.2 $56,800,000
@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 CEDE & CO., or its registered assigns,
the principal sum of FIFTY SIX MILLION AND EIGHT HUNDRED MILLION DOLLARS
($56,800,000), on February 1, 2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C>
Issue Date: January 27, 1999
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
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.
<PAGE>
A-13
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:
By:
---------------------
Title:
<PAGE>
A-14
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
A-15
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on February 1,
2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. 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).
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 15 and July 15 immediately preceding the Interest Payment Date)
on each Interest Payment Date, commencing August 1, 2004. Except in the case
of a Registration Default (as defined herein), the principal of this Note
shall not accrue cash interest until February 1, 2004, 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 cash interest at a rate of 17 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 January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th 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 130th 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 160th 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 160th 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
<PAGE>
A-16
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 70-day period described in
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 130-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 160-day period or
the effectiveness of a Shelf Registration Statement after the 160-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 cash interest has been paid, from
February 1, 2004; 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.
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 interest (except defaulted interest)
on the principal amount of the Notes on each February 1 and August 1,
commencing August 1, 2004 to the persons who are Holders (as reflected in the
Note Register at the close of business on the January 15 and July 15
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 February 1, 2009.
<PAGE>
A-17
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
January 27, 1999 (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 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 $256,800,000.
5. OPTIONAL REDEMPTION AND 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 February 1, 2004 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
<PAGE>
A-18
forth below, together with accrued interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on February 1 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>
2004...............................................................108.750%
2005............................................................... 105.833
2006............................................................... 102.917
2007 AND THEREAFTER................................................ 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% 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
117.5% 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 65% 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.
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
<PAGE>
A-19
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 exchan?ge 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.
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
<PAGE>
A-20
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.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of 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) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
<PAGE>
A-21
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.
15. 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.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness
<PAGE>
A-22
represented by this Note, upon compliance by the Company with certain conditions
set forth in the Indenture.
<PAGE>
A-23
[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 __________________, 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.
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
<PAGE>
A-24
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
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.
Date:
-------------------- ------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-25
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>
A-26
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 2009 (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>
Exhibit 4.6
EXECUTION COPY
================================================================================
WARRANT AGREEMENT
Dated as of January 27, 1999
By and Between
@ENTERTAINMENT, INC.
and
Bankers Trust Company,
Warrant Agent
--------------------
1,027,200 Warrants to Purchase an Aggregate of 1,813,665 Shares of Common Stock
(Par Value $.01 Per Share)
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants....................................2
SECTION 1.02. Form of Warrant Certificates............................2
SECTION 1.03. Execution of Warrant Certificates.......................3
SECTION 1.04. Authentication and Delivery.............................3
SECTION 1.05. Separation of Warrants and Notes........................4
SECTION 1.06. Registration............................................4
SECTION 1.07. Registration of Transfers or Exchanges..................5
SECTION 1.08. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates .........................................10
SECTION 1.09. Offices for Exercise, etc..............................11
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants...................................11
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery......12
SECTION 2.03. Cancellation of Warrant Certificates...................14
SECTION 2.04. Notice of an Exercise Event............................15
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights..................................15
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes.......................................16
SECTION 4.02. Rule 144A..............................................16
SECTION 4.03. Securities Act and Applicable State Securities Laws....16
SECTION 4.04. Resolution of Preemptive Rights, if Any................16
-i-
<PAGE>
Page
----
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices...................16
SECTION 5.02. Fractional Warrant Shares..............................25
SECTION 5.03. Exceptions to Antidilution Provisions..................25
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent..........................................26
SECTION 6.02. Conditions of Warrant Agent's Obligations..............26
SECTION 6.03. Resignation and Appointment of Successor...............30
SECTION 6.04. Covenant to Notify to The Depository Trust Company
of Separability Date..................................32
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment..............................................32
SECTION 7.02. Notices and Demands to the Company and Warrant Agent...33
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents..............................................33
SECTION 7.04. Notices to Holders.....................................34
SECTION 7.05. Applicable Law.........................................34
SECTION 7.06. Persons Having Rights Under Agreement..................34
SECTION 7.07. Headings...............................................35
SECTION 7.08. Counterparts...........................................35
SECTION 7.09. Inspection of Agreement................................35
SECTION 7.10. Availability of Equitable Remedies.....................35
SECTION 7.11. Obtaining of Governmental Approvals....................35
-ii-
<PAGE>
EXHIBIT A - Form of Warrant Certificate..............................A-1
EXHIBIT B - Form of Legend for Global Warrant........................B-1
EXHIBIT C - Certificate to Be Delivered upon Exchange or
Registration of Transfer of Warrants...................C-1
-iii-
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Page
Agreement....................................................................1
Business Day.....................................................12, A-8, A-15
Capital Stock...............................................................23
Cashless Exercise...........................................................12
Cashless Exercise Ratio.....................................................13
Common Stock.................................................................2
Definitive Warrants..........................................................2
Election to Exercise........................................................12
Exercise Date...............................................................13
Exercise Price..............................................................12
Exercise Rate...............................................................12
Expiration Date.............................................................11
Global Shares...............................................................14
Global Warrants..............................................................2
Indenture....................................................................1
Independent Financial Expert................................................24
Initial Purchasers...........................................................1
Merrill Lynch................................................................1
Notes........................................................................1
Officers' Certificate........................................................8
Private Placement Legend.....................................................9
Purchase Agreement...........................................................1
Related Parties.............................................................27
Requisite Warrant Holders...................................................33
Resale Restriction Termination Date..........................................5
Securities Act...............................................................4
Separability Date............................................................4
Separation .................................................................4
Surviving Person............................................................20
Time of Determination............................................24, A-4, A-11
Trustee......................................................................1
Units........................................................................1
Warrant......................................................................1
Warrant Agent................................................................1
Warrant Agent Office........................................................11
Warrant Certificates.........................................................1
Warrant Exercise Office.....................................................11
Warrant Register.............................................................4
Warrant Registration Rights Agreement........................................1
Warrant Shares...............................................................2
-iv-
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of January 27, 1999 by and
between @ENTERTAINMENT, INC. (the "Company"), a Delaware corporation, and
Bankers Trust Company, as warrant agent (with any successor Warrant Agent, the
"Warrant Agent").
WHEREAS, the Company has entered into a purchase agreement (the
"Purchase Agreement") dated January 22, 1999 with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Deutsche Bank
Securities Inc. (together with Merrill Lynch, the "Initial Purchasers"),
severally, in which the Company has agreed to sell to the Initial Purchasers
256,800 units (the "Units"), each consisting of (i) $1,000 principal amount at
maturity 14 1/2% Senior Discount Notes due 2009 (the "Notes") of the Company to
be issued under an indenture dated as of January 27, 1999 (the "Indenture"),
between the Company and Bankers Trust Company, as trustee (in such capacity, the
"Trustee"), and (ii) four warrants (the "Warrants"), each initially entitling
the holder thereof to purchase 1.7656 shares of Common Stock (as defined herein)
of the Company, in amounts set forth opposite such Initial Purchaser's name on
Schedule A to the Purchase Agreement. The certificates evidencing the Warrants
are herein referred to collectively as the "Warrant Certificates"; and
WHEREAS, the Notes and the Warrants comprising the Units shall not
be separately transferable until the Separability Date (as defined herein); and
WHEREAS, the holders of the Warrants are entitled to the benefits of
a Warrant Registration Rights Agreement dated as of January 27, 1999 between the
Company and the Initial Purchasers (the "Warrant Registration Rights
Agreement"); and
WHEREAS, the Company desires the Warrant Agent as warrant agent to
assist the Company in connection with the issuance, exchange, cancellation,
replacement and exercise of the Warrants, and in this Agreement wishes to set
forth, among other things, the terms and conditions on which the Warrants may be
issued, exchanged, canceled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
2
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants. Warrants comprising part of the
Units shall be originally issued in connection with the issuance of the Units
and such Warrants shall not be separately transferable from the Notes until on
or after the Separability Date as provided in Section 1.05 hereof.
Each Warrant Certificate shall evidence the number of Warrants
specified therein. Each Warrant evidenced by a Warrant Certificate shall, when
it becomes exercisable as provided herein and therein, represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to the holder of such Warrant)
1.7656 fully paid and non-assessable Warrant Shares at an exercise price of
$9.125 per share. The number of shares of the Company's common stock, par value
$0.01 per share (the "Common Stock") issuable upon exercise of a Warrant is
subject to adjustment as provided herein and in the Warrant Certificate. The
shares of Common Stock issuable upon exercise of a Warrant are hereinafter
referred to as the "Warrant Shares" and, unless the context otherwise requires,
such term shall also include any other securities issuable and deliverable upon
exercise of a Warrant as provided in Article V, subject to adjustment as
provided herein and in the Warrant Certificate.
SECTION 1.02. Form of Warrant Certificates. The Warrant Certificates
will initially be issued either in global form (the "Global Warrants") or in
registered form as Certificated Warrant Certificates (the "Certificated
Warrants"), in either case substantially in the form of Exhibit A attached
hereto. Any Global Warrants to be delivered pursuant to this Agreement shall
bear the legend set forth in Exhibit B attached hereto. The Global Warrants
shall represent such of the outstanding Warrants as shall be specified therein,
and each Global Warrant shall provide that it shall represent the aggregate
amount of outstanding Warrants from time to time endorsed thereon and that the
aggregate amount of outstanding Warrants represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global
Warrant to reflect the amount of any increase or decrease in the amount of
outstanding Warrants represented thereby shall be made by the Warrant Agent and
the Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the "Depositary" with
respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a holder of Warrants may
receive from the Warrant Agent or the Depositary Certificated Warrants as set
forth in Section 1.07 hereof.
<PAGE>
3
SECTION 1.03. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by the chairman of its
board of directors, its president, its chief executive officer, its chief
financial officer, or any vice president and by its treasurer, assistant
treasurer, secretary or assistant secretary. Such signatures may be the manual
or facsimile signatures of the present or any future such officers. The seal of
the Company may be in the form of a facsimile thereof and may be impressed,
affixed, imprinted or otherwise reproduced on the Warrant Certificates.
Typographical and other minor errors or defects in any such reproduction of any
such signature shall not affect the validity or enforceability of any Warrant
Certificate that has been duly countersigned and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be authenticated and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company. Any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register (as defined in Section 1.06 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by the chairman of its board of directors,
its president, its chief executive officer, its chief financial officer, or any
vice president and by its treasurer, assistant treasurer, secretary or assistant
secretary, and shall specify the amount of Warrants to be authenticated, whether
the Warrants are to be Global Warrants or Certificated Warrants, the date of
such Warrants and such other information as the Warrant Agent may reasonably
request, without any further action by the Company, the Warrant Agent is
authorized, upon receipt from the Company at any time and from time to time of
the Warrant Certificates, duly executed as provided in Section 1.03 hereof, to
authenticate the Warrant Certificates and upon the holder's request deliver
them. Such authentication shall be by a duly authorized signatory of the Warrant
Agent (although it shall not be necessary for the same signatory to sign all
Warrant Certificates).
<PAGE>
4
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company or
the Warrant Agent, such Warrant Certificate nevertheless may be delivered or
disposed of as though the person who authenticated such Warrant Certificate had
not ceased to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Agreement any such person is not such an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall
be in substantially the form set forth in Exhibit A hereto.
SECTION 1.05. Separation of Warrants and Notes. The Notes and the
Warrants will not be separately transferable until the Separability Date.
"Separability Date" shall mean the earliest to occur of: (i) the Exercise Date
(as defined below), (ii) the date on which a registration statement with respect
to a registered exchange offer for the Notes is declared effective under the
Securities Act of 1933, as amended (the "Securities Act"), (iii) the occurrence
of an Event of Default (as defined in the Indenture) or (iv) such earlier date
as determined by Merrill Lynch in its sole discretion and specified to the
Company and the Warrant Agent in writing. The separation of the Warrants and the
Notes is herein referred to as a "Separation."
SECTION 1.06. Registration. The Company will keep, at the office or
agency maintained by the Company for such purpose, a register or registers in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of, and registration of transfer and exchange
of, Warrants as provided in this Article. Each person designated by the Company
from time to time as a person authorized to register the transfer and exchange
of the Warrants is hereinafter called, individually and collectively, the
"Registrar." The Company hereby initially appoints the Warrant Agent as
Registrar. Upon written notice to the Warrant Agent and any acting Registrar,
the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one person (which may be the
Company and which need not be a Registrar) to act as repository of a master list
of names and addresses of the holders of Warrants (the "Warrant Register"). The
Warrant Agent will act as such repository unless and until some other person is,
by written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may
<PAGE>
5
be necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.07. Registration of Transfers or Exchanges.
(a) Transfer or Exchange of Certificated Warrants. When Certificated
Warrants are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Certificated Warrants; or
(ii) to exchange such Certificated Warrants for an equal number of
Certificated Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.07 for such transactions are met; provided, however, that the Certificated
Warrants presented or surrendered by a holder for registration of transfer or
exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly
authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer
or exchange prior to (X) the date which is two years (or such
shorter period as may be prescribed by Rule 144(k) (or any successor
provision thereto)) after the later of the date of original issuance
of the Warrants and the last date on which the Company or any
affiliate of the Company was the owner of such Warrants, or any
predecessor thereto, and (Y) such later date, if any, as may be
required by any subsequent change in applicable law (the "Resale
Restriction Termination Date"), such Warrants shall be accompanied
by the following additional information and documents, as
applicable:
(A) if such Warrants are being delivered to the Warrant Agent by a
holder for registration in the name of such holder, without
transfer, a certification from such holder to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer as such term is defined in Rule 144A under
the Securities Act (a "QIB") in accordance with Rule 144A
under the Securities Act, a certification from
<PAGE>
6
the transferor to that effect (in substantially the form of
Exhibit C hereto); or
(C) if such Warrants are being transferred in reliance on Rule 144
under the Securities Act, delivery by the transferor of (i) a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto), and (ii) an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(D) if such Warrants are being transferred in reliance on another
exemption from the registration requirements of the Securities
Act, a certification from the transferor to that effect (in
substantially the form of Exhibit C hereto) and an opinion of
counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
provided that the Company may, based upon the views of its own
counsel, instruct the Warrant Agent not to register such
transfer in any case where the proposed transferee is not a
QIB.
(b) Restrictions on Transfer of a Certificated Warrant for a
Beneficial Interest in a Global Warrant. A Certificated Warrant may not be
transferred by a holder for a beneficial interest in a Global Warrant except
upon satisfaction of the requirements set forth below. Upon receipt by the
Warrant Agent of a Certificated Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with:
(A) certification from such holder (in substantially the form of
Exhibit C hereto) that such Certificated Warrant is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act; and
(B) written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the Global
Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Certificated Warrant and cause, or
direct the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrant Shares represented by the Global Warrant to be increased accordingly. If
no Global Warrant is then outstanding, the Company shall issue, and the Warrant
Agent shall upon written instructions from the Company authenticate, a new
Global Warrant in the appropriate amount.
<PAGE>
7
(c) Transfer or Exchange of Global Warrants. The transfer or
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.07, the Private
Placement Legend (as defined below), this Agreement (including those
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer or Exchange of a Beneficial Interest in a Global
Warrant for a Certificated Warrant.
(i) Any person having a beneficial interest in a Global Warrant may
transfer or exchange such beneficial interest for a Certificated
Warrant upon receipt by the Warrant Agent of written instructions
(or such other form of instructions as is customary for the
Depositary) from the Depositary or its nominee on behalf of any
person having a beneficial interest in a Global Warrant, including a
written order containing registration instructions and, in the case
of any such transfer or exchange prior to the Resale Restriction
Termination Date, the following additional information and
documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto); or
(C) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in
substantially the form of Exhibit C hereto) and (ii) an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(D) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; provided that the Company may instruct the
Warrant Agent not to register such transfer in any case where
the proposed transferee is not a QIB;
<PAGE>
8
then, upon receipt of such written instructions and additional
information and documents, the Warrant Agent will cause, in
accordance with the standing instructions and procedures existing
between the Depositary and the Warrant Agent, the aggregate amount
of the Global Warrant to be reduced and, following such reduction,
the Company will execute and, upon receipt of an authentication
order in the form of an officers' certificate (a certificate signed
by the chairman or a co-chairman of the board, the president, the
chief executive officer, the chief financial officer, any executive
vice president or any senior vice president of the Company signing
alone, or by any vice president signing together with the secretary,
any assistant secretary, the treasurer, or any assistant treasurer
of the Company) (an "Officers' Certificate"), the Warrant Agent will
authenticate and deliver to the transferee a Certificated Warrant.
(ii) Certificated Warrants issued in exchange for a beneficial interest
in a Global Warrant pursuant to this Section 1.07(d) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Warrant Agent in
writing. The Warrant Agent shall deliver such Certificated Warrants
to the persons in whose names such Warrants are so registered and
adjust the Global Warrant pursuant to paragraph (h) of this Section
1.07.
(e) Restrictions on Transfer or Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.07), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary; by a nominee of the Depositary to the Depositary or
another nominee of the Depositary; or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Certificated Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Certificated
Warrants for all Global Warrants under this Agreement,
<PAGE>
9
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Certificated
Warrants, authenticate and deliver Certificated Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) Private Placement Legend. Upon the transfer or exchange of
Warrant Certificates not bearing the legend set forth in the first paragraph of
Exhibit A attached hereto (the "Private Placement Legend"), the Warrant Agent
shall deliver Warrant Certificates that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Warrant Certificates
bearing the Private Placement Legend, the Warrant Agent shall deliver Warrant
Certificates that bear the Private Placement Legend unless, and the Warrant
Agent is hereby authorized to deliver Warrant Certificates without the Private
Placement Legend if, (i) there is delivered to the Warrant Agent an opinion of
counsel reasonably satisfactory to the Company 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 (ii) there is
delivered to the Warrant Agent an Officers' Certificate stating that the
Warrants to be transferred or exchanged represented by such Warrant Certificates
are being transferred or exchanged pursuant to an effective registration
statement under the Securities Act.
(h) Cancellation or Adjustment of a Global Warrant. At such time as
all beneficial interests in a Global Warrant have either been exchanged for
Certificated Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and canceled by
the Warrant Agent. At any time prior to such cancellation, if any beneficial
interest in a Global Warrant is exchanged for Certificated Warrants, redeemed,
repurchased or canceled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) Obligations with Respect to Transfers or Exchanges of
Certificated Warrants.
(i) To permit registrations of transfers or exchanges completed in
accordance with the provisions hereof, the Company shall execute, at
the Warrant Agent's request, and the Warrant Agent shall
authenticate, Certificated Warrants and Global Warrants.
(ii) All Certificated Warrants and Global Warrants issued upon any
registration of transfer or exchange of Certificated Warrants or
Global Warrants, as the case may be, completed in accordance with
the provisions hereof, shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
<PAGE>
10
Agreement as the Certificated Warrants or Global Warrants
surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner
of such Warrant, and neither the Warrant Agent nor the Company shall
be affected by notice to the contrary.
SECTION 1.08. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates. Upon receipt by the Company and the Warrant Agent (or any agent of
the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity satisfactory to them and, in the
case of mutilation or defacement, upon surrender thereof to the Warrant Agent
for cancellation, then, in the absence of notice to the Company or the Warrant
Agent that such Warrant Certificate has been acquired by a bona fide purchaser
or holder in due course, the Company shall execute, and an authorized signatory
of the Warrant Agent shall manually authenticate and deliver, in exchange for or
in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant
Certificate, a new Warrant Certificate representing a like number of Warrants,
bearing a number or other distinguishing symbol not contemporaneously
outstanding. Prior to the issuance of any new Warrant Certificate under this
Section in a name other than the prior registered holder of the lost, stolen,
destroyed, defaced or mutilated Warrant Certificate, the Company may require the
payment from the holder of such Warrant Certificate of a sum sufficient to cover
any tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar or any agent thereof) in connection therewith. Every
substitute Warrant Certificate executed and delivered pursuant to this Section
1.08 in lieu of any lost, stolen or destroyed Warrant Certificate shall
constitute an additional contractual obligation of the Company, whether or not
the lost, stolen or destroyed Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of (but shall be
subject to all the limitations of rights set forth in) this Agreement equally
and proportionately with any and all other Warrant Certificates duly executed
and delivered hereunder. The provisions of this Section 1.08 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in accordance
with the provisions of this Agreement and deliver the new Warrant Certificates
required pursuant to the provisions of this Section 1.08.
<PAGE>
11
SECTION 1.09. Offices for Exercise, etc. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
Borough of Manhattan, The City of New York: (a) an office or agency where the
Warrant Certificates may be presented for exercise (each a "Warrant Exercise
Office"), (b) an office or agency where the Warrant Certificates may be
presented for registration of transfer and for exchange, and (c) an office or
agency where notices and demands to or upon the Company in respect of the
Warrants or of this Agreement may be served. The Company may from time to time
change or rescind such designation, as it may deem desirable or expedient;
provided, however, that an office or agency shall at all times be maintained in
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section. In addition to such office or offices or agency or
agencies, the Company may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and the Company may from time to time change or
rescind such designation, as it may deem desirable or expedient. The Company
will give to the Warrant Agent written notice of the location of any such office
or agency and of any change of location thereof. The Company hereby designates
the Warrant Agent at its principal corporate trust office identified in Section
7.03 in the Borough of Manhattan, The City of New York (the "Warrant Agent
Office"), as the initial agency maintained for each such purpose. In case the
Company shall fail to maintain any such office or agency or shall fail to give
such notice of the location or of any change in the location thereof,
presentations and demands may be made and notice may be served at the Warrant
Agent Office and the Company appoints the Warrant Agent as its agent to receive
all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on February 1, 2009. The applicable date of expiration of a
particular Warrant is referred to herein as the "Expiration Date" of such
Warrant. Each Warrant may be exercised as set forth in Section 2.02. The Company
will give notice of expiration to then registered holders of Warrants not less
than 90 nor more than 120 days prior to the Expiration Date. Failure to give
such notice however, will not prevent the Warrants from expiring and becoming
void on the Expiration Date.
<PAGE>
12
Any Warrant not exercised before 5:00 p.m., New York City time, on
the Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"Business Day" shall mean any day on which (i) banks in The City of
New York, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading, are open for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery. (a)
Subject to the provisions of this Agreement, each Warrant shall entitle the
registered holder thereof to purchase from the Company on any Business Day
during the period beginning on the Exercise Date and ending at 5:00 p.m., New
York City time, on the Expiration Date 1.7656 fully paid, registered and
non-assessable Warrant Shares (and any other securities purchasable or
deliverable upon exercise of such Warrant as provided in Article V), subject to
adjustment in accordance with Article V hereof, at the purchase price of $9.125
for each share purchased (the "Exercise Price"). The number and amount of
Warrant Shares issuable upon exercise of a Warrant (the "Exercise Rate") at the
Exercise Price shall be subject to adjustment from time to time as set forth in
Article V hereof.
"Exercise Date" means the earlier of (i) the date that a shelf
registration statement relating to the Common Stock underlying the Warrants is
declared effective under the Securities Act or (ii) July 7, 1999.
(b) Warrants may be exercised on or after the date they are
exercisable hereunder by (i) surrendering at any Warrant Exercise Office the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Warrant Shares set forth on the reverse side of the Warrant Certificate
(the "Election to Exercise") duly completed and signed by the registered holder
or holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall be
guaranteed by an eligible guarantor institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised. Each Warrant may be exercised
only in whole.
(c) Simultaneously with the exercise of each Warrant, payment in
full of the aggregate Exercise Price may be made, at the option of the holder,
(i) in cash or by certified or official bank check, (ii) by a Cashless Exercise
(as defined below) or (iii) by any combination of (i) and (ii), to the office or
agency where the Warrant Certificate is being surrendered. For purposes of this
Agreement, a "Cashless Exercise" shall mean an exercise of a Warrant in
accordance with the immediately following two sentences. To effect a Cashless
Exercise, the holder may exercise a Warrant or Warrants without payment of the
Exercise Price in cash by surrendering such Warrant or Warrants (represented by
one or more Warrant Certificates) and,
<PAGE>
13
in exchange therefor, receiving such number of shares of Common Stock equal to
the product of (1) that number of shares of Common Stock for which such Warrant
or Warrants are exercisable and which would be issuable in the event of an
exercise with payment in cash of the Exercise Price and (2) the Cashless
Exercise Ratio (as defined below). The "Cashless Exercise Ratio" shall equal a
fraction, the numerator of which is the excess of the Current Market Value
(calculated as set forth in this Agreement) per share of Common Stock on the
date of exercise over the Exercise Price per share of Common Stock as of the
date of exercise and the denominator of which is the Current Market Value per
share of Common Stock on the date of exercise. Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with a holder's
option to elect a Cashless Exercise, such holder must specify the number of
Warrants for which such Warrant Certificate is to be exercised (without giving
effect to such Cashless Exercise). All provisions of this Agreement shall be
applicable with respect to a Cashless Exercise of a Warrant Certificate for less
than the full number of Warrants represented thereby. No payment or adjustment
shall be made on account of any distributions of dividends on the Common Stock
issuable upon exercise of a Warrant. If the Company has not effected the
registration under the Securities Act of the offer and sale of the Warrant
Shares by the Company to the holders of the Warrants on or prior to the
Effective Exercise Date (as defined below), the Company may elect to require
that the holders of the Warrants effect the exercise thereof solely pursuant to
the Cashless Exercise option and may also amend the Warrants to eliminate the
requirement for payment of the Exercise Price with respect to such Cashless
Exercise option. The Warrant Agent shall have no obligation under this section
to calculate the Cashless Exercise Ratio.
(d) Upon surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Exercise Office (other than any
Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "Effective Exercise Date" for a Warrant shall be the date when all of
the items referred to in the first sentence of paragraphs (b) and (c) of this
Section 2.02 are received by the Warrant Agent at or prior to 11:00 a.m., New
York City time, on a Business Day and the exercise of the Warrants will be
effective as of such Effective Exercise Date. If any items referred to in the
first sentence of paragraphs (b) and (c) are received after 11:00 a.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be effective on the next succeeding Business Day. Notwithstanding
the foregoing, in the case of an exercise of Warrants on the Expiration Date, if
all of the items referred to in the first sentence of paragraphs (b) and (c) are
received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on
the Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price
(or election of the Cashless Exercise option), the Warrant Agent shall: (i)
except to the extent exercise of the Warrant has
<PAGE>
14
been effected through a Cashless Exercise, cause an amount equal to the
aggregate Exercise Price to be paid to the Company by crediting such amount in
immediately available funds to the account designated by the Company in writing
to the Warrant Agent for that purpose; (ii) advise the Company immediately by
telephone of the amount so deposited to the Company's account and promptly
confirm such telephonic advice in writing; and (iii) as soon as practicable,
advise the Company in writing of the number of Warrants exercised in accordance
with the terms and conditions of this Agreement and the Warrant Certificates,
the instructions of each exercising holder of the Warrant Certificates with
respect to delivery of the Warrant Shares to which such holder is entitled upon
such exercise, and such other information as the Company shall reasonably
request.
(f) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates evidencing the Warrant Shares to
which such holder is entitled, in fully registered form, registered in such name
or names as may be directed by such holder pursuant to the Election to Exercise,
as set forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Warrant Shares shall be deemed to have been issued
and any persons who are designated to be named therein shall be deemed to have
become the holders of record of such Warrant Shares as of the close of business
on the Effective Exercise Date; the Warrant Shares may initially be issued in
global form (the "Global Shares"). Such Global Shares shall represent such of
the outstanding Warrant Shares as shall be specified therein and each Global
Share shall provide that it represents the aggregate amount of outstanding
Warrant Shares from time to time endorsed thereon and that the aggregate amount
of outstanding Warrant Shares represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Share to
reflect any increase or decrease in the amount of outstanding Warrant Shares
represented thereby shall be made by the registrar for the Warrant Shares and
the Depositary (referred to below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall (if possible) act as the
Depositary with respect to the Global Shares until a successor shall be
appointed by the Company and the registrar for the Warrant Shares. After
exercise of any Warrant or Warrant Shares, the Company shall also issue or cause
to be issued to or upon the written order of the registered holder of such
Warrant Certificate, a new Warrant Certificate, countersigned by the Warrant
Agent pursuant to written instruction, evidencing the number of Warrants, if
any, remaining unexercised unless such Warrants shall have expired.
SECTION 2.03. Cancellation of Warrant Certificates. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be canceled by it and
retired. The Warrant Agent shall
<PAGE>
15
cancel all Warrant Certificates properly surrendered for exchange, substitution,
transfer or exercise. Upon the Company's written request, the Warrant Agent
shall deliver such canceled Warrant Certificates to the Company.
SECTION 2.04. Notice of an Exercise Event. The Company shall, as
soon as practicable after the occurrence of an Exercise Event, send or cause to
be sent to each holder of Warrants and to each beneficial owner of the Warrants
with respect to which such Exercise Event has occurred to the extent that the
Warrants are held of record by a depositary or other agent (with a copy to the
Warrant Agent), by first-class mail, at the addresses appearing on the Warrant
Register, a notice prepared by the Company advising such holder of the Exercise
Event which has occurred, which notice shall describe the type of Exercise Event
and the date of the occurrence thereof, as applicable, and, in either case, the
date of expiration of the right to exercise the Warrants prominently set forth
in the face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any of the
provisions of this Agreement, any holder of any Warrant Certificate, without the
consent of the Warrant Agent, the holder of any Warrant Shares or the holder of
any other Warrant Certificate, may on his own behalf enforce, and may institute
and maintain any suit, action or proceeding against the Company suitable to
enforce, his right to exercise the Warrant or Warrants evidenced by his Warrant
Certificate in the manner provided in such Warrant Certificate and in this
Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle
the holders thereof to any of the rights of shareholders of the Company,
including, without limitation, the right to vote or to receive any dividends or
other payments or to consent or to exercise any preemptive rights or to receive
notice as stockholders in respect of the meetings of stockholders or for the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
SECTION 3.02. Obtaining Stock Exchange Listings. The Company will
use its best efforts from time to time to list the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, on the Nasdaq National
Market.
<PAGE>
16
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer or exchange of any Warrant Certificates or any
certificates for Warrant Shares in a name other than the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant. In any such
case, no transfer or exchange shall be made unless or until the person or
persons requesting issuance thereof shall have paid to the Company the amount of
such tax or other governmental charge or shall have established to the
satisfaction of the Company that such tax or other governmental charge has been
paid or an exemption is available therefrom.
SECTION 4.02. Rule 144A. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules, regulations
and policies adopted by the Securities and Exchange Commission thereunder in a
timely manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time prior to the Expiration Date the Company is not
required to file such reports, it will mail to each owner or beneficial owner of
Warrants upon request such information as is referred to in Rule 144A(d)(4)
under the Securities Act.
SECTION 4.03. Securities Act and Applicable State Securities Laws.
The Company will also agree to comply with all applicable laws, including the
Securities Act and any applicable state securities laws, in connection with the
offer and sale of Common Stock (and other securities and property deliverable)
upon exercise of the Warrants.
SECTION 4.04. Resolution of Preemptive Rights, if Any. The Warrant
Shares shall not be subject to, or enjoy the benefit of, any preemptive or
similar rights.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices. The Exercise Rate is
subject to adjustment from time to time as provided in this Section 5.01.
<PAGE>
17
(a) Adjustment for Changes in Common Stock. In the event that at any
time on or after the Issue Date or from time to time the Company shall (i) pay a
dividend or make a distribution on its Common Stock payable in shares of its
Common Stock or other equity interests of the Company, (ii) subdivide any of its
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine any of its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) increase or decrease the number
of shares of Common Stock outstanding by reclassification of its Common Stock,
then the number of shares of Common Stock issuable upon exercise of each Warrant
immediately after the happening of such event shall be adjusted to a number
determined by multiplying the number of shares of Common Stock that such holder
would have owned or have been entitled to receive upon exercise had such
Warrants been exercised immediately prior to the happening of the events
described above (or, in the case of a dividend or distribution of Common Stock
or other shares of Capital Stock, immediately prior to the record date therefor)
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately after the happening of the events described
above and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the happening of the events described
above; and subject to Section 5.01(n), the Exercise Price for each Warrant shall
be adjusted to a number determined by dividing the Exercise Price immediately
prior to such event by the aforementioned fraction. An adjustment made pursuant
to this Section 5.01(a) shall become effective immediately after the effective
date of such event, retroactive to the record date therefor in the case of a
dividend or distribution in shares of Common Stock or other shares of the
Company's capital stock.
(b) Adjustment for Cash Dividends and Other Distributions. In the
event that at any time or from time to time the Company shall distribute to all
holders of Common Stock (i) any dividend or other distribution of cash,
evidences of its indebtedness, shares of its capital stock or any other assets,
properties or debt securities or (ii) any options, warrants or other rights to
subscribe for or purchase any of the foregoing (other than, in each case, (x)
any distributions described in Sections 5.01(a), 5.01(c) or 5.01(d)that result
in an adjustment; and (z) any cash dividends or other cash distributions from
current or retained earnings), then the number of shares of Common Stock
issuable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock issuable upon the
exercise of such Warrant immediately prior to the record date for any such
dividend or distribution by a fraction, the numerator of which shall be the
Current Market Value per share of Common Stock on the record date for such
dividend or distribution and the denominator of which shall be such Current
Market Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board, whose determination shall be evidenced by a board resolution filed with
the Warrant Agent, a copy of which will be sent to Holders upon request) of the
portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of
<PAGE>
18
indebtedness, shares of stock, securities, other assets or property, warrants,
options or subscription or purchase rights; and, subject to Sections 5.01(n) and
5.03, the Exercise Price shall be adjusted to a number determined by dividing
the Exercise Price immediately prior to such record date by the aforementioned
fraction. Such adjustments shall be made whenever any distribution is made and
shall become effective as of the date of distribution, retroactive to the record
date for any such distribution; provided, however, that the Company is not
required to make an adjustment pursuant to this Section 5.01(b) if at the time
of such distribution the Company makes the same distribution to Holders of
Warrants as it makes to holders of Common Stock pro rata based on the number of
shares of Common Stock for which such Warrants are exercisable (whether or not
currently exercisable). No adjustment shall be made pursuant to this Section
5.01(b) which shall have the effect of decreasing the number of shares of Common
Stock issuable upon exercise of each Warrant or increasing the Exercise Price.
(c) Adjustment for Rights Issued to All Holders of Common Stock. In
the event that at any time or from time to time the Company shall issue to all
holders of Common Stock without any charge, rights, options or warrants
entitling the holders thereof to subscribe for additional shares of Common
Stock, or securities convertible into or exchangeable or exercisable for
additional shares of Common Stock, entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share that is lower at the record
date for such issuance than the then Current Market Value per share of Common
Stock (other than issuances referred to in 5.01(a), 5.01(b) or 5.01(d)that
result in an adjustment), then the number of shares of Common Stock issuable
upon the exercise of each Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of such
rights, options, warrants or securities plus the number of additional shares of
Common Stock offered for subscription or purchase or into or for which such
securities that are issued are convertible, exchangeable or exercisable, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such rights, options, warrants or securities plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such rights, options, warrants or securities) would purchase at the then
Current Market Value per share of Common Stock. Subject to Section 5.01(n), in
the event of any such adjustment, the Exercise Price shall be adjusted to a
number determined by dividing the Exercise Price immediately prior to such date
of issuance by the aforementioned fraction. Such adjustment shall be made
immediately after such rights, options or warrants are issued and shall become
effective, retroactive to the record date for the determination of stockholders
entitled to receive such rights, options, warrants or securities. No adjustment
shall be made pursuant to this Section 5.01(c) which shall have the effect of
decreasing the number of shares of Common Stock purchasable upon exercise of
each Warrant or of increasing the Exercise Price.
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19
(d) Adjustment for Other Issuances of Common Stock or Rights. In the
event that at any time or from time to time the Company shall issue (i) shares
of Common Stock (subject to the provisions below), (ii) rights, options or
warrants entitling the holder thereof to subscribe for shares of Common Stock
(provided, however, that no adjustment shall be made upon the exercise of such
rights, options or warrants), or (iii) securities convertible into or
exchangeable or exercisable for Common Stock (provided, however, that no
adjustment shall be made upon the conversion, exchange or exercise of such
securities (other than issuances specified in (i), (ii) or (iii) which are made
as the result of anti-dilution adjustments in such securities)), at a price per
share at the record date of such issuance that is less than the then Current
Market Value per share of Common Stock, then the number of shares of Common
Stock issuable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock (other than
issuances as referred to in Sections 5.01(a), 5.01(b) or 5.01(d)that result in
an adjustment), theretofore issuable upon exercise of each Warrant by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such sale or issuance plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such rights, options, warrants or securities, if any) would purchase at the
then Current Market Value per share of Common Stock, and subject to Sections
5.01(n) and 5.03 the Exercise Price shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such date of issuance by the
aforementioned fraction. Such adjustments shall be made whenever such rights,
options or warrants or convertible securities are issued. No adjustment shall be
made pursuant to this Section 5.01(d) which shall have the effect of decreasing
the number of shares of Common Stock issuable upon exercise of each warrant or
of increasing the Exercise Price. For purposes of this Section 5.01(d) only, any
issuance of Common Stock, or rights, options or warrants to subscribe for, or
other securities convertible into or exercisable or exchangeable for, Common
Stock, which issuance (or agreement to issue) (A) is in exchange for or
otherwise in connection with the acquisition of the property (excluding any such
exchange exclusively for cash) of any Person and (B) is at a price per share
equal to the Current Market Value at the time of signing a definitive agreement,
shall be deemed to have been made at a price per share equal to the Current
Market Value per share at the record date with respect to such issuance (the
time of closing or consummation of such exchange or acquisition) if such
definitive agreement is entered into within 90 days of the date of such
agreement in principle.
(e) Notice of Adjustment. Whenever the Exercise Price or the number
of shares of Common Stock and other property, if any, issuable upon exercise of
the Warrants is adjusted, as herein provided, the Company shall deliver to the
Warrant Agent a certificate of a
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20
firm of independent accountants selected by the Board (who may be the regular
accountants employed by the Company) setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board
determined the fair value of any evidences of indebtedness, other securities or
property or warrants, options or other subscription or purchase rights and (ii)
the Current Market Value of the Common Stock was determined, if either of such
determinations were required), and specifying the Exercise Price and the number
of shares of Common Stock issuable upon exercise of Warrants after giving effect
to such adjustment. The Company shall, by Company Order, promptly cause the
Warrant Agent to mail a copy of such certificate to each Holder in accordance
with Section 5.01(l). The Warrant Agent shall be entitled to rely on such
certificate and shall be under no duty or responsibility with respect to any
such certificate, except to exhibit the same from time to time, to any Holder
desiring an inspection thereof during reasonable business hours. The Warrant
Agent shall not at any time be under any duty or responsibility to any Holder to
determine whether any facts exist which may require any adjustment of the
Exercise Price or the number of shares of Common Stock or other stock issuable
on exercise of the Warrants, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment or the validity or value of any shares of Common Stock, evidences of
indebtedness, warrants, options, or other securities or property.
(f) Reorganization of Company; Special Distributions. (i) If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or is
a party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock (a "Fundamental Transaction"), as a condition to
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
warrant agreement. The supplemental warrant agreement shall provide (a) that the
holder of a Warrant then outstanding may exercise it for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the Fundamental Transaction if such holder had exercised the
Warrant immediately before the effective date of the transaction (whether or not
the Warrants were then exercisable and without giving effect to the Cashless
Exercise option); it being understood that the Warrants will remain exercisable
only in accordance with their terms so that conditions to exercise will remain
applicable, such as payment of Exercise Price, assuming (to the extent
applicable) that such holder (i) was not a constituent person or an affiliate of
a constituent person to such transactions, (ii) made no election with respect to
the form of consideration payable in such transaction, and (iii) was treated
alike with the plurality of non-electing holders, and (b) that the Surviving
Person shall succeed to and be substituted to every right and obligation of the
Company in respect of this Agreement and the Warrants. The supplemental
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21
warrant agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
V. The Surviving Person shall mail to holders of Warrants at the addresses
appearing on the Warrant Register a notice briefly describing the supplemental
warrant agreement. If the issuer of securities deliverable upon exercise of
Warrants is an affiliate of the Surviving Person, that issuer shall join in the
supplemental warrant agreement.
(ii) Notwithstanding the foregoing, (a) if the Company enters into a
Fundamental Transaction with another Person (other than a subsidiary of the
Company) and consideration is payable to holders of shares of Common Stock (or
other securities) issuable or, deliverable upon exercise of the Warrants in
connection with such Fundamental Transaction which consists solely of cash or
(b) if there is a dissolution, liquidation or winding up of the Company, then
the holders of Warrants shall be entitled to receive distributions on the date
of such event on an equal basis with holders of such shares (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the aggregate Exercise Price therefor.
Upon receipt of such payment, if any, the rights of a holder of such Warrant
shall terminate and cease and such holder's Warrants shall expire.
(iii) If this paragraph (f) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
(g) Company Determination Final. Any determination that the Company
or the board of directors of the Company must make pursuant to this Article V
shall be conclusive.
(h) Warrant Agent's Adjustment Disclaimer. The Warrant Agent shall
have no duty to determine when an adjustment under this Article V should be
made, how it should be made or what it should be. The Warrant Agent shall have
no duty to determine whether a supplemental warrant agreement under paragraph
(f) need be entered into or whether any provisions of any supplemental warrant
agreement are correct. The Warrant Agent shall not be accountable for and makes
no representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(i) Underlying Warrant Shares. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock or Common Stock held in the treasury of the Company,
for the purpose of effecting the exercise of Warrants, the full number of
Warrant Shares then deliverable upon the exercise of all Warrants then
outstanding and payment of the exercise price, and the shares so deliverable
shall be fully paid and nonassessable and free from all liens and security
interests.
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22
(j) Specificity of Adjustment. Regardless of any adjustment in the
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Warrant Shares per Warrant as are stated on the Warrant
Certificates initially issuable pursuant to this Agreement.
(k) Notice of Voluntary Adjustment. In the event that the Company
shall propose to (a) pay any dividend payable in securities of any class to the
holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (c) issue any (i) shares of Common Stock, (ii)
rights, options or warrants entitling the holders thereof to subscribe for
shares of Common Stock, or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (in the case of (i), (ii) and (iii), only if such
issuance or adjustment would result in an adjustment hereunder), (d) effect any
capital reorganization, reclassification, consolidation or merger, (e) effect
the voluntary or involuntary dissolution, liquidation or winding-up of the
Company or (f) make a tender offer or exchange offer with respect to the Common
Stock, the Company shall within five (5) days send the Holder and the Warrant
Agent a notice of such proposed action or offer. Such notice shall be mailed by
the Company to the Holders at their addresses as they appear in the Certificate
Register, which shall specify the record date for the purposes of such dividend,
distribution or rights, or the date such issuance or event is to take place and
the date of participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall briefly indicate the effect of such action on the
Common Stock and on the number and kind of any other shares of stock and on
other property, if any, and the number of shares of Common Stock and other
securities, if any, issuable upon exercise of each Warrant and the Exercise
Price after giving effect to any adjustment pursuant to Article 5 which will be
required as a result of such action. Such notice shall be given by the Company
as promptly as possible and (x) in the case of any action covered by clause (a)
or (b) above, at least 10 days prior to the record date for determining holders
of the Common Stock for purposes of such action or (y) in the case of any other
such action, at least 20 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock,
whichever shall be the earlier.
(l) Multiple Adjustments. After an adjustment to the Exercise Rate
for outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
<PAGE>
23
(m) Definitions.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) of, such
person's capital stock, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or convertible into
such capital stock whether outstanding on the Issue Date (as defined below) or
issued after the Issue Date.
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Warrant Agent. The closing sales price for each such trading
day shall be: (A) in the case of a security listed or admitted to trading on any
U.S. national securities exchange or quotation system, the closing sales price,
regular way, on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (B) in the case of a security not
then listed or admitted to trading on any U.S. national securities exchange or
quotation system, the last reported sale price on such day, or if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading on any U.S.
national securities exchange or quotation system and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, The City and State of New York customarily published on each Business
Day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the
<PAGE>
24
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 30 days prior to the date in question) for which prices have
been so reported and (D) if there are not bid and asked prices reported during
the 30 days prior to the date in question, the Current Market Value shall be
determined as if the securities were not registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Issue Date" means the date of the Warrant Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
(n) When De Minimis Adjustment May Be Deferred. The adjustments
required by the preceding Sections of this Article V shall be made whenever and
as often as any specified event requiring an adjustment shall occur, except that
no adjustment of the Exercise Price or the number of shares of Common Stock
issuable upon exercise of Warrants that would otherwise be required shall be
made unless and until such adjustment either by itself or with other adjustments
not previously made increases or decreases by at least 1% the Exercise Price or
the number of shares of Common Stock issuable upon exercise of Warrants
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount shall be carried forward and made as
soon as such adjustment, together with other adjustments required by this
Article V and not previously made, would result in a minimum adjustment. For the
purpose of any adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence. In computing adjustments
under this Article V, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth of a share.
(o) Adjustment of Exercise Price. In addition, notwithstanding any
other provisions of this Article V, the Company may reduce the Exercise Price
(to an amount not less than the par value of the Common Stock) for a period of
time not less then 20 business days as deemed appropriate and determined in good
faith by the Board.
<PAGE>
25
SECTION 5.02. Fractional Warrant Shares. The Company shall not be
required to issue fractional Warrant Shares upon exercise of the Warrants or
distribute Warrant Certificates that evidence fractional Warrant Shares. In
addition, in no event shall any holder of Warrants be required to make any
payment of a fractional cent. In lieu of fractional Warrant Shares, there shall
be paid to the registered holders of Warrant Certificates at the time Warrants
evidenced thereby are exercised as herein provided an amount in cash equal to
the same fraction of the Current Market Value per Warrant Share on the Business
Day preceding the date the Warrant Certificates evidencing such Warrants are
surrendered for exercise. Such payments shall be made by check or by transfer to
an account maintained by such registered holder with a bank in The City of New
York. If any holder surrenders for exercise more than one Warrant Certificate,
the number of Warrant Shares deliverable to such holder may, at the option of
the Company, be computed on the basis of the aggregate amount of all the
Warrants exercised by such holder.
SECTION 5.03. Exceptions to Antidilution Provisions. Without
limiting any other exception contained in this Article V, and in addition
thereto, no adjustment need be made for:
(i) grants or exercises of rights granted to employees of the
Company or any of its subsidiaries of shares of Common Stock issued or
granted to such employees under any stock incentive plan or otherwise,
whether or not upon the exercise, exchange or conversion of any such
rights, issued in good faith and, except for Section 5.01(c) and (d), at
fair market value (as determined in good faith by the Board of Directors
of the Company);
(ii) grants or exercises of rights granted to employees of the
Company or any of its subsidiaries of shares of Common Stock issued or
granted to such employees under any employee stock purchase plan or
otherwise, whether or not upon the exercise, exchange or conversion of any
such rights, issued in good faith (as determined in good faith by the
Board of Directors of the Company);
(iii) options, warrants or other agreements or rights to purchase
capital stock of the Company entered into prior to the date of the
issuance of the Warrants and any issuance of shares of Common Stock in
connection therewith;
(iv) rights to purchase shares of Common Stock pursuant to a Company
plan for reinvestment of dividends or interest;
(v) a change in the par value of shares of Common Stock (including a
change from par value to no par value or vice versa); and
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26
(vi) bona fide public offerings or private placements pursuant to
Section 4(2) of the Securities Act, Rule 144A, Regulation D or Regulation
S thereunder of any security trading on any national securities exchange
or in the over the counter market, or of a security directly or indirectly
convertible or exchangeable for any such security, involving at least one
investment bank of national reputation.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent. The Company hereby appoints Bankers
Trust Company as Warrant Agent of the Company in respect of the Warrants and the
Warrant Certificates upon the terms and subject to the conditions set forth
herein and in the Warrant Certificates; and Bankers Trust Company hereby accepts
such appointment. The Warrant Agent shall have the powers and authority
specifically granted to and conferred upon it in the Warrant Certificates and
hereby and such further powers and authority to act on behalf of the Company as
the Company may hereafter grant to or confer upon it and it shall accept in
writing. All of the terms and provisions with respect to such powers and
authority contained in the Warrant Certificates are subject to and governed by
the terms and provisions hereof. The Warrant Agent may act through agents and
shall not be responsible for the misconduct or negligence of any such agent
appointed with due care.
SECTION 6.02. Conditions of Warrant Agent's Obligations. The Warrant
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and in the Warrant Certificates, including the following, to all of which
the Company agrees and to all of which the rights hereunder of the holders from
time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on its part in connection with the services rendered
by it hereunder. The Company also agrees to indemnify the Warrant Agent
and any predecessor Warrant Agent, their directors, officers, affiliates,
agents and employees for, and to hold them and their directors, officers,
affiliates, agents and employees harmless against, any loss, liability or
expense of any nature whatsoever (including, without limitation,
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on the part of the Warrant Agent, arising out of or
in connection with its acting as such Warrant Agent hereunder
<PAGE>
27
and its exercise of its rights and performance of its obligations
hereunder. The obligations of the Company under this Section 6.02 shall
survive the exercise and the expiration of the Warrant Certificates and
the resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship of agency or
trust for or with any of the owners or holders of the Warrant
Certificates.
(c) The Warrant Agent may consult with counsel of its selection and
any advice or written opinion of such 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 accordance with such advice
or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed by
it to be genuine and to have been presented or signed by the proper
parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("Related Parties"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the
Company with the same rights that it or they would have if it were not the
Warrant Agent hereunder and, to the extent permitted by applicable law
including, but not limited to, the Trust Indenture Act of 1939, it or they
may engage or be interested in any financial or other transaction with the
Company and may act on, or as depositary, trustee or agent for, any
committee or body of holders of shares or other obligations of the Company
as freely as if it were not the Warrant Agent hereunder. Nothing in this
Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any monies at any time received
by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision
hereof) or the execution and delivery hereof (except the due execution and
delivery hereof by the Warrant Agent) or
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28
in respect of the validity or execution of any Warrant Certificate (except
its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of the same. The
Warrant Agent does not make any representation as to the validity or
sufficiency of this Agreement or the Warrant Certificates, except for its
due execution and delivery of this Agreement; provided, however, that the
Warrant Agent shall not be relieved of its duty to authenticate the
Warrant Certificates as authorized by this Agreement. The Warrant Agent
shall not be accountable for the use or application by the Company of the
proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may
require and may conclusively rely on:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Warrant Agreement relating to the proposed action have been complied
with; and
(2) an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with, provided that such matter is one customarily opined
upon by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel
with respect to compliance with a condition or covenant provided for in
this Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(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 such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
<PAGE>
29
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as
are specifically set forth herein and in the Warrant Certificates, and no
implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall
not be accountable or under any duty or responsibility for the use by the
Company of any of the Warrant Certificates duly authenticated by the
Warrant Agent and delivered by it to the Company pursuant to this
Agreement. The Warrant Agent shall have no duty or responsibility in case
of any default by the Company in the performance of its covenants or
agreements contained in the Warrant Certificates or in the case of the
receipt of any written demand from a holder of a Warrant Certificate with
respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate
any proceedings at law or otherwise or, except as provided in Section 7.02
hereof, to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by the chairman or a co-chairman of the board, the
chief executive officer, the president, the chief financial officer, any
executive vice president or any senior vice president of the Company
signing alone, or by any vice president signing together with the
secretary, any assistant secretary, the treasurer, or any assistant
treasurer of the Company.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as
may reasonably be required by the Warrant Agent for the carrying out or
performing by the Warrant Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties
hereunder from any one of the chairman or a co-chairman of the board, the
president, the chief executive officer, the chief financial officer, any
executive vice president or any senior vice president alone, or any vice
president together with the secretary, assistant secretary, the treasurer
or any assistant treasurer, of the Company or any other officer or
official of the Company reasonably believed to be authorized to give such
instructions and to apply to such
<PAGE>
30
officers or officials for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions with respect to
any matter arising in connection with the Warrant Agent's duties and
obligations arising under this Agreement. Such application by the Warrant
Agent for written instructions from the Company may, at the option of the
Warrant Agent, set forth in writing any action proposed to be taken or
omitted by the Warrant Agent with respect to its duties or obligations
under this Agreement and the date on or after which such action shall be
taken and the Warrant Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on
or after the date specified therein (which date shall be not less than 10
Business Days after the Company receives such application unless the
Company consents to a shorter period); provided that (i) such application
includes a statement to the effect that it is being made pursuant to this
paragraph (n) and that unless objected to prior to such date specified in
the application, the Warrant Agent will not be liable for any such action
or omission to the extent set forth in such paragraph (n) and (ii) prior
to taking or omitting any such action, the Warrant Agent has not received
written instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed on behalf of
the Company by any one of the chairman of the board of directors, the
president, the chief executive officer, the treasurer, the controller, any
vice president or the secretary or assistant secretary of the Company or
any other officer or official of the Company reasonably believed to be
authorized to give such instructions and delivered to the Warrant Agent;
and such certificate shall be full authorization to the Warrant Agent for
any action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its
own funds in the performance of its obligations and duties hereunder.
SECTION 6.03. Resignation and Appointment of Successor. (a) The
Company agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective; provided,
however, that such date shall be at least
<PAGE>
31
60 days after the date on which such notice is given unless the Company agrees
to accept less notice. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor Warrant Agent, qualified as provided in
Section 6.03(d) hereof, by written instrument in duplicate signed on behalf of
the Company, one copy of which shall be delivered to the resigning Warrant Agent
and one copy to the successor Warrant Agent. As provided in Section 6.03(d)
hereof, such resignation shall become effective upon the earlier of (x) the
acceptance of the appointment by the successor Warrant Agent or (y) 60 days
after receipt by the Company of notice of such resignation. The Company may, at
any time and for any reason, and shall, upon any event set forth in the next
succeeding sentence, remove the Warrant Agent and appoint a successor Warrant
Agent by written instrument in duplicate, specifying such removal and the date
on which it is intended to become effective, signed on behalf of the Company,
one copy of which shall be delivered to the Warrant Agent being removed and one
copy to the successor Warrant Agent. The Warrant Agent shall be removed as
aforesaid if it shall become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Warrant Agent or of its property
shall be appointed, or any public officer shall take charge or control of it or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation. Any removal of the Warrant Agent and any appointment of a successor
Warrant Agent shall become effective upon acceptance of appointment by the
successor Warrant Agent as provided in Section 6.03(d). As soon as practicable
after appointment of the successor Warrant Agent, the Company shall cause
written notice of the change in the Warrant Agent to be given to each of the
registered holders of the Warrants in the manner provided for in Section 7.04
hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company
shall fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any Warrant
Certificate or the retiring Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or
by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $50
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such successor
Warrant Agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Warrant Agent hereunder,
and such predecessor shall thereupon become obligated to (i) transfer and
deliver, and such successor Warrant Agent shall be entitled to receive, all
<PAGE>
32
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.02(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all monies deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder
may be merged or converted, or any corporation or bank with which the Warrant
Agent may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the successor
to the Warrant Agent under this Agreement (provided that such corporation or
bank shall be qualified as aforesaid) without the execution or filing of any
document or any further act on the part of any of the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent.
SECTION 6.04. Covenant to Notify to The Depository Trust Company of
Separability Date. The Warrant Agent undertakes that it shall, ten days prior to
the Separability Date, execute and deliver a notice of the Separability Date to
The Depository Trust Company, Attention: Manager, Conversions, in the
Reorganization Department.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of the Company's obligations hereunder and thereunder by a successor corporation
under certain circumstances or in any other manner which the Company may deem
necessary or desirable and which shall not materially adversely affect the
interests of the holders of the Warrant Certificates.
The Company and the Warrant Agent may amend, modify or supplement
this Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite Warrant
Holders (as defined below) for the purpose of adding any provision to or
changing in any manner or eliminating any of the provisions of this Agreement or
modifying in any manner the rights of the holders of the
<PAGE>
33
outstanding Warrants. "Requisite Warrant Holders" means (i) in the case of any
amendment, modification, supplement or waiver affecting only Warrant Holders as
such holders of a majority in number of the outstanding Warrants, voting
separately as a class, or (ii) in the case of any amendment, modification,
supplement or waiver affecting Warrant Shares, a majority in number of Warrant
Shares represented by the Warrants that would be issuable assuming exercise
thereof at the time such amendment, modification, supplement or waiver is voted
upon. Notwithstanding any other provision of this Agreement, the Warrant Agent's
consent must be obtained regarding any supplement or amendment which alters the
Warrant Agent's rights or duties (it being expressly understood that the
foregoing shall not be in derogation of the right of the Company to remove the
Warrant Agent in accordance with Section 6.03 hereof). For purposes of any
amendment, modification or waiver hereunder, Warrants held by the Company or any
of its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this Agreement
will be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to the Company and Warrant Agent.
If the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.03. Addresses for Notices to Parties and for Transmission
of Documents. All notices hereunder to the parties hereto shall be deemed to
have been given when sent by certified or registered mail, postage prepaid, or
by facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
@Entertainment, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Facsimile: 00 1 860 549 1674
Attention: Robert E. Fowler, III
<PAGE>
34
with copies to:
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Facsimile: (202) 452-7074
Attention: Marc R. Paul, Esq.
To the Warrant Agent:
Bankers Trust Company
Corporate Trust Office
Four Albany Street
New York, New York 10006
Facsimile: (212) 250-0933
Attention: Corporate Trust Manager
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of Warrants
shall be mailed to such holders at the addresses of such holders as they appear
in the Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid to the address of such holder.
SECTION 7.05. Applicable Law. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.06. Persons Having Rights Under Agreement. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent and the
holders of the Warrant Certificates and, with respect to Sections 4.03 and 4.04,
the holders of Warrant Shares issued pursuant to Warrants, any right, remedy or
claim under or by reason of this Agreement or of any covenant, condition,
stipulation, promise or agreement hereof; and all covenants (except for Section
4.03 which shall be for the benefit of all holders of Warrant Shares issued
pursuant to Warrants), conditions, stipulations, promises and agreements in this
Agreement contained shall be for the sole and exclusive benefit of the Company
and the Warrant Agent and their successors and of the holders of the Warrant
Certificates.
<PAGE>
35
SECTION 7.07. Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
SECTION 7.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 7.09. Inspection of Agreement. A copy of this Agreement
shall be available during regular business hours at the principal corporate
trust office of the Warrant Agent, for inspection by the holder of any Warrant
Certificate. The Warrant Agent may require such holder to submit his Warrant
Certificate for inspection by it.
SECTION 7.10. Availability of Equitable Remedies. Since a breach of
the provisions of this Agreement could not adequately be compensated by money
damages, holders of Warrants shall be entitled, in addition to any other right
or remedy available to them, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and to
the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under U.S. federal and state laws, and the rules and regulations of all stock
exchanges on which the Warrant Shares may become listed which may be or become
requisite in connection with the issuance, sale, transfer and delivery of the
Warrant Shares issued upon exercise of the Warrants.
[Signature Page Follows]
<PAGE>
36
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
@ENTERTAINMENT, INC.
By: /S/ ROBERT E. FOWLER, III
--------------------------------------
Title: CHIEF EXECUTIVE OFFICER
By: /S/ DONALD MILLER JONES
--------------------------------------
Title: CHIEF FINANCIAL OFFICER
BANKERS TRUST COMPANY,
Warrant Agent
By: /S/ DOROTHY ROBINSON
--------------------------------------
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT A
THE SECURITIES EVIDENCED HEREBY HAVE 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 SUCH 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), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SHORTER PERIOD AS MAY BE PRESCRIBED BY RULE 144(K) (OR ANY SUCCESSOR
PROVISION THEREOF) UNDER THE SECURITIES ACT) 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 ISSUER OR ITS
SUBSIDIARY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE 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 OR (D) 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. IN CONNECTION WITH ANY TRANSFER OF THESE SECURITIES
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
A-1
<PAGE>
CUSIP No. 045920 139
ISIN No. US 045920 1390
No. 1 800,000 Warrants
WARRANT CERTIFICATE
@ENTERTAINMENT, INC.
This Warrant Certificate certifies that Cede & Co., or its
registered assigns, is the registered holder of 800,000 Warrants (the
"Warrants") to purchase an aggregate of 1,412,512 shares of Common Stock, par
value $0.01 per share, issuable upon exercise of the Warrants (the "Warrant
Shares") of @ENTERTAINMENT, INC., a Delaware corporation (the "Company," which
term includes its successors and assigns). Each Warrant entitles the holder to
purchase from the Company at any time from 9:00 a.m. New York City time on or
after the Exercise Date until 5:00 p.m., New York City time, on February 1, 2009
(the "Expiration Date"), 1.7656 fully paid, registered and non-assessable
Warrant Shares, subject to adjustment as provided in Article V of the Warrant
Agreement, at an exercise price of $9.125 for each share purchased (the
"Exercise Price"); upon surrender of this Warrant Certificate and payment of the
Exercise Price (i) in cash or by certified or official bank check, (ii) by a
Cashless Exercise or (iii) by any combination of (i) and (ii), at any office or
agency maintained for that purpose by the Company (the "Warrant Exercise
Office"), subject to the conditions set forth herein and in the Warrant
Agreement. For purposes of this Warrant, a "Cashless Exercise" shall mean an
exercise of a Warrant in accordance with the immediately following two
sentences. To effect a Cashless Exercise, the holder may exercise a Warrant or
Warrants without payment of the Exercise Price in cash by surrendering such
Warrant or Warrants (represented by one or more Warrant Certificates) and in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) that number of shares of Common Stock for which such Warrant or
Warrants are exercisable and which would be issuable in the event of an exercise
with payment of the Exercise Price and (2) the Cashless Exercise Ratio. The
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (calculated as set forth in this Warrant) per
share of Common Stock on the date of exercise over the Exercise Price per share
of Common Stock as of the date of exercise and the denominator of which is the
Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Warrant Agreement shall be applicable with respect to a Cashless Exercise of
a Warrant Certificate for less than the full number of Warrants represented
thereby. Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Warrant
A-2
<PAGE>
Agreement. Holders of Warrants, however, will be able to exercise their Warrants
only if the Warrant Shelf Registration Statement relating to the Common Stock
underlying the Warrants is effective or the exercise of such Warrants is exempt
from the registration requirements of the Securities Act, and such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states or other jurisdictions in which such holders
reside. The Warrants may also be exercised pursuant to an effective Piggy-Back
Registration Statement (as defined in the Warrant Agreement).
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Warrant Agent. The closing sales price for each such trading
day shall be: (A) in the case of a security listed or admitted to trading on any
U.S. national securities exchange or quotation system, the closing sales price,
regular way, on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (B) in the case of a security not
then listed or admitted to trading on any U.S. national securities exchange or
quotation system, the last reported sale price on such day, or if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading on any U.S.
national securities exchange or quotation system and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, The City and State of New York customarily published on each Business
Day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported and (D) if there are not bid and asked prices
reported during the 30 days prior to the date in question, the
A-3
<PAGE>
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States, (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Separability Date" shall mean the earliest to occur of: (i) the
Exercise Date, (ii) the date on which a registration statement, with respect to
a registered exchange offer for the Notes is declared effective under the
Securities Act of 1933, as amended (the "Securities Act"), (iii) the occurrence
of an Event of Default (as defined in the Indenture) or (iv) such earlier date
as determined by Merrill Lynch in its sole discretion and specified to the
Company and the Warrant Agent in writing. Notwithstanding the foregoing, in the
event a Change of Control (as defined in the Indenture) is proposed and the
Company commences a Change of Control Offer (as defined in the Indenture) prior
to the Separability Date, as determined by the preceding sentence, the
Separability Date shall be such earlier date of commencement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office. The number of shares of Common Stock
issuable upon exercise of the Warrants ("Exercise Rate") is subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on February 1, 2009 shall thereafter be void.
If the Company in a single transaction or through a series of
related transactions, consolidates with or merges with or into any other person
or sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "Fundamental
Transaction"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "Surviving
Person") shall enter into a supplemental warrant agreement. The supplemental
warrant agreement shall provide (a) that the holder of a Warrant
A-4
<PAGE>
then outstanding may exercise it for the kind and amount of securities, cash or
other assets which such holder would have received immediately after the
Fundamental Transaction if such holder had exercised the Warrant immediately
before the effective date of the transaction (regardless of whether the Warrants
were then exercisable and without giving effect to the Cashless Exercise
option), assuming (to the extent applicable) that such holder (i) made no
election with respect to the form of consideration payable in such transaction
and (ii) was treated alike with the plurality of non-electing holders, and (b)
that the Surviving Person shall succeed to and be substituted for every right
and obligation of the Company in respect of the Warrant Agreement and the
Warrants. The Surviving Person shall mail to holders of Warrants at the
addresses appearing on the Warrant Register a notice briefly describing the
supplemental warrant agreement. If the issuer of securities deliverable upon
exercising of Warrants is an affiliate of the Surviving Person, that company
shall join in the supplemental warrant agreement.
Notwithstanding the foregoing, (i) if the Company enters into a
Fundamental Transaction and the consideration payable to holders of the Common
Stock (or other securities) issuable or deliverable upon exercise of the
Warrants in connection with such Fundamental Transaction consists solely of cash
or (ii) there is a dissolution, liquidation or winding up of the Company, then
the holders of Warrants shall be entitled to receive distributions on the date
of such event on an equal basis with holders of Common Stock (or other
securities issuable or delivered upon exercise of the Warrants) as if the
Warrants had been exercised immediately prior to such event, less the Exercise
Price therefor. Upon receipt of such payment, if any, the rights of a holder of
a Warrant shall terminate and cease and such holder's Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
A-5
<PAGE>
Dated: January 27, 1999
@ENTERTAINMENT, INC.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
Attest:
By:
------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
BANKERS TRUST COMPANY,
Warrant Agent
By:
------------------------------
Authorized Signatory
A-6
<PAGE>
@ENTERTAINMENT, INC.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on
February 1, 2009 (the "Expiration Date"). Each Warrant represents the right to
purchase at any time on or after the Exercise Date (as defined in the Warrant
Agreement) and on or prior to the Expiration Date 1.7656 Warrant Shares, subject
to adjustment as set forth in the Warrant Agreement. The Warrants are issued
pursuant to a Warrant Agreement dated as of January 27, 1999 (the "Warrant
Agreement"), duly executed and delivered by the Company to Bankers Trust
Company, Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant
Exercise Office this Warrant Certificate with the form of Election to Exercise
set forth hereon duly completed and executed and (ii) to the extent such
exercise is not being effected through a Cashless Exercise by paying in full, in
cash or by certified or official bank check, the Warrant Exercise Price for each
such Warrant exercised and any other amounts required to be paid pursuant to the
Warrant Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 11:00 a.m.,
New York City time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to in
the last sentence of the preceding paragraph are received after 11:00 a.m., New
York City time, on a Business Day, the exercise of the Warrants to which such
item relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on
February 1, 2009, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing such Warrant Share or Warrant Shares to which such
holder is entitled, in fully registered form, registered in such name or names
as may be directed by such holder pursuant to the Election to Exercise, as set
forth on the reverse of this Warrant Certificate. Such certificate or
certificates evidencing the Warrant Share or Warrant Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of
A-7
<PAGE>
such Warrant Share or Warrant Shares as of the close of business on the date
upon which the exercise of this Warrant was deemed to be effective as provided
in the preceding paragraph.
The Company shall not be required to issue fractional Warrant Shares
upon exercise of the Warrants or distribute Warrant Certificates that evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be
paid to the registered Holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which any Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading, are open for business.
A-8
<PAGE>
CUSIP No. 045920 139
ISIN No. US 045920 1390
No. 2 227,200 Warrants
WARRANT CERTIFICATE
@ENTERTAINMENT, INC.
This Warrant Certificate certifies that Cede & Co., or its
registered assigns, is the registered holder of 227,200 Warrants (the
"Warrants") to purchase an aggregate of 401,153 shares of Common Stock, par
value $0.01 per share, issuable upon exercise of the Warrants (the "Warrant
Shares") of @ENTERTAINMENT, INC., a Delaware corporation (the "Company," which
term includes its successors and assigns). Each Warrant entitles the holder to
purchase from the Company at any time from 9:00 a.m. New York City time on or
after the Exercise Date until 5:00 p.m., New York City time, on February 1, 2009
(the "Expiration Date"), 1.7656 fully paid, registered and non-assessable
Warrant Shares, subject to adjustment as provided in Article V of the Warrant
Agreement, at an exercise price of $9.125 for each share purchased (the
"Exercise Price"); upon surrender of this Warrant Certificate and payment of the
Exercise Price (i) in cash or by certified or official bank check, (ii) by a
Cashless Exercise or (iii) by any combination of (i) and (ii), at any office or
agency maintained for that purpose by the Company (the "Warrant Exercise
Office"), subject to the conditions set forth herein and in the Warrant
Agreement. For purposes of this Warrant, a "Cashless Exercise" shall mean an
exercise of a Warrant in accordance with the immediately following two
sentences. To effect a Cashless Exercise, the holder may exercise a Warrant or
Warrants without payment of the Exercise Price in cash by surrendering such
Warrant or Warrants (represented by one or more Warrant Certificates) and in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) that number of shares of Common Stock for which such Warrant or
Warrants are exercisable and which would be issuable in the event of an exercise
with payment of the Exercise Price and (2) the Cashless Exercise Ratio. The
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (calculated as set forth in this Warrant) per
share of Common Stock on the date of exercise over the Exercise Price per share
of Common Stock as of the date of exercise and the denominator of which is the
Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Warrant Agreement shall be applicable with respect to a Cashless Exercise of
a Warrant Certificate for less than the full number of Warrants represented
thereby. Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Warrant
A-9
<PAGE>
Agreement. Holders of Warrants, however, will be able to exercise their Warrants
only if the Warrant Shelf Registration Statement relating to the Common Stock
underlying the Warrants is effective or the exercise of such Warrants is exempt
from the registration requirements of the Securities Act, and such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states or other jurisdictions in which such holders
reside. The Warrants may also be exercised pursuant to an effective Piggy-Back
Registration Statement (as defined in the Warrant Agreement).
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Warrant Agent. The closing sales price for each such trading
day shall be: (A) in the case of a security listed or admitted to trading on any
U.S. national securities exchange or quotation system, the closing sales price,
regular way, on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (B) in the case of a security not
then listed or admitted to trading on any U.S. national securities exchange or
quotation system, the last reported sale price on such day, or if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading on any U.S.
national securities exchange or quotation system and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, The City and State of New York customarily published on each Business
Day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported and (D) if there are not bid and asked prices
reported during the 30 days prior to the date in question, the
A-10
<PAGE>
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States, (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Separability Date" shall mean the earliest to occur of: (i) the
Exercise Date, (ii) the date on which a registration statement, with respect to
a registered exchange offer for the Notes is declared effective under the
Securities Act of 1933, as amended (the "Securities Act"), (iii) the occurrence
of an Event of Default (as defined in the Indenture) or (iv) such earlier date
as determined by Merrill Lynch in its sole discretion and specified to the
Company and the Warrant Agent in writing. Notwithstanding the foregoing, in the
event a Change of Control (as defined in the Indenture) is proposed and the
Company commences a Change of Control Offer (as defined in the Indenture) prior
to the Separability Date, as determined by the preceding sentence, the
Separability Date shall be such earlier date of commencement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office. The number of shares of Common Stock
issuable upon exercise of the Warrants ("Exercise Rate") is subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on February 1, 2009 shall thereafter be void.
If the Company in a single transaction or through a series of
related transactions, consolidates with or merges with or into any other person
or sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "Fundamental
Transaction"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "Surviving
Person") shall enter into a supplemental warrant agreement. The supplemental
warrant agreement shall provide (a) that the holder of a Warrant
A-11
<PAGE>
then outstanding may exercise it for the kind and amount of securities, cash or
other assets which such holder would have received immediately after the
Fundamental Transaction if such holder had exercised the Warrant immediately
before the effective date of the transaction (regardless of whether the Warrants
were then exercisable and without giving effect to the Cashless Exercise
option), assuming (to the extent applicable) that such holder (i) made no
election with respect to the form of consideration payable in such transaction
and (ii) was treated alike with the plurality of non-electing holders, and (b)
that the Surviving Person shall succeed to and be substituted for every right
and obligation of the Company in respect of the Warrant Agreement and the
Warrants. The Surviving Person shall mail to holders of Warrants at the
addresses appearing on the Warrant Register a notice briefly describing the
supplemental warrant agreement. If the issuer of securities deliverable upon
exercising of Warrants is an affiliate of the Surviving Person, that company
shall join in the supplemental warrant agreement.
Notwithstanding the foregoing, (i) if the Company enters into a
Fundamental Transaction and the consideration payable to holders of the Common
Stock (or other securities) issuable or deliverable upon exercise of the
Warrants in connection with such Fundamental Transaction consists solely of cash
or (ii) there is a dissolution, liquidation or winding up of the Company, then
the holders of Warrants shall be entitled to receive distributions on the date
of such event on an equal basis with holders of Common Stock (or other
securities issuable or delivered upon exercise of the Warrants) as if the
Warrants had been exercised immediately prior to such event, less the Exercise
Price therefor. Upon receipt of such payment, if any, the rights of a holder of
a Warrant shall terminate and cease and such holder's Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
A-12
<PAGE>
Dated: January 27, 1999
@ENTERTAINMENT, INC.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
Attest:
By:
------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
BANKERS TRUST COMPANY,
Warrant Agent
By:
------------------------------
Authorized Signatory
A-13
<PAGE>
@ENTERTAINMENT, INC.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on
February 1, 2009 (the "Expiration Date"). Each Warrant represents the right to
purchase at any time on or after the Exercise Date (as defined in the Warrant
Agreement) and on or prior to the Expiration Date 1.7656 Warrant Shares, subject
to adjustment as set forth in the Warrant Agreement. The Warrants are issued
pursuant to a Warrant Agreement dated as of January 27, 1999 (the "Warrant
Agreement"), duly executed and delivered by the Company to Bankers Trust
Company, Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant
Exercise Office this Warrant Certificate with the form of Election to Exercise
set forth hereon duly completed and executed and (ii) to the extent such
exercise is not being effected through a Cashless Exercise by paying in full, in
cash or by certified or official bank check, the Warrant Exercise Price for each
such Warrant exercised and any other amounts required to be paid pursuant to the
Warrant Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 11:00 a.m.,
New York City time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to in
the last sentence of the preceding paragraph are received after 11:00 a.m., New
York City time, on a Business Day, the exercise of the Warrants to which such
item relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on
February 1, 2009, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing such Warrant Share or Warrant Shares to which such
holder is entitled, in fully registered form, registered in such name or names
as may be directed by such holder pursuant to the Election to Exercise, as set
forth on the reverse of this Warrant Certificate. Such certificate or
certificates evidencing the Warrant Share or Warrant Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of
A-14
<PAGE>
such Warrant Share or Warrant Shares as of the close of business on the date
upon which the exercise of this Warrant was deemed to be effective as provided
in the preceding paragraph.
The Company shall not be required to issue fractional Warrant Shares
upon exercise of the Warrants or distribute Warrant Certificates that evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be
paid to the registered Holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which any Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading, are open for business.
A-15
<PAGE>
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Warrants on the Effective Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ]
of the Warrants represented by this Warrant Certificate and purchase the whole
number of Warrant Shares issuable upon the exercise of such Warrants and
herewith tenders payment for such Warrant Shares as follows:
$ __________________ in cash or by certified or official bank check;
or by surrender of Warrants pursuant to a Cashless Exercise (as defined in the
Warrant Agreement) for [ ] shares of Common Stock at the current Cashless
Exercise Ratio.
The undersigned requests that a certificate representing such
Warrant Shares be registered in the name of _________________ whose address
is ____________________ and that such shares be delivered to ________________
whose address is _________________________. Any cash payments to be paid in lieu
of a fractional share of Common Stock should be delivered
to _____________________ whose address is__________________ and the check
representing payment thereof should be delivered to ____________________________
whose address is _________________________.
Dated ___________, ____
Name of holder of
Warrant Certificate:________________________________________________
(Please Print)
Tax Identification or
Social Security Number:_____________________________________________
Address: __________________________________________________________
__________________________________________________________
Signature:_________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate
in every particular, without alteration or
enlargement or any change whatever and if the
certificate representing the Warrant Shares or any
Warrant Certificate representing Warrants not
exercised is to be registered in a name other than
that in which this Warrant Certificate is
registered, or if any cash payment to be paid in
lieu of a fractional share
A-16
<PAGE>
is to be made to a person other than the registered
holder of this Warrant Certificate, the signature of
the holder hereof must be guaranteed as provided in
the Warrant Agreement.
Dated ______________, ____
Signature:_________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever.
Signature Guaranteed:
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sells, assigns
and transfers unto _____________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated ________________, ____
Signature:_________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever.
Signature Guaranteed:______________________________________________
A-17
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
Number of
Amount of Amount of Warrants of this
decrease in increase in Global Warrant Signature of
Number of Number of following authorized
Date of Warrants of this Warrants of this such decrease officer of
Exchange Global Warrant Global Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------
A-18
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall bear
a legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO 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.
B-1
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of @ENTERTAINMENT,
INC.
This Certificate relates to ____ Warrants held in* ___ book-entry
or* _______ certificated form by ______ (the "Transferor").
The Transferor:*
/ / has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above); or
/ / has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant,
the Transferor does hereby certify that the Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and the restrictions
on transfers thereof as provided in Section 1.07 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because*:
/ / Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.07 (a)(y)(A) or Section 1.07
(d)(i)(A) of the Warrant Agreement).
/ / Such Warrant is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
- ----------
* Check applicable box.
C-1
<PAGE>
|_| Such Warrant is being transferred in accordance with Rule 144 under
the Act.
|_| Such Warrant is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act.
-------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------------
Date:
--------------------------------
D-1
<PAGE>
Exhibit 4.7
EXECUTION COPY
================================================================================
PREFERENCE WARRANT AGREEMENT
Dated as of January 27, 1999
By and Between
@ENTERTAINMENT, INC.
and
BANKERS TRUST COMPANY,
Preference Warrant Agent
--------------------
5.5 million Warrants to Purchase an Aggregate of 5.5
million Shares of Common Stock
(Par Value $0.01 Per Share)
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF PREFERENCE WARRANT CERTIFICATES ....................2
SECTION 1.01. Issuance of Preference Warrants.........................2
SECTION 1.02. Form of Preference Warrant Certificate[s]...............2
SECTION 1.03. Execution of Preference Warrant Certificates............3
SECTION 1.04. Authentication and Delivery.............................3
SECTION 1.05. Registration............................................4
SECTION 1.06. Registration of Transfers or Exchanges..................5
SECTION 1.07. Lost, Stolen, Destroyed, Defaced or Mutilated
Preference Warrant Certificates......................10
SECTION 1.08. Offices for Exercise, etc..............................11
ARTICLE II
DURATION, EXERCISE OF PREFERENCE WARRANTS; EXERCISE PRICE
AND REPURCHASE OF PREFERENCE WARRANTS...................12
SECTION 2.01. Duration of Preference Warrants........................12
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery......12
SECTION 2.03. Cancellation of Preference Warrant Certificates........16
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF PREFERENCE WARRANTS..............................16
SECTION 3.01. Enforcement of Rights..................................16
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY......................................17
SECTION 4.01. Payment of Taxes.......................................17
SECTION 4.02. Rule 144A..............................................17
SECTION 4.03. Securities Act and Applicable State Securities Laws....17
SECTION 4.05. Notice of Proposal to Issue or Sell....................18
SECTION 4.06. Sale or Issuance After Notice..........................19
SECTION 4.07. Redemption of Certain New Securities...................19
SECTION 4.08. Termination............................................19
SECTION 4.09. Assignment.............................................20
SECTION 4.10. Definitions............................................20
-i-
<PAGE>
ARTICLE V
ADJUSTMENTS...........................................................21
SECTION 5.01. Adjustment of Preference Exercise Rate; Notices........21
SECTION 5.02. Fractional Preference Warrant Shares...................30
SECTION 5.03. Exceptions to Antidilution Provisions..................30
ARTICLE VI
CONCERNING THE PREFERENCE WARRANT AGENT ..............................31
SECTION 6.01. Preference Warrant Agent...............................31
SECTION 6.02. Conditions of Preference Warrant Agent's Obligations...31
SECTION 6.03. Resignation and Appointment of Successor...............36
ARTICLE VII
MISCELLANEOUS.........................................................37
SECTION 7.01. Amendment..............................................37
SECTION 7.02. Notices and Demands to the Company and Preference
Warrant Agent.........................................38
SECTION 7.03. Addresses for Notices to Parties and for Transmission
of Documents..........................................39
SECTION 7.04. Notices to Holders.....................................39
SECTION 7.05. Applicable Law.........................................39
SECTION 7.06. Persons Having Rights Under Agreement..................40
SECTION 7.07. Headings...............................................40
SECTION 7.08. Counterparts...........................................40
SECTION 7.09. Inspection of Agreement................................40
SECTION 7.10. Availability of Equitable Remedies.....................40
SECTION 7.11. Obtaining of Governmental Approvals....................40
EXHIBIT A - Form of Preference Warrant Certificate.......................A-1
EXHIBIT B - Form of Legend for Global Preference Warrant.................B-1
EXHIBIT C - Certificate to Be Delivered upon Exchange or Registration
of Transfer of Warrants.....................................C-1
-ii-
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Page
Agreement....................................................................1
Business Day.....................................................12, A-8, A-16
Capital Stock...............................................................28
Cashless Exercise...........................................................13
Cashless Exercise Ratio.....................................................13
Common Stock.................................................................2
Definitive Warrants..........................................................2
Election to Exercise........................................................13
Exercise Date...............................................................14
Exercise Price..............................................................13
Exercise Rate...............................................................13
Expiration Date.............................................................12
Global Shares...............................................................15
Global Warrants..............................................................2
Independent Financial Expert................................................29
Initial Purchasers...........................................................1
Notes........................................................................1
Officers' Certificate........................................................8
Private Placement Legend.....................................................9
Purchase Agreement...........................................................1
Related Parties.............................................................32
Requisite Warrant Holders...................................................38
Resale Restriction Termination Date..........................................5
Surviving Person............................................................25
Time of Determination............................................29, A-4, A-12
Warrant......................................................................1
Warrant Agent................................................................1
Warrant Agent Office........................................................12
Warrant Exercise Office.....................................................11
Warrant Register.............................................................5
Warrant Registration Rights Agreement........................................1
Warrant Shares...............................................................2
-iii-
<PAGE>
PREFERENCE WARRANT AGREEMENT
PREFERENCE WARRANT AGREEMENT ("Agreement"), dated as of January 27,
1999 by and between @ENTERTAINMENT, INC. (the "Company"), a Delaware
corporation, and Bankers Trust Company, as preference warrant agent (with any
successor Preference Warrant Agent, the "Preference Warrant Agent").
WHEREAS, the Company has entered into a purchase agreement (the
"MGPE Purchase Agreement") dated January 22, 1999 with Morgan Grenfell Private
Equity Limited on behalf of Morgan Grenfell Development Capital Syndication
Limited ("MGPE"), in which the Company has agreed to sell to MGPE 45,000 shares
of the Company's Series A 12% cumulative preference shares (the "Series A
Preference Shares"), and (ii) 45,000 warrants (the "Series A Preference
Warrants"), each initially entitling the holder thereof to purchase 110 shares
of Common Stock (as defined herein) of the Company; and
WHEREAS, the Company has entered into a purchase agreement (the
"Chase Purchase Agreement") dated January 22, 1999 with Mr. Arnold Chase
("Arnold Chase"), Ms. Cheryl Chase ("Cheryl Chase") and Ms. Rhoda Chase ("Rhoda
Chase", and together with Arnold Chase and Cheryl Chase, the "Initial Chase
Purchasers" and together with the Darland Trust, the "Chase Purchasers"), in
which the Company has agreed to sell to the Chase Purchasers an aggregate of
5,000 shares of the Company's Series B 12% cumulative preference shares (the
"Series B Preference Shares"), and (ii) 5,000 warrants (the "Series B Preference
Warrants"), each initially entitling the holder thereof to purchase 110 shares
of Common Stock (as defined herein) of the Company; the Chase Purchasers and
MGPE are herein after collectively referred to as the "Purchasers"; the Series A
Preference Shares and the Series B Preference Shares are hereinafter referred to
collectively as the "Preference Shares"; the Series A Preference Warrants and
the Series B Preference Warrants are hereinafter referred to as the "Preference
Warrants" and the certificates evidencing the Preference Warrants are
hereinafter referred to collectively as the "Preference Warrant Certificates";
and
WHEREAS, the holders of the Preference Warrants are entitled to the
benefits of a Preference Warrant Registration Rights Agreement dated as of
January 27, 1999 between the Company and the Purchasers (the "Preference Warrant
Registration Rights Agreement"); and
WHEREAS, the Company desires the Preference Warrant Agent as
preference warrant agent to assist the Company in connection with the issuance,
exchange, cancellation, replacement and exercise of the Preference Warrants, and
in this Agreement wishes to set forth, among other things, the terms and
conditions on which the Preference Warrants may be issued, exchanged, canceled,
replaced and exercised;
<PAGE>
2
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF PREFERENCE WARRANT CERTIFICATES
SECTION 1.01. Issuance of Preference Warrants. Preference Warrants
shall be originally issued in connection with the sale of the Preference Shares
to the Purchasers.
Each Preference Warrant Certificate shall evidence the number of
Preference Warrants specified therein. Each Preference Warrant evidenced by a
Preference Warrant Certificate shall, when it becomes exercisable as provided
herein and therein, initially represent the right, subject to the provisions
contained herein and therein, to purchase from the Company (and the Company
shall issue and sell to the holder of such Preference Warrant) 110 fully paid
and non-assessable Preference Warrant Shares at an exercise price of $10.00 per
share. The number of shares of the Company's common stock, par value $0.01 per
share (the "Common Stock") issuable upon exercise of a Preference Warrant is
subject to adjustment as provided herein and in the Preference Warrants. The
shares of Common Stock issuable upon exercise of a Preference Warrant are
hereinafter referred to as the "Preference Warrant Shares" and, unless the
context otherwise requires, such term shall also include any other securities
issuable and deliverable upon exercise of a Preference Warrant as provided in
Article V, subject to adjustment as provided herein and in the Preference
Warrant Certificates.
SECTION 1.02. Form of Preference Warrant Certificate[s]. The
Preference Warrant Certificate[s] will initially be issued either in global form
(the "Global Preference Warrants") or in registered form as Certificated
Preference Warrant Certificates (the "Certificated Preference Warrants"), in
either case substantially in the form of Exhibit A attached hereto. Any Global
Preference Warrants to be delivered pursuant to this Agreement shall bear the
legend set forth in Exhibit B attached hereto. The Global Preference Warrants
shall represent such of the outstanding Preference Warrants as shall be
specified therein, and each Global Preference Warrant shall provide that it
shall represent the aggregate amount of outstanding Preference Warrants from
time to time endorsed thereon and that the aggregate amount of outstanding
Preference Warrants represented thereby may from time to time be reduced or
increased, as appropriate. Any endorsement of a Global Preference Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Preference Warrants represented thereby shall be made by the Preference Warrant
Agent and the Depositary (as defined below) in accordance with instructions
given by the holder thereof. The Depository Trust Company shall act as the
"Depositary" with respect to the Global Preference Warrants until a successor
shall be appointed by the Company and the Preference Warrant Agent. Upon written
request, a holder of Preference Warrants may receive from the
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3
Preference Warrant Agent or the Depositary Certificated Preference Warrants as
set forth in Section 1.07 hereof.
SECTION 1.03. Execution of Preference Warrant Certificates. The
Preference Warrant Certificates shall be executed on behalf of the Company by
the chairman of its board of directors, its president, its chief executive
officer, its chief financial officer or any vice president and by its treasurer,
assistant treasurer, secretary or assistant secretary. Such signatures may be
the manual or facsimile signatures of the present or any future such officers.
The seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Preference Warrant
Shares. Typographical and other minor errors or defects in any such reproduction
of any such signature shall not affect the validity or enforceability of any
Preference Warrant Certificate that has been duly countersigned and delivered by
the Preference Warrant Agent.
In case any officer of the Company who shall have signed any of the
Preference Warrant Certificates shall cease to be such officer before the
Preference Warrant Certificate so signed shall be authenticated and delivered by
the Preference Warrant Agent or disposed of by the Company, such Preference
Warrant Certificate nevertheless may be authenticated and delivered or disposed
of as though the person who signed such Preference Warrant Certificate had not
ceased to be such officer of the Company. Any Preference Warrant Certificate may
be signed on behalf of the Company by such persons as, at the actual date of the
execution of such Preference Warrant Certificate, shall be the proper officers
of the Company, although at the date of the execution and delivery of this
Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the
immediately following paragraph, Preference Warrant Certificates shall be
authenticated by manual signature and dated the date of authentication by the
Preference Warrant Agent and shall not be valid for any purpose unless so
authenticated and dated. The Preference Warrant Certificates shall be numbered
and shall be registered in the Preference Warrant Register (as defined in
Section 1.06 hereof).
Upon the receipt by the Preference Warrant Agent of a written order
of the Company, which order shall be signed by the chairman of its board of
directors, its president, its chief executive officer, its chief financial
officer or any vice president and by its treasurer, assistant treasurer,
secretary or assistant secretary, and shall specify the amount of Preference
Warrants to be authenticated, whether the Preference Warrants are to be Global
Preference Warrants or Certificated Preference Warrants, the date of such
Preference Warrants and such other information as the Preference Warrant Agent
may reasonably request, without any further action by the Company, the
Preference Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Preference Warrant Certificates, duly executed
as provided in Section 1.03 hereof, to authenticate the Preference Warrant
<PAGE>
4
Certificates and upon the holder's request deliver them. Such authentication
shall be by a duly authorized signatory of the Preference Warrant Agent
(although it shall not be necessary for the same signatory to sign all
Preference Warrant Certificates).
In case any authorized signatory of the Preference Warrant Agent who
shall have authenticated any of the Preference Warrant Certificates shall cease
to be such authorized signatory before the Preference Warrant Certificate shall
be disposed of by the Company or the Preference Warrant Agent, such Preference
Warrant Certificate nevertheless may be delivered or disposed of as though the
person who authenticated such Preference Warrant Certificate had not ceased to
be such authorized signatory of the Preference Warrant Agent; and any Preference
Warrant Certificate may be authenticated on behalf of the Preference Warrant
Agent by such persons as, at the actual time of authentication of such
Preference Warrant Certificates, shall be the duly authorized signatories of the
Preference Warrant Agent, although at the time of the execution and delivery of
this Agreement any such person is not such an authorized signatory.
The Preference Warrant Agent's authentication on all Preference
Warrant Certificates shall be in substantially the form set forth in Exhibit A
hereto.
SECTION 1.05. Registration. The Company will keep, at the office or
agency maintained by the Company for such purpose, a register or registers in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of, and registration of transfer and exchange
of, Preference Warrants as provided in this Article. Each person designated by
the Company from time to time as a person authorized to register the transfer
and exchange of the Preference Warrants is hereinafter called, individually and
collectively, the "Preference Registrar." The Company hereby initially appoints
the Preference Warrant Agent as Preference Registrar. Upon written notice to the
Preference Warrant Agent and any acting Preference Registrar, the Company may
appoint a successor Preference Registrar for such purposes.
In connection with the separate units offering being conducted
simultaneously, the Company is issuing a number of Warrants. The Company agrees
to keep separate registers for the Warrants and the Preference Warrants. The
Company may utilize the same entity as Registrar for the Warrants and for the
Preference Warrants. The Preference Warrant Agent is also the warrant agent for
the Warrants being issued by the Company in the Units Offering. The functions
and obligations of the Registrar and of the Preference Registrar are virtually
identical. Likewise, the functions and obligations of the Preference Warrant
Agent and of the Warrant Agent are virtually identical. In each case, this
Agreement relates only to the relationship between the Company and the
Preference Warrants Agent and Preference Registrar. The relationship between the
Company and the Warrant Agent and Registrar of the Units is covered by a
separate warrant agreement which is dated as of the date hereof.
<PAGE>
5
The Company will at all times designate one person (which may be the
Company and which need not be a Preference Registrar) to act as repository of a
master list of names and addresses of the holders of Preference Warrants (the
"Preference Warrant Register"). The Preference Warrant Agent will act as such
repository unless and until some other person is, by written notice from the
Company to the Preference Warrant Agent and the Preference Registrar, designated
by the Company to act as such. The Company shall cause each Preference Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Preference Registrar,
as may be necessary to enable such repository to maintain the Preference Warrant
Register on as current a basis as is practicable.
SECTION 1.06. Registration of Transfers or Exchanges.
(a) Transfer or Exchange of Certificated Preference Warrants. When
Certificated Preference Warrants are presented to the Preference Warrant Agent
with a request from the holder:
(i) to register the transfer of the Certificated Preference Warrants; or
(ii) to exchange such Certificated Preference Warrants for an equal
number of Certificated Preference Warrants of other authorized
denominations,
the Preference Warrant Agent shall register the transfer or make the exchange as
requested if the requirements under this Preference Warrant Agreement as set
forth in this Section 1.06 for such transactions are met; provided, however,
that the Certificated Preference Warrants presented or surrendered by a holder
for registration of transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Preference Warrant Agent, duly executed by such holder or by his
attorney, duly authorized in writing; and
(y) in the case of Preference Warrants the offer and sale of which have
not been registered under the Securities Act of 1933 (the
"Securities Act") and are presented for transfer or exchange prior
to (X) the date which is two years (or such shorter period as may be
prescribed by Rule 144(k) (or any successor provision thereto))
after the later of the date of original issuance of the Preference
Warrants and the last date on which the Company or any affiliate of
the Company was the owner of such Preference Warrants, or any
predecessor thereto, and (Y) such later date, if any, as may be
required by any subsequent change in applicable law (the "Resale
Restriction Termination Date"), such
<PAGE>
6
Preference Warrants shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Preference Warrants are being delivered to the
Preference Warrant Agent by a holder for registration in the
name of such holder, without transfer, a certification from
such holder to that effect (in substantially the form of
Exhibit C hereto); or
(B) if such Preference Warrants are being transferred to a
qualified institutional buyer as such term is defined in Rule
144A under the Securities Act (a "QIB") in accordance with
Rule 144A under the Securities Act, a certification from the
transferor to that effect (in substantially the form of
Exhibit C hereto); or
(C) if such Preference Warrants are being transferred in reliance
on Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto), and
(ii) an opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act; or
(D) if such Preference Warrants are being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; provided that the Company may, based upon the
views of its own counsel, instruct the Preference Warrant
Agent not to register such transfer in any case where the
proposed transferee is not a QIB.
(b) Restrictions on Transfer of a Certificated Preference Warrant
for a Beneficial Interest in a Global Preference Warrant. A Certificated
Preference Warrant may not be transferred by a holder for a beneficial interest
in a Global Preference Warrant except upon satisfaction of the requirements set
forth below. Upon receipt by the Preference Warrant Agent of a Certificated
Preference Warrant, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Preference Warrant Agent, together with:
(A) certification from such holder (in substantially the form of
Exhibit C hereto) that such Certificated Preference Warrant is
being transferred to a QIB in accordance with Rule 144A under
the Securities Act; and
<PAGE>
7
(B) written instructions directing the Preference Warrant Agent to
make, or to direct the Depositary to make, an endorsement on
the Global Preference Warrant to reflect an increase in the
aggregate amount of the Preference Warrants represented by the
Global Preference Warrant,
then the Preference Warrant Agent shall cancel such Certificated Preference
Warrant and cause, or direct the Depositary to cause, in accordance with the
standing instructions and procedures existing between the Depositary and the
Preference Warrant Agent, the number of Preference Warrant Shares represented by
the Global Preference Warrant to be increased accordingly. If no Global
Preference Warrant is then outstanding, the Company shall issue, and the
Preference Warrant Agent shall upon written instructions from the Company
authenticate, a new Global Preference Warrant in the appropriate amount.
(c) Transfer or Exchange of Global Preference Warrants. The transfer
or exchange of Global Preference Warrants or beneficial interests therein shall
be effected through the Depositary, in accordance with this Section 1.06, the
Private Placement Legend (as defined below), this Agreement (including those
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer or Exchange of a Beneficial Interest in a Global
Preference Warrant for a Certificated Preference Warrant.
(i) Any person having a beneficial interest in a Global Preference
Warrant may transfer or exchange such beneficial interest for a
Certificated Preference Warrant upon receipt by the Preference
Warrant Agent of written instructions (or such other form of
instructions as is customary for the Depositary) from the Depositary
or its nominee on behalf of any person having a beneficial interest
in a Global Preference Warrant, including a written order containing
registration instructions and, in the case of any such transfer or
exchange prior to the Resale Restriction Termination Date, the
following additional information and documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto); or
<PAGE>
8
(C) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in
substantially the form of Exhibit C hereto) and (ii) an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(D) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; provided that the Company may instruct the
Preference Warrant Agent not to register such transfer in any
case where the proposed transferee is not a QIB;
then, upon receipt of such written instructions and additional
information and documents, the Preference Warrant Agent will cause,
in accordance with the standing instructions and procedures existing
between the Depositary and the Preference Warrant Agent, the
aggregate amount of the Global Preference Warrant to be reduced and,
following such reduction, the Company will execute and, upon receipt
of an authentication order in the form of an officers' certificate
(a certificate signed by the chairman or a co-chairman of the board,
the president, the chief executive officer, the chief financial
officer, any executive vice president or any senior vice president
of the Company signing alone, or by any vice president signing
together with the secretary, any assistant secretary, the treasurer,
or any assistant treasurer of the Company) (an "Officers'
Certificate"), the Preference Warrant Agent will authenticate and
deliver to the transferee a Certificated Preference Warrant.
(ii) Certificated Preference Warrants issued in exchange for a beneficial
interest in a Global Preference Warrant pursuant to this Section
1.06(d) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the
Preference Warrant Agent in writing. The Preference Warrant Agent
shall deliver such Certificated Preference Warrants to the persons
in whose names such Preference Warrants are so registered and adjust
the Global Preference Warrant pursuant to paragraph (h) of this
Section 1.06.
(e) Restrictions on Transfer or Exchange of Global Preference
Warrants. Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.06), a Global
Preference Warrant may not be transferred or
<PAGE>
9
exchanged as a whole except by the Depositary to a nominee of the Depositary; by
a nominee of the Depositary to the Depositary or another nominee of the
Depositary; or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
(f) Authentication of Certificated Preference Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Preference Warrants notifies the
Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Preference Warrant and a successor
Depositary for the Global Preference Warrant is not appointed by the
Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Preference Warrant
Agent in writing that it elects to cause the issuance of
Certificated Preference Warrants for all Global Preference Warrants
under this Agreement,
then the Company will execute, and the Preference Warrant Agent will, upon
receipt of an Officers' Certificate requesting the authentication and delivery
of Certificated Preference Warrants, authenticate and deliver Certificated
Preference Warrants, in an aggregate number equal to the aggregate number of
Preference Warrants represented by the Global Preference Warrant, in exchange
for such Global Preference Warrant.
(g) Private Placement Legend. Upon the transfer or exchange of
Preference Warrant Certificates not bearing the legend set forth in the first
paragraph of Exhibit A attached hereto (the "Private Placement Legend"), the
Preference Warrant Agent shall deliver Preference Warrant Certificates that do
not bear the Private Placement Legend. Upon the transfer, exchange or
replacement of Preference Warrant Certificates bearing the Private Placement
Legend, the Preference Warrant Agent shall deliver Preference Warrant
Certificates that bear the Private Placement Legend unless, and the Preference
Warrant Agent is hereby authorized to deliver Preference Warrant Certificates
without the Private Placement Legend if, (i) there is delivered to the
Preference Warrant Agent an opinion of counsel reasonably satisfactory to the
Company 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 (ii) there is delivered to the Preference Warrant Agent an
Officers' Certificate stating that the Preference Warrants to be transferred or
exchanged represented by such Preference Warrant Certificates are being
transferred or exchanged pursuant to an effective registration statement under
the Securities Act.
(h) Cancellation or Adjustment of a Global Preference Warrant. At
such time as all beneficial interests in a Global Preference Warrant have either
been exchanged for
<PAGE>
10
Certificated Preference Warrants, redeemed, repurchased or canceled, such Global
Preference Warrant shall be returned to the Company or, upon written order to
the Preference Warrant Agent in the form of an Officers' Certificate from the
Company, retained and canceled by the Preference Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Preference
Warrant is exchanged for Certificated Preference Warrants, redeemed, repurchased
or canceled, the number of Preference Warrants represented by such Global
Preference Warrant shall be reduced and an endorsement shall be made on such
Global Preference Warrant by the Preference Warrant Agent to reflect such
reduction.
(i) Obligations with Respect to Transfers or Exchanges of
Certificated Preference Warrants.
(i) To permit registrations of transfers or exchanges completed in
accordance with the provisions hereof, the Company shall execute, at
the Preference Warrant Agent's request, and the Preference Warrant
Agent shall authenticate, Certificated Preference Warrants and
Global Preference Warrants.
(ii) All Certificated Preference Warrants and Global Preference Warrants
issued upon any registration of transfer or exchange of Certificated
Preference Warrants or Global Preference Warrants, as the case may
be, completed in accordance with the provisions hereof, shall be the
valid obligations of the Company, entitled to the same benefits
under this Preference Warrant Agreement as the Certificated
Preference Warrants or Global Preference Warrants surrendered upon
the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Preference Warrant, the Preference Warrant Agent and the Company may
deem and treat the person in whose name any Preference Warrant is
registered as the absolute owner of such Preference Warrant, and
neither the Preference Warrant Agent nor the Company shall be
affected by notice to the contrary.
SECTION 1.07. Lost, Stolen, Destroyed, Defaced or Mutilated
Preference Warrant Certificates. Upon receipt by the Company and the Preference
Warrant Agent (or any agent of the Company or the Preference Warrant Agent, if
requested by the Company) of evidence satisfactory to them of the loss, theft,
destruction, defacement, or mutilation of any Preference Warrant Certificate and
of indemnity satisfactory to them and, in the case of mutilation or defacement,
upon surrender thereof to the Preference Warrant Agent for cancellation, then,
in the absence of notice to the Company or the Preference Warrant Agent that
such Preference Warrant Certificate has been acquired by a bona fide purchaser
or holder in due course, the Company shall execute, and an authorized signatory
of the Preference Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost,
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11
stolen, destroyed, defaced or mutilated Preference Warrant Certificate, a new
Preference Warrant Certificate representing a like number of Preference
Warrants, bearing a number or other distinguishing symbol not contemporaneously
outstanding. Prior to the issuance of any new Preference Warrant Certificate
under this Section in a name other than the prior registered holder of the lost,
stolen, destroyed, defaced or mutilated Preference Warrant Certificate, the
Company may require the payment from the holder of such Preference Warrant
Certificate of a sum sufficient to cover any tax, stamp tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Preference Warrant Agent and
the Preference Registrar or any agent thereof) in connection therewith. Every
substitute Preference Warrant Certificate executed and delivered pursuant to
this Section 1.07 in lieu of any lost, stolen or destroyed Preference Warrant
Certificate shall constitute an additional contractual obligation of the
Company, whether or not the lost, stolen or destroyed Preference Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
the benefits of (but shall be subject to all the limitations of rights set forth
in) this Agreement equally and proportionately with any and all other Preference
Warrant Certificates duly executed and delivered hereunder. The provisions of
this Section 1.07 are exclusive with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Preference Warrant Certificates and shall
preclude (to the extent lawful) any and all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Preference Warrant Certificates.
The Preference Warrant Agent is hereby authorized to authenticate in
accordance with the provisions of this Agreement and deliver the new Preference
Warrant Certificates required pursuant to the provisions of this Section 1.07.
SECTION 1.08. Offices for Exercise, etc. So long as any of the
Preference Warrants remain outstanding, the Company will designate and maintain
in the Borough of Manhattan, The City of New York: (a) an office or agency where
the Preference Warrant Certificates may be presented for exercise (each a
"Preference Warrant Exercise Office"), (b) an office or agency where the
Preference Warrant Certificates may be presented for registration of transfer
and for exchange, and (c) an office or agency where notices and demands to or
upon the Company in respect of the Preference Warrants or of this Agreement may
be served. The Company may from time to time change or rescind such designation,
as it may deem desirable or expedient; provided, however, that an office or
agency shall at all times be maintained in the Borough of Manhattan, The City of
New York, as provided in the first sentence of this Section. In addition to such
office or offices or agency or agencies, the Company may from time to time
designate and maintain one or more additional offices or agencies within or
outside The City of New York, where Preference Warrant Certificates may be
presented for exercise or for registration of transfer or for exchange, and the
Company may from time to time change or rescind such designation, as it may deem
desirable or expedient.
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12
The Company will give to the Preference Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof. The
Company hereby designates the Preference Warrant Agent at its principal
corporate trust office identified in Section 7.03 in the Borough of Manhattan,
The City of New York (the "Preference Warrant Agent Office"), as the initial
agency maintained for each such purpose. In case the Company shall fail to
maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof, presentations and demands may
be made and notice may be served at the Preference Warrant Agent Office and the
Company appoints the Preference Warrant Agent as its agent to receive all such
presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF PREFERENCE WARRANTS; EXERCISE PRICE
AND REPURCHASE OF PREFERENCE WARRANTS
SECTION 2.01. Duration of Preference Warrants. Subject to the terms
and conditions established herein, the Preference Warrants shall expire at 5:00
p.m., New York City time, on February 1, 2010. The applicable date of expiration
of a particular Preference Warrant is referred to herein as the "Preference
Expiration Date" of such Preference Warrant. Each Preference Warrant may be
exercised as set forth in Section 2.02. The Company will give notice of
expiration to then registered holders of Preference Warrants not less than 90
nor more than 120 days prior to the Preference Expiration Date. Failure to give
such notice however, will not prevent the Preference Warrants from expiring and
becoming void on the Preference Expiration Date.
Any Preference Warrant not exercised before 5:00 p.m., New York City
time, on the Preference Expiration Date shall become void, and all rights of the
holder under the Preference Warrant Certificate evidencing such Preference
Warrant and under this Agreement shall cease.
"Business Day" shall mean any day on which (i) banks in The City of
New York, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Preference Warrants are
listed or admitted to trading, are open for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery. (a)
Subject to the provisions of this Agreement, each Preference Warrant shall
entitle the registered holder thereof to purchase from the Company on any
Business Day during the period beginning on the Preference Exercise Date and
ending at 5:00 p.m., New York City
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13
time, on the Preference Expiration Date 110 fully paid, registered and
non-assessable Preference Warrant Shares (and any other securities purchasable
or deliverable upon exercise of such Preference Warrant as provided in Article
V), subject to adjustment in accordance with Article V hereof, at the purchase
price of $10.00 for each share purchased (the "Preference Exercise Price"). The
number and amount of Preference Warrant Shares issuable upon exercise of a
Preference Warrant (the "Preference Exercise Rate") at the Preference Exercise
Price shall be subject to adjustment from time to time as set forth in Article V
hereof.
"Preference Exercise Date" means any date after the Issue Date on
which the Preference Warrants are exercised and Preference Warrant Shares issued
in connection with such exercise.
(b) Preference Warrants may be exercised on or after the date they
are exercisable hereunder by (i) surrendering at any Preference Warrant Exercise
Office the Preference Warrant Certificate evidencing such Preference Warrants
with the form of election to purchase Preference Warrant Shares set forth on the
reverse side of the Preference Warrant Certificate (the "Election to Exercise")
duly completed and signed by the registered holder or holders thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney,
and in the case of a transfer, such signature shall be guaranteed by an eligible
guarantor institution, and (ii) paying in full the Preference Exercise Price for
each such Preference Warrant exercised. Each Preference Warrant may be exercised
only in whole. The Preference Warrants may be exercised in whole or in part
prior to the Preference Expiration Date.
(c) Simultaneously with the exercise of each Preference Warrant,
payment in full of the aggregate Preference Exercise Price may be made, at the
option of the holder, (i) in cash or by certified or official bank check, (ii)
by a Cashless Exercise (as defined below) or (iii) by any combination of (i) and
(ii), to the office or agency where the Preference Warrant Certificate is being
surrendered. For purposes of this Agreement, a "Cashless Exercise" shall mean an
exercise of a Preference Warrant in accordance with the immediately following
two sentences. To effect a Cashless Exercise, the holder may exercise a
Preference Warrant or Preference Warrants without payment of the Preference
Exercise Price in cash by surrendering such Preference Warrant or Preference
Warrants (represented by one or more Preference Warrant Certificates) and, in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) that number of shares of Common Stock for which such Preference
Warrant or Preference Warrants are exercisable and which would be issuable in
the event of an exercise with payment in cash of the Preference Exercise Price
and (2) the Cashless Exercise Ratio (as defined below). The "Cashless Exercise
Ratio" shall equal a fraction, the numerator of which is the excess of the
Current Market Value (calculated as set forth in this Agreement) per share of
Common Stock on the date of exercise over the Preference Exercise Price per
share of Common Stock as of the date of exercise and the denominator of which is
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14
the Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Preference Warrant Certificate representing more than one
Preference Warrant in connection with a holder's option to elect a Cashless
Exercise, such holder must specify the number of Preference Warrants for which
such Preference Warrant Certificate is to be exercised (without giving effect to
such Cashless Exercise). All provisions of this Agreement shall be applicable
with respect to a Cashless Exercise of a Preference Warrant Certificate for less
than the full number of Preference Warrants represented thereby. No payment or
adjustment shall be made on account of any distributions of dividends on the
Common Stock issuable upon exercise of a Preference Warrant. If the Company has
not effected the registration under the Securities Act of the offer and sale of
the Preference Warrant Shares by the Company to the holders of the Preference
Warrants on or prior to the Effective Preference Exercise Date (as defined
below), the Company may elect to require that the holders of the Warrants effect
the exercise thereof solely pursuant to the Cashless Exercise option and may
also amend the Preference Warrants to eliminate the requirement for payment of
the Preference Exercise Price with respect to such Cashless Exercise option. The
Preference Warrant Agent shall have no obligation under this section to
calculate the Cashless Exercise Ratio.
(d) Upon surrender of a Preference Warrant Certificate and payment
and collection of the Preference Exercise Price at any Preference Warrant
Exercise Office (other than any Preference Warrant Exercise Office that also is
an office of the Preference Warrant Agent), such Preference Warrant Certificate
and payment shall be promptly delivered to the Preference Warrant Agent. The
"Effective Preference Exercise Date" for a Preference Warrant shall be the date
when all of the items referred to in the first sentence of paragraphs (b) and
(c) of this Section 2.02 are received by the Preference Warrant Agent at or
prior to 11:00 a.m., New York City time, on a Business Day and the exercise of
the Preference Warrants will be effective as of such Effective Preference
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Preference Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Preference Warrants on the Preference Expiration
Date, if all of the items referred to in the first sentence of paragraphs (b)
and (c) are received by the Preference Warrant Agent at or prior to 5:00 p.m.,
New York City time, on the Preference Expiration Date, the exercise of the
Preference Warrants to which such items relate will be effective on the
Preference Expiration Date.
(e) Upon the exercise of a Preference Warrant in accordance with the
terms hereof, the receipt of a Preference Warrant Certificate and payment of the
Preference Exercise Price (or election of the Cashless Exercise option), the
Preference Warrant Agent shall: (i) except to the extent exercise of the
Preference Warrant has been effected through a Cashless Exercise, cause an
amount equal to the aggregate Preference Exercise Price to be paid to the
Company by crediting such amount in immediately available funds to the account
designated
<PAGE>
15
by the Company in writing to the Preference Warrant Agent for that purpose; (ii)
advise the Company immediately by telephone of the amount so deposited to the
Company's account and promptly confirm such telephonic advice in writing; and
(iii) as soon as practicable, advise the Company in writing of the number of
Preference Warrants exercised in accordance with the terms and conditions of
this Agreement and the Preference Warrant Certificates, the instructions of each
exercising holder of the Preference Warrant Certificates with respect to
delivery of the Preference Warrant Shares to which such holder is entitled upon
such exercise, and such other information as the Company shall reasonably
request.
(f) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Preference Warrant or Preference Warrants in accordance with the
terms hereof, the Company shall issue or cause to be issued to or upon the
written order of the registered holder of the Preference Warrant Certificate
evidencing such exercised Preference Warrant or Preference Warrants, a
certificate or certificates evidencing the Preference Warrant Shares to which
such holder is entitled, in fully registered form, registered in such name or
names as may be directed by such holder pursuant to the Election to Exercise, as
set forth on the reverse of the Preference Warrant Certificate. Such certificate
or certificates evidencing the Preference Warrant Shares shall be deemed to have
been issued and any persons who are designated to be named therein shall be
deemed to have become the holders of record of such Preference Warrant Shares as
of the close of business on the Effective Exercise Date; the Preference Warrant
Shares may initially be issued in Global form (the "Global Preference Shares").
Such Global Preference Shares shall represent such of the outstanding Preference
Warrant Shares as shall be specified therein and each Global Preference Share
shall provide that it represents the aggregate amount of outstanding Preference
Warrant Shares from time to time endorsed thereon and that the aggregate amount
of outstanding Preference Warrant Shares represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global
Preference Share to reflect any increase or decrease in the amount of
outstanding Preference Warrant Shares represented thereby shall be made by the
registrar for the Preference Warrant Shares and the Depositary (referred to
below) in accordance with instructions given by the holder thereof. The
Depository Trust Company shall (if possible) act as the Depositary with respect
to the Global Preference Shares until a successor shall be appointed by the
Company and the registrar for the Preference Warrant Shares. After exercise of
any Preference Warrant or Preference Warrant Shares, the Company shall also
issue or cause to be issued to or upon the written order of the registered
holder of such Preference Warrant Certificate, a new Preference Warrant
Certificate, countersigned by the Preference Warrant Agent pursuant to written
instruction, evidencing the number of Preference Warrants, if any, remaining
unexercised unless such Preference Warrants shall have expired.
(g) The Holders of the Preference Warrants have agreed with the
Company that while they may exercise their Preference Warrants at any time, in
whole or in part, prior to the Preference Expiration Date, such Holders of the
Preference Warrants will not be
<PAGE>
16
allowed to sell or otherwise dispose of any Preference Warrant Shares prior to
one year from the date hereof.
SECTION 2.03. Cancellation of Preference Warrant Certificates. In
the event the Company shall purchase or otherwise acquire Preference Warrants,
the Preference Warrant Certificates evidencing such Preference Warrants may
thereupon be delivered to the Preference Warrant Agent, and if so delivered,
shall at the Company's written instruction be canceled by it and retired. The
Preference Warrant Agent shall cancel all Preference Warrant Certificates
properly surrendered for exchange, substitution, transfer or exercise. Upon the
Company's written request, the Preference Warrant Agent shall deliver such
canceled Preference Warrant Certificates to the Company.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF PREFERENCE WARRANTS
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any of the
provisions of this Agreement, any holder of any Preference Warrant Certificate,
without the consent of the Preference Warrant Agent, the holder of any
Preference Warrant Shares or the holder of any other Preference Warrant
Certificate, may, in and for his own behalf enforce, and may institute and
maintain any suit, action or proceeding against the Company suitable to enforce,
his right to exercise the Preference Warrant or Preference Warrants evidenced by
his Preference Warrant Certificate in the manner provided in such Preference
Warrant Certificate and in this Agreement.
(b) Neither the Preference Warrants nor any Preference Warrant
Certificate shall entitle the holders thereof to any of the rights of
shareholders of the Company, including, without limitation, the right to vote or
to receive any dividends or other payments or to consent or to exercise any
preemptive rights (except as provided in Section 4.04 hereof) or to receive
notice as stockholders in respect of the meetings of stockholders or for the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
SECTION 3.02. Obtaining Stock Exchange Listings. The Company will
use its best efforts from time to time to list the Preference Warrant Shares,
immediately upon their issuance upon the exercise of Preference Warrants, on the
Nasdaq National Market.
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17
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Preference Warrants and of
the Preference Warrant Shares upon the exercise of Preference Warrants;
provided, however, that the Company shall not be required to pay any tax or
other governmental charge which may be payable in respect of any transfer or
exchange of any Preference Warrant Certificates or any certificates for
Preference Warrant Shares in a name other than the registered holder of a
Preference Warrant Certificate surrendered upon the exercise of a Preference
Warrant. In any such case, no transfer or exchange shall be made unless or until
the person or persons requesting issuance thereof shall have paid to the Company
the amount of such tax or other governmental charge or shall have established to
the satisfaction of the Company that such tax or other governmental charge has
been paid or an exemption is available therefrom.
SECTION 4.02. Rule 144A. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules, regulations
and policies adopted by the Securities and Exchange Commission thereunder in a
timely manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time prior to the Preference Expiration Date the
Company is not required to file such reports, it will mail to each owner or
beneficial owner of Preference Warrants upon request such information as is
referred to in Rule 144A(d)(4) under the Securities Act.
SECTION 4.03. Securities Act and Applicable State Securities Laws.
The Company will also agree to comply with all applicable laws, including the
Securities Act and any applicable state securities laws, in connection with the
offer and sale of Common Stock (and other securities and property deliverable)
upon exercise of the Preference Warrants.
SECTION 4.04. Grant of Right of First Refusal
(a) The Company hereby grants to each Purchaser the right of first
refusal to purchase, at the same per share price and on the same terms and
conditions, such Purchaser's pro rata share of New Securities as the
Company may, from time to time, sell or issue after the date of this
Agreement; provided however, that this right of first refusal shall not
provide the Purchasers with additional rights to acquire securities if the
provisions of Section 5.01 (c) or (d) of this Agreement are applicable.
(b) For purposes of this Agreement, each Purchaser's "pro rata
share" is the ratio of the number of Shares of Common Stock that such
Purchaser has the right to
<PAGE>
18
acquire pursuant to the Preference Warrants held by it immediately prior
to the issuance of New Securities, to the total number of shares of Common
Stock outstanding immediately prior to the issuance of New Securities,
assuming full conversion of all outstanding Shares convertible into or
exchangeable for Common Stock and exercise of all outstanding rights,
options and warrants for Common Stock. Any shares of Common Stock acquired
by any Purchaser (including pursuant to the Preference Warrants) and any
other rights to acquire shares of Common Stock acquired by any Purchaser
(other than the Preference Warrants) shall not be included in the "pro
rata share" that such Purchaser may be entitled to purchase.
(c) This right of first refusal shall be subject to the remaining
provisions of this Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, no
adjustment in the number of shares of Common Stock issuable or issued upon
exercise, exchange or conversion of any outstanding securities convertible
into or exchangeable for Common Stock and exercise for Common Stock of any
outstanding right, option or warrant held by such Person (or which such
Person is entitled to hold pursuant to a right of conversion or exchange
on any security) by reason of original provisions of or relating to such
security which provide for an automatic adjustment upon the occurrence of
specified events shall be deemed an issuance or sale or a proposed
issuance or sale of New Securities, nor shall such adjustment give rise to
any rights of first refusal under this Agreement.
SECTION 4.05. Notice of Proposal to Issue or Sell
(a) In the event the Company proposes to issue or sell New
Securities, it shall give each Purchaser written notice of the proposal (a
"Section 4.05 Notice"), describing the proposed New Securities, and the
terms (including the cash to be paid for, plus the fair market value of
any other consideration to be given for, the New Securities) upon which
the Company proposes to sell or issue the New Securities and the proposed
buyers, if known.
(b) Each Purchaser shall have 30 days after any Section 4.05 Notice
is given to agree to purchase such New Securities upon the terms specified
in the Section 4.05 Notice, and in the event that any Purchaser wishes to
do so it shall give written notice to the Company, stating therein the
quantity of New Securities to be purchased, which in any event may not
exceed such Purchaser's pro rata share thereof. In the event that any
Purchaser fails to give such notice, it shall be deemed to have waived its
right of first refusal under this Agreement.
<PAGE>
19
(c) In the event that any Purchaser exercises its right pursuant to
Section 4.05(b) such Purchaser shall purchase the quantity of New
Securities specified in such Purchaser's notice to the Company on the
terms specified in the Section 4.05 Notice (except that if such terms
include the giving of consideration other than cash, such Purchaser shall
pay the fair market value of such other consideration in lieu thereof) on
a date (other than a date on which banks in The City of New York City are
closed) not more than 210 days after the date of the Section 4.05 Notice.
The Company shall give such Purchaser notice of the purchase date not less
than ten days in advance of the purchase date.
SECTION 4.06. Sale or Issuance After Notice
(a) From the first day after the first day on which the Purchasers
have (i) exercised their right of first refusal as provided for in Section
4.05(b), (ii) waived their right of first refusal in writing, or (iii)
been deemed to have waived their right of first refusal pursuant to the
last sentence of Section 4.05(b), the Company shall have 180 days to sell
or issue, or enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, not later than 180
days from the date of such agreement) to sell or issue, all those New
Securities covered by the applicable Section 4.05 Notice, at a price and
upon terms no more favorable to the purchasers thereof than specified in
such Section 4.05 Notice.
(b) If the Company does not sell such New Securities within the time
periods specified in Section 4.06(a), the Company shall not be permitted
to issue or sell such New Securities, unless it first offers such
securities to each Purchaser again pursuant to the terms of this
Agreement.
SECTION 4.07. Redemption of Certain New Securities
Any options, warrants, or other rights to purchase Common Stock that
any Purchaser purchases pursuant to this Agreement (collectively, "Option
Rights") shall be subject to redemption by the Company if the Company does not
complete a sale or issuance pursuant to Section 4.05(a) of the New Securities
the proposed sale or issuance of which caused the Company to give the Section
4.05 Notice that led to such Purchaser's purchase of such Option Rights.
SECTION 4.08. Termination
Upon the disposition by any Purchaser of all of its Preference
Warrants, such Purchaser shall have no further rights under this Agreement.
<PAGE>
20
SECTION 4.09. Assignment. The rights granted by the Company under
Section 4.04 can be assigned by a Purchaser only to a transferee or assignee of
some of all of the Preference Warrant Shares or Preference Warrants (as adjusted
for stock splits and the like) that is owned and controlled by such Purchaser.
SECTION 4.10. Definitions. For purposed of this Article IV, the
following terms shall have the following definitions:
"Common Stock" means the commons stock of the Company, par value
$0.01 per share.
"New Securities" means any Common Stock, whether now authorized or
not, and any rights, options or warrants to purchase any such Common Stock, and
securities of any type whatsoever that are, or may become, convertible into
Common Stock; provided that the term "New Securities" does not include:
(i) securities issued in connection with an acquisition by the
Company of another business entity or business segment of such an entity,
whether by merger, purchase of substantially all the stock or assets, or
by other reorganization;
(ii) securities issued to employees, consultants, officers or
directors of the Company either
(x) pursuant to any stock option, stock purchase, stock bonus
or similar plan that is or has been approved by the Board of
Directors of the Company on or before the date of this Agreement, or
(y) pursuant to any stock option, stock purchase, stock bonus
or similar plan that is approved by the Compensation Committee of
the Board of Directors of the Company, provided that such securities
have an exercise price of no less than the Common Stock fair market
value on the date of the grant;
(iii) securities issued in connection with any stock split, stock
dividend, recapitalization or other reorganization of the Company;
(iv) securities issued upon the exchange, exercise or conversion of
any security that was the subject of a right of first refusal pursuant to
this Agreement;
(v) treasury shares;
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21
(vi) any right, option or warrant to acquire any security
convertible solely into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (v) above;
(vii) any Common Stock, or any rights, options, warrants, or Shares
convertible into or exchangeable for Common Stock, which the Company was,
on or before the date of this Agreement, required to issue;
(viii) any Common Stock, or any rights, options, warrants or Shares
convertible into or exchangeable for Common Stock which the Company shall
issue on January 27, 1999 in connection with its offering of certain
senior discount notes due 2009; and
(ix) any Common Stock, or any rights, options, warrants or Shares
convertible into or exchangeable for Common Stock, issued or sold to any
Person by the operation of any rights described in this Article IV or
pursuant to any other anti-dilution arrangement with any other Person
(including but not limited to any such rights granted to the Purchaser).
"Person" means any individual, partnership, company, corporation or
other legal entity, as the context requires.
"Shares" means shares of any class or series of the capital stock of
the Company.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Preference Exercise Rate; Notices. The
Preference Exercise Rate is subject to adjustment from time to time as provided
in this Section 5.01.
(a) Adjustment for Changes in Common Stock. In the event that at any
time on or after the Issue Date or from time to time the Company shall (i) pay a
dividend or make a distribution on its Common Stock payable in shares of its
Common Stock or other equity interests of the Company, (ii) subdivide any of its
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine any of its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) increase or decrease the number
of shares of Common Stock outstanding by reclassification of its Common Stock,
then the number of shares of Common Stock issuable upon exercise of each
Preference
<PAGE>
22
Warrant immediately after the happening of such event shall be adjusted to a
number determined by multiplying the number of shares of Common Stock that such
holder would have owned or have been entitled to receive upon exercise had such
Warrants been exercised immediately prior to the happening of the events
described above (or, in the case of a dividend or distribution of Common Stock
or other shares of Capital Stock, immediately prior to the record date therefor)
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately after the happening of the events described
above and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the happening of the events described
above; and subject to Section 5.01(n), the Preference Exercise Price for each
Preference Warrant shall be adjusted to a number determined by dividing the
Preference Exercise Price immediately prior to such event by the aforementioned
fraction. An adjustment made pursuant to this Section 5.01(a) shall become
effective immediately after the effective date of such event, retroactive to the
record date therefor in the case of a dividend or distribution in shares of
Common Stock or other shares of the Company's capital stock.
(b) Adjustment for Cash Dividends and Other Distributions. In the
event that at any time or from time to time the Company shall distribute to all
holders of Common Stock (i) any dividend or other distribution of cash,
evidences of its indebtedness, shares of its capital stock or any other assets,
properties or debt securities or (ii) any options, warrants or other rights to
subscribe for or purchase any of the foregoing (other than, in each case, (x)
any distributions described in Sections 5.01(a), 5.01(c) or 5.01(d) that result
in an adjustment; and (z) any cash dividends or other cash distributions from
current or retained earnings), then the number of shares of Common Stock
issuable upon the exercise of each Preference Warrant shall be increased to a
number determined by multiplying the number of shares of Common Stock issuable
upon the exercise of such Preference Warrant immediately prior to the record
date for any such dividend or distribution by a fraction, the numerator of which
shall be the Current Market Value per share of Common Stock on the record date
for such dividend or distribution and the denominator of which shall be such
Current Market Value per share of Common Stock on the record date for such
dividend or distribution less the sum of (x) the amount of cash, if any,
distributed per share of Common Stock and (y) the fair value (as determined in
good faith by the Board, whose determination shall be evidenced by a board
resolution filed with the Preference Warrant Agent, a copy of which will be sent
to Holders upon request) of the portion, if any, of the distribution applicable
to one share of Common Stock consisting of evidences of indebtedness, shares of
stock, securities, other assets or property, warrants, options or subscription
or purchase rights; and, subject to Sections 5.01(n) and 5.03, the Preference
Exercise Price shall be adjusted to a number determined by dividing the
Preference Exercise Price immediately prior to such record date by the
aforementioned fraction. Such adjustments shall be made whenever any
distribution is made and shall become effective as of the date of distribution,
retroactive to the record date for any such distribution; provided, however,
that the Company is not required to make an adjustment pursuant to this
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23
Section 5.01(b) if at the time of such distribution the Company makes the same
distribution to Holders of Preference Warrants as it makes to holders of Common
Stock pro rata based on the number of shares of Common Stock for which such
Preference Warrants are exercisable (whether or not currently exercisable). No
adjustment shall be made pursuant to this Section 5.01(b) which shall have the
effect of decreasing the number of shares of Common Stock issuable upon exercise
of each Preference Warrant or increasing the Preference Exercise Price.
(c) Adjustment for Rights Issued to All Holders of Common Stock. In
the event that at any time or from time to time the Company shall issue to all
holders of Common Stock without any charge, rights, options or warrants
entitling the holders thereof to subscribe for additional shares of Common
Stock, or securities convertible into or exchangeable or exercisable for
additional shares of Common Stock, entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share that is lower at the record
date for such issuance than the then Current Market Value per share of Common
Stock (other than issuances referred to in Sections 5.01(a), 5.01(b) or
5.01(d)that result in an adjustment), then the number of shares of Common Stock
issuable upon the exercise of each Preference Warrant shall be increased to a
number determined by multiplying the number of shares of Common Stock
theretofore issuable upon exercise of each Preference Warrant by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights, options, warrants or securities plus the
number of additional shares of Common Stock offered for subscription or purchase
or into or for which such securities that are issued are convertible,
exchangeable or exercisable, and the denominator of which shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights,
options, warrants or securities plus the total number of shares of Common Stock
which the aggregate consideration expected to be received by the Company
(assuming the exercise or conversion of all such rights, options, warrants or
securities) would purchase at the then Current Market Value per share of Common
Stock. Subject to Sections 5.01(n) and 5.03, in the event of any such
adjustment, the Preference Exercise Price shall be adjusted to a number
determined by dividing the Preference Exercise Price immediately prior to such
date of issuance by the aforementioned fraction. Such adjustment shall be made
immediately after such rights, options or warrants are issued and shall become
effective, retroactive to the record date for the determination of stockholders
entitled to receive such rights, options, warrants or securities. No adjustment
shall be made pursuant to this Section 5.01(c) which shall have the effect of
decreasing the number of shares of Common Stock purchasable upon exercise of
each Preference Warrant or of increasing the Preference Exercise Price.
(d) Adjustment for Other Issuances of Common Stock or Rights. In the
event that at any time or from time to time the Company shall issue (i) shares
of Common Stock (subject to the provisions below), (ii) rights, options or
warrants entitling the holder thereof to subscribe for shares of Common Stock
(provided, however, that no adjustment shall be made upon the exercise of such
rights, options or warrants), or (iii) securities convertible
<PAGE>
24
into or exchangeable or exercisable for Common Stock (provided, however, that no
adjustment shall be made upon the conversion, exchange or exercise of such
securities (other than issuances specified in (i), (ii) or (iii) which are made
as the result of anti-dilution adjustments in such securities)), at a price per
share at the record date of such issuance that is less than the then Current
Market Value per share of Common Stock (other than issuances referred to in
Sections 5.01(a), 5.01(b) or 5.01(d)that result in an adjustment), then the
number of shares of Common Stock issuable upon the exercise of each Preference
Warrant shall be increased to a number determined by multiplying the number of
shares of Common Stock theretofore issuable upon exercise of each Preference
Warrant by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such sale or issuance plus the number
of additional shares of Common Stock offered for subscription or purchase or
into or for which such securities that are issued are convertible, exchangeable
or exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such rights, options, warrants or securities, if any) would purchase at the
then Current Market Value per share of Common Stock, and subject to Sections
5.01(n) and 5.03 the Preference Exercise Price shall be adjusted to a number
determined by dividing the Preference Exercise Price immediately prior to such
date of issuance by the aforementioned fraction. Such adjustments shall be made
whenever such rights, options or warrants or convertible securities are issued.
No adjustment shall be made pursuant to this Section 5.01(d) which shall have
the effect of decreasing the number of shares of Common Stock issuable upon
exercise of each warrant or of increasing the Preference Exercise Price. For
purposes of this Section 5.01(d) only, any issuance of Common Stock, or rights,
options or warrants to subscribe for, or other securities convertible into or
exercisable or exchangeable for, Common Stock, which issuance (or agreement to
issue) (A) is in exchange for or otherwise in connection with the acquisition of
the property (excluding any such exchange exclusively for cash) of any Person
and (B) is at a price per share equal to the Current Market Value at the time of
signing a definitive agreement, shall be deemed to have been made at a price per
share equal to the Current Market Value per share at the record date with
respect to such issuance (the time of closing or consummation of such exchange
or acquisition) if such definitive agreement is entered into within 90 days of
the date of such agreement in principle.
(e) Notice of Adjustment. Whenever the Preference Exercise Price or
the number of shares of Common Stock and other property, if any, issuable upon
exercise of the Preference Warrants is adjusted, as herein provided, the Company
shall deliver to the Preference Warrant Agent and to the holder of the
Preference Warrants a certificate of a firm of independent accountants selected
by the Board (who may be the regular accountants employed by the Company)
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of
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25
the basis on which (i) the Board determined the fair value of any evidences of
indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the Current Market Value of the Common
Stock was determined, if either of such determinations were required), and
specifying the Preference Exercise Price and the number of shares of Common
Stock issuable upon exercise of Preference Warrants after giving effect to such
adjustment. The Company shall, by Company Order, promptly cause the Preference
Warrant Agent to mail a copy of such certificate to each Holder in accordance
with Section 5.01(l). The Preference Warrant Agent shall be entitled to rely on
such certificate and shall be under no duty or responsibility with respect to
any such certificate, except to exhibit the same from time to time, to any
Holder desiring an inspection thereof during reasonable business hours. The
Preference Warrant Agent shall not at any time be under any duty or
responsibility to any Holder to determine whether any facts exist which may
require any adjustment of the Preference Exercise Price or the number of shares
of Common Stock or other stock issuable on exercise of the Preference Warrants,
or with respect to the nature or extent of any such adjustment when made, or
with respect to the method employed in making such adjustment or the validity or
value of any shares of Common Stock, evidences of indebtedness, warrants,
options, or other securities or property.
(f) Reorganization of Company; Special Distributions. (i) If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or is
a party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock (a "Fundamental Transaction"), as a condition to
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
preference warrant agreement. The supplemental preference warrant agreement
shall provide (a) that the holder of a Preference Warrant then outstanding may
exercise it for the kind and amount of securities, cash or other assets which
such holder would have received immediately after the Fundamental Transaction if
such holder had exercised the Preference Warrant immediately before the
effective date of the transaction (whether or not the Preference Warrants were
then exercisable and without giving effect to the Cashless Exercise option); it
being understood that the Preference Warrants will remain exercisable only in
accordance with their terms so that conditions to exercise will remain
applicable, such as payment of Preference Exercise Price, assuming (to the
extent applicable) that such holder (i) was not a constituent person or an
affiliate of a constituent person to such transactions, (ii) made no election
with respect to the form of consideration payable in such transaction, and (iii)
was treated alike with the plurality of non-electing holders, and (b) that the
Surviving Person shall succeed to and be substituted to every right and
obligation of the Company in respect of this Agreement and the Preference
Warrants. The supplemental warrant agreement shall provide for adjustments which
shall be as nearly equivalent as may be
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26
practicable to the adjustments provided for in this Article V. The Surviving
Person shall mail to holders of Preference Warrants at the addresses appearing
on the Preference Warrant Register a notice briefly describing the supplemental
warrant agreement. If the issuer of securities deliverable upon exercise of
Preference Warrants is an affiliate of the Surviving Person, that issuer shall
join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, (a) if the Company enters into a
Fundamental Transaction with another Person (other than a subsidiary of the
Company) and consideration is payable to holders of shares of Common Stock (or
other securities) issuable or, deliverable upon exercise of the Preference
Warrants in connection with such Fundamental Transaction which consists solely
of cash or (b) if there is a dissolution, liquidation or winding up of the
Company, then the holders of Preference Warrants shall be entitled to receive
distributions on the date of such event on an equal basis with holders of such
shares (or other securities issuable upon exercise of the Preference Warrants)
as if the Preference Warrants had been exercised immediately prior to such
event, less the aggregate Preference Exercise Price therefor. Upon receipt of
such payment, if any, the rights of a holder of such Preference Warrant shall
terminate and cease and such holder's Preference Warrants shall expire.
(iii) If this paragraph (f) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
(g) Company Determination Final. Any determination that the Company
or the board of directors of the Company must make pursuant to this Article V
shall be conclusive.
(h) Preference Warrant Agent's Adjustment Disclaimer. The Preference
Warrant Agent shall have no duty to determine when an adjustment under this
Article V should be made, how it should be made or what it should be. The
Preference Warrant Agent shall have no duty to determine whether a supplemental
warrant agreement under paragraph (f) need be entered into or whether any
provisions of any supplemental warrant agreement are correct. The Preference
Warrant Agent shall not be accountable for and makes no representation as to the
validity or value of any securities or assets issued upon exercise of Preference
Warrants. The Preference Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(i) Underlying Preference Warrant Shares. The Company shall at all
times reserve and keep available, free from preemptive rights (except as
otherwise authorized in this Agreement), out of its authorized but unissued
Common Stock or Common Stock held in the treasury of the Company, for the
purpose of effecting the exercise of Preference Warrants, the full number of
Preference Warrant Shares then deliverable upon the exercise of all Preference
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27
Warrants then outstanding and payment of the exercise price, and the shares so
deliverable shall be fully paid and nonassessable and free from all liens and
security interests.
(j) Specificity of Adjustment. Regardless of any adjustment in the
number or kind of shares purchasable upon the exercise of the Preference
Warrants, Preference Warrant Certificates theretofore or thereafter issued may
continue to express the same number and kind of Preference Warrant Shares per
Preference Warrant as are stated on the Preference Warrant Certificates
initially issuable pursuant to this Agreement.
(k) Notice of Voluntary Adjustment. In the event that the Company
shall propose to (a) pay any dividend payable in securities of any class to the
holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (c) issue any (i) shares of Common Stock, (ii)
rights, options or warrants entitling the holders thereof to subscribe for
shares of Common Stock, or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (in the case of (i), (ii) and (iii), only if such
issuance or adjustment would result in an adjustment hereunder), (d) effect any
capital reorganization, reclassification, consolidation or merger, (e) effect
the voluntary or involuntary dissolution, liquidation or winding-up of the
Company or (f) make a tender offer or exchange offer with respect to the Common
Stock, the Company shall within five (5) days send the Holder and the Preference
Warrant Agent a notice of such proposed action or offer. Such notice shall be
mailed by the Company to the Holders at their addresses as they appear in the
Preference Certificate Register, which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the Common Stock and on the number and kind of any
other shares of stock and on other property, if any, and the number of shares of
Common Stock and other securities, if any, issuable upon exercise of each
Preference Warrant and the Preference Exercise Price after giving effect to any
adjustment pursuant to Article 5 which will be required as a result of such
action. Such notice shall be given by the Company as promptly as possible and
(x) in the case of any action covered by clause (a) or (b) above, at least 10
days prior to the record date for determining holders of the Common Stock for
purposes of such action or (y) in the case of any other such action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Common Stock, whichever shall be the
earlier.
(l) Multiple Adjustments. After an adjustment to the Exercise Rate
for outstanding Preference Warrants under this Article V, any subsequent event
requiring an adjustment under this Article V shall cause an adjustment to the
Exercise Rate for outstanding Preference Warrants as so adjusted.
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28
(m) Definitions.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) of, such
person's capital stock, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or convertible into
such capital stock whether outstanding on the Issue Date (as defined below) or
issued after the Issue Date.
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Preference Warrant Agent. The closing sales price for each such
trading day shall be: (A) in the case of a security listed or admitted to
trading on any U.S. national securities exchange or quotation system, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any U.S. national
securities exchange or quotation system, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source designated
by the Company, (C) in the case of a security not then listed or admitted to
trading on any U.S. national securities exchange or quotation system and as to
which no such reported sale price or bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, The City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid and
<PAGE>
29
asked prices on such day, the average of the high bid and low asked prices, as
so reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are not bid
and asked prices reported during the 30 days prior to the date in question, the
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Issue Date" means January 27, 1999.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
(n) When De Minimis Adjustment May Be Deferred. The adjustments
required by the preceding Sections of this Article V shall be made whenever and
as often as any specified event requiring an adjustment shall occur, except that
no adjustment of the Preference Exercise Price or the number of shares of Common
Stock issuable upon exercise of Preference Warrants that would otherwise be
required shall be made unless and until such adjustment either by itself or with
other adjustments not previously made increases or decreases by at least 1% the
Preference Exercise Price or the number of shares of Common Stock issuable upon
exercise of Preference Warrants immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such minimum
amount shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Article V and not previously made, would
result in a minimum adjustment. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence. In computing adjustments under this Article V, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
(o) Adjustment of Exercise Price. In addition, notwithstanding any
other provisions of this Article V, the Company may reduce the Preference
Exercise Price (to an amount not less than the par value of the Common Stock)
for a period of time not less then 20 business days as deemed appropriate and
determined in good faith by the Board.
<PAGE>
30
SECTION 5.02. Fractional Preference Warrant Shares. The Company
shall not be required to issue fractional Preference Warrant Shares upon
exercise of the Preference Warrants or distribute Preference Warrant
Certificates that evidence fractional shares of Common Stock. In addition, in no
event shall any holder of Preference Warrants be required to make any payment of
a fractional cent. In lieu of fractional Preference Warrant Shares, there shall
be paid to the registered holders of Preference Warrant Certificates at the time
Preference Warrants evidenced thereby are exercised as herein provided an amount
in cash equal to the same fraction of the Current Market Value per Warrant Share
on the Business Day preceding the date the Preference Warrant Certificates
evidencing such Preference Warrants are surrendered for exercise. Such payments
shall be made by check or by transfer to an account maintained by such
registered holder with a bank in The City of New York. If any holder surrenders
for exercise more than one Preference Warrant Certificate, the number of
Preference Warrant Shares deliverable to such holder may, at the option of the
Company, be computed on the basis of the aggregate amount of all the Preference
Warrants exercised by such holder.
SECTION 5.03. Exceptions to Antidilution Provisions. Without
limiting any other exception contained in this Agreement, including in
particular, without limiting any preemptive rights identified in Section 4.04 of
this Agreement, and in addition thereto, no adjustment need be made for:
(i) grants or exercises of rights granted to employees of the
Company or any of its subsidiaries of shares of Common Stock issued or
granted to such employees under any stock incentive plan or otherwise,
whether or not upon the exercise, exchange or conversion of any such
rights, issued in good faith and, except for Section 5.01(c) and (d), at
fair market value (as determined in good faith by the Board of Directors
of the Company);
(ii) grants or exercises of rights granted to employees of the
Company or any of its subsidiaries of shares of Common Stock issued or
granted to such employees under any employee stock purchase plan or
otherwise, whether or not upon the exercise, exchange or conversion of any
such rights, issued in good faith (as determined in good faith by the
Board of Directors of the Company);
(iii) options, warrants or other agreements or rights to purchase
capital stock of the Company entered into prior to the date of the
issuance of the Preference Warrants and any issuance of shares of Common
Stock in connection therewith;
(iv) rights to purchase shares of Common Stock pursuant to a Company
plan for reinvestment of dividends or interest;
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31
(v) a change in the par value of shares of Common Stock (including a
change from par value to no par value or vice versa); and
(vi) bona fide public offerings or private placements pursuant to
Section 4(2) of the Securities Act, Rule 144A, Regulation D or Regulation
S thereunder of any security trading on any national securities exchange
or in the over the counter market, or of a security directly or indirectly
convertible or exchangeable for any such security, involving at least one
investment bank of national reputation.
ARTICLE VI
CONCERNING THE PREFERENCE WARRANT AGENT
SECTION 6.01. Preference Warrant Agent. The Company hereby appoints
Bankers Trust Company as Preference Warrant Agent of the Company in respect of
the Preference Warrants and the Preference Warrant Certificates upon the terms
and subject to the conditions set forth herein and in the Preference Warrant
Certificates; and Bankers Trust Company hereby accepts such appointment. The
Preference Warrant Agent shall have the powers and authority specifically
granted to and conferred upon it in the Preference Warrant Certificates and
hereby and such further powers and authority to act on behalf of the Company as
the Company may hereafter grant to or confer upon it and it shall accept in
writing. All of the terms and provisions with respect to such powers and
authority contained in the Preference Warrant Certificates are subject to and
governed by the terms and provisions hereof. The Preference Warrant Agent may
act through agents and shall not be responsible for the misconduct or negligence
of any such agent appointed with due care.
SECTION 6.02. Conditions of Preference Warrant Agent's Obligations.
The Preference Warrant Agent accepts its obligations herein set forth upon the
terms and conditions hereof and in the Preference Warrant Certificates,
including the following, to all of which the Company agrees and to all of which
the rights hereunder of the holders from time to time of the Preference Warrant
Certificates shall be subject:
(a) The Preference Warrant Agent shall be entitled to compensation
to be agreed upon with the Company in writing for all services rendered by
it and the Company agrees promptly to pay such compensation and to
reimburse the Preference Warrant Agent for its reasonable out-of-pocket
expenses (including reasonable fees and expenses of counsel) incurred
without gross negligence or willful misconduct on its part in connection
with the services rendered by it hereunder. The Company also agrees to
indemnify the Preference Warrant Agent and any predecessor Preference
Warrant Agent, their directors, officers, affiliates, agents and employees
for, and to hold them
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32
and their directors, officers, affiliates, agents and employees harmless
against, any loss, liability or expense of any nature whatsoever
(including, without limitation, reasonable fees and expenses of counsel)
incurred without gross negligence or willful misconduct on the part of the
Preference Warrant Agent, arising out of or in connection with its acting
as such Preference Warrant Agent hereunder and its exercise of its rights
and performance of its obligations hereunder. The obligations of the
Company under this Section 6.02 shall survive the exercise and the
expiration of the Preference Warrant Certificates and the resignation and
removal of the Preference Warrant Agent.
(b) In acting under this Agreement and in connection with the
Preference Warrant Certificates, the Preference Warrant Agent is acting
solely as agent of the Company and does not assume any obligation or
relationship of agency or trust for or with any of the owners or holders
of the Preference Warrant Certificates.
(c) The Preference Warrant Agent may consult with counsel of its
selection and any advice or written opinion of such 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 accordance with
such advice or opinion.
(d) The Preference Warrant Agent shall be fully protected and shall
incur no liability for or in respect of any action taken or omitted to be
taken or thing suffered by it in reliance upon any Preference Warrant
Certificate, notice, direction, consent, certificate, affidavit, opinion
of counsel, instruction, statement or other paper or document reasonably
believed by it to be genuine and to have been presented or signed by the
proper parties.
(e) The Preference Warrant Agent, and its officers, directors,
affiliates and employees ("Related Parties"), may become the owners of, or
acquire any interest in, Preference Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would have
if it were not the Preference Warrant Agent hereunder and, to the extent
permitted by applicable law including, but not limited to, the Trust
Indenture Act of 1939, it or they may engage or be interested in any
financial or other transaction with the Company and may act on, or as
depositary, trustee or agent for, any committee or body of holders of
shares or other obligations of the Company as freely as if it were not the
Preference Warrant Agent hereunder. Nothing in this Agreement shall be
deemed to prevent the Preference Warrant Agent or such Related Parties
from acting in any other capacity for the Company.
(f) The Preference Warrant Agent shall not be under any liability
for interest on, and shall not be required to invest, any monies at any
time received by it
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33
pursuant to any of the provisions of this Agreement or of the Preference
Warrant Certificates.
(g) The Preference Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement (or any term
or provision hereof) or the execution and delivery hereof (except the due
execution and delivery hereof by the Preference Warrant Agent) or in
respect of the validity or execution of any Preference Warrant Certificate
(except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Preference Warrant Certificates (except as to the Preference Warrant
Agent's authentication thereon) shall be taken as the statements of the
Company and the Preference Warrant Agent assumes no responsibility for the
correctness of the same. The Preference Warrant Agent does not make any
representation as to the validity or sufficiency of this Agreement or the
Preference Warrant Certificates, except for its due execution and delivery
of this Agreement; provided, however, that the Preference Warrant Agent
shall not be relieved of its duty to authenticate the Preference Warrant
Certificates as authorized by this Agreement. The Preference Warrant Agent
shall not be accountable for the use or application by the Company of the
proceeds of the exercise of any Preference Warrant.
(i) Before the Preference Warrant Agent acts or refrains from acting
with respect to any matter contemplated by this Preference Warrant
Agreement, it may require and may conclusively rely on:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Preference Warrant Agreement relating to the proposed action have
been complied with; and
(2) an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with, provided that such matter is one customarily opined
upon by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel
with respect to compliance with a condition or covenant provided for in
this Preference Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
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34
(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 such person, he or she
has made such examination or investigation as is necessary to enable
him or her 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 or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Preference Warrant Agent shall be obligated to perform such
duties as are specifically set forth herein and in the Preference Warrant
Certificates, and no implied duties or obligations shall be read into this
Agreement or the Preference Warrant Certificates against the Preference
Warrant Agent. The Preference Warrant Agent shall not be accountable or
under any duty or responsibility for the use by the Company of any of the
Preference Warrant Certificates duly authenticated by the Preference
Warrant Agent and delivered by it to the Company pursuant to this
Agreement. The Preference Warrant Agent shall have no duty or
responsibility in case of any default by the Company in the performance of
its covenants or agreements contained in the Warrant Certificates or in
the case of the receipt of any written demand from a holder of a
Preference Warrant Certificate with respect to such default, including,
without limiting the generality of the foregoing, any duty or
responsibility to initiate or attempt to initiate any proceedings at law
or otherwise or, except as provided in Section 7.02 hereof, to make any
demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by the chairman or a co-chairman of the board, the
chief executive officer, the president, the chief financial officer, any
executive vice president or any senior vice president of the Company
signing alone, or by any vice president signing together with the
secretary, any assistant secretary, the treasurer, or any assistant
treasurer of the Company.
(l) The Preference Warrant Agent shall have no responsibility in
respect of any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as
may reasonably be required by the
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35
Preference Warrant Agent for the carrying out or performing by the
Preference Warrant Agent of the provisions of this Agreement.
(n) The Preference Warrant Agent is hereby authorized and directed
to accept written instructions with respect to the performance of its
duties hereunder from any one of the chairman or a co-chairman of the
board, the president, the chief executive officer, the chief financial
officer, any executive vice president or any senior vice president alone,
or any vice president together with the secretary, assistant secretary,
the treasurer or any assistant treasurer, of the Company or any other
officer or official of the Company reasonably believed to be authorized to
give such instructions and to apply to such officers or officials for
advice or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered to be taken by it in good faith in
accordance with instructions with respect to any matter arising in
connection with the Preference Warrant Agent's duties and obligations
arising under this Agreement. Such application by the Preference Warrant
Agent for written instructions from the Company may, at the option of the
Preference Warrant Agent, set forth in writing any action proposed to be
taken or omitted by the Preference Warrant Agent with respect to its
duties or obligations under this Agreement and the date on or after which
such action shall be taken and the Preference Warrant Agent shall not be
liable for any action taken or omitted in accordance with a proposal
included in any such application on or after the date specified therein
(which date shall be not less than 10 Business Days after the Company
receives such application unless the Company consents to a shorter
period); provided that (i) such application includes a statement to the
effect that it is being made pursuant to this paragraph (n) and that
unless objected to prior to such date specified in the application, the
Preference Warrant Agent will not be liable for any such action or
omission to the extent set forth in such paragraph (n) and (ii) prior to
taking or omitting any such action, the Preference Warrant Agent has not
received written instructions objecting to such proposed action or
omission.
(o) Whenever in the performance of its duties under this Agreement
the Preference Warrant Agent shall deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed on behalf of
the Company by any one of the chairman of the board of directors, the
president, the chief executive officer, the treasurer, the controller, any
vice president or the secretary or assistant secretary of the Company or
any other officer or official of the Company reasonably believed to be
authorized to give such instructions and delivered to the Preference
Warrant Agent; and such certificate shall be full authorization to the
Preference Warrant Agent for any action taken or suffered in
<PAGE>
36
good faith by it under the provisions of this Agreement in reliance upon
such certificate.
(p) The Preference Warrant Agent shall not be required to risk or
expend its own funds in the performance of its obligations and duties
hereunder.
SECTION 6.03. Resignation and Appointment of Successor. (a) The
Company agrees, for the benefit of the holders from time to time of the
Preference Warrant Certificates, that there shall at all times be a Preference
Warrant Agent hereunder.
(b) The Preference Warrant Agent may at any time resign as
Preference Warrant Agent by giving written notice to the Company of such
intention on its part, specifying the date on which its desired resignation
shall become effective; provided, however, that such date shall be at least 60
days after the date on which such notice is given unless the Company agrees to
accept less notice. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor Preference Warrant Agent, qualified as provided in
Section 6.03(d) hereof, by written instrument in duplicate signed on behalf of
the Company, one copy of which shall be delivered to the resigning Preference
Warrant Agent and one copy to the successor Preference Warrant Agent. As
provided in Section 6.03(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Preference
Warrant Agent or (y) 60 days after receipt by the Company of notice of such
resignation. The Company may, at any time and for any reason, and shall, upon
any event set forth in the next succeeding sentence, remove the Preference
Warrant Agent and appoint a successor Preference Warrant Agent by written
instrument in duplicate, specifying such removal and the date on which it is
intended to become effective, signed on behalf of the Company, one copy of which
shall be delivered to the Preference Warrant Agent being removed and one copy to
the successor Preference Warrant Agent. The Preference Warrant Agent shall be
removed as aforesaid if it shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Preference Warrant Agent
or of its property shall be appointed, or any public officer shall take charge
or control of it or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation. Any removal of the Preference
Warrant Agent and any appointment of a successor Preference Warrant Agent shall
become effective upon acceptance of appointment by the successor Preference
Warrant Agent as provided in Section 6.03(d). As soon as practicable after
appointment of the successor Preference Warrant Agent, the Company shall cause
written notice of the change in the Preference Warrant Agent to be given to each
of the registered holders of the Warrants in the manner provided for in Section
7.04 hereof.
(c) Upon resignation or removal of the Preference Warrant Agent, if
the Company shall fail to appoint a successor Preference Warrant Agent within a
period of 60 days after receipt of such notice of resignation or removal, then
the holder of any Warrant
<PAGE>
37
Certificate or the retiring Preference Warrant Agent may apply to a court of
competent jurisdiction for the appointment of a successor to the Preference
Warrant Agent. Pending appointment of a successor to the Preference Warrant
Agent, either by the Company or by such a court, the duties of the Preference
Warrant Agent shall be carried out by the Company.
(d) Any successor Preference Warrant Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
and having, at the time of its appointment, a combined capital surplus of at
least $50 million. Such successor Preference Warrant Agent shall execute and
deliver to its predecessor and to the Company an instrument accepting such
appointment hereunder and all the provisions of this Agreement, and thereupon
such successor Preference Warrant Agent, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Preference Warrant Agent hereunder, and such predecessor shall
thereupon become obligated to (i) transfer and deliver, and such successor
Preference Warrant Agent shall be entitled to receive, all securities, records
or other property on deposit with or held by such predecessor as Preference
Warrant Agent hereunder and (ii) upon payment of the amounts then due it
pursuant to Section 6.02(a) hereof, pay over, and such successor Preference
Warrant Agent shall be entitled to receive, all monies deposited with or held by
any predecessor Preference Warrant Agent hereunder.
(e) Any corporation or bank into which the Preference Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Preference Warrant Agent may be consolidated, or any corporation or bank
resulting from any merger, conversion or consolidation to which the Preference
Warrant Agent shall be a party, or any corporation or bank to which the
Preference Warrant Agent shall sell or otherwise transfer all or substantially
all of its corporate trust business, shall be the successor to the Preference
Warrant Agent under this Agreement (provided that such corporation or bank shall
be qualified as aforesaid) without the execution or filing of any document or
any further act on the part of any of the parties hereto.
(f) No Preference Warrant Agent under this Preference Warrant
Agreement shall be personally liable for any action or omission of any successor
Preference Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment. This Agreement and the terms of the
Preference Warrants may be amended by the Company, the Purchasers and the
Preference Warrant Agent,
<PAGE>
38
without the consent of any other holder of any Preference Warrant Certificate,
for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained herein or
therein, or to effect any assumptions of the Company's obligations hereunder and
thereunder by a successor corporation under certain circumstances or in any
other manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of the Preference Warrant
Certificates.
The Company and the Preference Warrant Agent may amend, modify or
supplement this Agreement and the terms of the Preference Warrants, and waivers
to departures from the terms hereof and thereof may be given, with the consent
of the Requisite Preference Warrant Holders (as defined below) for the purpose
of adding any provision to or changing in any manner or eliminating any of the
provisions of this Agreement or modifying in any manner the rights of the
holders of the outstanding Preference Warrants. "Requisite Preference Warrant
Holders" means (i) in the case of any amendment, modification, supplement or
waiver affecting only Preference Warrant Holders as such holders of a majority
in number of the outstanding Preference Warrants, voting separately as a class,
or (ii) in the case of any amendment, modification, supplement or waiver
affecting Preference Warrant Shares, a majority in number of Preference Warrant
Shares represented by the Preference Warrants that would be issuable assuming
exercise thereof at the time such amendment, modification, supplement or waiver
is voted upon. Notwithstanding any other provision of this Agreement, the
Preference Warrant Agent's consent must be obtained regarding any supplement or
amendment which alters the Preference Warrant Agent's rights or duties (it being
expressly understood that the foregoing shall not be in derogation of the right
of the Company to remove the Preference Warrant Agent in accordance with Section
6.03 hereof). For purposes of any amendment, modification or waiver hereunder,
Preference Warrants held by the Company or any of its Affiliates (other than the
Purchasers) shall be disregarded.
Any modification or amendment made in accordance with this Agreement
will be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to the Company and Preference
Warrant Agent. If the Preference Warrant Agent shall receive any notice or
demand addressed to the Company by the holder of a Preference Warrant
Certificate pursuant to the provisions hereof or of the Preference Warrant
Certificates, the Preference Warrant Agent shall promptly forward such notice or
demand to the Company.
<PAGE>
39
SECTION 7.03. Addresses for Notices to Parties and for Transmission
of Documents. All notices hereunder to the parties hereto shall be deemed to
have been given when sent by certified or registered mail, postage prepaid, or
by facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
@Entertainment, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Facsimile: 00 1 860 549 1674
Attention: Robert E. Fowler, III
with copies to:
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Facsimile: (202) 452-7074
Attention: Marc R. Paul, Esq.
To the Preference Warrant Agent:
Bankers Trust Company
Corporate Trust Office
Four Albany Street
New York, New York 10006
Facsimile: (212) 250-0933
Attention: Corporate Trust Manager
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of Preference
Warrants shall be mailed to such holders at the addresses of such holders as
they appear in the Preference Warrant Register. Any such notice shall be
sufficiently given if sent by first-class mail, postage prepaid to the address
of such holder.
SECTION 7.05. Applicable Law. THIS AGREEMENT AND EACH PREFERENCE
WARRANT CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
40
SECTION 7.06. Persons Having Rights Under Agreement. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Preference Warrant
Agent and the holders of the Preference Warrant Certificates and, with respect
to Sections 4.03 and 4.04, the holders of Preference Warrant Shares issued
pursuant to Preference Warrants, any right, remedy or claim under or by reason
of this Agreement or of any covenant, condition, stipulation, promise or
agreement hereof; and all covenants (except for Section 4.03 which shall be for
the benefit of all holders of Preference Warrant Shares issued pursuant to
Preference Warrants), conditions, stipulations, promises and agreements in this
Agreement contained shall be for the sole and exclusive benefit of the Company
and the Preference Warrant Agent and their successors and of the holders of the
Preference Warrant Certificates.
SECTION 7.07. Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
SECTION 7.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 7.09. Inspection of Agreement. A copy of this Agreement
shall be available during regular business hours at the principal corporate
trust office of the Preference Warrant Agent, for inspection by the holder of
any Preference Warrant Certificate. The Preference Warrant Agent may require
such holder to submit his Preference Warrant Certificate for inspection by it.
SECTION 7.10. Availability of Equitable Remedies. Since a breach of
the provisions of this Agreement could not adequately be compensated by money
damages, holders of Preference Warrants shall be entitled, in addition to any
other right or remedy available to them, to an injunction restraining such
breach or a threatened breach and to specific performance of any such provision
of this Agreement, and in either case no bond or other security shall be
required in connection therewith, and the parties hereby consent to such
injunction and to the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under U.S. federal and state laws, and the rules and regulations of all stock
exchanges on which the Preference Warrant Shares may become listed
<PAGE>
41
which may be or become requisite in connection with the issuance, sale, transfer
and delivery of the Preference Warrant Shares issued upon exercise of the
Preference Warrants.
[Signature Page Follows]
<PAGE>
42
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
@ENTERTAINMENT, INC.
By: /S/ ROBERT E. FOWLER, III
-------------------------------
Title: CHIEF EXECUTIVE OFFICER
By: /S/ DONALD MILLER JONES
-------------------------------
Title: CHIEF FINANCIAL OFFICER
BANKERS TRUST COMPANY,
Preference Warrant Agent
By: /S/ DOROTHY ROBINSON
-------------------------------
Title: ASSISTANT VICE PRESIDENT
<PAGE>
43
Arnold Chase
By:
-----------------------------------
Name:
Cheryl Chase
By:
-----------------------------------
Name:
Rhoda Chase
By:
-----------------------------------
Name:
The Darland Trust
By: Rothschild Trust Guernsey Limited
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
THE SECURITIES EVIDENCED HEREBY HAVE 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 SUCH 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) OR ACCREDITED INVESTORS (AS DEFINED IN REGULATION D UNDER THE
SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SHORTER PERIOD AS MAY BE PRESCRIBED BY RULE 144(K) (OR ANY SUCCESSOR
PROVISION THEREOF) UNDER THE SECURITIES ACT) 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 ISSUER OR ITS
SUBSIDIARY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE 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 OR (D) 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. IN CONNECTION WITH ANY TRANSFER OF THESE SECURITIES
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE PREFERENCE WARRANT AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
A-1
<PAGE>
CUSIP No. 045920 15 4
No. 1 45,000 Preference Warrants
PREFERENCE WARRANT CERTIFICATE
@ENTERTAINMENT, INC.
This Preference Warrant Certificate certifies that Cede & Co., or
its registered assigns, is the registered holder of 45,000 Preference Warrants
(the "Preference Warrants") to purchase an aggregate of 4,950,000 shares of
Common Stock, par value $0.01 per share, issuable upon exercise of the
Preference Warrants (the "Preference Warrant Shares") of @ENTERTAINMENT, INC., a
Delaware corporation (the "Company," which term includes its successors and
assigns). Each Preference Warrant entitles the holder to purchase from the
Company at any time from 9:00 a.m. New York City time on or after the Exercise
Date until 5:00 p.m., New York City time, on February 1, 2010 (the "Preference
Expiration Date"), 110 fully paid, registered and non-assessable Preference
Warrant Shares, subject to adjustment as provided in Article V of the Preference
Warrant Agreement, at a preference exercise price of $10.00 for each share
purchased (the "Preference Exercise Price"); upon surrender of this Preference
Warrant Certificate and payment of the Preference Exercise Price (i) in cash or
by certified or official bank check, (ii) by a Cashless Exercise or (iii) by any
combination of (i) and (ii), at any office or agency maintained for that purpose
by the Company (the "Preference Warrant Exercise Office"), subject to the
conditions set forth herein and in the Preference Warrant Agreement. For
purposes of this Warrant, a "Cashless Exercise" shall mean an exercise of a
Preference Warrant in accordance with the immediately following two sentences.
To effect a Cashless Exercise, the holder may exercise a Preference Warrant or
Preference Warrants without payment of the Preference Exercise Price in cash by
surrendering such Preference Warrant or Preference Warrants (represented by one
or more Preference Warrant Certificates) and in exchange therefor, receiving
such number of shares of Common Stock equal to the product of (1) that number of
shares of Common Stock for which such Preference Warrant or Preference Warrants
are exercisable and which would be issuable in the event of an exercise with
payment of the Preference Exercise Price and (2) the Cashless Exercise Ratio.
The "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Value (calculated as set forth in this
Preference Warrant) per share of Common Stock on the date of exercise over the
Preference Exercise Price per share of Common Stock as of the date of exercise
and the denominator of which is the Current Market Value per share of Common
Stock on the date of exercise. Upon surrender of a Preference Warrant
Certificate representing more than one Preference Warrant in connection with the
holder's option to elect a Cashless Exercise, the holder must specify the number
of Preference Warrants for which such Preference Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Preference Warrant Agreement shall be
A-2
<PAGE>
applicable with respect to a Cashless Exercise of a Preference Warrant
Certificate for less than the full number of Preference Warrants represented
thereby. Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Preference Warrant Agreement.
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Preference Warrant Agent. The closing sales price for each such
trading day shall be: (A) in the case of a security listed or admitted to
trading on any U.S. national securities exchange or quotation system, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any U.S. national
securities exchange or quotation system, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source designated
by the Company, (C) in the case of a security not then listed or admitted to
trading on any U.S. national securities exchange or quotation system and as to
which no such reported sale price or bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, The City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid and
asked prices on such day, the average of the high bid and low asked prices, as
so reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are not bid
and asked prices reported during the 30 days prior to the date in question, the
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
A-3
<PAGE>
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States, (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
The Company has initially designated the principal corporate trust
office of the Preference Warrant Agent in the Borough of Manhattan, The City of
New York, as the initial Preference Warrant Agent Office. The number of shares
of Common Stock issuable upon exercise of the Preference Warrants ("Exercise
Rate") is subject to adjustment upon the occurrence of certain events set forth
in the Preference Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on February 1, 2010 shall thereafter be void.
If the Company in a single transaction or through a series of
related transactions, consolidates with or merges with or into any other person
or sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "Fundamental
Transaction"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "Surviving
Person") shall enter into a supplemental preference warrant agreement. The
supplemental preference warrant agreement shall provide (a) that the holder of a
Preference Warrant then outstanding may exercise it for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the Fundamental Transaction if such holder had exercised the
Preference Warrant immediately before the effective date of the transaction
(regardless of whether the Preference Warrants were then exercisable and without
giving effect to the Cashless Exercise option), assuming (to the extent
applicable) that such holder (i) made no election with respect to the form of
consideration payable in such transaction and (ii) was treated alike with the
plurality of non-electing holders, and (b) that the Surviving Person shall
succeed to and be substituted for every right and obligation of the Company in
respect of the Preference Warrant Agreement and the Preference Warrants. The
Surviving Person shall mail to holders of Preference Warrants at the addresses
appearing on the Warrant Register a notice briefly describing the supplemental
warrant agreement. If the issuer of securities deliverable upon exercise of
Preference Warrants
A-4
<PAGE>
is an affiliate of the Surviving Person, that company shall join in the
supplemental warrant agreement.
Notwithstanding the foregoing, (i) if the Company enters into a
Fundamental Transaction and the consideration payable to holders of the Common
Stock (or other securities) issuable or deliverable upon exercise of the
Preference Warrants in connection with such Fundamental Transaction consists
solely of cash or (ii) there is a dissolution, liquidation or winding up of the
issuer, then the holders of Preference Warrants shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock (or other securities issuable or delivered upon exercise of the Preference
Warrants) as if the Preference Warrants had been exercised immediately prior to
such event, less the Exercise Price therefor. Upon receipt of such payment, if
any, the rights of a holder of a Preference Warrant shall terminate and cease
and such holder's Preference Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Preference Warrant Certificate shall not be valid unless
authenticated by the Preference Warrant Agent, as such term is used in the
Preference Warrant Agreement.
The Holders of Preference Warrants have agreed with the Company that
while they may exercise their Preference Warrants at any time, in whole or in
part, prior to the Preference Expiration Date, such Holder of Preference
Warrants will not be allowed to sell or otherwise dispose of the Preference
Warrant Shares prior to one year from the date hereof.
THIS PREFERENCE WARRANT CERTIFICATE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
A-5
<PAGE>
WITNESS the facsimile seal of the Company and facsimile signatures
of its duly authorized officers.
Dated: January 27, 1999
@ENTERTAINMENT, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Preference Warrants
referred to in the within
mentioned Preference Warrant Agreement:
BANKERS TRUST COMPANY,
Preference Warrant Agent
By:
-----------------------------------
Authorized Signatory
A-6
<PAGE>
@ENTERTAINMENT, INC.
The Preference Warrants evidenced by this Preference Warrant
Certificate are part of a duly authorized issue of Preference Warrants expiring
at 5:00 p.m., New York City time, on February 1, 2010 (the "Preference
Expiration Date"). Each Preference Warrant initially represents the right to
purchase at any time on or after the Preference Exercise Date (as defined in the
Preference Warrant Agreement) and on or prior to the Preference Expiration Date
110 Preference Warrant Shares, subject to adjustment as set forth in the
Preference Warrant Agreement. The Preference Warrants are issued pursuant to a
Preference Warrant Agreement dated as of January 27, 1999 (the "Preference
Warrant Agreement"), duly executed and delivered by the Company to Bankers Trust
Company, as Preference Warrant Agent (the "Preference Warrant Agent"), which
Preference Warrant Agreement is hereby incorporated by reference in and made a
part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Preference Warrant Agent, the Company and the holders (the words "holders"
or "holder" meaning the registered holders or registered holder) of the
Preference Warrants.
Preference Warrants may be exercised by (i) surrendering at any
Preference Warrant Exercise Office this Preference Warrant Certificate with the
form of Election to Exercise set forth hereon duly completed and executed and
(ii) to the extent such exercise is not being effected through a Cashless
Exercise by paying in full, in cash or by certificated or official bank check,
the Warrant Preference Exercise Price for each such Preference Warrant exercised
and any other amounts required to be paid pursuant to the Preference Warrant
Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Preference Warrant Agent at or prior to
11:00 a.m., New York City time, on a Business Day, the exercise of the
Preference Warrant to which such items relate will be effective on such Business
Day. If any items referred to in the last sentence of the preceding paragraph
are received after 11:00 a.m., New York City time, on a Business Day, the
exercise of the Preference Warrants to which such item relates will be deemed to
be effective on the next succeeding Business Day. Notwithstanding the foregoing,
in the case of an exercise of Preference Warrants on February 1, 2010, if all of
the items referred to in the last sentence of the preceding paragraph are
received by the Preference Warrant Agent at or prior to 5:00 p.m., New York City
time, on such Preference Expiration Date, the exercise of the Preference
Warrants to which such items relate will be effective on the Preference
Expiration Date.
As soon as practicable after the exercise of any Preference Warrant
or Preference Warrants, the Company shall issue or cause to be issued to or upon
the written order of the registered holder of this Preference Warrant
Certificate, a certificate or certificates evidencing such Preference Warrant
Share or Preference Warrant Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by
A-7
<PAGE>
such holder pursuant to the Election to Exercise, as set forth on the reverse of
this Preference Warrant Certificate. Such certificate or certificates evidencing
the Preference Warrant Share or Preference Warrant Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Preference Warrant Share or
Preference Warrant Shares as of the close of business on the date upon which the
exercise of this Preference Warrant was deemed to be effective as provided in
the preceding paragraph.
The Company shall not be required to issue fractional Preference
Warrant Shares upon exercise of the Preference Warrants or distribute Preference
Warrant Certificates that evidence fractional Preference Warrant Shares. In lieu
of fractional Preference Warrant Shares, there shall be paid to the registered
Holder of this Preference Warrant Certificate at the time such Preference
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Preference Warrant Certificate is surrendered for exercise.
Preference Warrant Certificates, when surrendered at any office or
agency maintained by the Company for that purpose by the registered holder
thereof in person or by legal representative or attorney duly authorized in
writing, may be exchanged for a new Preference Warrant Certificate or new
Preference Warrant Certificates evidencing in the aggregate a like number of
Preference Warrants, in the manner and subject to the limitations provided in
the Preference Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Preference
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Preference Warrant Certificate evidencing in the aggregate a like
number of Preference Warrants shall be issued to the transferee in exchange for
this Preference Warrant Certificate, subject to the limitations provided in the
Preference Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company and the Preference Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Preference Warrant
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone) for the purpose of any exercise hereof and for all other
purposes, and neither the Company nor the Preference Warrant Agent shall be
affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which any Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Preference
Warrants are listed or admitted to trading, are open for business.
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<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE 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 SUCH 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) OR ACCREDITED INVESTORS (AS DEFINED IN REGULATION D UNDER THE
SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SHORTER PERIOD AS MAY BE PRESCRIBED BY RULE 144(K) (OR ANY SUCCESSOR
PROVISION THEREOF) UNDER THE SECURITIES ACT) 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 ISSUER OR ITS
SUBSIDIARY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE 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 OR (D) 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. IN CONNECTION WITH ANY TRANSFER OF THESE SECURITIES
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE PREFERENCE WARRANT AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
A-9
<PAGE>
CUSIP No.
No. Preference Warrants
FORM OF
PREFERENCE WARRANT CERTIFICATE
@ENTERTAINMENT, INC.
This Preference Warrant Certificate certifies that Cede & Co., or
its registered assigns, is the registered holder of _______ Preference Warrants
(the "Preference Warrants") to purchase an aggregate of _________ shares of
Common Stock, par value $0.01 per share, issuable upon exercise of the
Preference Warrants (the "Preference Warrant Shares") of @ENTERTAINMENT, INC., a
Delaware corporation (the "Company," which term includes its successors and
assigns). Each Preference Warrant initially entitles the holder to purchase from
the Company at any time from 9:00 a.m. New York City time on or after the
Exercise Date until 5:00 p.m., New York City time, on February 1, 2010 (the
"Preference Expiration Date"), 110 fully paid, registered and non-assessable
Preference Warrant Shares, subject to adjustment as provided in Article V of the
Preference Warrant Agreement, at an exercise price of $10.00 for each share
purchased (the "Preference Exercise Price"); upon surrender of this Preference
Warrant Certificate and payment of the Preference Exercise Price (i) in cash or
by certified or official bank check, (ii) by a Cashless Exercise or (iii) by any
combination of (i) and (ii), at any office or agency maintained for that purpose
by the Company (the "Preference Warrant Exercise Office"), subject to the
conditions set forth herein and in the Preference Warrant Agreement. For
purposes of this Warrant, a "Cashless Exercise" shall mean an exercise of a
Preference Warrant in accordance with the immediately following two sentences.
To effect a Cashless Exercise, the holder may exercise a Preference Warrant or
Preference Warrants without payment of the Preference Exercise Price in cash by
surrendering such Preference Warrant or Preference Warrants (represented by one
or more Preference Warrant Certificates) and in exchange therefor, receiving
such number of shares of Common Stock equal to the product of (1) that number of
shares of Common Stock for which such Preference Warrant or Preference Warrants
are exercisable and which would be issuable in the event of an exercise with
payment of the Preference Exercise Price and (2) the Cashless Exercise Ratio.
The "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Value (calculated as set forth in this
Preference Warrant) per share of Common Stock on the date of exercise over the
Preference Exercise Price per share of Common Stock as of the date of exercise
and the denominator of which is the Current Market Value per share of Common
Stock on the date of exercise. Upon surrender of a Preference Warrant
Certificate representing more than one Preference Warrant in connection with the
holder's option to elect a Cashless Exercise, the holder must specify the number
of Preference
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<PAGE>
Warrants for which such Preference Warrant Certificate is to be exercised
(without giving effect to the Cashless Exercise). All provisions of the
Preference Warrant Agreement shall be applicable with respect to a Cashless
Exercise of a Preference Warrant Certificate for less than the full number of
Preference Warrants represented thereby. Capitalized terms used herein without
being defined herein shall have the definitions ascribed to such terms in the
Preference Warrant Agreement.
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial Expert
(as defined herein) (provided that in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii)(a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified by the president, the chief executive officer,
any vice president or the chief financial officer of the Company in a writing
delivered to the Preference Warrant Agent. The closing sales price for each such
trading day shall be: (A) in the case of a security listed or admitted to
trading on any U.S. national securities exchange or quotation system, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any U.S. national
securities exchange or quotation system, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source designated
by the Company, (C) in the case of a security not then listed or admitted to
trading on any U.S. national securities exchange or quotation system and as to
which no such reported sale price or bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, The City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid and
asked prices on such day, the average of the high bid and low asked prices, as
so reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are not bid
and asked prices reported during the 30 days prior
A-11
<PAGE>
to the date in question, the Current Market Value shall be determined as if the
securities were not registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm
of national standing in the United States, (i) which does not, and whose
directors, officers and employees or affiliates do not have a direct or indirect
material financial interest for its proprietary account in the Company or any of
its affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its affiliates
and qualified to perform the task for which it is to be engaged.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
The Company has initially designated the principal corporate trust
office of the Preference Warrant Agent in the Borough of Manhattan, The City of
New York, as the initial Preference Warrant Agent Office. The number of shares
of Common Stock issuable upon exercise of the Preference Warrants ("Exercise
Rate") is subject to adjustment upon the occurrence of certain events set forth
in the Preference Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on February 1, 2010 shall thereafter be void.
If the Company in a single transaction or through a series of
related transactions, consolidates with or merges with or into any other person
or sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "Fundamental
Transaction"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "Surviving
Person") shall enter into a supplemental preference warrant agreement. The
supplemental preference warrant agreement shall provide (a) that the holder of a
Preference Warrant then outstanding may exercise it for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the Fundamental Transaction if such holder had exercised the
Preference Warrant immediately before the effective date of the transaction
(regardless of whether the Preference Warrants were then exercisable and without
giving effect to the Cashless Exercise option), assuming (to the extent
applicable) that such holder (i) made no election with respect to the form of
consideration payable in such transaction and (ii) was treated alike with the
plurality of non-electing holders, and (b) that the Surviving Person shall
succeed to and be substituted for every right and obligation of the Company in
respect of the Preference Warrant Agreement and the Preference Warrants. The
Surviving Person shall mail to holders of Preference Warrants
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<PAGE>
at the addresses appearing on the Warrant Register a notice briefly describing
the supplemental warrant agreement. If the issuer of securities deliverable upon
exercise of Preference Warrants is an affiliate of the Surviving Person, that
company shall join in the supplemental warrant agreement.
Notwithstanding the foregoing, (i) if the Company enters into a
Fundamental Transaction and the consideration payable to holders of the Common
Stock (or other securities) issuable or deliverable upon exercise of the
Preference Warrants in connection with such Fundamental Transaction consists
solely of cash or (ii) there is a dissolution, liquidation or winding up of the
issuer, then the holders of Preference Warrants shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock (or other securities issuable or delivered upon exercise of the Preference
Warrants) as if the Preference Warrants had been exercised immediately prior to
such event, less the Exercise Price therefor. Upon receipt of such payment, if
any, the rights of a holder of a Preference Warrant shall terminate and cease
and such holder's Preference Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Preference Warrant Certificate shall not be valid unless
authenticated by the Preference Warrant Agent, as such term is used in the
Preference Warrant Agreement.
The Holders of Preference Warrants have agreed with the Company that
while they may exercise their Preference Warrants at any time, in whole or in
part, prior to the Preference Expiration Date, such Holders of Preference
Warrants will not be allowed to sell or otherwise dispose of the Preference
Warrant Shares prior to one year from the date hereof.
THIS PREFERENCE WARRANT CERTIFICATE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
A-13
<PAGE>
WITNESS the facsimile seal of the Company and facsimile signatures
of its duly authorized officers.
Dated: January 27, 1999
@ENTERTAINMENT, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Preference Warrants
referred to in the within
mentioned Preference Warrant Agreement:
BANKERS TRUST COMPANY,
Preference Warrant Agent
By:
-----------------------------------
Authorized Signatory
A-14
<PAGE>
@ENTERTAINMENT, INC.
The Preference Warrants evidenced by this Preference Warrant
Certificate are part of a duly authorized issue of Preference Warrants expiring
at 5:00 p.m., New York City time, on February 1, 2010 (the "Preference
Expiration Date"). Each Preference Warrant initially represents the right to
purchase at any time on or after the Preference Exercise Date (as defined in the
Preference Warrant Agreement) and on or prior to the Preference Expiration Date
110 Preference Warrant Shares, subject to adjustment as set forth in the
Preference Warrant Agreement. The Preference Warrants are issued pursuant to a
Preference Warrant Agreement dated as of January 27, 1999 (the "Preference
Warrant Agreement"), duly executed and delivered by the Company to Bankers Trust
Company, as Preference Warrant Agent (the "Preference Warrant Agent"), which
Preference Warrant Agreement is hereby incorporated by reference in and made a
part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Preference Warrant Agent, the Company and the holders (the words "holders"
or "holder" meaning the registered holders or registered holder) of the
Preference Warrants.
Preference Warrants may be exercised by (i) surrendering at any
Preference Warrant Exercise Office this Preference Warrant Certificate with the
form of Election to Exercise set forth hereon duly completed and executed and
(ii) to the extent such exercise is not being effected through a Cashless
Exercise by paying in full, in cash or by certificated or official bank check,
the Warrant Preference Exercise Price for each such Preference Warrant exercised
and any other amounts required to be paid pursuant to the Preference Warrant
Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Preference Warrant Agent at or prior to
11:00 a.m., New York City time, on a Business Day, the exercise of the
Preference Warrant to which such items relate will be effective on such Business
Day. If any items referred to in the last sentence of the preceding paragraph
are received after 11:00 a.m., New York City time, on a Business Day, the
exercise of the Preference Warrants to which such item relates will be deemed to
be effective on the next succeeding Business Day. Notwithstanding the foregoing,
in the case of an exercise of Preference Warrants on February 1, 2010, if all of
the items referred to in the last sentence of the preceding paragraph are
received by the Preference Warrant Agent at or prior to 5:00 p.m., New York City
time, on such Preference Expiration Date, the exercise of the Preference
Warrants to which such items relate will be effective on the Preference
Expiration Date.
As soon as practicable after the exercise of any Preference Warrant
or Preference Warrants, the Company shall issue or cause to be issued to or upon
the written order of the registered holder of this Preference Warrant
Certificate, a certificate or certificates evidencing such Preference Warrant
Share or Preference Warrant Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by
A-15
<PAGE>
such holder pursuant to the Election to Exercise, as set forth on the reverse of
this Preference Warrant Certificate. Such certificate or certificates evidencing
the Preference Warrant Share or Preference Warrant Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Preference Warrant Share or
Preference Warrant Shares as of the close of business on the date upon which the
exercise of this Preference Warrant was deemed to be effective as provided in
the preceding paragraph.
The Company shall not be required to issue fractional Preference
Warrant Shares upon exercise of the Preference Warrants or distribute Preference
Warrant Certificates that evidence fractional Preference Warrant Shares. In lieu
of fractional Preference Warrant Shares, there shall be paid to the registered
Holder of this Preference Warrant Certificate at the time such Preference
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Preference Warrant Certificate is surrendered for exercise.
Preference Warrant Certificates, when surrendered at any office or
agency maintained by the Company for that purpose by the registered holder
thereof in person or by legal representative or attorney duly authorized in
writing, may be exchanged for a new Preference Warrant Certificate or new
Preference Warrant Certificates evidencing in the aggregate a like number of
Preference Warrants, in the manner and subject to the limitations provided in
the Preference Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Preference
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Preference Warrant Certificate evidencing in the aggregate a like
number of Preference Warrants shall be issued to the transferee in exchange for
this Preference Warrant Certificate, subject to the limitations provided in the
Preference Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company and the Preference Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Preference Warrant
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone) for the purpose of any exercise hereof and for all other
purposes, and neither the Company nor the Preference Warrant Agent shall be
affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which any Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Preference
Warrants are listed or admitted to trading, are open for business.
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<PAGE>
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Preference Warrants on the Effective Preference
Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of
the Preference Warrants represented by this Preference Warrant Certificate and
purchase the whole number of Preference Warrant Shares issuable upon the
exercise of such Preference Warrants and herewith tenders payment for such
Preference Warrant Shares as follows:
$ ________ in cash or by certified or official bank check; or by
surrender of Preference Warrants pursuant to a Cashless Exercise (as defined in
the Preference Warrant Agreement) for [ ] shares of Common Stock at the current
Cashless Exercise Ratio.
The undersigned requests that a certificate representing such
Preference Warrant Shares be registered in the name of __________ whose address
is ____________________ and that such shares be delivered to _____________ whose
address is ____________. Any cash payments to be paid in lieu of a fractional
share of Common Stock should be delivered to ____________________ whose address
is ____________________ and the check representing payment thereof should be
delivered to ______________ whose address is _______________.
Dated ___________, ____
Name of holder of
Preference Warrant
Certificate:_________________________________________________
(Please Print)
Tax Identification or
Social Security Number:____________________________________________
Address: _________________________________________________________
_________________________________________________________
Signature:_________________________________________________________
Note: The above signature must correspond with the name
as written upon the face of this Preference
Warrant Certificate in every particular, without
alteration or enlargement or any change whatever
and if the certificate representing the Preference
Warrant Shares or any
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<PAGE>
Preference Warrant Certificate representing
Preference Warrants not exercised is to be
registered in a name other than that in which this
Preference Warrant Certificate is registered, or
if any cash payment to be paid in lieu of a
fractional share is to be made to a person other
than the registered holder of this Preference
Warrant Certificate, the signature of the holder
hereof must be guaranteed as provided in the
Preference Warrant Agreement.
Dated ______________, ____
Signature:________________________________________
Note: The above signature must correspond
with the name as written upon the
face of this Preference Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatever.
Signature Guaranteed:_____________________________
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sells, assigns
and transfers unto _____________________________ the within Preference Warrant
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint __________________ attorney, to
transfer said Preference Warrant Certificate on the books of the within-named
Company, with full power of substitution in the premises.
Dated ________________, ____
Signature:________________________________________
Note: The above signature must correspond
with the name as written upon the
face of this Preference Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatever.
Signature Guaranteed:_____________________________
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<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED PREFERENCE WARRANTS
The following exchanges of a part of this Global Preference Warrant for
Certificated Preference Warrants have been made:
Number of
Amount of Amount of Preference
decrease in increase in Warrants of this
Number of Number of Global
Preference Preference Preference Signature of
Warrants of this Warrants of this Warrant authorized
Global Global following officer of
Date of Preference Preference such decrease Preference
Exchange Warrant Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------
A-19
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL PREFERENCE WARRANT
Any Global Preference Warrant authenticated and delivered hereunder
shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL PREFERENCE WARRANT WITHIN THE MEANING OF
THE PREFERENCE WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED
IN THE NAME OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS
NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE PREFERENCE WARRANT AGREEMENT, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PREFERENCE
WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO 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.
B-1
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Preference Warrants to Purchase Common Stock (the "Preference Warrants")
of @ENTERTAINMENT, INC.
This Certificate relates to ____ Preference Warrants held in* ___
book-entry or* _______ Certificated Preference form by ______ (the
"Transferor").
The Transferor:*
|_| has requested the Preference Warrant Agent by written order to deliver
in exchange for its beneficial interest in the Global Preference Warrant held by
the Depositary a Preference Warrant or Preference Warrants in definitive,
registered form of authorized denominations and an aggregate number equal to its
beneficial interest in such Global Preference Warrant (or the portion thereof
indicated above); or
|_| has requested the Preference Warrant Agent by written order to
exchange or register the transfer of a Preference Warrant or Preference
Warrants.
In connection with such request and in respect of each such
Preference Warrant, the Transferor does hereby certify that the Transferor is
familiar with the Preference Warrant Agreement relating to the above captioned
Preference Warrants and the restrictions on transfers thereof as provided in
Section 1.07 of such Preference Warrant Agreement, and that the transfer of this
Preference Warrant does not require registration under the Securities Act of
1933, as amended (the "Act") because*:
|_| Such Preference Warrant is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 1.07 (a)(y)(A) or Section
1.07 (d)(i)(A) of the Preference Warrant Agreement).
|_| Such Preference Warrant is being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Act), in reliance on Rule
144A.
- -----------------------------
* Check applicable box.
C-1
<PAGE>
|_| Such Preference Warrant is being transferred in accordance with Rule
144 under the Act.
|_| Such Preference Warrant is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act.
------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------
Date:_____________________
C-2
<PAGE>
Exhibit 4.10
EXECUTION COPY
================================================================================
Registration Rights Agreement
Dated as of January 27, 1999
among
@Entertainment, Inc.
and
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
and
Deutsche Bank Securities Inc.
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
January 27, 1999 is made and entered into among @ENTERTAINMENT, INC. (the
"Company"), a Delaware corporation, and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("Merrill Lynch") and Deutsche Bank Securities Inc. ("Deutsche Bank
Securities") (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
January 22, 1999 between the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 256,800 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 2009 (the "Notes") and four Warrants, each Warrant entitling the
holder thereof to purchase 1.7656 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.
"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 are authorized or obligated by law or executive order to close.
"Company" shall have the meaning set forth in the preamble and also
includes the Company's successors.
<PAGE>
2
"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 2009
of the Company, issued under the Indenture, containing terms identical to
the Notes (except that (a) the Accreted Value of the Exchange Notes shall
be the Accreted Value of the Notes on the date of the consummation of the
Exchange Offer and the issuance of the Exchange Notes (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 January 27, 1999 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 January 27, 1999.
"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
<PAGE>
3
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.
"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
<PAGE>
4
supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and
compliance with this Agreement, (iv) all rating agency fees, (v) all fees
and expenses incurred in connection with the listing, if any, of any of
the Registrable Notes on any securities exchange or exchanges, (vi) the
fees and disbursements of counsel for the Company and of the independent
public accountants of the Company, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the 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
<PAGE>
5
SEC, the Company shall use its best efforts (A) to file within 70 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 130 days after the Issue Date, (C) to cause such
Registration Statement to remain effective until the closing of the Exchange
Offer and (D) to consummate the Exchange Offer within 160 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.
<PAGE>
6
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 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 February 1, 2004,
and cash interest will accrue, if on or after February 1, 2004, on each Exchange
Note exchanged for a Registrable Note, in either case from the last date on
which original issue discount accreted or cash interest was paid, as the case
may be, on the Notes surrendered in exchange therefor. If no cash interest has
been paid on the Notes, such interest will accrue from February 1, 2004. 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 160 days following the Issue Date; (iii) any Holder of Notes
notifies the Company prior to the
<PAGE>
7
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 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 160 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
<PAGE>
8
Registration Statement and any amendment thereto do not, upon
effectiveness, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (z) any Prospectus forming part
of any Shelf Registration Statement, and any supplement to such Prospectus
(as amended or supplemented from time to time), do not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements, in light of the circumstances under which
they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders 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
<PAGE>
9
any four month period or four periods not to exceed an aggregate of 120 days in
any 12 month period if such suspension is effected in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, the filing of
public reports with the SEC and during the pendency of material corporate
developments, so long as the Company promptly complies with the requirements of
Section 3(k) hereof (including compliance with the obligation to prepare a
supplement or amendment to a Registration Statement and related Prospectus if
necessary) promptly after the termination of such suspension.
(iii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the Exchange
Offer Registration Statement is not filed with the SEC on or prior to the 70th
calendar day after the Issue Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 130th calendar day after
the Issue Date, (iii) the Exchange Offer is not consummated on or prior to the
160th 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 160th 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. Provided, however, that if the
70-day, 130-day or 160-day periods described herein end on a day which is not a
Business Day, the Company shall have until the next Business Day to satisfy the
effectiveness or consummation requirements set forth above. 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 70-day period described in clause (i) above, (y) the
<PAGE>
10
effectiveness of the Exchange Offer Registration Statement after the 130-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 160-day period or the effectiveness of a Shelf
Registration Statement after the 160-day period, as the case may be, described
in clause (iii) above or after the period during which such Shelf Registration
Statement ceases to be effective or usable as described in clause (iv) above,
and provided that none of the conditions set forth in clauses (i), (ii), (iii)
and (iv) above continues to exist, a Registration Default will be deemed to be
cured.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial 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
<PAGE>
11
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 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
<PAGE>
12
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Notes
covered thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to such offering cease to be
true and correct in all material respects, (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Registrable Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (vi) of the
suspension of the availability of the Shelf Registration Statement and the
use of the Prospectus pursuant to Section 2(d)(ii) hereof or of the
happening of any event or the discovery of any facts during the period a
Shelf Registration Statement is effective which makes any statement made
in such Registration Statement or the related Prospectus untrue in any
material respect or which 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:
<PAGE>
13
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a Prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the 1933 Act.";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus
in connection with the exchange of Registrable Notes, the broker-dealer
will not be deemed to admit that it is an underwriter within the meaning
of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be 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,
<PAGE>
14
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;
(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
<PAGE>
15
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;
(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
<PAGE>
16
underwriters, if any, and will use reasonable best efforts to have
such letter addressed to the selling Holders of Registrable Notes,
such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters to underwriters
in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be
in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case
of an Underwritten Offering, cause the same to set forth
indemnification provisions and procedures substantially equivalent
to the indemnification provisions and procedures set forth in
Section 5 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to
the extent required thereunder. In the case of any Underwritten Offering,
the Company shall provide written notice to the Holders of all Registrable
Notes of such Underwritten Offering at least 30 days prior to the filing
of a prospectus supplement for such Underwritten Offering. Such notice
shall (x) offer each such Holder the right to participate in such
Underwritten Offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such Underwritten
Offering and (z) include the instructions such Holder must follow in order
to participate in such Underwritten Offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any U.S. counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by
<PAGE>
17
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 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
<PAGE>
18
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 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
<PAGE>
19
the period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended Prospectus
necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an Underwritten Offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such 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,
<PAGE>
20
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 5(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of United States and Polish counsel chosen by
any indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened in connection with,
or any claim whatsoever based upon, any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) of this Section
5(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent (A) arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in or omitted from a
preliminary Prospectus or registration statement and corrected or cured in a
subsequent Prospectus or registration statement or any amendment or supplement
thereto, (ii) made in reliance upon and in conformity with information furnished
to the Company by the Initial 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);
<PAGE>
21
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel, in addition to any local counsel, separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 hereof
(whether or not the indemnified parties are actual or potential parties
thereof), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party;
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel for which they are entitled to indemnification hereunder,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 5(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party for such reasonable fees
and expenses of counsel in accordance with such request prior to the date of
such settlement;
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, the Initial Purchasers on
another hand, and the Holders on another hand,
<PAGE>
22
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 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
<PAGE>
23
adopted by the SEC thereunder, that if it ceases to be so required to file or
furnish such reports, it will upon the request of any Holder of Registrable
Notes (i) make publicly available such information as is necessary to permit
sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to
a prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the 1933 Act and it will take such further action as any Holder of
Registrable Notes may reasonably request, and (iii) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to enable such Holder to sell its Registrable Notes without
registration under the 1933 Act within the limitation of the exemptions provided
by (x) Rule 144 under the 1933 Act, as such Rule may be amended from time to
time, (y) Rule 144A under the 1993 Act, as such Rule may be amended from time to
time, or (z) any similar rules 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
<PAGE>
24
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.
(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.
<PAGE>
25
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
@ENTERTAINMENT, INC.
By: /S/ROBERT E. FOWLER, III
------------------------------
Title: CHIEF EXECUTIVE OFFICER
By: /S/DONALD MILLER JONES
------------------------------
Title: CHIEF FINANCIAL OFFICER
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /S/MARISA DREW
-------------------------
Title: DIRECTOR
DEUTSCHE BANK SECURITIES
DEUTSCHE BANK SECURITIES INC.
By: __________________________
Name: (?)
Title:
<PAGE>
Exhibit 4.11
EXECUTION COPY
- ------------------------------------------------------------------------------
PREFERENCE REGISTRATION RIGHTS AGREEMENT
Dated January 27, 1999
Among
@ ENTERTAINMENT, INC.
and
MORGAN GRENFELL PRIVATE EQUITY LIMITED on behalf of
MORGAN GRENFELL DEVELOPMENT CAPITAL SYNDICATION LIMITED,
ARNOLD CHASE, CHERYL CHASE, RHODA CHASE
and THE DARLAND TRUST
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions...............................................................1
2. Registration Under the 1933 Act...........................................5
3. Registration Procedures...................................................6
4. Indemnification and Contribution. .......................................12
5. Miscellaneous............................................................15
<PAGE>
PREFERENCE REGISTRATION RIGHTS AGREEMENT
THIS PREFERENCE REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and entered into January 27, 1999, among @ENTERTAINMENT, INC., (the
"Company") a Delaware corporation, The Darland Trust ("Darland"), Rhoda Chase
("Rhoda Chase"), Arnold Chase ("Arnold Chase") and Cheryl Chase ("Cheryl Chase",
and together with Darland, Rhoda Chase and Arnold Chase, the "Chase Purchasers")
and MORGAN GRENFELL PRIVATE EQUITY LIMITED on behalf of MORGAN GRENFELL
DEVELOPMENT CAPITAL SYNDICATION LIMITED ("MGPE", and together with the Chase
Purchasers, the "Purchasers").
This Agreement is made pursuant to (i) the Purchase Agreement dated
January 22, 1999, between the Company and MGPE (the "MGPE Purchase Agreement")
and (ii) the Purchase Agreement dated as of January 22, 1999 among the Company
and Arnold Chase, Rhoda Chase and Cheryl Chase (the "Chase Purchase Agreement",
and together with the MGPE Purchase Agreement, the "Purchase Agreements"), which
provide for the sale by the Company of 45,000 shares of the Company's Series A
12% Cumulative Preference Shares par value $0.01 per share (the "Series A
Preference Shares") to MGPE, the sale of 5,000 shares of the Company's Series B
12% Cumulative Preference Shares, par value $0.01 per share (the "Series B
Preference Shares" and together with the Series A Preference Shares, the
"Cumulative Preference Shares") to the Chase Purchasers and the sale to MGPE and
the Chase Purchasers of warrants (the "Preference Warrants") to purchase
5,500,000 shares of the Company's Common Stock (the "Preference Warrants"). In
order to induce the Purchasers to enter into the Purchase Agreements, the
Company has agreed to provide the 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 Agreements.
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.
<PAGE>
2
"Board of Directors" shall mean the Board of Directors of the
Company or any duly authorized committee of such Board of Directors.
"Certificate of Designations" shall mean the certificate of
designations, preferences and rights of the Cumulative Preference Shares
filed with the Secretary of State of the State of Delaware.
"Closing Date" shall mean the Closing Date as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Common Stock" shall mean the shares of common stock, par value
$0.01 per share, of the Company.
"Cumulative Preference Shares" shall have the meaning set forth in
the preamble to this Agreement; in addition, it shall also mean any new
preference share which is issued by the Company upon the sale or other
disposition by MGPE of a Series A Preference Share.
"Dividend Payment Date" shall mean March 31 and September 30 of each
year.
"Holder" or "Holders" shall mean the Purchasers, for so long as they
own any Cumulative Preference Shares, and each of their successors,
assigns and direct and indirect transferees who become registered owners
of Cumulative Preference Shares.
"Majority Holders" shall mean the Holders of a majority of the
outstanding shares of Cumulative Preference Shares; provided that whenever
the consent or approval of Holders of a specified percentage of Cumulative
Preference Shares is required hereunder, Cumulative Preference Shares held
by the Company or any of its affiliates (as such term is defined in Rule
405 under the 1933 Act) (other than MGPE or subsequent holders of
Preference Shares and other than the Chase Purchasers and their affiliates
if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Cumulative Preference Shares) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage or amount.
"MGPE" shall have the meaning set forth in the preamble to this
Agreement.
<PAGE>
3
"Person" shall mean an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Preference Offering" shall mean the offering of 50,000 shares of
the Company's 12% Cumulative Preference Shares and Preference Warrants
initially entitling the Holders thereof to purchase an aggregate 5,500,000
shares of Common Stock of the Company at a par value of $.01 per share.
"Preference 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. registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance
with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any Underwriters or Holders in connection
with blue sky qualification of any of the Cumulative Preference Shares),
(iii) all expenses of any Persons in preparing or assisting in preparing,
word processing, printing and distributing any Shelf 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, if any, (v) the fees and disbursements of the
Transfer Agent and its counsel, (vi) the fees and disbursements of all
counsel for the Company (including all foreign counsel) and of counsel for
the Holders (including all foreign counsel) (which counsel shall be
selected by the Majority Holders and which counsel may also be counsel for
MGPE) and (vii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the Underwriters
(other than fees and expenses set forth in clause (ii) above) or the
Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Cumulative Preference Shares
by a Holder (it being understood that Preference Registration Expenses
shall not include as to fees and expenses of counsel, the fees and
expenses of more than one counsel for the Holders and one counsel for the
Underwriters, and shall not include any underwriting discounts,
commissions or transfer taxes).
"Preference Registration Statements" shall include the Preference
Warranty Shelf Registration Statement and the Preference Warrant Stock
Shelf Registration Statement.
"Preference Warrants" shall have the meaning set forth in the
preamble.
<PAGE>
4
"Prospectus" shall mean the prospectus included in a Shelf
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 Cumulative Preference Shares covered by a
Shelf Registration Statement, and by all other amendments and supplements
to such prospectus, and in each case including all material incorporated
by reference therein.
"Purchase Agreements" shall have the meaning set forth in the
preamble to this Agreement.
"Registration Right" shall mean the right attached to each
Cumulative Preference Share entitling the holder thereof to receive, under
certain circumstances, an additional dividend payment of the amount
specified pursuant to Section 2(c) hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company that covers the sale by the Holders of all of the
Cumulative Preference Shares 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.
"Transfer Agent" shall mean Continental Stock Transfer & Trust Co.
or its successors provided that any such successor is a participant in The
Depository Trust Company's full-FAST system.
"Underwriters" shall have the meaning set forth in Section 3 hereof.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Cumulative Preference Shares are sold to an
Underwriter (as hereinafter defined) for reoffering to the public.
"Units Offering" shall mean the offering by the Company of units,
each consisting of $1000 principal amount at maturity of 14 1/2% Senior
Discount Notes due 2009 and four warrants, each initially entitling the
holder thereof to purchase 1.7656 shares of common stock, par value $.01
per share.
<PAGE>
5
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Company shall cause a Shelf
Registration Statement to be filed and shall:
(i) use its best efforts to have such Shelf Registration
Statement declared effective on or before July 7, 1999 and
(ii) use reasonable efforts to keep such Shelf Registration
Statement continuously effective until the expiration of the
period referred to in Rule 144(k) of the 1933 Act with respect
to all Holders.
The Company further agrees to supplement or amend such Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use its best efforts to
cause any such amendment to become effective and such Shelf Registration
Statement to become usable as soon as thereafter practicable. The Company agrees
to furnish to the Holders of Cumulative Preference Shares copies of any such
supplement or amendment promptly after its being used or filed with the SEC, as
well as all legal opinions, comfort letters, officers certificates and any other
information and documents required to be delivered by the Company as stipulated
in Section (3) hereof.
(b) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) hereof. Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Cumulative Preference Shares pursuant
to the Shelf Registration Statement.
(c) A Shelf Registration Statement pursuant to Section 2(a) 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 Cumulative Preference Shares pursuant to a Shelf
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
Shelf Registration Statement will be deemed not to have become effective during
the period of such interference until the offering of Cumulative Preference
Shares pursuant to such Shelf Registration Statement may legally resume.
In the event a Shelf Registration Statement covering all Cumulative
Preference Shares (i) is not declared effective on or before July 7, 1999 or
(ii) is unavailable during any
<PAGE>
6
360-day period for a period of more than 60 days or two periods of more than an
aggregate of 90 days, (A) the dividend rate applicable to the Cumulative
Preference Shares shall increase by 1% per annum (to a total of 13% per annum)
from the date of the deficiency under (i) or (ii), as the case may be, until the
date such Shelf Registration Statement is declared effective or is made
available for use without any restrictions, so that during such a time period
dividends shall accrue on the Cumulative Preference Shares at an annual rate of
13% of the Accreted Liquidation Preference per share.
(d) In any 360-day period, the Company shall be entitled to suspend
the availability of a Shelf Registration Statement for no more than one period
of up to 60 days or two periods of no more than an aggregate of 90 days if the
Board of Directors determines that such suspension would be in the best
interests of the Company.
(e) Without limiting the remedies available to the Purchasers and
the Holders, the Company acknowledges that any failure by the Company to comply
with its obligations under Section 2(a) hereof may result in material
irreparable injury to the 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 Purchasers or
any Holder may obtain such relief as may be required to specifically enforce the
Company's obligations under Section 2(a) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to
the Shelf Registration Statement pursuant to Section 2(a) hereof, the Company
shall:
(a) prepare and file with the SEC a Shelf Registration Statement on
the appropriate form under the 1933 Act, which form shall (i) be selected
by the Company and (ii) be available for the sale of the Cumulative
Preference Shares by the selling Holders thereof and (iii) comply as to
form in all material respects with the requirements of the applicable form
and include all financial statements required by the SEC to be filed
therewith, and use its best efforts to cause such Shelf 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 Shelf Registration Statement as may be necessary to
keep such Shelf Registration Statement effective for the applicable period
and 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 keep each Prospectus current;
<PAGE>
7
(c) furnish to each Holder of Cumulative Preference Shares, counsel
for the Holders and each Underwriter of an Underwritten Offering of
Cumulative Preference Shares, 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, in order to facilitate the public sale
or other disposition of the Cumulative Preference Shares; and the Company
consents to the use of such Prospectus and any amendment or supplement
thereto in accordance with applicable law by each of the selling holders
of Cumulative Preference Shares and any such Underwriters in connection
with the offering and sale of the Cumulative Preference Shares covered by
and in the manner described in such Prospectus or any amendment or
supplement thereto in accordance with applicable law;
(d) use its best efforts (i) to register or qualify, by the time the
Shelf Registration Statement is declared effective by the SEC, the
Cumulative Preference Shares under all applicable state securities or
"blue sky" laws and (ii) to cooperate with such Holder in connection with
any filings required to be made with the National Association of
Securities Dealers, Inc. 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 Cumulative
Preference Shares owned by such Holder; provided, however, that the
Company shall not be required to (A) 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), (B) file any general
consent to service of process or (C) subject itself to taxation in any
such jurisdiction if it is not otherwise so subject;
(e) notify each Holder of Cumulative Preference Shares and counsel
for the Holders promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Shelf Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any state
securities authority for amendments and supplements to a Shelf
Registration Statement and Prospectus or for additional information after
the Shelf 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 Shelf Registration Statement or the
initiation of any proceedings for that purpose, (iv) if, between the
effective date of a Shelf Registration Statement and the closing of any
sale of Cumulative Preference Shares covered thereby, the representations
and warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material respects or if
the Company receives any notification with respect to the suspension of
the qualification of the Cumulative Preference Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v) of
the happening of
<PAGE>
8
any event during the period a Shelf Registration Statement is effective
which makes any statement made in such Shelf Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Shelf Registration Statement or Prospectus
in order to make the statements therein not misleading and (vi) of any
determination by the Company that a post-effective amendment to a Shelf
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Shelf Registration Statement at
the earliest possible moment and provide immediate notice to each Holder
of the withdrawal of any such order;
(g) furnish to each Holder of Cumulative Preference Shares, without
charge, at least one conformed copy of the Shelf Registration Statement
and any post-effective amendment thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested);
(h) cooperate with the selling Holders of Cumulative Preference
Shares to facilitate the timely preparation and delivery of certificates
representing Cumulative Preference Shares to be sold and not bearing any
restrictive legends and enable such Cumulative Preference Shares to be in
such denominations and registered in such names as the selling Holders may
reasonably request at least two business days prior to the closing of any
sale of Cumulative Preference Shares;
(i) upon the occurrence of any event contemplated by Section 3(e)(v)
hereof, use its best efforts to prepare a supplement or post-effective
amendment to a Shelf 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
Cumulative Preference Shares, such Prospectus will not contain 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 the Holders
to suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use
of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) within a reasonable time prior to the filing of any Shelf
Registration Statement, any Prospectus, any amendment to a Shelf
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Shelf
Registration Statement or a Prospectus after the initial filing of a Shelf
Registration Statement, provide copies of such document to the Purchasers
and
<PAGE>
9
their counsel and the Holders and their counsel and make such of the
representatives of the Company as shall be reasonably requested by the
Purchasers or their counsel and the Holders or their counsel, available
for discussion of such document, and shall not at any time file or make
any amendment to the Shelf Registration Statement, any Prospectus or any
amendment of or supplement to a Shelf Registration Statement or a
Prospectus or any document which is to be incorporated by reference into a
Shelf Registration Statement or a Prospectus, of which the Purchasers and
their counsel and the Holders and their counsel, shall not have previously
been advised and furnished a copy or to which the Purchasers or their
counsel and the Holders or their counsel shall object;
(k) obtain a CUSIP number for all Cumulative Preference Shares not
later than the effective date of a Shelf Registration Statement;
(l) make available for inspection by a representative of the Holders
of the Cumulative Preference Shares, any Underwriter participating in any
disposition pursuant to a Shelf Registration Statement, and attorneys and
accountants designated by the Holders, at reasonable times and in a
reasonable manner, all financial and other records, pertinent documents
and properties of the Company, and cause the respective officers,
directors and employees of the Company to supply all information
reasonably requested by any such representative, Underwriter, attorney or
accountant in connection with a Shelf Registration Statement;
(m) if reasonably requested by any Holder of Cumulative Preference
Shares covered by a Shelf Registration Statement, (i) promptly incorporate
in a Prospectus supplement or post-effective amendment such information
with respect to such Holder as such Holder reasonably requests to be
included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as the Company has
received notification of the matters to be incorporated in such filing;
(n) enter into such customary agreements and take all such other
actions in connection therewith (including those requested by the Holders
of a majority of the Cumulative Preference Shares being sold) in order to
expedite or facilitate the disposition of such Cumulative Preference
Shares including, but not limited to, an Underwritten Offering;
(o) to the extent possible, make such representations and warranties
to any Holder or Underwriters of such Cumulative Preference Shares with
respect to the business of the Company and its subsidiaries, the Shelf
Registration Statement, Prospectus and documents incorporated by reference
or deemed incorporated by reference, if any, in each case, in form,
substance and scope as are customarily made
<PAGE>
10
by issuers to underwriters in underwritten offerings and confirm the same
if and when requested,
(p) obtain opinions of counsel to the Company, including foreign
counsel, (which counsel and opinions, in form, scope and substance, shall
be reasonably satisfactory to such Underwriters and their respective
counsel) addressed to the Holders and each Underwriter of Cumulative
Preference Shares, covering the matters customarily covered in opinions
requested in underwritten offerings,
(q) use reasonable efforts to obtain "cold comfort" letters from the
independent certified public accountants of the Company (and, if
necessary, any other certified public accountant of any subsidiary of the
Company, or of any business acquired by the Company for which financial
statements and financial data are or are required to be included in the
Shelf Registration Statement) addressed to each Underwriter of Cumulative
Preference Shares, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings, and
(r) to evidence the continued validity of the representations and
warranties of the Company made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in an
underwriting agreement (a) deliver such documents, opinions and
certificates as may be reasonably requested by the Holders of a majority
of the Cumulative Preference Shares being sold and (b) deliver such
documents, opinions and certificates as may be reasonably requested by the
Underwriters and which are customarily delivered in underwritten
offerings.
The Company may require each Holder of Cumulative Preference Shares
to furnish to the Company such information regarding the Holder and the proposed
distribution by such Holder of such Cumulative Preference Shares as the Company
may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Cumulative Preference
Shares pursuant to a Shelf Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
3(i) 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
Cumulative Preference Shares current at the time of receipt of such notice. If
the Company shall give any such notice to suspend the disposition of Cumulative
Preference Shares pursuant to a Shelf Registration Statement, the Company shall
extend the period during which the Shelf
<PAGE>
11
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.
At any time after the Shelf Registration Statement is declared
effective, by issuance of a written notice to the Company of a request to
undertake an Underwritten Offering, the Holders of Cumulative Preference Shares
covered by a Shelf Registration Statement who desire to do so may sell such
Cumulative Preference Shares in an Underwritten Offering. In any such
Underwritten Offering, the investment banker or investment bankers and manager
or managers (the "Underwriters") that will administer the offering will be
selected by the Majority Holders of the Cumulative Preference Shares included in
such offering. To assist such Holders of the Cumulative Preference Shares to
complete an Underwritten Offering, the Company shall enter into such customary
agreements and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Cumulative Preference Shares
including, but not limited to,
(i) to the extent possible, make such representations and warranties
to any Underwriters of such Cumulative Preference Shares with respect to
the business of the Company and its subsidiaries, the Shelf Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested,
(ii) obtain opinions of counsel to the Company, including foreign
counsel, (which counsel and opinions, in form, scope and substance, shall
be reasonably satisfactory to such Underwriters and their respective
counsel) addressed to each Underwriter of Cumulative Preference Shares,
covering the matters customarily covered in opinions requested in
underwritten offerings,
(iii) obtain "cold comfort" letters from the independent certified
public accountants of the Company (and, if necessary, any other certified
public accountant of any subsidiary of the Company, or of any business
acquired by the Company for which financial statements and financial data
are or are required to be included in the Shelf Registration Statement)
addressed to each Underwriter of Cumulative Preference Shares, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings,
(iv) make available for inspection by a representative of the
Holders of the Cumulative Preference Shares, any Underwriter participating
in any disposition
<PAGE>
12
pursuant to a Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a reasonable manner,
all financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement, and
(v) to evidence the continued validity of the representations and
warranties of the Company made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in an
underwriting agreement (a) deliver such documents, opinions and
certificates as may be reasonably requested by the Holders of a majority
of the Cumulative Preference Shares being sold and (b) deliver such
documents, opinions and certificates as may be reasonably requested by the
Underwriters and which are customarily delivered in underwritten
offerings.
4. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, each Holder and each person, if any, who controls any Purchaser or
any Holder within the meaning of either Section 15 of the 1933 Act or Section 20
of the 1934 Act, or is under common control with, or is controlled by, any
Purchaser or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Purchaser, any Holder or any such controlling or
affiliated person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Shelf Registration Statement (or any amendment
thereto) pursuant to which Cumulative Preference Shares were registered under
the 1933 Act, including all documents incorporated therein by reference, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Purchaser or
any Holder furnished to the Company in writing by any Purchaser or any selling
Holder expressly for use therein. In connection with any Underwritten Offering
permitted by Section 3, the Company will also indemnify the Underwriters, if
any, selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the 1933 Act and the 1934 Act)
to the same
<PAGE>
13
extent as provided above with respect to the indemnification of the Holders, if
requested in connection with any Shelf Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Purchasers and the other selling Holders, and
each of their respective directors, officers who sign the Shelf Registration
Statement and each Person, if any, who controls the Company, the Purchasers and
any other selling Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from
the Company to the Purchasers and the Holders, but only with reference to
information relating to such Holder furnished to the Company in writing by such
Holder expressly for use in any Shelf Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Purchasers and all persons, if
any, who control the Purchasers within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, (b) the fees and expenses of more than
one separate firm (in addition to any local counsel) for the Company, its
directors, its officers who sign the Shelf Registration Statement and each
person, if any, who controls the Company within the meaning of either such
Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Holders and all persons, if any, who
control any Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In such case
involving the Purchasers and persons who control the Purchasers, such firm shall
be designated in writing by the Purchasers. In such case involving the Holders
and such persons who control Holders, such firm shall be designated in writing
by the Majority Holders. In all other cases, such firm shall
<PAGE>
14
be designated by the Company. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but, if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which such
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 4 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holders' respective obligations to contribute
pursuant to this Section 4(d) are several in proportion to the respective number
of shares of Cumulative Preference Shares of such Holder that were registered
pursuant to a Shelf Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
<PAGE>
15
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which the Cumulative Preference
Shares were sold by such Holder exceeds the amount of any damages that such
Holder 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. The remedies provided for in this Section 4 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section
4 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
either Purchaser, any Holder or any person controlling either Purchaser or any
Holder, or by or on behalf of the Company, its officers or directors or any
person controlling the Company, (iii) acceptance of any of the Cumulative
Preference Shares and (iv) any sale of Cumulative Preference Shares pursuant to
a Shelf Registration Statement.
5. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into,
and 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 Cumulative
Preference Shares 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. The
Preference Registration Statements may also include securities issued in the
Units Offering and securities issuable upon conversion of such securities.
(b) 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 of the outstanding shares of Cumulative Preference Shares
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that no amendment, modification, supplement, waiver or
consents to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Cumulative Preference Shares unless consented
to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail,
<PAGE>
16
telex, telecopier, or any courier guaranteeing delivery by a specific date (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
5(c), which address initially is, with respect to Morgan Grenfell Private Equity
Limited, 20 Finsbury Circus, London, EC2M 1N8, Attention: Scott Lanphere; in the
case of Arnold Chase, Cheryl Chase or Rhoda Chase, to such person c/o Chase
Enterprises, Inc., One Commercial Plaza, Hartford, Connecticut 06103-3585 Attn:
John Redding; and, in the case of Darland, to The Darland Trust, c/o Chase
Enterprises, Inc., One Commercial Plaza, Hartford, Connecticut 06103-3585
Attention: John Redding with a copy to Rothschild Trust Guernsey Limited, P.O.
Box 472, St. Peter's House, Le Bordage, St. Peter's Port, Guernsey, Channel
Islands GY1 6AX, attention D.N. Allison; and (ii) if to the Company, initially
at One Commercial Plaza, Hartford, Connecticut, 06103-3585, Attention: Robert E.
Fowler III, with a copy to Baker & McKenzie, 815 Connecticut Avenue, N.W., Suite
900, Washington D.C. 20006, Attention: Marc R. Paul, and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 5(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the business day scheduled for delivery if timely delivered to an air courier
guaranteeing delivery on a specific date.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the person giving the same to the Transfer Agent,
at Continental Stock Transfer & Trust Co., 2 Broadway, New York, New York 10004,
Attention: Steve G. Nelson.
(d) 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 outstanding
shares of Cumulative Preference Shares in violation of the terms of the Purchase
Agreement. If any transferee of any Holder shall acquire outstanding shares of
Cumulative Preference Shares, in any manner, whether by operation of law or
otherwise, such then outstanding shares of Cumulative Preference Shares shall be
held subject to all of the terms of this Agreement, and by taking and holding
such outstanding shares of Cumulative Preference Shares, 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 and such person shall be entitled to
receive the benefits hereof. The Purchasers shall have no liability or
obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
<PAGE>
17
(e) Purchases and Sales. The Company shall not, and shall use its
best efforts to cause its affiliates (as defined in Rule 405 under the 1933 Act)
not to, purchase and then resell or otherwise transfer any Cumulative Preference
Shares.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Purchasers, on the other hand, and shall have the right to enforce
such agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(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 internal laws of the State of New York.
(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>
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
@ENTERTAINMENT, INC.
By /s/ Robert E. Fowler, III
--------------------------------------
Title: Chief Executive Officer
By /s/ Donald Miller Jones
--------------------------------------
Title: Chief Financial Officer
Confirmed and accepted as of
the date first above written:
MORGAN GRENFELL PRIVATE EQUITY LIMITED
By /s/ Scott Lanphere /s/ Graham Hutton
---------------------------------------
/s/ Arnold Chase
- ---------------------------------------
/s/ Cheryl Chase
- ---------------------------------------
/s/ Rhoda Chase
- ---------------------------------------
THE DARLAND TRUST
By
-------------------------------------
Name:
Title:
<PAGE>
Exhibit 4.13
EXECUTION COPY
- --------------------------------------------------------------------------------
WARRANT
REGISTRATION RIGHTS AGREEMENT
Dated as of January 27, 1999
Between
@ENTERTAINMENT, INC.,
and
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
DEUTSCHE BANK SECURITIES INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions........................................................1
SECTION 2. Registration Rights................................................5
2.1 (a) Warrant Shelf Registration Statement.........................5
(b) Blue Sky.....................................................6
(c) Accuracy of Disclosure.......................................6
(d) Liquidated Damages...........................................6
(e) Additional Acts..............................................7
(f) Listing of Warrant Shares....................................7
2.2 (a) Piggy-Back Registration......................................7
(b) Priority in Piggy-Back Registration..........................8
(c) Restrictions on Sale by Holders..............................9
2.3 Limitations, Conditions and Qualifications to
Obligations Under Registration Covenants....................10
2.4 Restrictions on Sale by the Company and Others..................11
2.5 Rule 144 and Rule 144A..........................................11
2.6 Underwritten Registrations......................................11
SECTION 3. [Reserved]. ......................................................12
SECTION 4. Registration Procedures...........................................12
SECTION 5. Indemnification and Contribution..................................19
SECTION 6. Miscellaneous.....................................................22
(a) Remedies........................................................22
(b) No Inconsistent Agreements......................................22
(c) [Intentionally Omitted].........................................22
(d) Amendments and Waivers..........................................22
(e) Notices.........................................................23
(f) Successors and Assigns..........................................23
(g) Counterparts....................................................24
(h) Governing Law...................................................24
(j) Severability....................................................24
(k) Headings........................................................24
(l) Entire Agreement................................................24
(m) Securities Held by the Company or Its Affiliates................24
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
This WARRANT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of January 27, 1999, between @ENTERTAINMENT, INC., (the
"Company") a Delaware corporation, and MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch") and Deutsche Bank
Securities Inc. (together with Merrill Lynch, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated as
of January 22, 1999, between the Company and the Initial Purchasers (the
"Purchase Agreement"), with respect to the issue and sale by the Company and the
purchase by the Initial Purchasers, severally, of the respective number 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
2009 (the "Notes") and four warrants (the "Warrants"), each warrant initially
entitling the holder thereof to purchase 1.7656 shares of common stock, par
value $0.01 per share (the "Common Stock"), of the Company, set forth opposite
such Initial Purchaser's name on Schedule I to the Purchase Agreement. The
execution of this Agreement is a condition to the obligations of the Initial
Purchasers under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
SECTION 1. Definitions. As used in this Agreement, the following
defined terms shall have the following meanings:
"Advice" has the meaning ascribed to such term in Section 4 hereof.
"Agreement" shall have the meaning ascribed to such term in the
preamble hereto.
"Business Day" shall mean a day that is not a Legal Holiday.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or
other equivalents (however designated and whether voting or non-voting) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock whether outstanding on the Issue Date
or issued after the Issue Date.
"Change of Control" shall have the meaning ascribed to such term in
the Indenture.
"Company" shall have the meaning ascribed to such term in the
preamble of this Agreement and shall also include the Company's permitted
successors and assigns.
<PAGE>
2
"Common Stock" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"Convertible Preferred Stock" shall mean any securities convertible
or exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the date hereof or thereafter issued.
"Damage Amount" shall have the meaning ascribed to such term in
Section 2.1(d) hereof.
"Deutsche Bank Securities" shall have the meaning ascribed to such
term in the preamble hereto.
"DTC" shall have the meaning ascribed to such term in Section 4(i)
hereof.
"Effectiveness Period" shall mean the respective periods for which
the Company is obligated to keep a Registration Statement effective
pursuant to Sections 2.1(a) and 2.2(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Exercise Date" shall mean the earlier of (i) the date that a shelf
Registration Statement covering the sale of Common Stock underlying the
Warrants is declared effective under the Securities Act and (ii) July 7,
1999.
"Holder" shall mean each holder (including the Initial Purchasers)
of any Registrable Securities, and each of their successors, assigns and
direct and indirect transferees who become registered owners of such
Registrable Securities.
"indemnified party" and "indemnifying party" shall have the
respective meanings ascribed to such term in Section 5(c).
"Indenture" shall mean the Indenture, dated as of the date hereof,
between the Company and Bankers Trust Company, as Trustee, pursuant to
which the Notes are issued.
"Initial Purchasers" shall have the meaning ascribed to such term in
the preamble hereof.
"Inspectors" shall have the meaning ascribed to such term in Section
4(m) hereof.
<PAGE>
3
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
(i) banking institutions in The City of New York are required or
authorized by law or other government action to be closed and (ii) the
principal U.S. securities exchange or market, if any, on which any Common
Stock is listed or admitted to trading and the principal U.S. securities
exchange or market, if any, on which the Warrants are listed or admitted
to trading are closed for business.
"Liquidated Damages" shall have the meaning ascribed to such term in
Section 2.1(d) hereof.
"Merrill Lynch" shall have the meaning ascribed to such term in the
preamble hereto.
"Notes" shall have the meaning ascribed to such term in the preamble
hereto.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof or any other entity, including any
predecessor of any such entity.
"Piggy-Back Registration" shall have the meaning ascribed to such
term in Section 2.2(a) hereof.
"Piggy-Back Registration Statement" shall have the meaning ascribed
to such term in Section 2.2(c) hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning ascribed to such term in
the preamble hereof.
"Registrable Securities" shall mean any of (i) the Warrants, (ii)
the Warrant Shares and (iii) any other securities issued or issuable with
respect to the Warrants or Warrant Shares by way of stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise. As
<PAGE>
4
to any particular Registrable Securities, such securities shall cease to
be Registrable Securities when (a) a registration statement with respect
to the offering of such securities by the holder thereof shall have been
declared effective under the Securities Act and such securities shall have
been disposed of by such holder pursuant to such registration statement,
(b) such securities have been sold to the public pursuant to, or are
eligible for sale to the public without volume or manner of sale
restrictions under, Rule 144(k) (or any similar provision then in force,
but not Rule 144A) promulgated under the Securities Act, (c) such
securities shall have been otherwise transferred and new certificates for
such securities not bearing a legend restricting further transfer shall
have been delivered by the Company or its transfer agent and subsequent
disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in
force, or (d) such securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees
and expenses of compliance with securities or blue sky laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters and the Holders in connection with blue sky qualifications of
the Registrable Securities), printing expenses, messenger, telephone and
delivery expenses, fees and disbursements of counsel for the Company,
counsel for the underwriters, if any, the Warrant Agent and all
independent certified public accountants, and other reasonable
out-of-pocket expenses of Holders (it being understood that Registration
Expenses shall not include, as to the fees and expenses of counsel, the
fees and expenses of more than one counsel for the Holders and one counsel
for the underwriters as to securities and blue sky matters).
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act
which covers any of the Warrants, the Warrant Shares and any other
Registrable Securities 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.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing for
offers and sales of securities made in compliance therewith resulting in
offers and sales by subsequent holders that are not affiliates of an
issuer of such securities being free of the registration and prospectus
delivery requirements of the Securities Act.
<PAGE>
5
"Rule 144A" shall mean Rule 144A promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule
(other than Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Selling Holder" shall mean a Holder who is selling Registrable
Securities in accordance with the provisions of Section 2.2.
"Shelf Registration Default" shall have the meaning ascribed to such
term in Section 2.1(d).
"Suspension Period" shall have the meaning ascribed to such term in
Section 2.3(a).
"Units" shall have the meaning ascribed to such term in the preamble
of this Agreement.
"Warrant Agent" shall mean Bankers Trust Company and any successor
warrant agent for the Warrants pursuant to the Warrant Agreement.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof, between the Company and the Warrant Agent, as amended or
supplemented from time to time in accordance with the terms thereof.
"Warrant Shares" shall mean shares of Common Stock issuable upon
exercise of the Warrants at an exercise price of $9.125 per share.
"Warrant Shelf Registration Statement" shall mean the Registration
Statement filed with the SEC pursuant to Section 2.1.
"Warrants" shall have the meaning ascribed to such term in the
preamble hereto.
Capitalized terms used herein but not defined shall have the meaning
ascribed thereto in the Warrant Agreement.
SECTION 2. Registration Rights.
2.1 (a) Warrant Shelf Registration Statement. The Company shall
cause to be filed
<PAGE>
6
pursuant to Rule 415 (or any successor provision) of the Securities Act a shelf
registration statement covering the issuance of Warrant Shares to the Holders
upon exercise of the Warrants by the Holders thereof and the resale of the
Warrants and the Warrant Shares (the "Warrant Shelf Registration Statement") and
shall use its best efforts to cause the Warrant Shelf Registration Statement to
be declared effective under the Securities Act on or before July 7, 1999.
Subject to Section 2.3(a) hereof, the Company shall use reasonable efforts to
maintain the effectiveness of the Warrant Shelf Registration Statement until
such time as all Warrants have been exercised and the Warrant Shares resold. The
Company will pay all Registration Expenses in connection with the resale of
Warrants and Warrant Shares.
(b) Blue Sky. The Company shall use its reasonable efforts to
register or qualify the Warrant Shares under all applicable securities laws,
blue sky laws or similar laws of all jurisdictions in the United States and
Canada in which any Holder may or may be deemed to purchase Warrant Shares upon
the exercise of Warrants and shall use its reasonable efforts to maintain such
registration or qualification through such time as all Warrants have been
exercised and Warrant Shares have been resold; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 2.1(b) or to take any action which would subject it to general service
of process or to taxation in any such jurisdiction where it is not then so
subject.
(c) Accuracy of Disclosure. The Company represents and warrants to
each Holder and agrees for the benefit of each Holder that (i) the Warrant Shelf
Registration Statement and any amendment thereto will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading; and (ii) each of the prospectuses furnished to such Holder for
delivery in connection with the exercise of Warrants or in connection with the
sale of Warrant Shares, as the case may be, and the documents incorporated by
reference therein will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company shall have no
liability under clause (i) or (ii) of this Section 2.1(c) with respect to any
such untrue statement or omission made in the Warrant Shelf Registration
Statement in reliance upon and in conformity with information furnished to the
Company by or on behalf of the Holders specifically for inclusion therein.
(d) Liquidated Damages. In the event that (i) the Warrant Shelf
Registration Statement is not declared effective by the SEC on or prior to July
7, 1999 or (ii) following the date such Warrant Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable without being
restored to effectiveness by amendment or otherwise, except during such time
periods indicated in Section 2.3(a) (each of the events referred to in clauses
(i) and (ii) above, a "Shelf Registration Default"), then the Company shall pay
liquidated damages ("Liquidated Damages") to each Holder of Warrants or Warrant
Shares an amount (the "Damage Amount") in
<PAGE>
7
an initial amount equal to $.0025 per week per Warrant for each week that the
Shelf Registration Default continues for the first 90-day period following such
Shelf Registration Default. The Damage Amount shall be increased by an
additional $.0025 per week per Warrant with respect to each subsequent 90-day
period until such Shelf Registration Default has been cured, up to a maximum
amount of Liquidated Damages of $0.0125 per week per Warrant.
(e) Additional Acts. If the issuance or sale of any Warrant Shares
or other securities issuable upon the exercise of the Warrants requires
registration or approval of any governmental authority (other than the
registration requirements under the Securities Act), or the taking of any other
action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then the Company covenants that it will, in good
faith and as expeditiously as reasonably possible, use all reasonable efforts to
secure and maintain such registration or approval or to take such other action,
as the case may be.
(f) Listing of Warrant Shares. The Company shall use its best
efforts to register the Warrant Shares on the Nasdaq National Market by the
Exercise Date.
2.2 (a) Piggy-Back Registration. If at any time the Company proposes
to file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
securityholders of Common Stock (other than (i) a registration statement on Form
S-4 or S-8 (or F-4 or F-8) (or any substitute form that may be adopted by the
SEC) or any other publicly registered offering pursuant to the Securities Act
pertaining to the issuance of shares of Common Stock or securities exercisable
therefor under any benefit plan, employee compensation plan, or employee or
director stock purchase plan, or (ii) a registration statement filed in
connection with an offer of securities solely to the Company's existing
securityholders), then the Company shall give written notice of such proposed
filing to the Holders of Registrable Securities as soon as practicable (but in
no event fewer than 15 days before the anticipated filing date or 10 days if the
Company is subject to filing reports under the Exchange Act and able to use Form
S-3 (or F-3) under the Securities Act), and such notice shall offer such Holders
the opportunity to register such number of shares of Registrable Securities as
each such Holder may request in writing within eight days after receipt of such
written notice from the Company (which request shall specify the Registrable
Securities intended to be disposed of by such Selling Holder and the intended
method of distribution thereof) (a "Piggy-Back Registration"). The Company shall
use its best efforts to keep such Piggy-Back Registration continuously effective
under the Securities Act in the qualifying jurisdictions until at least the
earlier of (A) 60 days after the effective date thereof or (B) the consummation
of the distribution by the Holders of all of the Registrable Securities covered
thereby. The Company shall use its best efforts to cause the managing
underwriter or underwriters, if any, of such proposed offering to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on the same terms and conditions as any similar securities of the
Company or any other
<PAGE>
8
securityholder included therein and to permit the sale or other disposition of
such Registrable Securities in accordance with the intended method of
distribution thereof. Any Selling Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw. The Company may withdraw a Piggy-Back Registration
at any time prior to the time it becomes effective or the Company may elect to
delay the registration; provided, however, that the Company shall give prompt
written notice thereof to participating Selling Holders. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2, and each Holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 2.2.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders of Registrable
Securities pursuant to Section 2.1 hereof, and no failure to effect a
registration under this Section 2.2 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration pursuant
to this Section 2.2 involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriters' reasonable opinion the
total number of securities which the Company, the Selling Holders and any other
persons desiring to participate in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering, including the price at which such securities can be sold, then the
Company will be required to include in such registration only the amount of
securities which it is so advised should be included in such registration. In
such event: (x) in cases only involving the registration for sale of Common
Stock for the Company's own account (which may include securities included
pursuant to the exercise of piggy-back rights herein and in other contractual
commitments of the Company), securities shall be registered in such offering in
the following order of priority: (i) first, the Common Stock which the Company
proposes to register, (ii) second, provided that no Common Stock sought to be
included by the Company have been excluded from such registration, the Common
Stock which have been requested to be included in such registration by the
Holders of Registrable Securities pursuant to this Agreement (such securities
for the account of the Holders to be allocated among the Holders pro rata based
on the amount of securities sought to be registered by the Holder) and (iii)
third, provided that no Common Stock sought to be included by the Company or the
Holders have been excluded from such registration, the securities of other
Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by such Persons); and (y) in cases not
involving the
<PAGE>
9
registration for sale of Common Stock for the Company's own account only,
securities shall be registered in such offering in the following order of
priority: (i) first, Common Stock to be sold for the account of the Company and
the securities of any Person whose exercise of a "demand" registration right
pursuant to a contractual commitment of the Company is the basis for the
registration (provided that if such Person is a Holder of Registrable
Securities, as among Holders of Registrable Securities there shall be no
priority and Registrable Securities sought to be included by Holders of
Registrable Securities shall be included pro rata based on the amount of
securities sought to be registered by such Persons), (ii) second, provided that
no securities of the Company or such Person referred to in the immediately
preceding clause (i) have been excluded from such registration, the securities
requested to be included in such registration by the Holders of Registrable
Securities pursuant to this Agreement (such securities for the account of the
Holders to be allocated among the Holders pro rata based on the total amount of
securities sought to be registered by the Holders) and (iii) third, provided
that no securities of such Person referred to in the immediately preceding
clause (i) or of the Holders have been excluded from such registration,
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments (pro rata based on the amount of
securities sought to be registered by such Persons).
If, as a result of the provisions of this Section 2.2(b), any
Selling Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
(c) Restrictions on Sale by Holders. Each Holder of Registrable
Securities whose Registrable Securities are covered by a Registration Statement
filed pursuant to this Section 2.2 (a "Piggy-Back Registration Statement") and
are to be sold thereunder agrees, if and to the extent reasonably requested by
the managing underwriter or underwriters in an underwritten public offering, not
to effect any public sale or distribution of Registrable Securities or of
securities of the Company of the same class as any securities included in such
Piggy-Back Registration Statement, including a sale pursuant to Rule 144 (except
as part of such underwritten offering), during the 30-day period prior to, and
during the 180-day period beginning on, the closing date of each underwritten
offering made pursuant to such Piggy-Back Registration Statement, to the extent
timely notified in writing by the Company or such managing underwriter or
underwriters.
The foregoing provisions of Section 2.2(c) shall not apply to any
Holders of Registrable Securities if such Holder is prevented by applicable
statute or regulation from entering into any such agreement; provided, however,
that any such Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of any
Registrable Securities commencing on the date of sale of such Registrable
Securities unless it has provided 45 days' prior written notice of such sale or
distribution to the managing underwriter or underwriters.
<PAGE>
10
2.3 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in Sections
2.1, 2.2 and 2.6 hereof are subject to each of the following limitations,
conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the Company
shall be entitled to postpone, for a reasonable period of time, the filing
of, or suspend the effectiveness of, any registration statement or
amendment thereto, or suspend the use of any prospectus and shall not be
required to amend or supplement the registration statement, any related
prospectus or any document incorporated therein by reference (other than
an effective registration statement being used for an underwritten
offering); provided that the duration of such postponement or suspension
(a "Suspension Period") may not exceed up to two 30- day consecutive-day
periods in any 12-month period and provided further, that the Suspension
Period may not occur during the 30-consecutive-day period immediately
after the Exercise Date and during the 30-consecutive-day period
immediately prior to February 1, 2009. Such Suspension Period may be
effected only if (i) the Company's Board determines in its good faith that
there is a valid business purpose for such suspension and (ii) provides
notice that such determination was made by the Company's Board to the
Holders of the Warrants; provided, however, that in no event shall the
Company be required to disclose the business purpose for such suspension
if the Company determines in good faith that such business purpose must
remain confidential; and provided further, however, that the Effectiveness
Period shall be extended by the number of days in any Suspension Period.
The Company may further suspend effectiveness for a period not in excess
of 5 Business Days to allow for the updating of the financial statements
included in a Registration Statement to the extent required by law, such
suspension for updating financial statements not to exceed 45 calendar
days in aggregate in any 12-month period. If the Company shall so postpone
the filing of a Registration Statement it shall, as promptly as possible,
deliver a certificate signed by the chief executive officer of the Company
to the Selling Holders as to such determination, and the Selling Holders
shall (1) have the right, in the case of a postponement of the filing or
effectiveness of a Registration Statement, upon the affirmative vote of
the Holders of not less than a majority of the Registrable Securities to
be included in such Registration Statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of such notice or (2) in the case of a suspension of the right to
make sales, receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and
regulations to permit the Company to comply with all applicable
requirements of the SEC, if applicable, and to obtain any acceleration of
the effective date of such Registration Statement.
<PAGE>
11
2.4 Restrictions on Sale by the Company and Others. The Company
covenants and agrees that (i) it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale or distribution of any
securities of the same class as any of the Registrable Securities or any
securities convertible into or exchangeable or exercisable for such securities
(or any option or other right for such securities) during the 30-day period
prior to, and during the 90-day period beginning on, the commencement of any
underwritten offering of Registrable Securities pursuant to a Piggy-Back
Registration which has been scheduled, prior to the Company or any of its
subsidiaries publicly announcing its intention to effect any such public sale or
distribution; (ii) the Company will not, and the Company will not cause or
permit any subsidiary of the Company to, after the date hereof, enter into any
agreement or contract that conflicts with or limits or prohibits the full and
timely exercise by the Holders of Registrable Securities of the rights herein to
join in any Piggy-Back Registration subject to the other terms and provisions
hereof; and (iii) upon request of the Holders of not less than a majority of the
Registrable Securities to be included in such Registration Statement or any
underwriter, it shall use its reasonable best efforts to secure the written
agreement of each of its officers and directors to not effect any public sale or
distribution of any securities of the same class as the Registrable Securities
(or any securities convertible into or exchangeable or exercisable for an such
securities), or any option or right for such securities during the period
described in clause (i) of this Section 2.4.
2.5 Rule 144 and Rule 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder or beneficial owner of Registrable
Securities, make available such information necessary to permit sales pursuant
to Rule 144A under the Securities Act. The Company further covenants that it
will take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule
144A under the Securities Act, as such Rules may be amended from time to time,
or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any Holder of Registrable Securities, the Company will in a timely
manner deliver to such Holder a written statement as to whether it has complied
with such information requirements.
2.6 Underwritten Registrations. No Holder of Registrable Securities
may participate in any underwritten registration pursuant to a Registration
Statement filed under this Agreement unless such Holder (a) agrees to (i) sell
such Holder's Registrable Securities on the basis provided in and in compliance
with any underwriting arrangements approved by the Holders of not less than a
majority of the Registrable Securities to be sold thereunder and (ii) comply
with Rules 101, 102 and 104 of Regulation M under the Exchange Act and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
<PAGE>
12
If the Company has complied with all its obligations under this
Agreement with respect to a Piggy-Back Registration relating to an underwritten
public offering, all holders of Warrants or Warrant Shares, upon request of the
lead managing underwriter with respect to such underwritten public offering,
will be required to not sell or otherwise dispose of any Warrants or Warrant
Shares owned by them for a period not to exceed 30 days prior to and 180 days
after the consummation of such underwritten public offering.
<PAGE>
13
SECTION 3. [Reserved].
SECTION 4. Registration Procedures. In connection with the
obligations of the Company with respect to any Registration Statement pursuant
to Sections 2.1, 2.2 and 2.6 hereof, the Company shall, except as otherwise
provided:
(a) At least five days prior to the initial filing of a Registration
Statement or Prospectus and at least two days prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish
to the Warrant Agent, the Holders and the managing underwriters, if any,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) shall
be subject to the review of such Holders, and such underwriters, if any,
and cause the officers and directors of the Company, counsel to the
Company and independent certified public accountants to the Company to
respond to such reasonable inquiries as shall be necessary, in the opinion
of counsel to such underwriters, to conduct a reasonable investigation
within the meaning of the Securities Act; provided that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Holders by Merrill Lynch. The Company shall not file any such Registration
Statement or related Prospectus or any amendments or supplements thereto
which the Holders of a majority of the Registrable Securities included in
such Registration Statement shall reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments, including
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable time period required hereunder; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such
person) confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or
<PAGE>
14
any court of any stop order suspending the effectiveness of such
Registration Statement or of any order or injunction suspending or
enjoining the use of a Prospectus or the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of
the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any proceeding for such purpose, and (v) of the
happening of any event, the existence of any information becoming known
that makes any statement made in a Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the
effectiveness of the Registration Statement or the use of a Prospectus or
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities covered thereby for
sale in any jurisdiction described in Section 4(h) at the earliest
practicable moment.
(e) If requested by the managing underwriters, if any, or if none,
by the Holders of a majority of the Registrable Securities being sold
pursuant to such Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or if none, such Holders reasonably believe
should be included therein, and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment under the
Securities Act as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section
4(e) that would in the opinion of counsel for the Company, violate
applicable law.
(f) Upon written request to the Company, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and
each managing underwriter, if any, without charge, at least one conformed
copy of the Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed
to be incorporated therein by reference, and all exhibits to the extent
requested (including those previously furnished or incorporated by
reference) as soon as practicable after the filing of such documents with
the SEC.
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a
<PAGE>
15
Registration Statement and each managing underwriter, if any, without
charge, as many copies of each Prospectus (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to use of such
Prospectus and each amendment or supplement thereto and each document
supplemental thereto by each of the selling Holders of Registrable
Securities and the underwriters or agents, if any, in connection with the
offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any such Holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective hereunder and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the applicable Registration Statement; provided, however, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or to taxation in any
jurisdiction where it is not so subject.
(i) In connection with any sale or transfer of Registrable
Securities that will result in such securities no longer being Registrable
Securities, cooperate with the Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends whatsoever and
shall be in a form eligible for deposit with The Depository Trust Company
("DTC"); and to enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Holders may reasonably request at least two
business days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(v)
above, as promptly as practicable prepare a supplement or amendment,
including if appropriate a post-effective amendment to each Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file
any other required document so that, as thereafter delivered, such
Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of
<PAGE>
16
the circumstances under which they were made, not misleading.
(k) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Warrants and Registrable Securities with
certificates for such securities in a form eligible for deposit with DTC
and (ii) provide CUSIP numbers for such securities.
(l) Enter into such agreement (including an underwriting agreement
in such form, scope and substance as is customary in underwritten
offerings) and take all such other reasonable actions in connection
therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities, and, 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 Securities and the underwriter or
underwriters, if any, with respect to the business of the Company and the
subsidiaries of the Company (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if any when requested; (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, addressed to each selling Holder of
Registrable Securities and each of the underwriters, if any), covering the
matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
underwriters; (iii) use their best efforts to obtain customary "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed (where reasonably possible) to each Selling Holder
of Registrable Securities and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings; (iv) if an underwriting agreement is entered into,
the same shall contain customary indemnification provisions and procedures
no less favorable to the Selling Holder and the underwriters, if any, than
those set forth in Section 5 hereof (or such other provisions and
procedures acceptable to Holders of a majority of Registrable Securities
covered by such Registration Statement and the managing underwriter, if
any); and (v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being
sold and the managing underwriters or underwriters to evidence the
<PAGE>
17
continued validity of the representations and warranties made pursuant to
clause (i) above and evidence compliance with any customary conditions
contained in the underwriting agreement or other agreements entered into
by the Company.
(m) Make available for inspection by a representative of the selling
Holders of Registrable Securities, any underwriter participating in any
such disposition of Registrable Securities, if any, and any attorney,
consultant or accountant retained by such representative of the selling
Holders of Registrable Securities or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during the reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of the Company and the subsidiaries of the
Company (including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Company),
and cause the officers, directors, agents and employees of the Company and
its subsidiaries of the Company (including with respect to businesses and
assets acquired or to be acquired to the extent that such information is
available to the Company) to supply all information in each case
reasonably requested by any such Inspector in connection with such
Registration Statement; provided, however, that such persons shall first
agree in writing with the Company that any information that is reasonably
and in good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required by
law (including any disclosure requirements pursuant to U.S. securities
laws in connection with the filing of the Registration Statement or the
use of any Prospectus), (iii) such information becomes generally available
to the public other than as a result of a disclosure or failure to
safeguard such information by such person or (iv) such information becomes
available to such person from a source other than the Company and its
subsidiaries and such source is not bound by a confidentiality agreement;
provided, further that the foregoing investigation shall be coordinated on
behalf of the selling Holders of Registrable Securities by Merrill Lynch.
(n) Comply with all applicable rules, regulations and policies of
the SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder no later than 60 days after the end of any
12-month period (or 135 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to an underwriter or to
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to an underwriter or to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration
Statement, which statements shall cover said such period, consistent with
the requirements of Rule 158 under the Securities Act.
<PAGE>
18
(o) Use its best efforts to cause all Warrant Shares relating to
such Registration Statement to be listed on each securities exchange, if
any, on which similar securities issued by the Company are then listed.
(p) Cooperate with each seller of Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends and registered in such names as the Selling Holders
may reasonably request at least two business days prior to the closing of
any sale of Registrable Securities.
(q) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Warrants or Registrable Securities and its
respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc.
The Company may require a Holder of Registrable Securities to be
included in a Registration Statement to furnish to the Company such information
regarding (i) the intended method of distribution of such Registrable Securities
(ii) such Holder and (iii) the Registrable Securities held by such Holder as is
required by law to be disclosed in such Registrable Statement and the Company
may exclude from such Registration Statement the Registrable Securities of any
Holder who fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act, the deletion of the reference to such Holder in such amendment
or supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iv) or
4(c)(v) hereof, such Holder will forthwith discontinue disposition of such
Registrable Securities covered by the Registration Statement or Prospectus until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and in either case has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference
<PAGE>
19
in such Prospectus. If the Company shall give any such notice, the Effectiveness
Period shall be extended by the number of days during such periods from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof or (y) the Advice, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus.
Holders of the Registrable Securities shall be obligated to keep
confidential the existence of a Suspension Period or any confidential
information communicated by the Company to the Holder with respect thereto.
SECTION 5. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each Initial Purchaser, each Holder, each
underwriter, if any, who participates in an offering of Registrable Securities,
their respective affiliates, and their respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange 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 Registrable
Securities 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, in the light of the circumstances under which
they were made, 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, in each case, 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 expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
Merrill Lynch), reasonably
<PAGE>
20
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any court or 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
subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Registration Statement and corrected or
included in a subsequent Prospectus or Registration Statement or any amendment
or supplement thereto made in reliance upon and in conformity with written
information furnished to the Company by the Selling Holders of Registrable
Securities, any Holder, 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 for sales thereunder in
accordance with Sections 2.1(b), 2.1(c), 2.2(c), 2.3, 2.4 or 2.6 hereof,
provided, in each case, that Holders received prior notice of such suspension or
other unavailability.
(b) In the case of any registration of Registrable Securities, each
Holder agrees, severally and not jointly, to indemnify and hold harmless the
Company, each Initial Purchaser, each underwriter, if any, who participates in
an offering of Registrable Securities 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, any Initial Purchaser, any underwriter or any other Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange 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 written information furnished to the Company by such
Holder expressly for use in the Registration Statement (or any amendment
thereto), or the Prospectus (or any amendment or supplement thereto); provided,
however, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of Warrants
and Registrable Securities pursuant to such Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), 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
<PAGE>
21
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 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 party or
parties be liable for the 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 (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 fees and expenses of
counsel, 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
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, in such proportion as is appropriate to reflect the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the one hand, and such indemnified party or
parties 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 such indemnifying party or parties or such indemnified party or
parties 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
<PAGE>
22
Registrable Securities 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 Selling Holders of Registrable Securities were treated as one
entity, and 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 Securities 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 Holder within the meaning of this Section 15 of
the Securities Act or Section 20 of the Exchange 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 Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company.
SECTION 6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, in the Purchase Agreement or granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement.
(b) No Inconsistent Agreements. The Company will not enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities 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, if any, under any such
agreements.
(c) [Intentionally Omitted].
(d) 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, otherwise than with the prior written consent of the Holders
of not less than a majority of the then outstanding Warrants and
<PAGE>
23
each class and series of Registrable Securities; provided, however, that, for
the purposes of this Agreement, Warrants and Registrable Securities that are
owned, directly or indirectly, by the Company or any of its affiliates are not
deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of one or more Holders and that does not directly or indirectly
affect the rights of other Holders may be given by a majority of the Holders so
affected; provided, however, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. Notwithstanding the foregoing, no amendment,
modification, supplement, waiver or consent with respect to Section 5 shall be
made or given otherwise than the prior written consent of each Person affected
thereby.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, facsimile, or any courier guaranteeing delivery by a specific
date (i) if to a Holder, at the most current address of such Holder as set forth
in the register for the Registrable Securities, which address initially is, with
respect to each Initial Purchaser, the address set forth with respect to such
Initial Purchaser in the Purchase Agreement; and (ii) if to the Company,
initially at One Commercial Plaza, Hartford, Connecticut 06103-3585, Attention:
Robert E Fowler III, and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(e), with a copy to
Baker & McKenzie, 815 Connecticut, N.W., Washington, D.C. 20006-4078, Attention:
Marc R. Paul, Esq., facsimile no.: (202) 452-7074, and thereafter at such other
address notice of which is given in accordance with the provisions of this
Section 6(e).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on a specific date, if timely delivered to an air courier guaranteeing delivery
by a specific date.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. If any transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such
Registrable Securities 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
and such Person shall be entitled to receive the benefits hereof. The Company
may not assign any of its rights or obligations hereunder without the prior
written consent of each Holder of Registrable Securities. Notwithstanding the
foregoing, no successor or assignee of the Company shall have any rights granted
under the Agreement until such person shall acknowledge its rights and
obligations hereunder by a signed written statement of such person's acceptance
of such rights and obligations.
<PAGE>
24
(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) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Warrant Agreement, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, the Purchase
Agreement and the Warrant Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
by any of its affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted (in either the numerator or the
denominator) in determining whether such consent or approval was given by the
Holders of such required percentage.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
@ ENTERTAINMENT, INC.
By: /S/ ROBERT E. FOWLER, III
------------------------------
Title: CHIEF EXECUTIVE OFFICER
By: /S/ DONALD MILLER JONES
------------------------------
Title: CHIEF FINANCIAL OFFICER
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /S/ MARISA DREW
-------------------
Title: DIRECTOR
DEUTSCHE BANK SECURITIES
DEUTSCHE BANK SECURITIES INC.
By: DEUTSCHE BANK SECURITIES INC.
By: /S/ R. MOHAMED
------------------
Title:
<PAGE>
Exhibit 4.14
================================================================================
PREFERENCE WARRANT
REGISTRATION RIGHTS AGREEMENT
Dated as of January 27, 1999
Among
@ENTERTAINMENT, INC.,
and
MORGAN GRENFELL PRIVATE EQUITY LIMITED on behalf of
MORGAN GRENFELL DEVELOPMENT CAPITAL SYNDICATION LIMITED,
ARNOLD CHASE, CHERYL CHASE, RHODA CHASE
and THE DARLAND TRUST
================================================================================
<PAGE>
TABLE OF CONTENTS
SECTION 1. Definitions......................................................1
SECTION 2. Preference Registration Rights...................................5
2.1 (a)(i) Preference Warrant Shelf Registration Statement............5
(ii) Preference Warrant Stock Shelf Registration
Statement..................................................6
(b) Blue Sky ......................................................6
(c) Accuracy of Disclosure ....................................... 6
(d) Liquidated Damages ............................................7
(e) Additional Acts ...............................................7
(f) Listing of Preference Warrant Shares ..........................7
2.2 [Reserved].......................................................7
2.3 Limitations, Conditions and Qualifications to Obligations
Under Registration Covenants.....................................7
2.4 [Reserved].......................................................8
2.5 Rule 144 and Rule 144A...........................................8
2.6 Underwritten Registrations.......................................9
SECTION 3. [Reserved].......................................................9
SECTION 4. Registration Procedures..........................................9
SECTION 5. Indemnification and Contribution................................15
SECTION 6. Miscellaneous...................................................19
(a) Remedies........................................................19
(b) No Inconsistent Agreements......................................19
(c) [Intentionally Omitted].........................................19
(d) Amendments and Waivers..........................................19
(e) Notices.........................................................19
(f) Successors and Assigns..........................................20
(g) Counterparts....................................................20
(h) Governing Law...................................................20
(j) Severability....................................................20
(k) Headings........................................................21
(l) Entire Agreement................................................21
(m) Securities Held by the Company or Its Affiliates................21
2
<PAGE>
EXECUTION COPY
PREFERENCE WARRANT REGISTRATION RIGHTS AGREEMENT
This PREFERENCE WARRANT REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of January 27, 1999, among
@ENTERTAINMENT, INC., (the "Company") a Delaware corporation, The Darland Trust
("Darland"), Rhoda Chase ("Rhoda Chase"), Arnold Chase ("Arnold Chase") and
Cheryl Chase ("Cheryl Chase", and together with Darland, Rhoda Chase and Arnold
Chase, the "Chase Purchasers") and MORGAN GRENFELL PRIVATE EQUITY LIMITED on
behalf of MORGAN GRENFELL DEVELOPMENT CAPITAL SYNDICATION LIMITED ("MGPE", and
together with the Chase Purchasers, the "Purchasers").
This Agreement is made pursuant to (i) the Purchase Agreement dated
January 22, 1999, between the Company and MGPE (the "MGPE Purchase Agreement")
and (ii) the Purchase Agreement dated as of January 22, 1999 among the Company
and Arnold Chase, Rhoda Chase and Cheryl Chase (the "Chase Purchase Agreement"),
and together with the MGPE Purchase Agreement, the "Purchase Agreements"), in
which the Company has agreed to sell to the Purchasers (i) an aggregate of
50,000 shares of the Company's Series A and Series B 12% Cumulative Preference
Shares (the "Preference Shares"), and (ii) warrants (the "Preference Warrants"),
initially entitling the holders thereof to purchase an aggregate of 5,500,000
shares of Common Stock of the Company, par value $0.01 per share (the "Common
Stock"). The execution of this Agreement is a condition to the obligations of
the Purchasers under the Purchase Agreements.
In consideration of the foregoing, the parties hereto agree as
follows:
SECTION 1. Definitions. As used in this Agreement, the
following defined terms shall have the following meanings:
"Advice" has the meaning ascribed to such term in Section 4
hereof.
"Agreement" shall have the meaning ascribed to such term in the
preamble hereto.
"Business Day" shall mean a day that is not a Legal Holiday.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or
other equivalents (however designated and whether voting or non-voting) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable
<PAGE>
for or convertible into such capital stock whether outstanding on the
issue date or issued after the issue date.
"Change of Control" shall have the meaning ascribed to such term
in the Indenture.
"Company" shall have the meaning ascribed to such term in the
preamble of this Agreement and shall also include the Company's permitted
successors and assigns.
"Common Stock" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"Convertible Preferred Stock" shall mean any securities convertible
or exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the date hereof or thereafter issued.
"Damage Amount" shall have the meaning ascribed to such term in
Section 2.1(d) hereof.
"DTC" shall have the meaning ascribed to such term in Section 4(i)
hereof.
"Effectiveness Period" shall mean the respective periods for which
the Company is obligated to use its reasonable efforts to keep a
Registration Statement effective pursuant to Sections 2.1(a) and 2.2(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Exercise Date" shall mean the earlier of (i) the date that a shelf
Registration Statement covering the sale of Common Stock underlying the
Preference Warrants is declared effective under the Securities Act and
(ii) January 27, 1999.
"Holder" shall mean each holder (including the Purchasers) of any
Preference Registrable Security and each of their successors, assigns and
direct and indirect transferees who become registered owners of such
Preference Registrable Securities.
"indemnified party" and "indemnifying party" shall have the
respective meanings ascribed to such term in Section 5(c).
"Indenture" shall mean the Indenture, dated as of the date hereof,
between the Company and Bankers Trust Company, as Trustee, pursuant to
which the Company's 14 1/2% Senior Discount Notes due 2009 are issued.
"Inspectors" shall have the meaning ascribed to such term in Section
4(m) hereof.
2
<PAGE>
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
(i) banking institutions in The City of New York are required or
authorized by law or other government action to be closed and (ii) the
principal U.S. securities exchange or market, if any, on which any Common
Stock is listed or admitted to trading and the principal U.S. securities
exchange or market, if any, on which the Preference Warrants are listed or
admitted to trading are closed for business.
"Liquidated Damages" shall have the meaning ascribed to such term in
Section 2.1(d) hereof.
"MGPE" shall have the meaning ascribed to such term in the
preamble hereto.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof or any other entity, including any
predecessor of any such entity.
"Preference Registrable Securities" shall mean any of (i) the
Preference Warrants, (ii) the Preference Warrant Shares and (iii) any
other securities issued or issuable with respect to the Preference
Warrants or Preference Warrant Shares by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Preference Registrable Securities, such securities shall cease
to be Preference Registrable Securities when (a) a registration statement
with respect to the offering of such securities by the holder thereof
shall have been declared effective under the Securities Act and such
securities shall have been disposed of by such holder pursuant to such
registration statement, (b) such securities have been sold to the public
pursuant to, or are eligible for sale to the public without volume or
manner of sale restrictions under, Rule 144(k) (or any similar provision
then in force, but not Rule 144A) promulgated under the Securities Act,
(c) such securities shall have been otherwise transferred and new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company or its transfer agent
and subsequent disposition of such securities shall not require
registration or qualification under the Securities Act or any similar
state law then in force, or (d) such securities shall have ceased to be
outstanding.
"Preference Warrant Registration Expenses" shall mean all expenses
incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all SEC and stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees and expenses, fees and expenses incurred in connection with
compliance with securities or blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the
underwriters and the Holders in connection with blue sky qualifications of
the Registrable Securities), printing expenses, messenger, telephone and
delivery expenses, fees and disbursements of counsel for the Company,
counsel for
3
<PAGE>
the underwriters, if any, the Warrant Agent and all independent certified
public accountants, and other reasonable out-of-pocket expenses of Holders
(it being understood that Preference Warrant Registration Expenses shall
not include as to the fees and expenses of counsel, the fees and expenses
of more than one counsel for the Holders and one counsel for the
underwriters and shall not include any underwriting discounts, commissions
or transfer taxes).
"Preference Registration Statement" shall mean any appropriate
registration statement of the Company filed with the SEC pursuant to the
Securities Act which covers any of the Preference Warrants, the Preference
Warrant Shares and any other Preference Registrable Securities 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. "Preference Registration
Statement" shall include the Preference Warrant Shelf Registration
Statement and the Preference Warrant Stock Shelf Registration Statement.
"Preference Warrant Agent" shall mean Bankers Trust Company and any
successor warrant agent for the Preference Warrants pursuant to the
Preference Warrant Agreement.
"Preference Warrant Agreement" shall mean the Preference Warrant
Agreement dated as of the date hereof, between the Company and the
Preference Warrant Agent, as amended or supplemented from time to time in
accordance with the terms thereof.
"Preference Warrant Shares" shall mean shares of Common Stock
issuable upon exercise of the Preference Warrants initially at an exercise
price of $10.00 per share.
"Preference Warrant Shelf Registration Statement" shall mean the
Preference Registration Statement filed with the SEC pursuant to Section
2.1(a)(i).
"Preference Warrant Stock Shelf Registration Statement"shall mean
the Preference Registration Statement filed with the SEC pursuant to
Section 2.1(a)(ii).
"Preference Warrants" shall have the meaning ascribed to such term
in the preamble hereto.
"Prospectus" shall mean the prospectus included in any Preference
Registration Statement (including, without limitation, any prospectus
subject to completion and a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
and all other amendments and supplements to the Prospectus, including
post-effective amendments, and
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all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
"Purchase Agreements" shall have the meaning ascribed to such term
in the preamble hereof.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing for
offers and sales of securities made in compliance therewith resulting in
offers and sales by subsequent holders that are not affiliates of an
issuer of such securities being free of the registration and prospectus
delivery requirements of the Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule
(other than Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Selling Holder" shall mean a Holder who is selling Preference
Registrable Securities in accordance with the provisions of Section 2.2.
"Shelf Registration Default" shall have the meaning ascribed to such
term in Section 2.1(d).
"Suspension Period" shall have the meaning ascribed to such term
in Section 2.3(a).
"Units Offering" shall mean the Company's offering, which is
simultaneous with the offering of Preference Shares and Preference
Warrants, of 256,800 units consisting of 14 1/2% Senior Discount Notes due
2009 and 1,027,200 warrants to purchase 1,813,665 shares of common stock.
Capitalized terms used herein but not defined shall have the meaning
ascribed thereto in the Preference Warrant Agreement.
SECTION 2. Preference Registration Rights.
2.1 (a)(i) Preference Warrant Shelf Registration Statement. The
Company shall cause to be filed pursuant to Rule 415 (or any successor
provision) of the Securities Act a shelf registration statement covering the
resale of the Preference Warrants (the "Preference Warrant
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Shelf Registration Statement") and shall use its best efforts to cause the
Preference Warrant Shelf Registration Statement to be declared effective under
the Securities Act on or before July 7, 1999. Subject to Section 2.3(a) hereof,
the Company shall use reasonable efforts to maintain the effectiveness of the
Preference Warrant Shelf Registration Statement until such time as all
Preference Warrants have expired or have been exercised or redeemed.
(ii) Preference Warrant Stock Shelf Registration Statement. The
Company shall also caused to be filed pursuant to Rule 415 (or any successor
provision) of the Securities Act, a shelf registration statement covering the
issuance and resale of the Preference Warrant Shares (the "Preference Warrant
Stock Shelf Registration Statement") and shall use its best efforts to cause the
Preference Warrant Stock Shelf Registration Statement to be declared effective
under the Securities Act by January 27, 2000. Subject to Section 2.3(a) hereof,
the Company shall use reasonable efforts to maintain the effectiveness of the
Preference Warrant Stock Shelf Registration Statement until such time as all the
Preference Warrants have expired or have been exercised or redeemed.
(iii) The Company will pay all Preference Warrant Registration
Expenses in connection with the resale of Preference Warrants and the issuance
of the Preference Warrant Shares.
(iv) The Preference Registration Statements may also include
securities issued in the Units Offering and securities issuable upon conversion
of such securities.
(b) Blue Sky. The Company shall use its reasonable efforts to
register or qualify the Preference Warrant Shares under all applicable
securities laws, blue sky laws or similar laws of all jurisdictions in the
United States and Canada in which any Holder may or may be deemed to purchase
Preference Warrant Shares upon the exercise of Preference Warrants and shall use
its reasonable efforts to maintain such registration or qualification through
such time as all Preference Warrants have expired or have been exercised or
redeemed and Preference Warrant Shares have been resold; provided, however, that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 2.1(b) or to take any action which would subject it to general service
of process or to taxation in any such jurisdiction where it is not then so
subject.
(c) Accuracy of Disclosure. The Company represents and warrants to
each Holder and agrees for the benefit of each Holder that (i) the Preference
Registration Statements and any amendment thereto will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading; and (ii) each of the Prospectuses furnished to such Holder for
delivery in connection with the exercise of Preference Warrants or in connection
with the sale of Preference Warrant Shares, as the case may be, and the
documents incorporated by reference therein will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under
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which they were made, not misleading; provided, however, that the Company shall
have no liability under clause (i) or (ii) of this Section 2.1(c) with respect
to any such untrue statement or omission made in a Preference Registration
Statement in reliance upon and in conformity with information furnished to the
Company by or on behalf of the Holders specifically for inclusion therein.
(d) Liquidated Damages. In the event that (i) the Preference Warrant
Shelf Registration Stock Statement is not declared effective by the SEC on or
prior to July 7, 1999 or (ii) the Preference Warrant Stock Shelf Registration
Statement is not declared effective by the SEC on or prior to January 27, 2000,
or following the dates either such Preference Registration Statement is declared
effective but thereafter ceases to be effective or usable without being restored
to effectiveness by amendment or otherwise, except during such time periods
indicated in Section 2.3(a) (each of the events referred to in clauses (i) and
(ii) above, a "Shelf Registration Default"), then the Company shall pay
liquidated damages ("Liquidated Damages") to each Holder of Preference Warrants
or Preference Warrant Shares, as the case may be, an amount (the "Damage
Amount") in an initial amount equal to $.0025 per week per Preference Warrant
for each week that the Shelf Registration Default continues for the first 90-day
period following such Shelf Registration Default. The Damage Amount shall be
increased by an additional $.0025 per week per Preference Warrant with respect
to each subsequent 90-day period until such Shelf Registration Default has been
cured, up to a maximum amount of Liquidated Damages of $0.0125 per week per
Preference Warrant.
(e) Additional Acts. If the issuance or sale of any Preference
Warrant Shares or other securities issuable upon the exercise of the Preference
Warrants requires registration or approval of any governmental authority (other
than the registration requirements under the Securities Act), or the taking of
any other action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then the Company covenants that it will, in good
faith and as expeditiously as reasonably possible, use all reasonable efforts to
secure and maintain such registration or approval or to take such other action,
as the case may be.
(f) Listing of Preference Warrant Shares. The Company shall use its
best efforts to register the Preference Warrant Shares on the Nasdaq National
Market by the Exercise Date.
2.2 [Reserved]
2.3 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in Sections 2.1
and 2.6 hereof are subject to each of the following limitations, conditions and
qualifications:
(a) Subject to the next sentence of this paragraph, the Company
shall be entitled to postpone, for a reasonable period of time, the filing
of, or suspend the effectiveness of,
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any registration statement or amendment thereto, or suspend the use of any
prospectus and shall not be required to amend or supplement the
registration statement, any related prospectus or any document
incorporated therein by reference (other than an effective registration
statement being used for an underwritten offering); provided that the
duration of such postponement or suspension (a "Suspension Period") may
not exceed during any 360 day period a period of more than 60 days or two
periods of more than an aggregate of 90 days. Such Suspension Period may
be effected only if (i) the Company's Board determines in its good faith
that there is a valid business purpose for such suspension and (ii)
provides notice that such determination was made by the Company's Board to
the Holders of the Preference Warrants; provided, however, that in no
event shall the Company be required to disclose the business purpose for
such suspension if the Company determines in good faith that such business
purpose must remain confidential; and provided further, however, that the
Effectiveness Period shall be extended by the number of days in any
Suspension Period. The Company may further suspend effectiveness for a
period not in excess of 5 Business Days to allow for the updating of the
financial statements included in a Registration Statement to the extent
required by law, such suspension for updating financial statements not to
exceed 45 calendar days in aggregate in any 12-month period. If the
Company shall so postpone the filing of a Registration Statement it shall,
as promptly as possible, deliver a certificate signed by the chief
executive officer of the Company to the Selling Holders as to such
determination, and the Selling Holders shall in the case of a suspension
of the right to make sales, receive an extension of the registration
period equal to the number of days of the suspension.
(b) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and
regulations to permit the Company to comply with all applicable
requirements of the SEC, if applicable, and to obtain any acceleration of
the effective date of such Registration Statement.
2.4 [Reserved]
2.5 Rule 144 and Rule 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder or beneficial owner of Preference
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take such further action as any Holder of Preference
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Preference Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC.
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Upon the request of any Holder of Preference Registrable Securities, the Company
will in a timely manner deliver to such Holder a written statement as to whether
it has complied with such information requirements.
2.6 Underwritten Registrations. No Holder of Preference Registrable
Securities may participate in any underwritten registration pursuant to a
Preference Registration Statement filed under this Agreement unless such Holder
(a) agrees to (i) sell such Holder's Preference Registrable Securities on the
basis provided in and in compliance with any underwriting arrangements approved
by the Holders of not less than a majority of the Preference Registrable
Securities to be sold thereunder and (ii) comply with Rules 101, 102 and 104 of
Regulation M under the Exchange Act and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
If the Company has complied with all its obligations under this
Agreement all holders of Preference Warrants or Preference Warrant Shares, upon
request of the lead managing underwriter with respect to an underwritten public
offering, will be required to not sell or otherwise dispose of any Preference
Warrants or Preference Warrant Shares owned by them for a period not to exceed
30 days prior to and 180 days after the consummation of such underwritten public
offering.
SECTION 3. [Reserved].
SECTION 4. Registration Procedures. In connection with the
obligations of the Company with respect to any Preference Registration Statement
pursuant to Sections 2.1 and 2.6 hereof, the Company shall, except as otherwise
provided:
(a) At least five days prior to the initial filing of a Preference
Registration Statement or Prospectus and at least two days prior to the
filing of any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference),
furnish to the Preference Warrant Agent, the Holders and the managing
underwriters, if any, copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be
incorporated by reference) shall be subject to the review of such Holders,
and such underwriters, if any, and cause the officers and directors of the
Company, counsel to the Company and independent certified public
accountants to the Company to respond to such reasonable inquiries as
shall be necessary, in the opinion of counsel to such underwriters, to
conduct a reasonable investigation within the meaning of the Securities
Act; provided that the foregoing inspection and information gathering
shall be coordinated on behalf of the Holders by MGPE. The Company shall
not file any such Preference Registration Statement or related Prospectus
or any amendments or supplements thereto to which the Holders of a
majority of the Preference Registrable Securities included in such
Preference Registration Statement shall reasonably object on a timely
basis.
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(b) Prepare and file with the SEC such amendments, including
post-effective amendments to each Preference Registration Statement as may
be necessary to keep such Preference Registration Statement continuously
effective for the applicable time period required hereunder; cause the
related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities
Act; and comply with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all securities covered by such
Preference Registration Statement during such period in accordance with
the intended methods of disposition by the sellers thereof set forth in
such Preference Registration Statement as so amended or in such Prospectus
as so supplemented.
(c) Notify the Holders of Preference Registrable Securities to be
sold and the managing underwriters, if any, promptly, and (if requested by
any such person) confirm such notice in writing, (i)(A) when a Prospectus
or any Prospectus supplement or post-effective amendment is proposed to be
filed, and (B) with respect to a Preference Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other Federal or state governmental authority
for amendments or supplements to a Preference Registration Statement or
related Prospectus or for additional information, (iii) of the issuance by
the SEC, any state securities commission, any other governmental agency or
any court of any stop order suspending the effectiveness of such
Preference Registration Statement or of any order or injunction suspending
or enjoining the use of a Prospectus or the effectiveness of a Preference
Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Preference Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, and (v) of the happening of any event, the existence of any
information becoming known that makes any statement made in a Preference
Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or omit to state any material fact required to be stated therein
or necessary to make the statements therein, not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the
effectiveness of the Preference Registration Statement or the use of a
Prospectus or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Preference Registrable
Securities covered thereby for sale in any jurisdiction described in
Section 4(h) at the earliest practicable moment.
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(e) If requested by the managing underwriters, if any, or if none,
by the Holders of a majority of the Preference Registrable Securities
being sold pursuant to such Preference Registration Statement, (i)
promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, or if
none, such Holders reasonably believe should be included therein, and (ii)
make all required filings of such Prospectus supplement or such
post-effective amendment under the Securities Act as soon as practicable
after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any
action pursuant to this Section 4(e) that would in the opinion of counsel
for the Company, violate applicable law.
(f) Upon written request to the Company, furnish to each Holder of
Preference Registrable Securities to be sold pursuant to a Registration
Statement and each managing underwriter, if any, without charge, at least
one conformed copy of the Preference Registration Statement and each
amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference,
and all exhibits to the extent requested (including those previously
furnished or incorporated by reference) as soon as practicable after the
filing of such documents with the SEC.
(g) Deliver to each Holder of Preference Registrable Securities to
be sold pursuant to a Preference Registration Statement and each managing
underwriter, if any, without charge, as many copies of each Prospectus
(including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request; and the Company hereby
consents to use of such Prospectus and each amendment or supplement
thereto and each document supplemental thereto by each of the selling
Holders of Preference Registrable Securities and the underwriters or
agents, if any, in connection with the offering and sale of the Preference
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any offering of Preference Registrable Securities, use
its best efforts to register or qualify or cooperate with the Holders of
Preference Registrable Securities to be sold, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Preference Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as any
such Holder or underwriter reasonably requests in writing; keep each such
registration or qualification (or exemption therefrom) effective during
the period such Preference Registration Statement is required to be kept
effective hereunder and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Preference Registrable Securities covered by the applicable Preference
Registration Statement; provided, however, that the Company shall not be
required to (i) qualify generally to do business in any
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jurisdiction where it is not then so qualified or (ii) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or to taxation in any
jurisdiction where it is not so subject.
(i) In connection with any sale or transfer of Preference
Registrable Securities that will result in such securities no longer being
Preference Registrable Securities, cooperate with the Holders of
Preference Registrable Securities and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Preference Registrable Securities to be sold, which
certificates shall not bear any restrictive legends whatsoever and shall
be in a form eligible for deposit with The Depository Trust Company
("DTC"); and to enable such Preference Registrable Securities to be in
such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such Holders may reasonably
request at least two business days prior to any sale of Preference
Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(v)
above, as promptly as practicable prepare a supplement or amendment,
including if appropriate a post-effective amendment to each Preference
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered,
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(k) Prior to the effective date of a Preference Registration
Statement, (i) provide the registrar for the Preference Warrants and
Preference Registrable Securities with certificates for such securities in
a form eligible for deposit with DTC and (ii) provide CUSIP numbers for
such securities.
(l) Enter into such agreement (including an underwriting agreement
in such form, scope and substance as is customary in underwritten
offerings) and take all such other reasonable actions in connection
therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority of the Preference
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Preference Registrable Securities, and, 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 Preference
Registrable Securities and the underwriter or underwriters, if any, with
respect to the business of the Company and the subsidiaries of the Company
(including with respect to businesses or assets acquired or to be acquired
by any of them), and the Preference Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings, and confirm the
same if any when
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requested; (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, addressed
to each selling Holder of Preference Registrable Securities and each of
the underwriters, if any), covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by such underwriters; (iii) use their best efforts
to obtain customary "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the Preference Registration Statement), addressed (where
reasonably possible) to each of the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings; (iv)
if an underwriting agreement is entered into, the same shall contain
customary indemnification provisions and procedures no less favorable to
the Selling Holders and the underwriters, if any, than those set forth in
Section 5 hereof (or such other provisions and procedures acceptable to
Holders of a majority of Preference Registrable Securities covered by such
Preference Registration Statement and the managing underwriter, if any);
and (v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Preference Registrable
Securities being sold and the managing underwriters or underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) above and evidence compliance with any customary
conditions contained in the underwriting agreement or other agreements
entered into by the Company.
(m) Make available for inspection by a representative of the selling
Holders of Preference Registrable Securities, any underwriter
participating in any such disposition of Preference Registrable
Securities, if any, and any attorney, consultant or accountant retained by
such representative of the selling Holders of Preference Registrable
Securities or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during the reasonable business hours, all financial
and other records, pertinent corporate documents and properties of the
Company and the subsidiaries of the Company (including with respect to
businesses and assets acquired or to be acquired to the extent that such
information is available to the Company), and cause the officers,
directors, agents and employees of the Company and its subsidiaries of the
Company (including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Company)
to supply all information in each case reasonably requested by any such
Inspector in connection with such Preference Registration Statement;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith
designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of
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such information is required by law (including any disclosure
requirements pursuant to U.S. securities laws in connection with the
filing of the Preference Registration Statement or the use of any
Prospectus), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such person or (iv) such information becomes available to
such person from a source other than the Company and its subsidiaries and
such source is not bound by a confidentiality agreement; provided, further
that the foregoing investigation shall be coordinated on behalf of the
selling Holders of Preference Registrable Securities by MGPE.
(n) Comply with all applicable rules, regulations and policies of
the SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder no later than 60 days after the end of any
12-month period (or 135 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter
in which Preference Registrable Securities are sold to an underwriter or
to underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to an underwriter or to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Preference
Registration Statement, which statements shall cover said such period,
consistent with the requirements of Rule 158 under the Securities Act.
(o) Use its best efforts to cause all Preference Warrant Shares
relating to such Preference Registration Statement to be listed on each
securities exchange, if any, on which similar securities issued by the
Company are then listed.
(p) Cooperate with each seller of Preference Registrable Securities
to facilitate the timely preparation and delivery of certificates
representing Preference Registrable Securities to be sold and not bearing
any restrictive legends and registered in such names as the Selling
Holders may reasonably request at least two business days prior to the
closing of any sale of Preference Registrable Securities.
(q) Cooperate with each seller of Preference Registrable Securities
covered by any Preference Registration Statement and each underwriter, if
any, participating in the disposition of such Preference Warrants or
Preference Registrable Securities and its respective counsel in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc.
The Company may require a Holder of Preference Registrable
Securities to be included in a Preference Registration Statement to furnish to
the Company such information regarding (i) the intended method of distribution
of such Preference Registrable Securities (ii) such Holder and (iii) the
Preference Registrable Securities held by such Holder as is required by law to
be disclosed in such Preference Registrable Statement and the Company may
exclude from such
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Registration Statement the Preference Registrable Securities of any Holder who
fails to furnish such information within a reasonable time after receiving such
request.
If any such Preference Registration Statement refers to any Holder
by name or otherwise as the Holder of any securities of the Company, then such
Holder shall have the right to require (i) the insertion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect that
the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not
required by the Securities Act, the deletion of the reference to such Holder in
such amendment or supplement to the Preference Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder of Preference Registrable Securities agrees by
acquisition of such Preference Registrable Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(c)(ii), 4(c)(iv) or 4(c)(v) hereof, such Holder will forthwith
discontinue disposition of such Preference Registrable Securities covered by the
Preference Registration Statement or Prospectus until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
4(j) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and in either case has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus. If the Company
shall give any such notice, the Effectiveness Period shall be extended by the
number of days during such periods from and including the date of the giving of
such notice to and including the date when each seller of Preference Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 4(j)
hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
Holders of the Preference Registrable Securities shall be obligated
to keep confidential the existence of a Suspension Period or any confidential
information communicated by the Company to the Holder with respect thereto.
SECTION 5. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each Purchaser, each Holder, each underwriter, if
any, who participates in an offering of Preference Registrable Securities, their
respective affiliates, and their respective directors, officers, employees,
agents and each Person, if any, who controls any of such parties within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as
follows:
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(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 Preference
Registration Statement (or any amendment thereto) pursuant to which
Preference Registrable Securities 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, in the light of the
circumstances under which they were made, 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, in each case, 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 expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
MGPE), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any court or
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 subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Preference Registration Statement and
corrected or included in a subsequent Prospectus or Preference Registration
Statement or any amendment or supplement thereto made in reliance upon and in
conformity with written information furnished to the Company by the Selling
Holders of Preference Registrable Securities, any Purchaser, any Holder, or any
underwriter expressly for use in the Preference 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 for sales thereunder in accordance with Sections
2.1(b), 2.1(c), 2.3, 2.4 or 2.6 hereof, provided, in each case, that Holders
received prior notice of such suspension or other unavailability.
(b) In the case of any registration of Preference Registrable
Securities, each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, each
16
<PAGE>
Purchaser, each underwriter, if any, who participates in an offering of
Preference Registrable Securities and the other Selling Holders and each of
their respective directors and officers (including each officer of the Company
who signed the Preference Registration Statement) and each Person, if any, who
controls the Company, any Purchaser, any underwriter or any other Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange 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 written information furnished to the Company by such
Holder expressly for use in the Preference Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
provided, however, that no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Preference Warrants and Preference Registrable Securities pursuant to such
Preference Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), 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 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
party or parties be liable for the 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 (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 fees and expenses of
counsel, 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
17
<PAGE>
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.
(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, in such proportion as is appropriate to reflect the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the one hand, and such indemnified party or
parties 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 such indemnifying party or parties or such indemnified party or
parties and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Purchaser and the Holders of the Preference Registrable Securities 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 Selling Holders of Preference
Registrable Securities were treated as one entity, and 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 Securities 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 a Purchaser or Holder within the meaning of
this Section 15 of the Securities Act or Section 20 of the Exchange Act shall
have the same rights to contribution as such Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Preference
Registration Statement, and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company.
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<PAGE>
SECTION 6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, in the Preference Purchase Agreement or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement.
(b) No Inconsistent Agreements. The Company will not enter into any
agreement which is inconsistent with the rights granted to the Holders of
Preference Registrable Securities 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, if any, under
any such agreements.
(c) [Intentionally Omitted].
(d) 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, otherwise than with the prior written consent of the Holders
of not less than a majority of the then outstanding Preference Warrants and each
class and series of Preference Registrable Securities; provided, however, that,
for the purposes of this Agreement, Preference Warrants and Preference
Registrable Securities that are owned, directly or indirectly, by the Company or
any of its affiliates (other than MGPE, the Chase Purchasers and their
affiliates) are not deemed outstanding. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of one or more Holders and that does not
directly or indirectly affect the rights of other Holders may be given by a
majority of the Holders so affected; provided, however, that the provisions of
this sentence may not be amended, modified or supplemented except in accordance
with the provisions of the immediately preceding sentence. Notwithstanding the
foregoing, no amendment, modification, supplement, waiver or consent with
respect to Section 5 shall be made or given otherwise than the prior written
consent of each Person affected thereby.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, facsimile, or any courier guaranteeing delivery by a specific
date (i) if to a Holder, at the most current address of such Holder as set forth
in the register for the Preference Registrable Securities, which address
initially is, with respect to each Purchaser, the address set forth with respect
to such Purchaser in the relevant Preference Purchase Agreement and, in the case
of Darland, to The Darland Trust, c/o Chase Enterprises, Inc., One Commercial
Plaza, Hartford, Connecticut
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06103-3585 Attention: John Redding with a copy to Rothschild Trust Guernsey
Limited, P.O. Box 472, St. Peter's House, Le Bordage, St. Peter's Port,
Guernsey, Channel Islands GY1 6AX, attention D.N. Allison; and (ii) if to the
Company, initially at One Commercial Plaza, Hartford, Connecticut 06103-3585,
Attention: Robert E. Fowler III, and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 6(e), with a
copy to Baker & McKenzie, 815 Connecticut, N.W., Washington, D.C. 20006-4078,
Attention: Marc R. Paul, Esq., facsimile no.: (202) 452-7074, and thereafter at
such other address notice of which is given in accordance with the provisions of
this Section 6(e).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the Business Day scheduled for delivery, if timely delivered to an air
courier guaranteeing delivery by a specific date.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. If any transferee of
any Holder shall acquire Preference Registrable Securities, in any manner,
whether by operation of law or otherwise, such Preference Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Preference Registrable Securities 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 and such Person shall be entitled to receive the
benefits hereof. The Company may not assign any of its rights or obligations
hereunder without the prior written consent of each Holder of Preference
Registrable Securities. Notwithstanding the foregoing, no successor or assignee
of the Company shall have any rights granted under the Agreement until such
person shall acknowledge its rights and obligations hereunder by a signed
written statement of such person's acceptance of such rights and obligations.
(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) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
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<PAGE>
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreements and the Preference Warrant Agreement and the Preference Registration
Rights Agreement, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. This Agreement, the Preference Purchase
Agreement and the Preference Warrant Agreement supersede all prior agreements
and understandings between the parties with respect to such subject matter.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Preference
Registrable Securities is required hereunder, Preference Registrable Securities
held by the Company or by any of its affiliates (as such term is defined in Rule
405 under the Securities Act) (other than MGPE, the Chase Purchasers and their
affiliates) shall not be counted (in either the numerator or the denominator) in
determining whether such consent or approval was given by the Holders of such
required percentage.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
@ ENTERTAINMENT, INC.
By: /s/ ROBERT E. FOWLER, III
------------------------
TITLE: CHIEF EXECUTIVE OFFICER
By: /s/ DONALD MILLER JONES
------------------------
TITLE: CHIEF FINANCIAL OFFICER
Confirmed and accepted as of the date first above written:
MORGAN GRENFELL PRIVATE EQUITY LIMITED
By: /s/
------------------------
Name:
Title:
/s/
------------------------
Arnold Chase
/s/
------------------------
Cheryl Chase
/s/
------------------------
Rhoda Chase
THE DARLAND TRUST
By: /s/
------------------------
Name:
Title:
<PAGE>
Exhibit 4.15
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A 12% CUMULATIVE PREFERENCE SHARES AND SERIES B 12%
CUMULATIVE PREFERENCE SHARES
of
@ ENTERTAINMENT, INC.
Pursuant to Section 151 of the General Company Law
of the State of Delaware
We, the undersigned, the Chief Executive Officer and Treasurer of @
Entertainment, Inc., a Delaware corporation (hereinafter called the "Company"),
pursuant to the provisions of Sections 103 and 151 of the General Corporation
Law of the State of Delaware, do hereby make this Certificate of Designations
and do hereby state and certify that pursuant to the authority expressly vested
in the Board of Directors of the Company (the "Board") by the Certificate of
Incorporation, the Board duly adopted the following resolutions:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation which authorizes 20,002,500 shares of preferred stock, $0.01 par
value ("Preference Shares"), the Board hereby fixes the powers, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of two series of Preference
Shares.
RESOLVED, that each share of such series of Preference Shares shall rank
equally in all respects (subject to the exceptions described herein) and shall
be subject to the following provisions:
1. Number and Designation. Five hundred thousand (500,000) shares of the
Preference Shares of the Company shall be designated as Series A 12% Cumulative
Preference Shares (the "Series A Cumulative Preference Shares"); and five
hundred thousand (500,000) shares of the Preference Shares of the Company shall
be designated as Series B 12% Cumulative Preference Shares (the "Series B
Cumulative Preference Shares," and, together with the Series A Cumulative
Preference Shares, the "Cumulative Preference Shares")
2. Rank. The Cumulative Preference Shares will rank (i) senior to the
common stock of the Company (the "Common Stock") and to each other class of
capital stock or series of Preference Shares of the Company established after
the date
<PAGE>
hereof, the terms of which expressly provide that such class or series will rank
junior as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company (collectively referred to with the
Common Stock as "Junior Securities"); (ii) on a parity with each other class of
capital stock or series of Preference Shares issued by the Company the terms of
which expressly provide that such class or series will rank on a parity with the
Cumulative Preference Shares as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Securities"), and (iii) junior to each other class of
capital stock or series of Preference Shares issued by the Company the terms of
which expressly provide that such class or series will rank senior to the
Cumulative Preference Shares as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (any such series of
preference shares, collectively referred to as "Senior Securities"). The
Cumulative Preference Shares are junior to all liabilities and obligations
(whether or not for borrowed money) of the Company, except where liabilities to
holders of Cumulative Preference Shares are actual liabilities of the Company
(in which case they will rank equal with liabilities of other unsecured
debtors). The respective definitions of Junior Securities, Parity Securities or
Senior Securities shall also include any rights or options exercisable for or
convertible into any of the Junior Securities, Parity Securities or Senior
Securities, as the case may be. The Cumulative Preference Shares shall be
subject to the creation of Junior Securities, Parity Securities and Senior
Securities.
3. Dividends. (a) The holders of Cumulative Preference Shares shall be
entitled to receive, when, as and if declared by the Board, out of funds legally
available therefor, preferential cash dividends at the rate of 12% of the
initial liquidation preference per annum per share. The initial liquidation
preference is $1,000.00 (one thousand dollars) per share (the "Initial
Liquidation Preference"). The right to dividends on the Cumulative Preference
Shares will be cumulative (whether or not earned or declared) from January 27,
1999 and will, to the extent not paid, bear additional cumulative dividends.
Such dividends shall be cumulative from the date of issue, whether or not in any
Dividend Period or Periods there shall be funds of the Company legally available
for the payment of such dividends. All accumulated and unpaid dividends on the
Initial Liquidation Preference shall compound semi-annually at the annual
dividend rate of 12% from the preceding Dividend Payment Date (from the date of
original issuance in the case of the first dividend period). Such dividends
(whether or not earned or declared) will cumulate on a daily basis from the
original issue date and will be payable in arrears in equal
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amounts semi-annually on March 31 and September 30 of each year, commencing on
March 31, 1999 (each of such dates a "Dividend Payment Date" and each
semi-annual period being a "Dividend Period") to holders of record on the
fifteenth day immediately preceding the relevant Dividend Payment Date. The
Initial Liquidation Preference plus any accumulated and unpaid dividends are
referred to herein as "Accreted Liquidation Preference." In addition, the
Cumulative Preference Shares will have a dividend preference in respect of any
accumulated and unpaid cash dividends thereon over unpaid dividends accrued on
the Junior Securities until such dividends on the Cumulative Preference Shares
are paid in full in cash.
Accrued and unpaid dividends for any past Dividend Periods may be declared
and paid at any time, without reference to any Dividend Payment Date, to holders
of record on such date, not more than 45 days preceding the payment date
thereof, as may be fixed by the Board.
(b) Dividends payable for each full Dividend Period for the Cumulative
Preference Shares shall be computed by dividing the annual rate by two. The
amount of dividends payable for the initial Dividend Period, or any other period
shorter or longer than a full Dividend Period, on the Cumulative Preference
Shares shall be computed on the basis of twelve 30-day months and a 360-day
year. Holders of Cumulative Preference Shares shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
dividends, as herein provided, on the Cumulative Preference Shares.
(c) So long as any Cumulative Preference Shares are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Parity Securities for any period
unless (a) in each case (i) full cumulative dividends have been or
contemporaneously are declared and paid in full in cash or declared and (ii) a
sum sufficient for the payment thereof set apart for such payment on the
Cumulative Preference Shares for all Dividend Periods terminating on or prior to
the date of payment of the dividend on such class or series of Parity
Securities, or (b) unless approved by the holders of at least 66 2/3% of the
Cumulative Preference Shares. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon the Cumulative Preference Shares and all dividends declared upon
any other Parity Securities shall be declared ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the Cumulative
Preference Share and accumulated and unpaid on such Parity Securities.
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<PAGE>
(d) So long as any shares of the Cumulative Preference Shares are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Securities) shall be declared or paid or funds set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, repurchased or otherwise retired, nor may funds be set
apart for payment with respect thereto (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Company, directly or indirectly (except by conversion into or exchange for
Junior Securities), unless (a) in each case (i) the full cumulative dividends on
all outstanding shares of the Cumulative Preference Shares and any other Parity
Securities shall have been paid or set apart for payment for all past Dividend
Periods with respect to the Cumulative Preference Share and all past dividend
periods with respect to such Parity Securities and (ii) sufficient funds shall
have been paid or set part for the payment of the dividend for the current
Dividend Period with respect to the Cumulative Preference Share and the current
dividend period with respect to such Parity Securities or (b) unless approved by
the holders of at least 66 2/3% of Cumulative Preference Shares.
(e) If (i) any dividend (or portion thereof) payable on any Dividend
Payment Date after March 31, 2004 is not declared or paid in full in cash on
such Dividend Payment Date, (ii) the Company fails to pay at the final stated
maturity (giving effect to any extensions thereof) the principal amount of any
Indebtedness (as defined in the Indentures) of the Company, or the final stated
maturity of such Indebtedness is accelerated, if the aggregate principal amount
of such Indebtedness that is in default for failure to pay principal at the
final stated maturity (giving effect to any extensions thereof) or that has been
accelerated, aggregates $25 million or more at any time, (iii) the Company fails
to comply for 30 days with its obligations described in paragraph 8 and fails to
cure such non-compliance within 30 days of receipt of notice from any holder of
Cumulative Preference Shares, or (iv) a Shelf Registration Statement (as such
term is defined in the Preference Registration Rights Agreement dated January
27, 1999 between the Company and the initial holders of the Cumulative
Preference Shares) covering the resale of the Cumulative Preference Shares (x)
is not declared effective on or before July 7, 1999 or (y) is unavailable during
any 360-day period for a period of more than 60 consecutive days or two periods
of more than an aggregate of 90 days, the rate at which dividends shall accrue
on the Cumulative Preference Shares shall increase to an annual rate of 13% of
the Accreted Liquidation
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<PAGE>
Preference per share of Cumulative Preference Shares; provided however that such
annual rate of 13% shall only apply during the period that begins on the date on
which the deficiency described in (i), (ii), (iii) or (iv) has occurred and
until the Company has cured the deficiency under (i), (ii), (iii) or (iv) of
this paragraph 3(e), as the case may be.
4. Liquidation Preference. (a) In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
before any payment or distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of Junior Securities,
the holders of the Cumulative Preference Shares shall be entitled to receive out
of the assets of the Company available for distribution, $1,000.00 (one thousand
dollars) per share of Cumulative Preference Shares (the "Initial Liquidation
Preference") plus an amount in cash equal to all dividends accrued and unpaid
thereon to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If, upon liquidation, dissolution
or winding up of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of the Cumulative Preference Shares shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of the Cumulative Preference Shares and
any such other Parity Securities ratably in accordance with the respective
amounts that would be payable on such Cumulative Preference Shares and any such
other stock if all amounts payable thereon were paid in full. For the purposes
of this paragraph 4, (i) a consolidation or merger of the Company with or into
one of more corporations or other entities, or (ii) a sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the Company's property or assets, shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or involuntary
of the Company.
(b) Subject to the rights of the holders of any Parity Securities, after
payment shall have been made in full to the holders of the Cumulative Preference
Shares, as provided in this paragraph 4, any other series or class or classes of
Junior Securities shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the Cumulative Preference Shares shall not be
entitled to share therein.
5
<PAGE>
5. Redemption. (a) On January 30, 2010 (the "Mandatory Redemption Date"),
the Company will be required, to the extent the Company shall have funds legally
available for such payment, to redeem all outstanding Cumulative Preference
Shares at a redemption price equal to the Initial Liquidation Preference,
together with all accumulated and unpaid dividends thereon (if any) to the date
fixed for redemption. The Company will not be required to make sinking fund
payments with respect to the Cumulative Preference Shares.
(b) To the extent the Company shall have funds legally available for such
payment, the Company may, but shall not be required to, redeem in US Dollars for
cash the Cumulative Preference Shares at any time on or after March 31, 2000, in
whole or in part, at a redemption price of 112% of the sum of (i) the Initial
Liquidation Preference and (ii) accumulated and unpaid dividends (if any)
thereon to such date. No optional redemption may be authorized unless on or
prior to such redemption full unpaid cumulative dividends shall have been paid
or a sum shall have been set apart for such payment on the Cumulative Preference
Shares. In the case of an optional redemption, the Cumulative Preference Shares
to be redeemed will be redeemed on a pro rata basis (or on as nearly a pro rata
basis as practicable).
(c) Holders of the Cumulative Preference Shares will not be able to
require the Company to redeem the Cumulative Preference Shares prior to the
Mandatory Redemption Date unless all senior indebtedness of the Company then
outstanding under the Indentures shall have been redeemed. If, pursuant to the
preceding sentence, the holders of the Cumulative Preference Shares are allowed
to require the Company to redeem the Cumulative Preference Shares prior to the
Mandatory Redemption Date, they may do so only (i) in the event that there
occurs a Change in Control of the Company, as such term is defined in any of the
Indentures, (ii) with the proceeds from certain asset sales of over $25 million
(in the event that the Company does not use such proceeds as described in
"Limitation on Sale of Assets", as such limitation is described in any of the
Indentures) or (iii) when all bank indebtedness then outstanding and all senior
indebtedness then outstanding pursuant to the Indentures of the Company is
redeemed or repaid. Notwithstanding Paragraph 6 herein and in the event that the
terms and conditions in both of the preceding sentences are satisfied for
causing a redemption of the Cumulative Preference Shares, then the Company shall
within 15 days after the date of event that gives rise to such redemption
obligation mail written notice to all of the holders of record of the Cumulative
Preference Shares indicating that such holders may request that their shares be
redeemed and indicating a record date for such redemption, which date shall
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<PAGE>
not be less than 45 nor more than 75 days after the date of such notice. After
receipt of such notice, a holder of record may require that the Company redeem
his Cumulative Preference Shares by providing the Company with a written
response not more than 15 days after the date of such notice and such written
response shall provide the number of shares of Cumulative Preference Shares that
such holder proposes to tender for redemption. The Company shall, not more than
75 days after the date of its notice to holders, cause the redemption to occur,
to the extent that the Company shall have funds legally available for such
payment in full.
(d) Cumulative Preference Shares which have been issued and reacquired in
any manner, including shares purchased or redeemed, shall (upon compliance with
any applicable provisions of the laws of the State of Delaware) have the status
of unauthorized and unissued shares of the class of Preference Shares
undesignated as to series and may be redesignated and reissued as part of any
series of the Preference Shares; provided that no such issued and reacquired
shares of Cumulative Preference Shares shall be reissued or sold with the same
rights as the Cumulative Preference Shares, expect in compliance with the
provisions hereof.
(e) If the Company is unable or shall fail to discharge its obligation to
redeem all outstanding shares of Cumulative Preference Share pursuant to
paragraph 5(a) (the "Mandatory Redemption Obligation"), the Mandatory Redemption
Obligation shall be discharged as soon as the Company is able to discharge such
Mandatory Redemption Obligation. If and so long as any Mandatory Redemption
Obligation with respect to the Cumulative Preference Shares shall not be fully
discharged, the Company shall not (i) directly or indirectly, redeem, purchase,
or otherwise acquire any Parity Security or discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of any Parity
Securities (except in connection with a redemption, sinking fund or other
similar obligation to be satisfied pro rata with the Cumulative Preference
Shares) or (ii) in accordance with paragraph 3(d), declare or make any Junior
Securities Distribution, or, directly or indirectly, discharge any mandatory or
optional redemption, sinking fund or other similar obligation in respect of the
Junior Securities.
6. Procedure for Redemption. (a) In the event that fewer than all the
outstanding Cumulative Preference Shares are to be redeemed, the number of
shares to be redeemed shall be determined by the Board and the shares to be
redeemed shall be selected by lot or pro rata (with any fractional shares being
rounded to the nearest whole share) as may be determined by the Board.
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<PAGE>
(b) Except as otherwise provided in paragraph 5(c) herein, in the event
the Company shall redeem Cumulative Preference Shares, notice of such redemption
shall be given by first class mail, postage prepaid, mailed not less than 30
days nor more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed at such holder's address as the same appears
on the stock register of the Company on the date of such mailing; provided that
neither the failure to give such notice nor any defect therein shall affect the
validity of the giving of notice for the redemption of any of the Cumulative
Preference Shares to be redeemed except as to the holder to whom the Company has
failed to give said notice or except as to the holder whose notice was
defective. Each such notice shall state: (i) the redemption date; (ii) the
number of Cumulative Preference Shares to be redeemed and, if fewer than all the
shares held by such holder are to be redeemed, the number of shares to be
redeemed from such holder; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date.
(c) Notice having been mailed as aforesaid, from and after the redemption
date (unless the Company defaults in the payment of the redemption price of the
shares called for redemption), dividends on the Cumulative Preference Shares so
called for redemption shall cease to accrue, and all rights of the holders of
such Cumulative Preference Shares (except the right to receive from the Company
the redemption price) shall cease. Upon surrender in accordance with said notice
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of the Company shall so require and the notice shall
so state), such share shall be redeemed by the Company at the redemption price
aforesaid. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued, representing the unredeemed
shares without cost to the holder thereof.
7. Voting Rights (a) The holders of record of Cumulative Preference Shares
shall not be entitled to any voting rights except as hereinafter provided in
this paragraph (7) or as otherwise provided by law.
(b) The holders of at least 66 2/3% of the then outstanding Cumulative
Preference Shares, voting as a single class, must affirmatively approve or
consent to any resolution which proposes to (i) authorize, create (by way of
reclassification or otherwise) or issue or designate any class of Senior
Securities or Parity Securities or
8
<PAGE>
any obligation or security convertible or exchangeable into or evidencing the
right to purchase, shares of any class or series of Senior Securities or Parity
Securities, (ii) waive compliance with any provision of this Certificate of
Designation (except for such provisions which require the consent or approval of
all holders of the Cumulative Preference Shares) or (iii) repurchase, redeem or
otherwise retire, set aside funds for payment (except as provided below with
respect to the payment of dividends) with respect to any Junior Securities or
Parity Securities at any time if any Cumulative Preference Shares are
outstanding (except if such Junior Securities are repurchased, redeemed or
otherwise retired solely in exchange for other Junior Securities, and/or except
if such Parity Securities are repurchased, redeemed or otherwise retired solely
in exchange for other Parity Securities).
(c) All holders of the outstanding shares of Cumulative Preference Shares,
voting as a single class, must affirmatively approve or consent to any
resolution which proposes to modify, change, affect or amend in any manner the
economic or ranking provisions of the Cumulative Preference Shares so as to
adversely affect the rights, preferences or privileges of the Cumulative
Preference Shares.
(d) The holders of the Series A Cumulative Preference Shares shall have
the right to appoint two directors to the Board (such directors referred to
herein as the "Series A Directors") so long as the holders of the Series A
Cumulative Preference Shares hold at least 30% of the Cumulative Preference
Shares (including the Series B Cumulative Preference Shares) and at least 30% of
the sum of the outstanding Preference Warrants and the shares of Common Stock
issued upon exercise of any Preference Warrants.
(e) A majority of the Board of the Company, including at least one of the
two Series A Directors, must approve the following resolutions before they can
become effective and binding on the Company: (a) any resolution to reduce the
capital of the Company by way of a reduction of capital paid up on the
Cumulative Preference Shares, to vary or abrogate any of the rights attaching to
the Cumulative Preference Shares, including any resolution for the creation or
issuance of any class or series of shares ranking prior to or on a parity with
the Cumulative Preference Shares with respect to dividends or the distribution
of assets on a winding-up or liquidation of the Company, (b) any resolution
proposing the liquidation, winding-up or reorganization of the Company, or the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the
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<PAGE>
property or assets of the Company or the consolidation or merger of the Company
with or into one or more corporations or other entities, (c) any resolution to
sell, assign, convey, lease, transfer or otherwise dispose of assets or property
of the Company if the value of such disposed assets of property is more that $25
million (other than in the case of any such disposition by the Company or any
Restricted Subsidiary to any Restricted Subsidiary or by any Restricted
Subsidiary to the Company), (d) any resolution to sell, assign, convey, or
transfer, or otherwise dispose of the capital stock of any of the Significant
Subsidiaries (as defined in the Indentures) if the value of such capital stock
is more than $10 million (other than in the case of any such disposition by the
Company or any Restricted Subsidiary to any Restricted Subsidiary or by any
Restricted Subsidiary to the Company), (e) any resolution or resolutions
proposing to incur senior bank indebtedness or unsubordinated indebtedness which
alone or in aggregate amount to $125 million or more, (f) any resolution
proposing the declaration of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary, or (g) any resolution proposing to
materially alter the stated maturity of the senior unsubordinated debt
outstanding under the Indentures or the terms of the restrictive covenants of
the Indentures.
(f) If the holders of the Series A Cumulative Preference Shares cease to
hold at least 30% of the Company's Cumulative Preference Shares (including
Series B Cumulative Preference Shares), and at least 30% of the sum of the
outstanding Preference Warrants and the shares of Common Stock issued upon
exercise of any Preference Warrants, the rights of the holders of the Series A
Cumulative Preference Shares set forth in paragraphs (d) and (e) above will
terminate forever.
(g) In exercising the voting rights set forth in this paragraph 7, each
share of Cumulative Preference Shares shall have one vote per share, except that
when any other series of Preference Shares shall have the right to vote with the
Cumulative Preference Shares as a single class on any matter, the Cumulative
Preference Shares and such other series shall have with respect to such matters
one vote per $1,000 of stated liquidation preference. Except as otherwise
required by applicable law or as set forth herein, the shares of Cumulative
Preference Shares shall not have any relative, participating, optional or other
special voting rights and powers and the consent of the holders thereof shall
not be required for the taking of any corporate action.
10
<PAGE>
(h) If the holders of the Series A Cumulative Preference Shares sell,
transfer, pledge, dispose or encumber in any manner any Series A Cumulative
Preference Shares, such Series A Cumulative Preference Shares will be
automatically converted on a share-for-share basis into Series B Cumulative
Preference Shares. The Series B Cumulative Preference Shares shall have
substantially identical rights and preferences as the Series A Cumulative
Preference Shares, except that the Series B Cumulative Preference Shares will
not have any of the rights set forth in paragraphs (d) and (e) above.
(i) If the Company fails to fulfill any mandatory or optional redemption
obligation with respect to the Cumulative Preference Shares, the number of
directors constituting the Board will be increased by two directors, and the
holders of Series A Cumulative Preference Shares and Series B Cumulative
Preference Shares, voting as a single class, will be entitled to elect the two
additional directors to the Board. Such right will continue until such time as
the Company has cured the deficiency described above. Any vacancy occurring in
the office of a director elected by holders of the Cumulative Preference Shares
may be filled by the remaining director elected by such holders unless and until
such vacancy shall be filled by such holders.
8. Reports. The Company shall provide to MGPE and to any other holder of
the Cumulative Preference Shares from whom it receives a written request, the
same information (including financial statements) that is contained in reports
and other information which the Company is required to file with the Commission
by Sections 13(a) or 15(d) under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act").
9. General Provisions. (a) The term "Person" as used herein means any
company, limited liability company, partnership, trust organization,
association, other entity or individual.
(b) The term "Indentures" shall mean any of the following to the extent
then still in effect: the Indenture dated as of January 27, 1999 between Bankers
Trust Company, as Trustee, and @ Entertainment, Inc., the Indenture dated as of
January 20, 1999 between Bankers Trust Company, as Trustee, and @ Entertainment,
Inc., the Indenture dated as of July 14, 1998 between Bankers Trust Company, as
Trustee, and @ Entertainment, Inc. and the Indenture dated as of October 31,
1996 between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc.
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<PAGE>
(c) The term "Preference Warrants" shall mean those warrants to purchase
Common Stock issued by the Company to the holders of the Cumulative Preference
Shares pursuant to that certain Preference Warrant Agreement dated January 27,
1999.
(d) The term "outstanding", when used with reference to shares of stock,
shall mean issued shares, excluding shares held by the Company or a subsidiary
of the Company.
(e) The term "Restricted Subsidiary" shall have the meaning given it in
any of the Indentures.
(f) The term "MGPE" shall mean Morgan Grenfell Private Equity Limited.
(g) The headings of the paragraphs, subparagraphs, clauses and subclauses
of this Certificate of Designations are for convenience of reference only and
shall not define, limit or affect any of the provisions hereof.
(h) Each holder of Cumulative Preference Shares, by acceptance thereof,
acknowledges and agrees that payments of dividends, interest, premium and
principal on, and exchange, redemption and repurchase of, such securities by the
Company are subject to restrictions on the Company contained in certain credit
and financing agreements.
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<PAGE>
IN WITNESS WHEREOF, @ Entertainment, Inc. has caused this Certificate of
Designations to be signed and attested by the undersigned this 27th day of
January, 1999.
@ ENTERTAINMENT, INC.
By: /s/ Robert E. Fowler, III
------------------------------
Name: Robert E. Fowler, III
Title: Chief Executive Officer
By: /s/ Donald Miller-Jones
------------------------------
Name: Donald Miller-Jones
Title: Treasurer
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<PAGE>
Exhibit 10.2
@ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $.01 EACH)
UNDERWRITING AGREEMENT
(U.S. VERSION)
July [ ], 1997
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters,
up to ......... additional shares (the "Optional Shares") of Common Stock,
par value $.01 each ("Stock"), of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of ........
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International
and Merrill Lynch International are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages and amendments thereto as mentioned below. Except as used in
Sections 2, 3, 4, 9 and 11 herein, and except as the context may otherwise
require, references hereinafter to the Shares shall include all the shares of
Stock which may be sold pursuant to either this Agreement or the International
Underwriting Agreement, and references
<PAGE> 2
herein to any prospectus whether in preliminary or final form, and whether as
amended or supplemented, shall include both the U.S. and the international
versions thereof.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any pre-effective or post-effective
amendments thereto, each in the form heretofore delivered to you, and,
excluding exhibits thereto, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Act"), which became effective
upon filing, no other document with respect to the Initial Registration
Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the time
it was declared effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, each as amended
at the time such part of the registration statement became effective, are
hereinafter collectively called the "Registration Statement"; such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act,
is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this
2
<PAGE> 3
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the capital stock or consolidated long-term or short-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"), otherwise
than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title
to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not result in a Material Adverse Effect; and any real property
and buildings held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in
the Prospectus;
(h) This Agreement and the International Underwriting Agreement has
been duly authorized, executed and delivered by the Company;
(i) Each subsidiary of the Company that (i) is a "significant
subsidiary" (as that term is defined in Regulation S-X under the 1933 Act)
or (ii) that holds any valid Permits (as such term is defined in the
Prospectus) is listed on Schedule II hereto (each subsidiary listed on
Schedule II hereto is hereinafter referred to as a "Designated Subsidiary"
and, collectively, the "Designated Subsidiaries"), and has been duly
organized and is validly existing as a corporation under the laws of the
jurisdiction of its incorporation, has corporate power and corporate
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is not required to be
qualified as a foreign corporation to transact
3
<PAGE> 4
business or to own or lease property in any jurisdiction where it owns or
leases property or transacts business; all of the issued and outstanding
capital stock of each Designated Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable (except, in the case of
any Polish limited liability company, any statutory liability for taxes)
and, except as otherwise disclosed in the Prospectus, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except for
(i) the pledge of o shares of Polska Telewizja Kablowa - Warszawa S.A. and
of o shares of Polska Telewizja Kablowa - Krakow S.A. held by Poland
Cablevision (Netherlands) B.V. ("PCBV") and of o shares of Polska
Telewizja Kablowa - Lublin S.A. held by Poltelkab Sp z o.o. as security
for the loan of $o granted on August 28, 1996 by the American Bank in
Poland to Poland Communications, Inc. ("PCI") and (ii) the pledge of
shares of Polska Telewizja Kablowa S.A. held by PCBV as security for the
loan of $o granted on o by [OPIC] to [PCI] (collectively, the "Share
Pledges"); none of the outstanding shares of capital stock of the
Designated Subsidiaries was issued in violation of any preemptive or
similar rights arising by operation of law, or under the statute or
by-laws (or other similar organizational documents) of any Designated
Subsidiary or under any agreement to which the Company or any Designated
Subsidiary is a party. The subsidiaries of the Company other than the
Designated Subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X;
(j) There are no restrictions (legal, contractual or otherwise) on
the ability of the Designated Subsidiaries to declare and pay dividends or
make any payment or transfer of property or assets to their shareholders
other than those referred to in the Prospectus and except for restrictions
relating to the Share Pledges and the pledge of certain assets of [GOSAT]
as security for the loan of $- granted on May 18, 1993 by Polski Bank
Rozwoju to [PCI] (the "Asset Pledge" and, together with the Share Pledges,
the "Pledges");
(k) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the
Stock contained in the Prospectus;
(l) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws (or other
similar organizational documents) of the Company or any of its
subsidiaries or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of the Shares, the
4
<PAGE> 5
quotation of the Shares on the National Association of Securities Dealers
Automated Quotations National Market System ("NASDAQ") and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters and
the International Underwriters;
(m) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws (or other similar
organizational documents) or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, except as otherwise disclosed in the
Prospectus and except for such defaults that would not result in a
Material Adverse Effect;
(n) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, under the captions "U.S. Federal Income
Tax Considerations", "Regulation", "Certain Relationships and Related
Transactions", "Shares Eligible for Future Sale" and "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(o) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others. The aggregate of all
pending legal or governmental proceedings to which the Company or any
subsidiary thereof is a party or of which any of their respective property
or assets is the subject which are not described in the Prospectus,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries;
(p) No labor dispute with the employees of the Company or any of its
subsidiaries exists or is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any of its subsidiaries' principal suppliers, customers or contractors,
which, in either case, may reasonably be expected to result in a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(q) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(r) The Company has not been in any prior taxable year, and, based on
its understanding and estimates of its income and receipts, will not be
for the taxable year that includes the offering a "personal holding
company" within the meaning of Section 542 of the Internal Revenue Code of
1986, as amended.
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<PAGE> 6
(s) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(t) The financial statements, together with the related schedules and
notes, of the Company and its consolidated subsidiaries included in the
Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Prospectus present fairly in accordance with GAAP the
information required to be stated therein. The selected consolidated
financial data and the summary consolidated financial data included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the unaudited interim
consolidated financial statements and the audited consolidated financial
statements included in the Prospectus;
(u) Except as otherwise disclosed in the Prospectus, the Company and
each of its subsidiaries own or possess, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them. Neither the Company nor any of its subsidiaries has
received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding)
or invalidity or inadequacy, singly or in the aggregate, would result in a
material adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries;
(v) Except as otherwise disclosed in the Prospectus, the Company and
each of its subsidiaries possess such permits, licenses, approvals,
concessions, consents and other authorizations (including, without
limitation, all permits required for the operation of the business of the
Company and each of its subsidiaries by the Republic of Poland and the
United Kingdom) issued by the appropriate domestic or foreign regulatory
agencies or bodies, other governmental authorities or self regulatory
organizations (collectively, the "Licenses") necessary to conduct the
business now operated by them or any business currently proposed to be
conducted by them; the Company and each of its subsidiaries are in
compliance with the terms and conditions of all such Licenses; all of the
Licenses are valid and in full force and effect; and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Licenses. There
exists no reason or cause that could justify the variation, suspension,
cancellation or termination of any such Licenses held by the Company or
any of its subsidiaries with respect to the construction or operation of
their respective businesses. In so far as the Company currently does not
possess the Licenses necessary to conduct its business in certain areas
where it currently operates cable systems, the Company is either (i)
applying for the necessary Licenses or (ii) making the necessary
investments which will enable it to obtain the necessary Licenses, and in
each case, the Company has no reason to believe that
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<PAGE> 7
such Licenses will not be granted, and further, the Company has no reason
to believe that the operations for which it currently does not possess the
necessary Licenses will suffer a Material Adverse Effect by reason of them
not possessing such necessary Licenses;
(w) The Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith and
by appropriate proceedings; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(t) above in respect of all domestic and foreign taxes for all periods as
to which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities.
As of the date hereof, no material income, stamp or other taxes or
levies, imposts, deductions, charges, compulsory loans or withholdings
whatsoever are or will be, under applicable law in the Republic of Poland,
imposed, assessed, levied or collected by the Republic of Poland or any
political subdivision or taxing authority thereof or therein on or in
respect of principal, interest, premiums, penalties or other amounts
payable under any indebtedness of any of the Company's subsidiaries;
(x) (i) Neither the Company nor any of its subsidiaries is in
violation of any statute, law, rule, regulation, ordinance, code, policy
or rule of common law or any judicial or administrative interpretation
thereof including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (ii) the Company
and its subsidiaries have all permits, authorizations and approvals, if
any, required under any applicable Environmental Laws and are each in
compliance with their requirements, (iii) there are no pending or
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (iv) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws;
(y) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
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<PAGE> 8
The Company and its subsidiaries have not made, and, to the knowledge of
the Company, no employee or agent of the Company or any subsidiary has
made, any payment of the Company's funds or any subsidiary's funds or
received or retained any funds (i) in violation of the Foreign Corrupt
Practices Act, as amended, or (ii) in violation of any other applicable
law, regulation or rule; and
(z) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses or similar industries.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ............ Optional Shares, at the purchase price per
share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in same day
funds. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on
............., 1997 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional
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<PAGE> 9
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co.
in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(o) hereof, will be delivered at the offices of Shearman &
Sterling, 199 Bishopsgate, London, EC2M 3TY, England (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at .......p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Agreement, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof;
to advise you, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus or suspending any such qualification, promptly to
use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as
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<PAGE> 10
you may reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the time
of issue of the Prospectus in connection with the offering or sale of the
Shares and if at such time any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in
order to comply with the Act, to notify you and upon your request to
prepare and furnish without charge to each Underwriter and to any dealer
in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which
will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection
with sales of any of the Shares at any time nine months or more after the
time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder and under the International Underwriting Agreement, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any
such substantially similar securities (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent; and to cause (i) each of
Messrs. Robert E. Fowler, III, John S. Frelas, George Makowski, Przemyslaw
Szmyt and David Warner (each a "Manager") to furnish to the Company and to
the Underwriters, prior to the First Time of Delivery, a letter or letters
(the "Lock-up Letters"), in form and substance satisfactory to counsel to
the Underwriters, pursuant to which such Manager shall agree not to offer,
sell, contract to sell or otherwise dispose of, any securities of the
Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for,
or that represent the right to receive, Stock or any such substantially
similar securities, without your prior written consent, during the period
beginning from the date hereof and continuing to and including the date
728 days (two years) after the date of the Prospectus, and (ii) each
shareholder of the Company (other than the Managers) and each holder of
options or warrants in securities of the Company to furnish to the Company
and to the Underwriters, prior to the First Time of Delivery, a Lock-up
Letter, in form and substance satisfactory to counsel to the Underwriters,
pursuant to which such shareholder shall agree not to offer, sell,
contract to sell or otherwise dispose of, any securities of the Company
that are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than upon the conversion or exchange of convertible or
exchangeable securities outstanding as of the date of this Agreement),
without your prior written
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<PAGE> 11
consent, during the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use
of Proceeds";
(i) To use its best efforts to list for quotation the Shares on
NASDAQ;
(j) [For all tax years commencing after the latest Time of Delivery],
to take such reasonable steps as may be necessary in any year to avoid it
becoming a "personal holding company" within the meaning of Section 542 of
the Internal Revenue Code, as amended;
(k) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
(l) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing either
pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum,
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<PAGE> 12
closing documents (including compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on NASDAQ; (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; (viii) all costs and fees incurred by the Company and the
Underwriters in connection with any roadshows; and (ix) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have been filed and become
effective by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission;
and all requests for additional information on the part of the Commission
shall have been complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect
to the matters covered in paragraphs (i), (ii), (viii), (xiii), and
(xviii) of subsection (d) below as well as such other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Salans Hertzfeld & Heilbronn, special Polish counsel for the
Underwriters, shall have furnished to you their written opinion (a draft
of such opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each Polish Designated Subsidiary has been duly
incorporated and is validly existing as a corporation under the laws
of the Republic of Poland, has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and is not required to be qualified as a
foreign corporation to transact business or to own or lease property
in any jurisdiction where it owns or leases property or transacts
business; all of the issued and outstanding capital stock of each
Polish Designated Subsidiary has been duly authorized and validly
issued, is
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<PAGE> 13
fully paid and non-assessable (except, in the case of any Polish
limited liability company, any statutory liability for taxes) and,
except as otherwise disclosed in the Prospectus, is owned by the
Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity;
(ii) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent it
constitutes matters of law, summarizes legal matters or legal
proceedings, has been reviewed by them and is correct in all
material respects; and
(iii) The execution, delivery and performance of this Agreement
and the International Underwriting Agreement, the issuance and sale
of the Shares being delivered at such time of delivery by the
Company and the consummation of the transactions herein and therein
contemplated will not result in any violation of the provisions of
the statutes or by-laws (or other similar organizational documents)
of any Polish Designated Subsidiary, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, of any
government, government instrumentality or court having jurisdiction
over the Company or any of its Polish Designated Subsidiaries or any
of their respective properties, assets or operations.
In rendering such opinion, such counsel may rely as to matters
involving the application of United States federal and New York
State law, upon the opinion of Shearman & Sterling, counsel to the
Underwriters (which opinion shall be delivered to the Underwriters
at each Time of Delivery pursuant to this Agreement). Such counsel
may also rely, to the extent necessary, as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials.
(d) Baker & McKenzie, New York, special counsel for the Company,
shall have furnished to you their written opinion (a draft of such opinion
is attached as Annex II(c) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to
own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except where the failure to so qualify or to be in
good standing would not result in a Material Adverse
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<PAGE> 14
Effect;
(iv) Each U.S. Designated Subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and
all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and issued, are fully paid and
non-assessable, and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act and the Exchange Act of the Shares, the
quotation of the Shares on NASDAQ, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters
and the International Underwriters;
(ix) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws (or other
similar organizational documents) or of any applicable law, statute,
rule, regulation, judgment,
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<PAGE> 15
order, writ or decree of any government, government instrumentality
or court having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except as
described in the Prospectus, or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, license, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound;
(x) There are no restrictions (legal, contractual or otherwise)
on the ability of the U.S. Designated Subsidiaries to declare and
pay dividends or make any payment or transfer of property or assets
to their shareholder other than those referred to in the Prospectus;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the captions
"U.S. Federal Income Tax Considerations", "Certain Relationships and
Related Transactions", "Shares Eligible for Future Sale" and
"Underwriting", insofar as they purport to describe the provisions
of the laws and documents referred to therein, are accurate,
complete and fair;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined
in the Investment Company Act;
(xiii) The Company has not been a "personal holding company"
within the meaning of Section 542 of the Internal Revenue Code, as
amended, for any taxable year of its existence, and has not been
required to pay any personal holding tax under Section 541 of the
Internal Revenue Code, as amended, for any taxable year;
(xiv) All descriptions in the Prospectus of contracts, licenses
and other documents to which the Company or any of its subsidiaries
is a party are accurate in all material respects; to the best of
their knowledge, there are no franchises, contracts, licenses,
indentures, mortgages, loan agreements, notes, leases or other
instruments that are required to be described in the Prospectus that
are not described or referred to in the Prospectus other than those
described or referred to therein, and the descriptions thereof and
references thereto are correct in all material respects; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and other historical and pro forma financial data
included or incorporated by reference therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the rules and
regulations thereunder, although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xiii) of this Section 7(d); they have no reason to
believe that, as of its effective date, the Registration Statement
or any further amendment thereto made by the Company prior to such
Time of
15
<PAGE> 16
Delivery (other than the financial statements and related schedules
and other historical and pro forma financial data included or
incorporated by reference therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as
of its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other
than the financial statements and related schedules and other
historical and pro forma financial data included or incorporated by
reference therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
and other historical and pro forma financial data included or
incorporated by reference therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required.
In rendering such opinion, such counsel may rely (A) as to
matters involving documents in the Polish language and the
application of Polish law, upon the opinion of Baker & McKenzie,
Warsaw, special Polish counsel to the Company (which opinion shall
be delivered to the Underwriters at each Time of Delivery pursuant
to this Agreement), (B) as to matters involving the application of
Netherlands law, upon the opinion of Baker & McKenzie, Amsterdam,
special Netherlands counsel to PCBV (which opinion shall be
delivered to the Underwriters at each Time of Delivery pursuant to
this Agreement), and (C) as to matters involving the application of
United Kingdom law, upon the opinion of Ashurst Morris & Crisp,
special United Kingdom counsel to the Company (which opinion shall
be delivered to the Underwriters at each Time of Delivery pursuant
to this Agreement). Such counsel may also rely, to the extent
necessary, as to matters of fact (but not as to legal conclusions),
to the extent they deem proper, on certificates of responsible
officers of the Company and public officials.
(e) Baker & McKenzie, Warsaw, special Polish counsel for the Company,
shall have furnished to you their written opinion (a draft of such opinion
is attached as Annex II(d) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) Each Polish Designated Subsidiary has been duly
incorporated and is validly existing as a corporation under the laws
of the Republic of Poland, has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and is not required to be qualified as a
foreign corporation to transact business or to own or lease property
in any jurisdiction where it owns or leases property or transacts
business; all of the issued and outstanding capital stock of each
Polish Designated Subsidiary has been duly authorized and validly
issued, is
16
<PAGE> 17
fully paid and non-assessable (except, in the case of any Polish
limited liability company, any statutory liability for taxes) and,
to the best of their knowledge and information, except as otherwise
disclosed in the Prospectus, is owned by the Company, directly or
through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, except for the
Share Pledges;
(ii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company
or any subsidiary is subject, before or brought by any court or
governmental agency or body, which might be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or
the consummation of (1) this Agreement or the performance by the
Company of its obligations hereunder or (2) the transactions
contemplated by the Prospectus;
(iii) The Company and its Polish Designated Subsidiaries have
good and marketable title to all real property owned by them, in
each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
result in a Material Adverse Effect; and any real property and
buildings held under lease by the Company and its Polish Designated
Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as do not result in a
Material Adverse Effect;
(iv) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent that
it constitutes matters of law, summaries of legal matters, or legal
proceedings, or legal conclusions, has been reviewed by them
and is correct in all material respects;
(v) All descriptions in the Prospectus of contracts, licenses
and other documents to which the Company or any of its subsidiaries
is a party are accurate in all material respects; to the best of
their knowledge, there are no franchises, contracts, licenses,
indentures, mortgages, loan agreements, notes, leases or other
instruments that are required to be described in the Prospectus that
are not described or referred to in the Prospectus other than those
described or referred to therein, and the descriptions thereof and
references thereto are correct in all material respects;
(vi) None of the Polish Designated Subsidiaries is in violation
of its statutes or by-laws (or other similar organizational
documents) nor is the Company or any of its subsidiaries in
violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court having jurisdiction over the Company or any
of its subsidiaries or any of their assets or properties, except as
described in the Prospectus, and no default by the Company or any of
its subsidiaries exists in the due performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, license, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described or referred to in
the Prospectus except as described in the Prospectus and except for
such defaults that would not result in a Material Adverse Effect;
17
<PAGE> 18
(vii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and in
the Prospectus (including the use of proceeds from the sale of the
Shares and described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations under
this Agreement, will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a
breach of, or default under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of
the Company or any subsidiary thereof pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument, known to them, to which
the Company or any subsidiary thereof is a party or by which it or
any of them may be bound, or to which any of the property or assets
of the Company or any subsidiary thereof is subject, nor will such
action result in any violation of the provisions of the statutes or
by-laws (or other similar organizational documents) of any Polish
Designated Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, of any government,
government instrumentality or court having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties, assets or operations;
(viii) Except as otherwise disclosed in the Prospectus, each of
the Polish Designated Subsidiaries owns or possesses or has obtained
all material governmental licenses, certificates, permits,
concessions, consents, orders, approvals and other authorizations
necessary to hold all concessions, leases and permits or own its
properties, including, without limitation, all licenses and permits
relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the Prospectus, and none
of the Polish Designated Subsidiaries has received any notice
relating to the revocation or modification of any such concession,
license, certificate, permit, consent, order, approval or other
authorizations;
(ix) There are no restrictions (legal, contractual or
otherwise) on the ability of the Polish Designated Subsidiaries to
declare and pay dividends or make any payment or transfer of
property or assets to their shareholder other than those referred to
in the Prospectus and except for the Pledges; and
(x) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be
required under the applicable securities laws of the various
jurisdictions in which the Shares will be offered or sold, as to
which they need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or
for the offering issuance, sale or delivery of the Shares to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of United States federal and New
York State law, upon the opinion of Baker & McKenzie, New York,
special counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement), (B) as to matters involving the application of
Netherlands law, upon the opinion of Baker & McKenzie, Amsterdam,
special Netherlands counsel to PCBV (which opinion shall be
delivered to the Underwriters at each Time of Delivery pursuant to
this Agreement), and (C) as to matters involving the application of
United Kingdom law, upon the opinion of Ashurst Morris & Crisp,
special United
18
<PAGE> 19
Kingdom counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement). Such counsel may also rely, to the extent necessary, as
to matters of fact (but not as to legal conclusions), to the extent
they deem proper, on certificates of responsible officers of the
Company and public officials.
(f) Baker & McKenzie, Amsterdam, special Netherlands counsel to the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(e) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) PCBV has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Netherlands,
has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and is duly registered with the local Dutch trade
register. Under Dutch law, PCBV is not required to be qualified as a
foreign corporation to transact business in the Netherlands. All of
the issued and outstanding capital stock of PCBV, consisting of
200,000 shares, has been duly authorized and validly issued, is
fully paid and non-assessable. The Company owns 184,600 out of such
200,000 shares (92.3% of the total ) free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity;
(ii) There are no restrictions (legal, contractual or
otherwise) on the ability of PCBV to declare and pay dividends or
make any payment or transfer of property or assets to its
shareholders other than those described in the Prospectus and such
descriptions, if any, fairly summarize such restrictions;
(iii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which PCBV is a
party, or to which the property of PCBV is subject, before or
brought by any Dutch court or governmental agency or body, which
might be expected to result in a material adverse effect on the
current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
or which might reasonably be expected to materially and adversely
affect the properties or assets thereof in a manner that is material
and adverse to the Company and its subsidiaries considered as one
enterprise or the consummation of (A) this Agreement or the
performance by the Company of its obligations hereunder (if any) or
(B) the transactions contemplated by the Prospectus;
(iv) All descriptions in the Prospectus of contracts and other
documents to which PCBV is a party are accurate in all material
respects; to the best of their knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that are required to be described in the
Prospectus that are not described or referred to in the Prospectus
other than those described or referred to therein, and the
descriptions thereof and references thereto are correct in all
material respects;
(v) PCBV is not in violation of its certificate of
incorporation or by-laws (or other similar organizational documents)
nor is PCBV in violation of any applicable Dutch law, statute, rule,
regulation, judgment, order, writ or
19
<PAGE> 20
decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over PCBV or any of its
assets or properties, except for as described in the Prospectus and
no default by PCBV exists in the due performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the
Prospectus, except as described in the Prospectus;
(vi) Except as otherwise disclosed in the Prospectus, PCBV owns
or possesses or has obtained all material governmental licenses,
certificates, permits, concessions, consents, orders, approvals and
other authorizations necessary to hold all concessions, leases and
permits or own its properties, including, without limitation, all
licenses and permits relating to intellectual property, and to carry
on its business as presently conducted and as contemplated in the
Prospectus, and PCBV has not received any notice relating to the
revocation or modification of any such concession, license,
certificate, permit, consent, order, approval or other
authorizations; and
(vii) No authorization, approval, consent or order of any Dutch
court or Dutch governmental authority or agency (other than such as
may be required under the applicable securities laws of the various
jurisdictions in which the Shares will be offered or sold, as to
which they need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or
for the offering issuance, sale or delivery of the Shares to the
Underwriters.
In rendering such opinion, such counsel may rely, to the extent
necessary, (A) as to matters involving documents in the Polish
language and the application of Polish law, upon the opinion of
Baker & McKenzie, Warsaw, special Polish counsel to the Company
(which opinion shall be delivered to the Underwriters at each Time
of Delivery pursuant to this Agreement), (B) as to matters involving
the application of United States federal and New York State law,
upon the opinion of Baker & McKenzie, New York, special counsel to
the Company (which opinion shall be delivered to the Underwriters at
each Time of Delivery pursuant to this Agreement), and (C) as to
matters involving the application of United Kingdom law, upon the
opinion of Ashurst Morris & Crisp, special United Kingdom counsel to
the Company (which opinion shall be delivered to the Underwriters at
each Time of Delivery pursuant to this Agreement). Such counsel may
also rely, to the extent necessary, as to matters of fact (but not
as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials.
(g) Ashurst Morris & Crisp, special United Kingdom counsel to the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(f) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Each U.K. Designated Subsidiary has been duly incorporated
and is validly existing as a corporation under the laws of the
United Kingdom, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Prospectus and is not required to be qualified as a foreign
corporation to transact business or to own or lease property in any
jurisdiction where it owns or leases property or transacts business;
all of the issued and outstanding capital stock of each U.K.
20
<PAGE> 21
Designated Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and, to the best of their knowledge
and information, except as otherwise disclosed in the Prospectus, is
owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity;
(ii) Except as described in the Prospectus, there is not
pending or, to the best of their knowledge, threatened any action,
suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company
or any subsidiary is subject, before or brought by any court or
governmental agency or body, which might be expected to result in a
material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, or which might reasonably be
expected to materially and adversely affect the properties or assets
thereof or the consummation of (1) this Agreement or the performance
by the Company of its obligations hereunder or (2) the transactions
contemplated by the Prospectus;
(iii) The Company and its U.K. Designated Subsidiaries have
good and marketable title in fee simple to all real property owned
by them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do
not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property
by the Company and its U.K. Designated Subsidiaries; and any real
property and buildings held under lease by the Company and its U.K.
Designated Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and its U.K.
Designated Subsidiaries;
(iv) The information in the Prospectus under "Business --
Properties", "Business -- Legal Proceedings", "Regulation", and
"Certain Relationships and Related Transactions", to the extent that
it constitutes matters of law, summaries of legal matters, or legal
proceedings, or legal conclusions, has been reviewed by them
and is correct in all material respects;
(v) All descriptions in the Prospectus of contracts, licenses
and other documents to which a U.K. Designated Subsidiary is a party
are accurate in all material respects; to the best of their
knowledge, there are no franchises, contracts, licenses, indentures,
mortgages, loan agreements, notes, leases or other instruments that
are required to be described in the Prospectus that are not
described or referred to in the Prospectus other than those
described or referred to therein, and the descriptions thereof and
references thereto are correct in all material respects;
(vi) None of the U.K. Designated Subsidiaries is in violation
of its Memorandum and Articles of Association (or other similar
organizational documents) nor is any U.K. Designated Subsidiary in
violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction
over a U.K. Designated Subsidiary or any of their assets or
properties, except as described in the Prospectus, and no default by
a U.K. Designated Subsidiary exists in the due performance or
observance of
21
<PAGE> 22
any obligation, agreement, covenant or condition contained in any
contract, license, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described or referred to in
the Prospectus except as described in the Prospectus;
(vii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and in
the Prospectus (including the use of proceeds from the sale of the
Shares and described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations under
this Agreement, will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a
breach of, or default under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of
any U.K. Designated Subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or
any other agreement or instrument, known to them, to which any U.K.
Designated Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of such U.K.
Designated Subsidiary is subject, nor will such action result in any
violation of the provisions of the memorandum and articles of
association (or other similar organizational documents) of any U.K.
Designated Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over any U.K. Designated Subsidiary or any of their
respective properties, assets or operations;
(viii) Each of the U.K. Designated Subsidiaries owns or
possesses or has obtained all material governmental licenses,
certificates, permits, concessions, consents, orders, approvals and
other authorizations necessary to hold all concessions, leases and
permits or own its properties, including, without limitation, all
licenses and permits relating to intellectual property, and to carry
on its business as presently conducted and as contemplated in the
Prospectus, and none of the U.K. Designated Subsidiaries has
received any notice relating to the revocation or modification of
any such concession, license, certificate, permit, consent, order,
approval or other authorizations;
(ix) There are no restrictions (legal, contractual or
otherwise) on the ability of the U.K. Designated Subsidiaries to
declare and pay dividends or make any payment or transfer of
property or assets to their shareholder other than those described
in the Prospectus; and
(x) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be
required under the applicable securities laws of the various
jurisdictions in which the Shares will be offered or sold, as to
which they need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or
for the offering issuance, sale or delivery of the Shares to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of United States federal and New
York State law, upon the opinion of Baker & McKenzie, New York,
special counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement), (B) as to matters involving the
22
<PAGE> 23
application of Netherlands law, upon the opinion of Baker &
McKenzie, Amsterdam, special Netherlands counsel to PCBV (which
opinion shall be delivered to the Underwriters at each Time of
Delivery pursuant to this Agreement), and (C) as to matters
involving documents in the Polish language and the application of
Polish law, upon the opinion of Baker & McKenzie, Warsaw, special
Polish counsel to the Company (which opinion shall be delivered to
the Underwriters at each Time of Delivery pursuant to this
Agreement). Such counsel may also rely, to the extent necessary, as
to matters of fact (but not as to legal conclusions), to the extent
they deem proper, on certificates of responsible officers of the
Company and public officials.
(h) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, KPMG Peat Marwick LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto;
(i)(1) Neither the Company nor any of its Designated Subsidiaries
shall have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus, and (2) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
capital stock or consolidated long-term or short-term debt of the Company
or any of its Polish subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its Polish subsidiaries, otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any
such case described in Clause (1) or (2), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(j) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded PCI's debt securities or preferred stock
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of any of PCI's debt securities or preferred stock;
(k) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State or Polish authorities; (iv)
the outbreak or escalation of hostilities involving the
23
<PAGE> 24
United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this Clause
(iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; or (v) the occurrence of any
material adverse change in the existing financial, political or economic
conditions in the United States, the United Kingdom or Poland or elsewhere
which, in the judgment of the Representatives would materially and
adversely affect the financial markets or the market for the Shares and
other equity securities.
(l) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(m) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each [Principal Shareholder]
substantially to the effect set forth in Subsection 5(e) hereof in form
and substance satisfactory to you;
(n) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(o) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set
forth in subsections (a) and (i) of this Section and as to such other
matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission
24
<PAGE> 25
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and
will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under
such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent
to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Shares purchased under this Agreement (before deducting expenses) received
by the Company bear to the total underwriting discounts and
25
<PAGE> 26
commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
in this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares
on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase
of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days,
in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to
the Registration Statement or the Prospectus which in your opinion may
thereby be made necessary. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section with
like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which
26
<PAGE> 27
remains unpurchased does not exceed one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
number of Shares which such Underwriter agreed to purchase hereunder) of
the Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the
Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements
27
<PAGE> 28
shall take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
28
<PAGE> 29
If the foregoing is in accordance with your understanding, please sign and
return to us one counterpart for the Company and one counterpart for each of the
Representatives plus one counterpart for each counsel, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement between each of the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters (U.S. Version), the form of
which shall be submitted to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
@Entertainment, Inc.
By: ______________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: ________________________________________________________
(Goldman, Sachs & Co.)
By: ________________________________________________________
(Merrill Lynch, Pierce, Fenner & Smith Incorporated)
On behalf of each of the Underwriters
29
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- - ----------------------------------------------------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co..................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated...
[Names of other Underwriters]........................
Total..............................................
</TABLE>
30
<PAGE> 31
SCHEDULE II
DESIGNATED SUBSIDIARIES
U.S. DESIGNATED SUBSIDIARIES:
Poland Communications, Inc.
Mozaic, Inc.
POLISH DESIGNATED SUBSIDIARIES:
Polska Telewizja Kablowa S.A
Polska Telewizja Kablowa -- Warszawa S.A.
Polska Telewizja Kablowa -- Krakow, S.A.
Polska Telewizja Kablowa -- Ryntronik, S.A.
Polska Telewizja Kablowa -- Lublin, S.A.
Polska Telewizja Kablowa -- Szczecin Sp. z o.o.
Potlekab Sp. z o.o.
TV Kabel Sp. z o.o.
31
<PAGE> 32
ProCable Sp. z o.o.
Mozaic Entertainment Sp. z o.o.
Polskie Media. S.A.
Ground Zero Media Sp. z o.o.
Telewizja Kablowa GOSAT-Service Sp. z o.o.
U.K. DESIGNATED SUBSIDIARY:
At Entertainment Limited
NETHERLANDS DESIGNATED SUBSIDIARY:
Poland Cablevision (Netherlands) B.V.
<PAGE>
Exhibit 10.4
EXECUTION COPY
================================================================================
@ENTERTAINMENT, INC.
(a Delaware corporation)
Series C Senior Discount Notes due 2008
PURCHASE AGREEMENT
Dated: January 19, 1999
================================================================================
<PAGE>
@ENTERTAINMENT, INC.
(a Delaware corporation)
Series C Senior Discount Notes due 2008
PURCHASE AGREEMENT
January 19, 1999
Merrill Lynch International
25 Ropemaker Place
Ropemaker Street
London, England EC2Y 9LY
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch International ("Merrill Lynch") (the "Initial
Purchaser"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchaser of $36,001,321 aggregate principal amount at maturity
of the Company's Series C Senior Discount Notes due 2008 (the "C Notes"). The C
Notes are to be issued pursuant to an indenture to be dated as of January 20,
1999 (the "Indenture") between the Company and Bankers Trust Company, as trustee
(the "Trustee"). C Notes issued in book-entry form will be issued to Bankers
Trust Company, as nominee of Euroclear System ("Euroclear").
The Company expects to enter in the near future into a separate agreement
for the sale of the Company's units, each Unit consisting of $1,000 aggregate
principal amount at maturity of the Company's Senior Discount Notes due 2009 and
warrants, each Warrant entitling the holder thereof to purchase shares of common
stock, par value $0.01 per share, of the Company (the "Units Offering").
The Company expects to enter in the near future into a separate agreement
for the sale of shares and warrants for aggregate proceeds of at least $50
million (the "Preference Offering").
The Company understands that the Initial Purchaser proposes to make an
offering of the C Notes on the terms and in the manner set forth herein and
agrees that the Initial Purchaser may resell, subject to the conditions set
forth herein, all or a portion of the C Notes to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The C
<PAGE>
Notes are to be offered and sold through the Initial Purchaser without being
registered under the 1933 Act, in reliance upon exemptions therefrom. Pursuant
to the terms of the C Notes and the Indenture, investors that acquire C Notes
may only resell or otherwise transfer such C Notes if such C Notes 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 will deliver to the Initial Purchaser, copies
of a offering memorandum to be dated January 20, 1999, together with a Term
Sheet, a copy of which is attached as Schedule B hereto for the C Notes
(combined, the "C Notes Offering Memorandum") for use by the Initial Purchaser
in connection with its solicitation of purchases of, or offering of, the C
Notes. "C Notes Offering Memorandum" means with respect to any date or time
referred to in this Agreement, the most recent offering memorandum (including
any amendment or supplement to such document), including exhibits thereto and
any documents incorporated therein by reference, which has been prepared and
delivered by the Company to the Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the C Notes.
All references in this Agreement to financial statements and schedules and
other information which are "contained," "included" or "stated" in the C Notes
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 C Notes Offering Memorandum.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Initial Purchaser as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and agrees with the Initial
Purchaser as follows:
(i) Similar Offerings. The Company 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 C Notes in a manner that would require the C Notes to
be registered under the 1933 Act.
(ii) C Notes Offering Memorandum. Neither of its date nor as of the
Closing Time the C Notes Offering Memorandum, including any amendment or
supplement thereto, includes or will include an untrue statement of a
material fact or omits 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;
2
<PAGE>
except that this representation and warranty does not apply to statements
or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by the Initial Purchaser expressly for
use in the C Notes Offering Memorandum, including any amendment or
supplement thereto.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the C Notes
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 C Notes
Offering Memorandum present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the C Notes 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 C
Notes 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 C Notes Offering Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the C Notes 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 C Notes Offering Memorandum and to enter into and perform
its obligations under this Agreement and the Indenture; 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
3
<PAGE>
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
C Notes Offering Memorandum and is not required to be qualified as a
foreign corporation to transact business or to own or lease property in
any jurisdiction where it owns or leases property or transacts business;
except as otherwise disclosed in the C Notes 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 1,818 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 C Notes Offering Memorandum and except for (i)
restrictions relating to the Share Pledges, (ii) encumbrances on certain
4
<PAGE>
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 $0.5 million
granted on October 7, 1996 by Polski Bank Rozwoju (which was bought by
Bank Rozucju Eksportu S.A. in July of 1998) 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 "Capitalization"
under the heading "Actual" (except for subsequent issuances, if any,
pursuant to the exercise of convertible securities or options referred to
in the C Notes Offering Memorandum) in the C Notes 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 C
Notes Offering Memorandum other than (i) issuances of shares of Common
Stock upon the exercise of options disclosed to be outstanding in the C
Notes Offering Memorandum and (ii) the authorization and issuance of
Series A Cumulative Preference Shares, the Series B Cumulative Preference
Shares, the Warrants and the Preference Warrants as described 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 issued in violation of the preemptive or other similar
rights of any security holder of the Company.
(x) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(xi) Authorization of the Indenture. The Indenture has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
waiver contained in Section 514 thereof may be unenforceable due to
interests of public policy.
(xii) Authorization of the C Notes. The C 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
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other similar laws relating to or affecting enforcement of creditors'
rights generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will
be in the form contemplated by, and entitled to the benefits of, the
Indenture.
(xiii) Description of the Indenture. The Indenture will conform in
all material respects to the respective statements relating thereto
contained in the C Notes Offering Memorandum and will be in substantially
the form previously delivered to the Initial Purchaser.
(xiv) 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 C Notes 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 C Notes Offering
Memorandum; and the execution, delivery and performance of this Agreement
and the Indenture 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 C Notes Offering Memorandum and the consummation of the
transactions contemplated herein and in the C Notes Offering Memorandum
(including the issuance and sale of the C Notes and the use of the
proceeds from the sale of the C Notes as described in the C Notes Offering
Memorandum) 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,
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government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their
assets or properties, assuming that the Initial Purchaser comply with all
of its obligations under Section 6 hereof. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
of its subsidiaries.
(xv) 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.
(xvi) Absence of Proceedings. Except as disclosed in the C Notes
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 C Notes 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
Indenture or the C Notes, 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 C Notes Offering Memorandum,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse Effect.
(xvii) Possession of Intellectual Property. Except as disclosed in
the C Notes 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 C Notes 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
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of any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xviii) 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 securities or "blue sky" laws of the various
states and (B) 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 C Notes hereunder or
the consummation of the transactions contemplated by this Agreement, the
Indenture or the C Notes Offering Memorandum or (y) to permit the Company
to effect payments of principal of and premium and interest on the C
Notes.
(xix) Possession of Licenses and Permits. Except as disclosed in the
C Notes 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 C Notes Offering Memorandum; the Company and its subsidiaries, except
as disclosed in the C Notes 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 C Notes
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 C Notes 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 C Notes 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.
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(xx) No Additional Documents. There are no contracts or documents of
a character that would be required to be described in the C Notes 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.
(xxi) 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.
(xxii) Title to Property. The Company and its subsidiaries own no
real property, except as described in the C Notes 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 C Notes 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 C Notes 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.
(xxiii) Tax Returns. Except as disclosed in the C Notes Offering
Memorandum, the Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith and
by appropriate proceedings, and except for such claims as could not result
in a Material Adverse Effect; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all domestic and foreign taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
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(xxiv) Environmental Laws. Except as described in the C Notes
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.
(xxv) Investment Company Act. The Company is not, and upon the
issuance and sale of the C Notes as herein contemplated and the
application of the net proceeds therefrom as described in the C Notes
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").
(xxvi) 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 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
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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 C Notes Offering Memorandum if it were a prospectus
filed as part of a registration statement on Form S-1 under the 1933 Act.
(xxvii) Taxes on Subsidiary Indebtedness. Except as described in the
C Notes 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.
(xxviii) Insurance. Except as otherwise disclosed in the C Notes
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.
(xxix) Rule 144A Eligibility. The C Notes 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.
(xxx) No General Solicitation or Directed Selling Effort in
Contravention of Regulation S of the Securities Act. None of the Company,
its affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf (other
than the Initial Purchaser, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the C Notes, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act. In
addition, with respect of the C Notes sold in reliance of Rule 903 of
Regulation S under the Securities Act, neither the Company nor any of its
affiliates have offered such C Notes in any directed selling efforts
within the meaning of Rule 902(b) of the Securities Act. The Company, its
affiliates and any agents acting on its or their behalf have complied and
will comply with any offering restrictions requirements of Regulation S
applicable to the transaction contemplated hereby. The Company has not
entered and will not enter into any contractual arrangement with respect
to the distribution of the C Notes except for this Agreement.
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(xxxi) No Registration Required. Subject to compliance by the
Initial Purchaser with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the C Notes
to the Initial Purchaser and to each Subsequent Purchaser in the manner
contemplated by this Agreement and the C Notes Offering Memorandum to
register the C Notes under the 1933 Act or to qualify the Indenture under
the Trust Indenture Act of 1939, as amended (the "1939 Act").
(xxxii) Reporting Company. The Company is subject to, and has
complied with all applicable reporting requirements of Section 13 or
Section 15(d) of the 1934 Act.
(b) Officers' Certificates. Any certificate titled "Officers' Certificate"
or the "Secretary's Certificate" signed by any officer of the Company or any of
its subsidiaries which is delivered to Initial Purchaser or to counsel for
Initial Purchaser shall be deemed a representation and warranty by the Company
to the Initial Purchaser as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Initial Purchaser; Closing.
(a) C Notes. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Initial Purchaser and the Initial Purchaser agrees to
purchase from the Company, at the price set forth in Schedule B, the aggregate
number of C Notes set forth in Schedule A opposite its name.
(b) Payment. Payment of the purchase price of $9,495,703 for, and delivery
of certificates for, the C Notes shall be made at the office of Baker &
McKenzie, 815 Connecticut Avenue, N.W., Washington, D.C. or at such other place
as shall be agreed upon by the Initial Purchaser and the Company, at 9:00 A.M.
on the next business day after the date hereof (January 20, 1999) (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 Purchaser and the Company (such time and date of payment and delivery
being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Initial Purchaser for the account of such Initial Purchaser of certificates
for the C Notes to be purchased by it.
(c) Qualified Institutional Buyer. The Initial Purchaser represents and
warrants to, and agrees with, the Company that it is a "qualified institutional
buyer" within the meaning of
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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 C Notes shall be in
such denominations and registered in such names as the Initial Purchaser may
request in writing at least one full business day before the Closing Time. The
certificates representing the C Notes and Warrants shall be registered in the
name of BT Globenet Nominees Limited.
SECTION 3. Covenants of the Company. The Company covenants with the
Initial Purchaser as follows:
(a) C Notes Offering Memorandum. The Company, as promptly as possible,
will furnish to the Initial Purchaser, without charge, such number of copies of
the C Notes Offering Memorandum and any amendments and supplements thereto and
documents incorporated by reference therein as the Initial Purchaser may
reasonably request. The Company will use the C Notes Offering Memorandum only in
connection with offering of the C Notes and not for any other purpose.
(b) Notice and Effect of Material Events. The Company will immediately
notify the Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the C
Notes 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 C Notes by the Initial Purchaser as evidenced by a notice in
writing from the Initial Purchaser to the Company, any material changes in or
affecting the 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 C Notes Offering Memorandum (as amended or supplemented)
false or misleading or (ii) are not disclosed in the C Notes 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 Purchaser or counsel for the
Initial Purchaser, to amend or supplement the C Notes Offering Memorandum in
order that the C Notes 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 C Notes Offering
Memorandum by preparing and furnishing to the Initial Purchaser an amendment or
amendments of, or a supplement or supplements to, the C Notes Offering
Memorandum (in form and substance satisfactory in the reasonable opinion of
counsel for the Initial Purchaser) so that, as so amended or supplemented, the C
Notes Offering Memorandum will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a subsequent purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise the Initial Purchaser promptly of any proposal to amend or supplement the
C Notes
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Offering Memorandum and will not effect such amendment or supplement without the
consent of the Initial Purchaser, which consent shall not be unreasonably
withheld. Neither the consent of the Initial Purchaser, nor the Initial
Purchaser? 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 C Notes for Offer and Sale. The Company will use its
best efforts, in cooperation with the Initial Purchaser, to qualify the C Notes
for offering and sale under the applicable C Notes laws of such jurisdictions as
the Initial Purchaser may designate and will maintain such qualifications in
effect as long as required for the sale of the C Notes; 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 C Notes 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) Euroclear. The Company will cooperate with the Initial Purchaser and
use its best efforts to permit the C Notes to be eligible for clearance and
settlement through the facilities of Euroclear.
(f) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the C Notes in the manner specified in the C Note Offering
Memorandum.
(g) Restriction on Sale of C Notes. 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 C Notes or such other debt securities except for
(i) the Preference Securities and securities issued in exchange for Preference
Securities and (ii) the Notes and any notes issued in exchange for the Notes,
pursuant to the terms of the documents relating to the Units Offering.
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 C Notes 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 Purchaser of this
Agreement, the Indenture and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the C
Notes, (iii) the preparation, issuance and delivery of the certificates for the
C Notes to the Initial Purchaser, including any charges of Euroclear in
connection therewith, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the C Notes under
securities laws in accordance with the provisions of Section 3(d) hereof and any
filing for review of the offering with the
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National Association of Securities Dealers (the "NASD"), including filing fees
and the reasonable fees and disbursements of counsel for the Initial Purchaser
in connection therewith and in connection with the preparation of the Blue Sky
Survey, any supplement thereto and any Legal Investment Survey, (vi) the fees
and expenses of the Trustees and paying agents, including the fees and
disbursements of counsel for the Trustees in connection with the Indenture and
the C Notes, and (vii) any fees payable to the NASD.
(b) Termination of Agreement. If this Agreement is terminated by the
Initial Purchaser in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchaser for all of
its out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchaser incurred through the date of termination.
SECTION 5. Conditions of the Initial Purchaser's Obligations. The
obligations of the several Initial Purchaser hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Opinions of Counsel for the Company. (i) At the Closing Time, the
Initial Purchaser shall have received two favorable opinions, each dated as of
the Closing Time, of Baker & McKenzie, counsel for the Company, each in form and
substance satisfactory to counsel for the Initial Purchaser, one to the effect
as set forth in Exhibit D hereto and one to the effect set forth in Exhibit E
hereto and each to such further effect as counsel to the Initial Purchaser may
reasonably request.
(ii) At the Closing Time, the Initial Purchaser shall have received the
favorable opinion, dated as of the Closing Time, of Baker & McKenzie, Amsterdam,
special Dutch counsel to the Company, in form and substance satisfactory to
counsel to the Initial Purchaser, to the effect set forth in Exhibit F hereto
and to such other effect as counsel to the Initial Purchaser may reasonably
request.
(iii) At the Closing Time, the Initial Purchaser 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 Purchaser, to the effect set forth in Exhibit G hereto
and to such other effect as counsel to the Initial Purchaser may reasonably
request.
(b) Opinion of United States Counsel for the Initial Purchaser. At the
Closing Time, the Initial Purchaser shall have received the favorable opinion,
dated as of the Closing Time, of Shearman & Sterling, counsel for the Initial
Purchaser, with respect to certain of the
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matters set forth in Exhibit D hereto and to such other effect as the Initial
Purchaser and such counsel may reasonably agree.
(c) Opinion of Polish Counsel for the Initial Purchaser. At the Closing
Time, the Initial Purchaser 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 Purchaser, in form satisfactory to the Initial Purchaser
with respect to certain of the matters set forth in paragraphs (i) through
(vii), inclusive, of Exhibit 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 C Notes Offering Memorandum, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Initial Purchaser shall have received a certificate of the chief executive
officer of the Company and of the chief financial or chief accounting officer of
the Company, dated as of the Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(e) Accountants' Comfort Letter. At the time of the execution of this
Agreement, the Initial Purchaser shall have received from KPMG Polska Sp. z o.o.
a letter dated such date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type ordinarily included
in accountants' "comfort letters" to the Initial Purchaser with respect to the
financial statements and certain financial information contained in the Offering
Memorandum.
(f) Bring-down Comfort Letter. At the Closing Time, the Initial Purchaser
shall have received from KPMG 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) Euroclear. At the Closing Time, the C Notes shall have been cleared
for settlement through Euroclear.
(h) Additional Documents. At the Closing Time, counsel for the Initial
Purchaser shall have been furnished with such documents and opinions as it may
require for the purpose of enabling it to pass upon the issuance and sale of the
C Notes 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
16
<PAGE>
connection with the issuance and sale of the C Notes as herein contemplated
shall be satisfactory in form and substance to the Initial Purchaser and counsel
for the Initial Purchaser.
(i) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchaser by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7, 8 and 9 shall survive any such termination and remain
in full force and effect.
(j) Sale of C Notes to Morgan Stanley Asset Management. At the Closing
Time, the Initial Purchaser shall have received payment in full for the C Notes
from Morgan Stanley Asset Management.
SECTION 6. Subsequent Offers and Resales of the C Notes.
(a) Offer and Sale Procedures. The Initial Purchaser and the Company
hereby establish and agree to observe the following procedures in connection
with the offer and sale of the C Notes:
(i) Offers and Sales only to Qualified Institutional Buyers. Offers
and sales of the C Notes 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) or to non-US persons acquiring
the C Notes in an offshore transaction in compliance with Regulation S
under the defined Securities Act. The Purchaser agrees that it will not
offer, sell or deliver any of the C Notes 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 C Notes 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 C
Notes.
(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. The Initial Purchaser will
take reasonable steps to inform, and cause each of its U.S. Affiliates to
take reasonable steps to inform, persons acquiring C Notes from such
Initial Purchaser or affiliate, as the case may be, in the United States
that the C Notes (A) have not been and will not be
17
<PAGE>
registered under the 1933 Act, (B) are being sold to them without
registration under the 1933 Act in reliance on Regulation S 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 C Notes
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 C Notes 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 in reliance on Rule 144A, (y) in accordance with
the provisions of Rule 903 or Rule 904 of the Securities Act or (z)
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 C Notes except as otherwise agreed by the Company and the Initial
Purchaser. Following the sale of the C Notes by the Initial Purchaser to
Subsequent Purchasers pursuant to the terms hereof, the Initial Purchaser
shall not be liable or responsible to the Company for any losses, damages
or liabilities suffered or incurred by the Company, including any losses,
damages or liabilities under the 1933 Act, arising from or relating to any
resale or transfer of any Security.
(b) Covenants of the Company. The Company covenants with the Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original distribution of
the C Notes, the Company agrees that, prior to any offer or resale of the
C Notes by the Initial Purchaser, the Initial Purchaser and counsel for
the Initial Purchaser shall have the right to make reasonable inquiries
into the business of the Company and its subsidiaries. The Company also
agrees to provide answers to each prospective Subsequent Purchaser of C
Notes 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 C
Notes, as provided in the C Notes 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
18
<PAGE>
would render invalid (for the purpose of (i) the sale of the C Notes by
the Company to the Initial Purchaser, (ii) the resale of the C Notes by
the Initial Purchaser to Subsequent Purchasers or (iii) the resale of the
C Notes 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) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the C Notes, the Company will not, and will
cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any C Notes which are "restricted C 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 C Notes 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 C Notes to the
Trustees for cancellation.
(c) Resale Pursuant to Rule 144A or Regulation S. The Initial Purchaser
understands that the C Notes 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. The Initial Purchaser represents and
agrees, that, except as permitted by Section 6(a) above, it has offered and sold
C Notes and will offer and sell C Notes as part of their distribution at any
time only in accordance with (A) Rule 144A under the 1933 Act, (B) Regulation S
of the Securities Act, or (C) another applicable exemption from the registration
provisions of the 1933 Act. The Initial Purchaser represents and agrees that it
has offered and sold the C Notes only in compliance with Rule 903 or Rule 144A.
Accordingly, none of the Initial Purchaser nor any of its affiliates has engaged
or will engage in any directed selling efforts with respect to the C Notes, and
the Initial Purchaser, and each of its affiliates, has complied and will comply
with the offering restrictions requirements of Regulation S. The Initial
Purchaser agrees that, at or prior to confirmation of a sale of C Notes (other
than a sale of C Notes pursuant to Rule 144A) it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases C Notes 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 Purchaser
has advised the Company and hereby represents and warrants to and agrees with
the Company that
19
<PAGE>
it will not offer or sell the C Notes in Poland except in accordance with Polish
foreign exchange regulations under circumstances which do not constitute a
public offering or distribution of securities under Polish laws and regulations.
The Initial Purchaser further agrees it will not offer or sell the C Notes in
The Netherlands except under circumstances which do not constitute a public
offering or distribution (aanbod buiten besloten kring) of securities under the
laws and regulations of The Netherlands.
(e) Offers and Sales in the United Kingdom. The Initial Purchaser hereby
represents, warrants and agrees that (i) it has not offered or sold and prior to
the expiration of the period six months after the date of issue of the C Notes
will not offer to sell by means of any document any C Notes 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 C Notes
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 C Notes 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 the Initial Purchaser. The Initial
Purchaser represents and agrees that it has not entered and will not enter into
any contractual arrangements with respect to the distribution of the C Notes,
except with its affiliates or with the prior written consent of the Company.
SECTION 7. Indemnification.
(a) Indemnification of the Initial Purchaser. The Company agrees to
indemnify and hold harmless the Initial Purchaser and each person, if any, who
controls such 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 the C Notes 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
20
<PAGE>
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to
Section 7(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchaser expressly for use in the C Notes Offering Memorandum (or any
amendment thereto).
(b) Indemnification of the Company, Directors and Officers. The Initial
Purchaser 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 C Notes Offering
Memorandum in reliance upon and in conformity with written information furnished
to the Company by the Initial Purchaser expressly for use in the C Notes
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 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
21
<PAGE>
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7 or Section 8 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchaser on the other hand from the offering of the C
Notes pursuant to this Agreement or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the Initial Purchaser
on the other hand in connection with the statements or omissions which resulted
in such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchaser on the other hand in connection with the offering of the C
Notes pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the C Notes pursuant
to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Initial Purchaser, bear to the
aggregate initial offering price of the C Notes.
22
<PAGE>
The relative fault of the Company on the one hand and the Initial
Purchaser on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Initial Purchaser
shall not be required to contribute any amount in excess of the amount by which
the total price at which the C Notes 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 the
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company 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 C Notes to the Initial Purchaser.
23
<PAGE>
SECTION 10. Termination of Agreement.
(a) Termination; General. The Initial Purchaser may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the C Notes 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 C
Notes Offering Memorandum, or currency exchange rates for the U.S. dollar into
the Polish Zloty or exchange controls applicable to the U.S. dollar or the
Polish Zloty, in each case the effect of which is such as to make it, in the
judgment of the Initial Purchaser, impracticable to market the C Notes or to
enforce contracts for the sale of the C Notes, or (iii) if trading in any C
Notes 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. [Reserved]
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 Purchaser shall be directed to the
Initial Purchaser at Merrill Lynch International, 25 Ropemaker Place, Ropemaker
Street, London, EC2Y 9LY, attention of Scott Hague; 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 Purchaser and the Company and their respective
successors. Nothing
24
<PAGE>
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Initial Purchaser and the
Company and their respective successors and the controlling persons and officers
and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Initial Purchaser and the Company 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 C Notes from the 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.
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.
25
<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 Purchaser and the Company in accordance with its terms.
Very truly yours,
@ENTERTAINMENT, INC.
By /S/ ROBERT E. FOWLER III
--------------------------------------
Title:
By /S/ DONALD MILLER-JONES
-------------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
By /S/ MARISA DREW
--------------------------------
Authorized Signatory
26
<PAGE>
SCHEDULE A
Principal
Amount at
Maturity of
Name of Underwriter C Notes
- ------------------------- -----------
Merrill Lynch International.................. $36,001,321
-----------
-----------
Total........................................ $36,001,321
===========
Sch A-1
<PAGE>
SCHEDULE B
@Entertainment Zero/Step-Up Private Placement
Issuer: @Entertainment
Status: Senior, Unsecured Notes ranking pari passu with
all other existing and unsubordinated obligations of
the Issuer
Notional Amount: US$36,001,321
Trade Date: January 18, 1999
Settlement Date: January 20, 1999
Final Maturity: July 15, 2008
Amortization: Bullet
Coupon: Zero until the Coupon Payment Period Ending July 15,
2004. Seven (7) percent per annum of the Notional
Amount thereafter . Interest begins accruing on
January 15, 2004
Coupon Payment Dates: January 15 and July 15, commencing on July 15, 2004
Issue Yield: 18 1/2%
Issue Price: 27.262% of notional
Issue Redemption: Callable by the Issuer in whole on any
Coupon Payment Date beginning July 15, 2004 at 109% of
accreted value plus accrued interest, if any, and
decreasing ratably thereafter.
Change of Control Following the occurrence of a Change of
Control (as defined in the Indenture), each holder of
Notes will have the right to require the Issuer to
purchase all or a portion of such holder?s 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.
Restrictive Covenants The Indenture governing the Notes 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) limitations on transactions with affiliates; (v)
limitations 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.
The foregoing represent indicative terms and conditions of interest in a
transaction and do not represent a definitive offering of securities. This
material is for discussion purposes and we are not soliciting any action based
upon it. We are acting solely in the capacity of an arm's-length contractual
counterparty and not in the capacity of your
Sch B-1
<PAGE>
financial advisor or fiduciary. We or our affiliates may from time to time have
long or short positions in, and may make a market in, or otherwise buy or sell
instruments identical or economically related to any OTC derivative transaction
entered into with you, or may have an investment banking or other commercial
relationship with the issuer of any security or financial instrument underlying
an OTC derivative transaction entered into with you. THIS BRIEF STATEMENT DOES
NOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF ENTERING INTO OTC
TRANSACTIONS.
Sch B-2
<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
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.
12. TV Kabel Sp. z o.o.
13. At Entertainment Limited
14. Poland Communications, Inc.
15. Poland Cablevision (Netherlands) B.V.
16. Sereke Holding B.V.
17. Wizja TV Sp. z o.o.
Sch C-1
<PAGE>
18. WPTS Sp. z o.o.
19. @Entertainment Programming, Inc.
Sch C-2
<PAGE>
Exhibit D
FORM OF UNITED STATES LAW OPINION OF COMPANY'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware;
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the C Note
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement, the Indenture and the C Notes;
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect;
(iv) Each Designated Subsidiary incorporated in a jurisdiction in
the United States (collectively, the "U.S. Designated Subsidiaries") of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation; and all of
the issued shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) The authorized, issued and outstanding capital stock of the
Company is as set forth in the C Note Offering Memorandum under the caption
"Description of Capital Stock" (except for subsequent issuances, if any,
pursuant to employee benefit plans referred to in the C Note Offering Memorandum
or pursuant to the exercise of convertible securities or options referred to in
the C Note Offering Memorandum); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of any preemptive or other similar rights of
any security holder of the Company;
(vi) The C Note Purchase Agreement has been duly authorized,
executed and delivered by the Company;
(vii) The Indenture has been duly authorized, executed and delivered
by the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in
<PAGE>
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and the waiver contained in Section 514 thereof
may be unenforceable due to interests of public policy;
(viii) The C Notes are in the form contemplated by the Indenture,
have been duly authorized by the Company and, assuming that the C Notes have
been duly executed by the Company and authenticated by the Trustee in the manner
described in its certificate delivered to you today (which fact such counsel
need not determine by an inspection of the C Notes), the C Notes have been duly
issued and delivered by the Company and 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 enforceability is considered in a
proceeding in equity or at law), and will be entitled to the benefits of the
Indenture;
(ix) The C Notes and the Indenture conform in all material respects
to the descriptions thereof contained in the C Note Offering Memorandum;
(x) Except as described in the C Note Offering Memorandum, there is
not pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary thereof is
subject, before or brought by any court or governmental agency or body, which
might reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of (1) the transactions contemplated in
the Purchase Agreement, the Indenture or the C Notes or the performance by the
Company of its obligations thereunder or (2) the transactions contemplated by
the C Note Offering Memorandum;
(xi) The information in the C Note Offering Memorandum under
"Compensation Plans", "Certain Relationships and Related Transactions",
"Description of Indebtedness", "Description of the Series C Notes", "Description
of Capital Stock", "United States Income Tax Considerations" and "Plan of
Distribution", to the extent that it constitutes matters of law, summaries of
legal matters or legal proceedings, or legal conclusions, has been reviewed by
them and is correct in all material respects;
(xii) All descriptions in the C Note Offering Memorandum of
contracts, licenses and other documents to which the Company or any of its
subsidiaries is a party are
D-4
<PAGE>
accurate in all material respects; to the best of their knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that would be required to be described in the C Note Offering
Memorandum, if the C Note Offering Memorandum were a prospectus filed as part of
a registration statement on Form S-1 under the 1933 Act, that are not described
or referred to in the C Note Offering Memorandum other than those described or
referred to therein or incorporated by reference thereto, and the descriptions
thereof or references thereto are correct in all material respects;
(xiii) Neither the Company nor any of its U.S. Designated
Subsidiaries is in violation of its certificate of incorporation or by-laws (or
other similar organizational documents) nor is the Company or any of its
subsidiaries in violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except for such violations as
are specifically identified as such and described in the C Note Offering
Memorandum, and no default by the Company or any of its subsidiaries exists in
the due performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the C
Note Offering Memorandum, except such defaults as are specifically identified as
such and described in the C Note Offering Memorandum and except for such
defaults that would not result in a Material Adverse Effect;
(xiv) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the C Notes
will be offered or sold, as to which they need express no opinion) is required
in connection with the due authorization, execution and delivery of the Purchase
Agreement or the Indenture, for the offering, issuance, sale or delivery of the
C Notes to the Initial Purchaser or the resale thereof by the Initial Purchaser
in accordance with the Purchase Agreement;
(xv) It is not necessary in connection with the offer, sale and
delivery of the C Notes to the Initial Purchaser and to each Subsequent
purchaser in the manner contemplated by the Purchase Agreement and the C Note
Offering Memorandum to register the C Notes under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act;
(xvi) The execution, delivery and performance of the Purchase
Agreement, the Indenture and the C Notes and the consummation of the
transactions contemplated in the Purchase Agreement, the Indenture and in the C
Note Offering Memorandum (including the use of the proceeds from the sale of the
C Notes as described in the C Note Offering Memorandum under the caption "Use Of
Proceeds") and compliance by the Company with its obligations under the Purchase
Agreement, the Indenture and the C Notes will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event under or result in the creation or imposition
of any
D-5
<PAGE>
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument
identified to them by the Company to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company, or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary thereof or
any of their respective properties, assets or operations, that is identified to
such counsel by the Company;
(xvii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act; and
(xviii) There are no restrictions (legal, contractual or otherwise)
on the ability of the U.S. Designated Subsidiaries to declare and pay dividends
or make any payment or transfer of property or assets to their shareholders
other than those referred to in the C Note Offering Memorandum.
(xix) The form of certificate used to evidence the C Notes complies
in all material respects with all applicable statutory requirements and with any
applicable requirements of the charter and by-laws of the Company.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the C Note Offering
Memorandum (except for their opinions under paragraphs [(xi), (xiii) and (xiv)]
above insofar as such statements concern legal matters) and that they have
participated in conferences with the Company, representatives of the Initial
Purchaser and their counsel and the independent public accountants for the
Company at which the C Note Offering Memorandum was prepared and the contents
thereof and related matters were discussed. In the course of these conferences
and discussions, no facts have come to their attention that would lead them to
believe that the C Note Offering Memorandum (except for financial statements and
schedules and other financial data included or incorporated by reference therein
as to which they need make no statement), at the time the C Note Offering
Memorandum was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of Dutch law, upon the opinion of Baker & McKenzie,
special Netherlands counsel
D-6
<PAGE>
to Poland Cablevision (Netherlands) B.V. (which opinion shall be delivered to
the Initial Purchaser at the Closing Time pursuant to the provisions of Section
5(a)(ii)), of the C Note Purchase Agreement, (B) as to matters involving the
application of English law, upon the opinion of Ashurst Morris Crisp, special
English counsel to the Company (which opinion shall be delivered to the Initial
Purchaser at the Closing Time pursuant to the provisions of Section 5(a)(iii)),
(C) as to matters involving the application of Polish law, upon the opinion of
Baker & McKenzie Sp z.o.o., special Polish counsel to the Company (which opinion
shall be delivered to the Initial Purchaser at the Closing Time pursuant to the
provisions of Section 5(a)(i)) of the C Note Purchase Agreement), and (D) as to
matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
D-7
<PAGE>
Exhibit E
FORM OF POLISH LAW OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) Each Polish Designated Subsidiary has been duly incorporated and
is validly existing as a corporation under the laws of the Republic of Poland,
has corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the C Note Offering Memorandum and is
not required to be qualified as a foreign corporation to transact business in
any jurisdiction in which it owns or leases property or conducts business; all
of the issued and outstanding capital stock of each Polish Designated Subsidiary
has been duly authorized and validly issued, is fully paid and non-assessable
and, to the best of their knowledge and information, except as otherwise
disclosed in the C Note Offering Memorandum, is owned by the Company, directly
or through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity, except in the case of any Polish
limited liability company, any statutory liability for taxes and for the Share
Pledges;
(ii) Except as described in the C Note Offering Memorandum, there is
not pending or, to the best of their knowledge, threatened, any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of (1) the Purchase Agreement, the Indenture
or the C Notes or the performance by the Company of its obligations thereunder
or (2) the transactions contemplated by the C Note Offering Memorandum;
(iii) The Company and its Polish Designated Subsidiaries have good
and marketable title to all real property owned by them, in each case free and
clear of all liens, encumbrances and defects, except the Asset Encumbrances,
such as are described in the C Note Offering Memorandum or such as do not result
in a Material Adverse Effect; and any real property and buildings held under
lease by the Company and its Polish Designated Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as do not
result in a Material Adverse Effect;
(iv) The information in the C Note Offering Memorandum under "Risk
Factors - Regulation of the Polish Cable Television Industry", "Risk Factors -
Polish Regulation of the DTH Market", "Risk Factors - Limitations on Foreign
Ownership of Multi-Channel Pay Television Operators and Broadcasters", the first
four paragraphs of "Risk
<PAGE>
Factors - Regulation of Competition", the first, second, third and fifth
paragraph of "Risk Factors Political and Economic Risks; Enforcement of Foreign
Judgments", "Business -Property", "Business - Legal Proceedings", "Regulation",
and "Certain Relationships and Related Transactions", to the extent that it
constitutes matters of law, summaries of legal matters, the charter and bylaws
(or similar organizational documents) of any subsidiaries of the Company or
legal proceedings, or legal conclusions, has been reviewed by them and is
correct in all material respects;
(v) All descriptions in the C Note Offering Memorandum of contracts
and other documents to which the Company or any of its subsidiaries is a party
are accurate in all material respects; to the best of their knowledge, there are
no franchises, contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments that would be required to be described in the C Note
Offering Memorandum, if the C Note Offering Memorandum were a prospectus filed
as part of a registration statement on Form S-1 under the 1933 Act, that are not
described or referred to in the C Note Offering Memorandum other than those
described or referred to therein or incorporated by reference thereto, and the
descriptions thereof or references thereto are correct in all material respects;
(vi) None of the Polish Designated Subsidiaries is in violation of
its charter or by-laws (or other similar organizational documents) nor is the
Company or any of its subsidiaries in violation of any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties, except
for such violations as are specifically identified as such and described in the
C Note Offering Memorandum and except for such violations that would not result
in a Material Adverse Effect and no default by the Company or any of its
subsidiaries exists in the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is described
or referred to in the C Note Offering Memorandum, except such defaults as are
specifically identified and described in the C Note Offering Memorandum and
except for such defaults that would not result in a Material Adverse Effect;
(vii) The execution, delivery and performance of the Purchase
Agreement, the Indenture and the C Notes and the consummation of the
transactions contemplated in the Purchase Agreement and in the C Note Offering
Memorandum (including the use of the proceeds from the sale of the C Notes as
described in the C Note Offering Memorandum under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the Purchase Agreement,
the Indenture and the C Notes will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument,
known to them, to which the Company or any subsidiary
E-2
<PAGE>
thereof is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary thereof is subject
nor will such action result in any violation of the provisions of the charter or
by-laws (or other similar organizational documents) of any Polish subsidiary of
the Company, or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary thereof or
any of their respective properties, assets or operations;
(viii) Except as described in the C Note Offering Memorandum, each
of the Polish Designated Subsidiaries owns or possesses or has obtained all
material governmental licenses, certificates, permits, concessions, consents,
orders, approvals and other authorizations necessary to hold all concessions,
leases and permits or own its properties, including, without limitation, all
licenses and permits relating to intellectual property, and to carry on its
business as presently conducted and as contemplated in the C Note Offering
Memorandum, and, to the best of their knowledge after due inquiry, none of the
Designated Subsidiaries has received any notice relating to the revocation or
modification of any such concession, license, certificate, permit, consent,
order, approval or other authorizations;
(ix) Each of the Management Agreements (as such term is defined in
the Indenture) has been duly authorized, executed and delivered by the parties
thereto and constitutes a valid and binding agreement of each of the parties
thereto, enforceable against each of the parties thereto in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors? rights generally, or by general principles
of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law);
(x) There are no restrictions (legal, contractual or otherwise) on
the ability of the Polish Designated Subsidiaries to declare and pay dividends
or make any payment or transfer of property or assets to their shareholder other
than those described in the C Note Offering Memorandum and except for the Share
Pledges and the Asset Encumbrances; and such descriptions, if any, fairly
summarize such restrictions; and
(xi) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the C Notes
will be offered or sold, as to which they need express no opinion) is required
in connection with the due authorization, execution and delivery of the Purchase
Agreement, the Indenture or for the offering, issuance, sale or delivery of the
C Notes to the Initial Purchaser or the resale by the Initial Purchaser in
accordance with the Purchase Agreement.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements
E-3
<PAGE>
contained in the C Note Offering Memorandum (except for their opinions under
paragraphs (iv), (v) and (x) above insofar as such statements concern legal
matters) and that they have participated in conferences with the Company,
representatives of the Initial Purchaser and their counsel and the independent
public accountants for the Company at which the C Note Offering Memorandum was
prepared and the contents thereof and related matters were discussed. In the
course of these conferences and discussions, no facts have come to their
attention that would lead them to believe that the C Note Offering Memorandum
(except for financial statements and schedules and other financial data included
or incorporated by reference therein as to which they need make no statement),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the C Note Offering Memorandum or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included or incorporated by reference therein, as to which such
counsel need make no statement), at the time the C Note Offering Memorandum was
issued, at the time any such amended or supplemented C Note Offering Memorandum
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of Netherlands law, upon the opinion of Baker &
McKenzie, special Netherlands counsel to the Company (which opinion shall be
delivered to the Initial Purchaser at the Closing Time pursuant to the
provisions of section 5(a)(ii) of the C Note Purchase Agreement), (B) as to
matters involving the application of English law, upon the opinion of Ashurst
Morris Crisp, special English counsel to the Company (which opinion shall be
delivered to the Initial Purchaser at the Closing Time pursuant to the
provisions of Section 5(a)(iii) of the C Note Purchase Agreement) and (C) as to
matters involving the application of the law of the State of New York, the
General Corporation Law of the State of Delaware and the federal law of the
United States, upon the opinion of Baker & McKenzie, United States counsel to
the Company (which opinion shall be delivered to the Initial Purchaser at the
Closing Time pursuant to the provisions of Section 5(a)(i) of the C Note
Purchase Agreement) and (D) as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. Such opinion shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
E-4
<PAGE>
Exhibit F
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) Sereke has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Netherlands, has corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the C Note Offering Memorandum and is duly registered
with the local Dutch trade register. Under Dutch law, Sereke is not required to
be qualified as a foreign corporation to transact business in the Netherlands.
Of the issued and outstanding capital stock of Sereke, consisting of 375 shares,
75 have been duly authorized and validly issued, are fully paid and
non-assessable. @Entertainment owns all 75 shares free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity;
(ii) There are no restrictions (legal, contractual or otherwise) on
the ability of Sereke to declare and pay dividends or make any payment or
transfer of property or assets to its shareholders other than those described in
the C Note Offering Memorandum and such descriptions, if any, fairly summarize
such restrictions;
(iii) Except as described in the C Note Offering Memorandum there is
not pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which Sereke is a party, or to which
the property of Sereke is subject, before or brought by any Dutch court or
governmental agency or body, which might be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of (1) the
C Note Purchase Agreement or the performance by the Company of its obligations
hereunder (if any) or (2) the transactions contemplated by the C Note Offering
Memorandum;
(iv) All descriptions in the C Note Offering Memorandum of contracts
and other documents to which Sereke is a party are accurate in all material
respects; to the best of their knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments that
would be required to be described in the C Note 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 or referred to in the C Note Offering Memorandum
other than those described or referred to therein, and the descriptions thereof
and references thereto are correct in all material respects;
(v) Sereke is not in violation of its statutes or by-laws (or other
similar organizational documents) nor, to the best of their knowledge, is Sereke
in violation of any
<PAGE>
applicable Dutch law, statute, rule, regulation, judgment, order, writ or decree
of any Dutch government, government instrumentality or court having jurisdiction
over Sereke or any of its assets or properties, except as described in the C
Note Offering Memorandum, and no default by Sereke exists in the due performance
or observance of any obligation, agreement, covenant or condition contained in
any contract, license, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the C Note Offering
Memorandum, except as described in the C Note Offering Memorandum and except for
such defaults that would not result in a Material Adverse Effect;
(vi) Except as otherwise disclosed in the C Note Offering
Memorandum, Sereke owns or possesses or has obtained all material licenses,
certificates, permits, concessions, consents, orders, approvals and other
governmental authorizations necessary to hold all its concessions, leases and
permits or own its properties, including, without limitation, all licenses and
permits relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the C Note Offering Memorandum, and
Sereke has not received any notice relating to the revocation or modification of
any such concession, license, certificate, permit, consent, order, approval or
other authorizations;
(vii) No authorization, approval, consent or order of any Dutch
court or Dutch governmental authority or agency (other than such as may be
required under the applicable securities laws of the various jurisdictions in
which the C Notes will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Purchase Agreement or the Indenture or for the
offering, issuance, sale or delivery of the C Notes to the Initial Purchaser;
and
(viii) The information in the C Note Offering Memorandum under the
seventh paragraph of "Risk Factors - Political and Economic Risks; Enforcement
of Foreign Judgments", to the extent that it constitutes matters of law,
summaries of legal matters, or legal conclusions, has been reviewed by them and
is correct in all material respects.
F-2
<PAGE>
Exhibit F
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) PCBV has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Netherlands, has corporate
power and authority to own, lease and operate its properties, to act as a
holding company and to conduct its business as described in the C Note Offering
Memorandum and is duly registered with the local Dutch trade register. Under
Dutch law, PCBV is not required to be qualified as a foreign corporation to
transact business in the Netherlands. All of the issued and outstanding capital
stock of PCBV, consisting of 200,000 shares, has been duly authorized and
validly issued, is fully paid and non-assessable. @Entertainment owns 184,600
out of such 200,000 shares (92.3% of the total) free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(ii) There are no restrictions (legal, contractual or otherwise) on
the ability of PCBV to declare and pay dividends or make any payment or transfer
of property or assets to its shareholders other than those described in the C
Note Offering Memorandum and such descriptions, if any, fairly summarize such
restrictions;
(iii) Except as described in the C Note Offering Memorandum there is
not pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which PCBV is a party, or to which the
property of PCBV is subject, before or brought by any Dutch court or
governmental agency or body, which might be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of (1) the
C Note Purchase Agreement or the performance by the Company of its obligations
hereunder (if any) or (2) the transactions contemplated by the C Note Offering
Memorandum;
(iv) All descriptions in the C Note Offering Memorandum of contracts
and other documents to which PCBV is a party are accurate in all material
respects; to the best of their knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments that
would be required to be described in the C Note 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 or referred to in the C Note Offering Memorandum
other than those described or referred to therein, and the descriptions thereof
and references thereto are correct in all material respects;
(v) PCBV is not in violation of its statutes or by-laws (or other
similar organizational documents) nor, to the best of their knowledge, is PCBV
in violation of any
F-3
<PAGE>
applicable Dutch law, statute, rule, regulation, judgment, order, writ or decree
of any Dutch government, government instrumentality or court having jurisdiction
over PCBV or any of its assets or properties, except as described in the C Note
Offering Memorandum, and no default by PCBV exists in the due performance or
observance of any obligation, agreement, covenant or condition contained in any
contract, license, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the C Note Offering
Memorandum, except as described in the C Note Offering Memorandum and except for
such defaults that would not result in a Material Adverse Effect;
(vi) Except as otherwise disclosed in the C Note Offering
Memorandum, PCBV owns or possesses or has obtained all material licenses,
certificates, permits, concessions, consents, orders, approvals and other
governmental authorizations necessary to hold all its concessions, leases and
permits or own its properties, including, without limitation, all licenses and
permits relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the C Note Offering Memorandum, and
PCBV has not received any notice relating to the revocation or modification of
any such concession, license, certificate, permit, consent, order, approval or
other authorizations;
(vii) No authorization, approval, consent or order of any Dutch
court or Dutch governmental authority or agency (other than such as may be
required under the applicable securities laws of the various jurisdictions in
which the C Notes will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Purchase Agreement or the Indenture or for the
offering, issuance, sale or delivery of the C Notes to the Initial Purchaser;
and
(viii) The information in the C Note Offering Memorandum under the
seventh paragraph of "Risk Factors - Political and Economic Risks; Enforcement
of Foreign Judgments", to the extent that it constitutes matters of law,
summaries of legal matters, or legal conclusions, has been reviewed by them and
is correct in all material respects.
F-4
<PAGE>
Exhibit G
FORM OF OPINION OF COMPANY'S ENGLISH COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(a)(iii)
(i) At Entertainment Limited ("AEL") has been duly incorporated and
is validly existing as a limited liability company under the laws of England and
Wales, has corporate power and authority to own and lease its properties and to
conduct its business as described in the C Note Offering Memorandum and is not
required to obtain further authorization to transact business or to own or lease
property in England and Wales; all of the issued and outstanding shares of AEL
have been duly authorized and validly issued. Of the issued and outstanding
shares of AEL, two shares with a par value of ?1 each are fully paid and the
remaining 9,998 shares of AEL with a par value of ?1 each are paid to an amount
of 10 pence per share and such shares are subject to a call by AEL in accordance
with its Articles of Association. Apart from the foregoing call, their searches
at Companies House in respect of AEL did not reveal any security interest,
mortgage, pledge, lien, encumbrance, claim or equity affecting the issued shares
of AEL;
(ii) They have not been instructed by the Company, AEL or any
subsidiary nor have any notice from our searches of the registry of the High
Court of England and Wales of any action, suit, proceeding, inquiry or
investigation, to which the Company or any subsidiary is a party, or to which
the property of AEL is subject, before or brought by any court or governmental
agency or body, which might be expected to result in a Material Adverse Effect
on AEL;
(iii) They have no notice that any real property has been acquired
by AEL whether by purchase or lease other than Maidstone Studios, Vinters Park,
Kent and lease of premises in Conduit Street, London;
(iv) The information in the C Note Offering Memorandum under "Risk
Factors - Dependence on Philips as Principal Supplier", "Risk Factors Dependence
on Satellites", "Risk Factors - Availability of Programming and Dependence on
Third Party Programmers; Program Development Risk" (other than the specification
of any financial commitments of the Company), "Risk Factors - United Kingdom
Regulation of D-DTH Business", "Risk Factors - European Union Regulation of
D-DTH Business", "Risk Factors - Regulation of Competition" (insofar as it does
not relate to Poland), the sixth paragraph of "Risk Factors - Political and
Economic Risks; Enforcement of Foreign Judgments", "Regulation - United
Kingdom", and "Regulation - European Union", to the extent that it constitutes
matters of law, summaries of legal matters, or legal proceedings, or legal
conclusions, has been reviewed by them and is correct in all material respects;
(v) All summaries in the C Note Offering Memorandum of the satellite
television services license issued by the Independent Television Commission (the
"ITC License")
<PAGE>
for the channels known as Atomic TV, Wizja 1, Wizja Sport, Wizja Pogoda and
Twoja Wizja Na Zywo and of the contracts for transponders on Astra IE and IF
satellites, the Commercial Co-operation Agreement with Philips or agreements set
out at Schedule 1 to which AEL is a party are accurate summaries of the matters
summarized; they have no notice that there are any franchises, contracts,
licenses, indentures, mortgages, loan agreements, notes, leases or other
instruments relating to AEL that are not described or referred to in the C Note
Offering Memorandum and the descriptions thereof and references thereto are
correct in all material respects;
(vi) AEL is not in violation of its Memorandum and Articles of
Association and, we have no notice that AEL is in violation of any applicable
English law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court having jurisdiction over AEL in
England or any of its assets or properties in England, except as described in
the C Note Offering Memorandum, and as set out in paragraph D of this Opinion we
have no notice that any default by AEL exists in the due performance or
observance of any obligation, agreement, covenant or condition of AEL contained
in any contract, license, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the C Note
Offering Memorandum referred to in paragraph (iv) above or in a Schedule
attached to the opinion.
(vii) The execution, delivery and performance of the Purchase
Agreement and the Indenture and the consummation of the transactions
contemplated therein and in the C Note Offering Memorandum (including the use of
proceeds from the sale of the C Notes and described in the C Note Offering
Memorandum under the caption "Use of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement, the C Notes and the
Indenture, will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any lien, charge or encumbrance under
English law upon any property or assets of AEL pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any
other agreement or instrument, notified to them, to which AEL is a party or by
which it may be bound, or to which any of the property or assets of AEL is
subject, nor will such action result in any violation of the provisions of the
Memorandum and Articles of Association of AEL, or any applicable English law,
statute, rule, regulation, judgment, order, writ or decree, of any government,
government instrumentality or court having jurisdiction in England over AEL or
any of its respective properties, assets or operations in England;
(viii) AEL owns or possesses or has obtained all material
governmental licenses, certificates, permits, concessions, consents, orders,
approvals and other authorizations in England, as disclosed in the C Note
Offering Memorandum, necessary to hold all concessions, leases and permits or
own its properties, including, without limitation, all broadcasting licenses and
permits relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the C Note Offering Memorandum, and
they have no notice that AEL has received any notice relating to the revocation
or modification of any such concession, license, certificate, permit, consent,
order, approval or other authorizations;
G-2
<PAGE>
(ix) Other than as described in the C Note Offering Memorandum,
there are no restrictions (legal, contractual or otherwise) on the ability of
AEL to declare and pay dividends in accordance with applicable English company
law, and other than as imposed by law on English companies generally, there are
no restrictions (legal, contractual or otherwise) on the ability of AEL to make
any payment or transfer of property or assets to its shareholder; and
(x) No authorization, approval, consent or order of any court or
governmental authority or agency in England which regulates the operations of
AEL is required in connection with the due authorization, execution and delivery
of the Purchase Agreement and the Indenture, or for the offering, issuance, sale
or delivery of the C Notes to the Initial Purchaser. They need give no opinion
as to whether the due authorization, execution and delivery by the Company of
the Purchase Agreement and the Indenture or the offering, issuance, sale or
delivery of the C Notes to the Initial Purchaser complies with applicable
securities laws in England and Wales or any other jurisdiction.
G-3
<PAGE>
Table of Contents
PURCHASE AGREEMENT...........................................................1
SECTION 1. Representations and Warranties...........................2
(a) Representations and Warranties by the Company............2
(i) Similar Offerings...............................2
(ii) C Notes Offering Memorandum.....................2
(iii) Independent Accountants.........................3
(iv) Financial Statements............................3
(v) No Material Adverse Change in Business..........3
(vi) Good Standing of the Company....................3
(vii) Corporate Standing of Designated Subsidiaries...4
(viii) Restrictions on Payments of Dividends...........4
(ix) Capitalization..................................5
(x) Authorization of Agreement......................5
(xi) Authorization of the Indenture..................5
(xii) Authorization of the C Notes....................5
(xiii) Description of the Indenture....................6
(xiv) Absence of Defaults and Conflicts...............6
(xv) Absence of Labor Dispute........................7
(xvi) Absence of Proceedings..........................7
(xvii) Possession of Intellectual Property.............7
(xviii) Absence of Further Requirements.................8
(xix) Possession of Licenses and Permits..............8
(xx) No Additional Documents.........................9
(xxi) Management Agreements...........................9
(xxii) Title to Property...............................9
(xxiii) Tax Returns.....................................9
(xxiv) Environmental Laws.............................10
(xxv) Investment Company Act.........................10
(xxvi) Internal Controls..............................10
(xxvii) Taxes on Subsidiary Indebtedness...............11
(xxviii) Insurance......................................11
(xxix) Rule 144A Eligibility..........................11
(xxx) No General Solicitation or Directed Selling Effort
in Contravention of Regulation S of the Securities
Act............................................11
(xxxi) No Registration Required.......................12
(xxxii) Reporting Company..............................12
(b) Officers' Certificates..................................12
SECTION 2. Sale and Delivery to the Initial Purchaser; Closing.....12
(a) C Notes.................................................12
(b) Payment.................................................12
G-i
<PAGE>
(c) Qualified Institutional Buyer...........................12
(d) Denominations; Registration.............................13
SECTION 3. Covenants of the Company................................13
(a) C Notes Offering Memorandum.............................13
(b) Notice and Effect of Material Events....................13
(c) Amendment to Offering Memorandum and Supplements........13
(d) Qualification of C Notes for Offer and Sale.............14
(e) Euroclear...............................................14
(f) Use of Proceeds.........................................14
(g) Restriction on Sale of C Notes..........................14
SECTION 4. Payment of Expenses.....................................14
(a) Expenses................................................14
(b) Termination of Agreement................................15
SECTION 5. Conditions of the Initial Purchaser' Obligations........15
(a) Opinions of Counsel for the Company.....................15
(b) Opinion of United States Counsel for the Initial
Purchaser...............................................15
(c) Opinion of Polish Counsel for the Initial Purchaser.....16
(d) Officers' Certificate...................................16
(e) Accountants' Comfort Letter.............................16
(f) Bring-down Comfort Letter...............................16
(g) Euroclear...............................................16
(h) Additional Documents....................................16
(i) Termination of Agreement................................17
SECTION 6. Subsequent Offers and Resales of the C Notes............17
(a) Offer and Sale Procedures...............................17
(i) Offers and Sales only to Qualified Institutional
Buyers...........................................17
(ii) No General Solicitation..........................17
(iii) Purchases by Non-Bank Fiduciaries................17
(iv) Subsequent Purchaser Notification................17
(v) Restrictions on Transfer.........................18
(b) Covenants of the Company................................18
(i) Due Diligence....................................18
(ii) Integration......................................18
(iii) Restriction on Repurchases.......................19
(c) Resale Pursuant to Rule 144A or Regulation S............19
(d) Offers and Sales in Poland and The Netherlands..........19
(e) Offers and Sales in the United Kingdom..................20
(f) Representation and Warranty of the Initial Purchaser....20
SECTION 7. Indemnification.........................................20
(a) Indemnification of the Initial Purchaser................20
(b) Indemnification of the Company, Directors and Officers..21
(c) Actions Against Parties; Notification...................21
(d) Settlement Without Consent if Failure to Reimburse......22
G-ii
<PAGE>
SECTION 8. Contribution............................................22
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery................................................23
SECTION 10. Termination of Agreement................................24
(a) Termination; General....................................24
(b) Liabilities.............................................24
SECTION 11. [Reserved]..............................................24
SECTION 12. Notices.................................................24
SECTION 13. Parties.................................................24
SECTION 14. GOVERNING LAW AND TIME..................................25
SECTION 15. Effect of Headings......................................25
SECTION 16. Counterparts............................................25
G-iii
<PAGE>
Exhibit 10.5
EXECUTION COPY
==============================================================================
@ENTERTAINMENT, INC.
(a Delaware corporation)
256,800 Units Consisting of
14 1/2 Senior Discount Notes due 2009 and
1,027,200 Warrants to Purchase an Aggregate of
1,813,665 Shares of Common Stock
PURCHASE AGREEMENT
Dated: January 22, 1999
==============================================================================
<PAGE>
Table of Contents
<TABLE>
<S> <C>
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........................................4
(iv) Financial Statements...........................................4
(v) No Material Adverse Change in Business.........................4
(vi) Good Standing of the Company...................................4
(vii) Corporate Standing of Designated Subsidiaries..................5
(viii) Restrictions on Payments of Dividends..........................5
(ix) Capitalization.................................................6
(x) Authorization of Agreement.....................................6
(xi) Authorization of the Registration Rights Agreement.............6
(xii) Authorization of the Indenture.................................6
(xiii) Authorization of the Notes.....................................7
(xiv) Authorization of the Warrant Agreement.........................7
(xv) Authorization of the Warrants..................................7
(xvi) Authorization of the Warrant Shares............................7
(xvii) Authorization of the Warrant Registration Rights Agreement.....8
(xviii) Authorization of Preference Securities.........................8
(xix) 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
(xx) Absence of Defaults and Conflicts..............................8
(xxi) Absence of Labor Dispute.......................................9
(xxii) Absence of Proceedings........................................10
(xxiii) Possession of Intellectual Property...........................10
(xxiv) Absence of Further Requirements...............................10
(xxv) Possession of Licenses and Permits............................11
(xxvi) No Additional Documents.......................................11
(xxvii) Management Agreements.........................................12
(xxviii) Title to Property.............................................12
(xxix) Tax Returns...................................................12
(xxx) Environmental Laws............................................12
(xxxi) Investment Company Act........................................13
(xxxii) Internal Controls.............................................13
(xxxiii) Taxes on Subsidiary Indebtedness..............................14
(xxxiv) Insurance.....................................................14
</TABLE>
G-i
<PAGE>
<TABLE>
<S> <C>
(xxxv) Rule 144A Eligibility.........................................14
(xxxvi) No General Solicitation.......................................14
(xxxvii) No Registration Required......................................14
(xxxviii) No Registration of Preference Securities Required.............14
(xxxix) Reporting Company.............................................15
(b) Officers' Certificates...................................................15
SECTION 2. Sale and Delivery to the Initial Purchasers; Closing.....................15
(a) Securities...............................................................15
(b) Payment..................................................................15
(c) Qualified Institutional Buyer............................................15
(d) Denominations; Registration..............................................15
SECTION 3. Covenants of the Company.................................................16
(a) Offering Memorandum......................................................16
(b) Notice and Effect of Material Events.....................................16
(c) Amendment to Offering Memorandum and Supplements.........................16
(d) Qualification of Securities for Offer and Sale...........................16
(e) DTC and PORTAL...........................................................17
(f) Use of Proceeds..........................................................17
(g) Restriction on Sale of Securities........................................17
(h) Notification of Current Accumulated Earnings & Profits...................17
SECTION 4. Payment of Expenses......................................................17
(a) Expenses.................................................................17
(b) Termination of Agreement.................................................18
SECTION 5. Conditions of the Initial Purchasers' Obligations........................18
(a) Opinions of Counsel for the Company......................................18
(b) Opinion of United States Counsel for the Initial Purchasers..............18
(c) Opinion of Polish Counsel for the Initial Purchasers.....................18
(d) Officers' Certificate....................................................19
(e) Accountants' Comfort Letter..............................................19
(f) Bring-down Comfort Letter................................................19
(g) PORTAL...................................................................19
(h) Additional Documents.....................................................19
(i) Execution of Agreements..................................................20
(j) Consummation of Sale of Preference Securities............................20
(k) Termination of Agreement.................................................20
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
</TABLE>
G-ii
<PAGE>
<TABLE>
<S> <C>
(ii) No General Solicitation.......................................20
(iii) Purchases by Non-Bank Fiduciaries.............................20
(iv) Subsequent Purchaser Notification.............................21
(v) Restrictions on Transfer......................................21
(b) Covenants of the Company.................................................21
(i) Due Diligence.................................................21
(ii) Integration...................................................22
(iii) Rule 144A Information.........................................22
(iv) Restriction on Repurchases....................................22
(c) Resale Pursuant to Rule 144A..................................22
(d) Offers and Sales in Poland and The Netherlands...........................23
(e) Offers and Sales in the United Kingdom...................................23
(f) Representation and Warranty of the Initial Purchasers....................23
SECTION 7. Indemnification..........................................................23
(a) Indemnification of the Initial Purchasers................................23
(b) Indemnification of the Company, Directors and Officers...................24
(c) Actions Against Parties; Notification....................................25
(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..............................................................28
SECTION 11. Default by One or More of the Initial Purchasers.........................28
SECTION 12. Notices..................................................................28
SECTION 13. Parties..................................................................28
SECTION 14. GOVERNING LAW AND TIME...................................................29
SECTION 15. Effect of Headings.......................................................29
SECTION 16. Counterparts.............................................................29
</TABLE>
G-iii
<PAGE>
@ENTERTAINMENT, INC.
(a Delaware corporation)
256,800 Units Consisting of
14 1/2 Senior Discount Notes due 2009 and
1,027,200 Warrants to Purchase an Aggregate of
1,8133,665 Shares of Common Stock
PURCHASE AGREEMENT
January 22, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Deutsche Bank Securities Inc.
133 Houndsditch
London
EC3A 7DX
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 Deutsche Bank Securities Inc. (collectively,
the "Initial Purchasers"), with respect to the issue and sale by the Company and
the purchase by the Initial Purchasers of 256,800 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 2009 (the "Notes") and four
warrants (each a "Warrant" and collectively, the "Warrants" and, together with
the Units and the Notes, the "Securities"), each Warrant initially entitling the
holder thereof to purchase 1.7656 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 to be dated on or about January 27, 1999 (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 on or about
January 27, 1999 (the "Warrant Agreement"), between the 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
<PAGE>
be dated as of the Closing Time (as defined in Section 2(b)) (the "DTC
Agreement"), among the Company, the Trustee and DTC.
Concurrently with the sale of the Securities the Company has entered into
separate agreements for the sale of shares ("Preference Shares") and warrants
("Preference Warrants" and, together with the Preference Shares, the "Preference
Securities") for aggregate gross proceeds of $50 million.
On January 20, 1999 the Company completed the sale of $36,001,321
principal amount at maturity of Series C Senior Discount Notes due 2008 (the
"Series C Notes"). The Series C Notes were issued at a discount to their
aggregate principal for gross proceeds to the Company of approximately $9.8
million.
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 January 14, 1999 (the "Preliminary
Offering Memorandum") and has prepared and will deliver to each Initial
Purchaser on the date hereof
2
<PAGE>
or the next succeeding day, copies of a final Offering Memorandum dated January
22, 1999 (the "Final Offering Memorandum") for use by the Initial Purchasers in
connection with their 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
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.
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. Neither of its date nor as of the Closing
Time the Final Offering Memorandum, including any amendment or supplement
thereto, includes or will include an untrue statement of a material fact
or omits 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 expressly for use in 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.
3
<PAGE>
(iv) Financial Statements. The financial statements, together with
the related schedules and notes, of the Company included in the Offering
Memorandum present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Offering Memorandum present fairly in accordance with GAAP
the information required to be stated therein. The selected financial data
and the summary financial information included in the Offering Memorandum
present fairly the information shown therein and have been compiled on a
basis consistent with that of the audited financial statements included in
the Offering Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise (a "Material Adverse Effect"), whether or not
arising in the ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its subsidiaries, other
than 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, the Securities and the Preference 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
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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 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 1,818 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 $0.5 million granted on
October 7, 1996 by Polski Bank Rozwoju (which was bought by Bank Rozucju
Eksportu S.A. in July of 1998) 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 at September 30, 1998 was as set forth under the
caption "Capitalization"
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under the heading "Actual" 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 (i) issuances of shares of Common Stock upon the exercise of options
disclosed to be outstanding in the Offering Memorandum and (ii) the
authorization and issuance of the Series A Cumulative Preference Shares,
the Series B Cumulative Preference Shares, the Preference Warrants and the
Warrants as described 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 issued in violation
of the preemptive or other similar rights of any security holder 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, when executed and delivered 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 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, when executed and delivered by
the Trustee, 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
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<PAGE>
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 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
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<PAGE>
and, at the Closing Time, will have been duly executed and delivered by
the Company and, when executed and delivered 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) Authorization of Preference Securities. The Preference
Securities have been duly authorized by the Company and will conform in
all respects to all statements relating thereto contained in the Offering
Memorandum and the descriptions thereof in the Offering Memorandum conform
in all material respects to the rights set forth in the instruments
defining same. At Closing Time the Preference Shares will have been
validly issued, fully paid and non assessable. The Preference Warrants
will have been duly authorized, and when executed and issued in the manner
provided for in the governing instruments and delivered against payment of
the purchase price will constitute valid, 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).
(xix) 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. The Registration
Rights Agreement, Warrant Registration Rights Agreement, the Units, the
Notes, the Warrants, the Common Stock, the Warrant Agreement, the
Indenture and the Preference Securities 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.
(xx) 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
8
<PAGE>
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, the Securities and the Preference
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 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.
(xxi) 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.
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<PAGE>
(xxii) 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.
(xxiii) Possession of Intellectual Property. Except as disclosed in
the Offering Memorandum, the Company and its subsidiaries own or possess,
or can acquire on reasonable terms, adequate patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on the business now operated by them. Except
as disclosed in the Offering Memorandum, neither the Company nor any of
its subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.
(xxiv) 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
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Agreement, the Registration Rights Agreement, the Warrant Registration
Rights Agreement, the Offering Memorandum or the Preference Securities 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, the Warrant
Registration Rights Agreement, or the Preference Securities.
(xxv) 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 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.
(xxvi) 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.
(xxvii) Management Agreements. Each of the Management Agreements (as
such term is defined in the Indenture) to which any subsidiary of the
Company is a
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<PAGE>
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.
(xxviii) 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.
(xxix) Tax Returns. Except as disclosed in the Offering Memorandum,
the Company and its subsidiaries have filed all domestic and foreign tax
returns that are required to be filed or have duly requested extensions
thereof and have paid all taxes required to be paid by any of them and any
related assessments, fines or penalties, except for any such tax,
assessment, fine or penalty that is being contested in good faith and by
appropriate proceedings, and except for such claims as could not result in
a Material Adverse Effect; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all domestic and foreign taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
(xxx) 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
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<PAGE>
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.
(xxxi) 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").
(xxxii) 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 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.
(xxxiii) 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,
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<PAGE>
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.
(xxxiv) 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.
(xxxv) 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.
(xxxvi) 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 or Preference Securities, in any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(xxxvii) 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 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").
(xxxviii) No Registration of Preference Securities Required. Subject
to compliance by the purchasers with representations and warranties
contained in the governing instruments thereto, it is not necessary in
connection with the offer, sale and delivery of the Preference Securities
to register the Preference Securities under the 1933 Act.
(xxxix) Reporting Company. The Company is subject to, and has
complied with all applicable reporting requirements of Section 13 or
Section 15(d) of the 1934 Act.
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(b) Officers' Certificates. Any certificate titled "Officers' Certificate"
or the "Secretary's Certificate" signed by any officer of the Company or any of
its subsidiaries which is delivered to Initial Purchasers or to counsel for
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 the 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 its name.
(b) Payment. Payment of the purchase price ($96,752,957) for, and delivery
of certificates for, the Securities shall be made at the office of Baker &
McKenzie, 815 Connecticut Avenue, N.W., Washington D.C., or at such other place
as shall be agreed upon by the Initial Purchasers and the Company, at 9:00 A.M.
on the third business day after the date hereof (January 27, 1999) (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
each Initial Purchaser for the account of such Initial Purchaser of certificates
for the Securities to be purchased by it.
(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 each Initial Purchaser 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 the
Initial Purchasers as follows:
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(a) Offering Memorandum. The Company, as promptly as possible, will
furnish to the Initial Purchasers, without charge, such number of copies of the
Final Offering Memorandum and any amendments and supplements thereto and
documents incorporated by reference therein as the Initial Purchasers may
reasonably request. The Company will use the Offering Memorandum only in
connection with offering of the Notes and Warrants being offered as Units and
not for any other purpose.
(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 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
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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) 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.
(f) 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".
(g) 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.
(h) Notification of Current Accumulated Earnings & Profits. The Company
will disclose its current and accumulated earnings and profits, if any, for each
fiscal year in its annual report on Form 10-K so long as it is required to file
such report. Thereafter, the Company will provide such information to any holder
of Securities, upon receipt of a written request from such holder.
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,
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
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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
its 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 the 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 the 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 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 the 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 certain of the
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matters set forth in Exhibit D hereto and to such other effect as the Initial
Purchasers and such counsel may reasonably agree.
(c) Opinion of Polish Counsel for the 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 the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum.
(f) Bring-down Comfort Letter. At the Closing Time, the Initial 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) PORTAL. At the Closing Time, the Securities shall have been designated
for trading on PORTAL.
(h) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as it may
require for the purpose of enabling it 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
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satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers.
(i) 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.
(j) Consummation of Sale of Preference Securities. The sale of Preference
Securities shall have been consummated on or before the Closing Time stipulated
in Section 2 of this Agreement.
(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 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.
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(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 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.
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(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
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")
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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. Each Initial Purchaser
has advised the Company and hereby represents and warrants to and agrees with
the Company that it will not offer or sell the Securities in Poland except in
accordance with Polish foreign exchange regulations under circumstances which do
not constitute a public offering or distribution of securities under Polish laws
and regulations. Each Initial Purchaser further agrees 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.
(e) Offers and Sales in the United Kingdom. Each Initial Purchaser hereby
represents, warrants and agrees that (i) it has not offered or sold and prior to
the expiration of the period six months after the date of issue of the
Securities will not offer to sell by means of any document any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on, and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
(f) Representation and Warranty of the Initial Purchasers. Each Initial
Purchaser 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 the Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
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(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 the Final Offering
Memorandum (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, 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 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 such loss,
liability, claim, damage or expense purchased the Securities which are the
subject thereof directly from the Initial Purchasers and if the Company shall
sustain the burden of proving that such person did not receive a copy of the
Final Offering Memorandum and the untrue statement contained in or omission from
such Preliminary Offering Memorandum was corrected in such Final Offering
Memorandum subject to the Company complying with its obligations under Sections
3(a), 3(b) and 3(c) of this Agreement.
(b) Indemnification of the Company, Directors and Officers. Each Initial
Purchaser 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
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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 the Initial Purchasers 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 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
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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.
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 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.
26
<PAGE>
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.
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.
27
<PAGE>
(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 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; and at Deutsche Bank
Legal Dept., 31 West 52nd Street, New York, NY 10019-6160 attention of Pamela
Kendall, Esq.; 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
28
<PAGE>
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 the Initial Purchasers 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.
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.
<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
/s/ ROBERT E. FOWLER, III
----------------------------------
Title: CHIEF EXECUTIVE OFFICER
By
/s/ DONALD MILLER JONES
----------------------------------
Title: CHIEF FINANCIAL OFFICER
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ MARISA D. DREW, DIRECTOR
----------------------------------
Authorized Signatory
DEUTSCHE BANK SECURITIES INC.
By /s/ R. MOHAMED
----------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Name of Underwriter Units
------------------- -----
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................ 179,760
Deutsche Bank Securities Inc. ............... 77,040
-------
Total........................................ 256,800
=======
<PAGE>
SCHEDULE B
@ENTERTAINMENT, INC.
256,800 Units, each Unit consisting of one $1,000 aggregate principal
amount at maturity of 14 1/2% Senior Discount Notes due 2009 and four Warrants,
each Warrant initially entitling the holder thereof to purchase 1.7656 shares of
Common Stock.
1. The initial offering price of the Units shall be $389.42 per Unit, plus
accreted amortization of original issue discount on the Notes, if any, from
January 27, 1999.
2. The purchase price to be paid by the Initial Purchasers for the Units
shall be $376.6764 per Unit, plus accreted amortization of original issue
discount on the Notes, if any, from January 27, 1999.
3. The interest rate on the Notes shall be 14 1/2% per annum; interest
will be payable semiannually in arrears on February 1 and August 1, commencing
August 1, 2004. Cash interest will not accrue prior to February 1, 2004.
4. The Notes will mature on February 1, 2009 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 150 of the Offering Memorandum
(and correspondingly in the Indenture) with respect to redemptions of Notes from
the proceeds of Public Equity Offerings shall be 117 1/2% of the Accreted Value
thereof, plus accrued and unpaid interest, if any, to the redemption date.
6. The redemption prices supplied on page 150 of the Offering Memorandum
(and correspondingly in the Indenture) relating to the Notes shall be:
Redemption
Year Price
---- -----
February 1, 2004 108.750%
February 1, 2005 105.833
February 1, 2006 102.917
February 1, 2007 and thereafter 100.000
Sch B-1
<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
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.
13. TV Kabel Sp. z o.o.
14. At Entertainment Limited
15. Poland Communications, Inc.
16. Poland Cablevision (Netherlands) B.V.
17. Sereke Holding B.V.
18. Wizja TV Sp. z o.o.
19. WPTS Sp. z o.o.
20. @Entertainment Programming, Inc.
Sch C-1
<PAGE>
Exhibit A
FORM OF REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
<PAGE>
Exhibit B
FORM OF WARRANT AGREEMENT
[Separately Attached]
<PAGE>
Exhibit C
FORM OF WARRANT REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
<PAGE>
Exhibit D
FORM OF UNITED STATES LAW OPINION OF COMPANY'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware;
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement, the Indenture and the Securities;
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect;
(iv) Each Designated Subsidiary incorporated in a jurisdiction in
the United States (collectively, the "U.S. Designated Subsidiaries") of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation; and all of
the issued shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) The authorized, issued and outstanding capital stock of the
Company at September 30, 1998 was as set forth in the Offering Memorandum under
the caption "Capitalization" under the heading "Actual"; the shares of issued
and outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
any preemptive or other similar rights of any security holder of the Company;
(vi) The Preference Securities have been duly authorized and conform
in all material respects to all statements relating thereto contained in the
Offering Memorandum, and the descriptions thereof in the Offering Memorandum
conform in all material respects to the rights set forth in the instruments
defining same. The Preference Shares are validly issued, fully paid and
non-assessable. The Preference Warrants, when executed by the Company and duly
issued and delivered in accordance with the instruments governing the Preference
<PAGE>
Securities, 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, and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law). No holder of Preference Securities will be
subject to personal liability by reason of being such a holder.
(vii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The Warrant Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Warrant Agent) constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, 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);
(ix) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and (assuming due authorization, execution
and delivery thereof by the Initial Purchasers) constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as (x) the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, (y) the enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and (z) any
rights to indemnity and contribution may be limited by federal and state
securities laws and public policy considerations;
(x) The Warrant Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and (assuming due
authorization, execution and delivery thereof by the Initial Purchasers)
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as (x) the enforcement thereof
may be limited by bankruptcy, insolvency (including without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, (y)
the enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law) and
(z) any rights to indemnity and contribution may be limited by federal and state
securities laws and public policy considerations;
D-2
<PAGE>
(xi) The Indenture has been duly authorized, executed and delivered
by the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law) and the
waiver contained in Section 514 thereof may be unenforceable due to interests of
public policy;
(xii) The Notes are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming that the Notes have been duly
executed by the Company and authenticated by the Trustee in the manner described
in its certificate delivered to you today (which fact such counsel need not
determine by an inspection of the Notes), the Notes have been duly issued and
delivered by the Company and 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 enforceability is considered in a proceeding in equity or
at law), and will be entitled to the benefits of the Indenture;
(xiii) The Warrants are in the form contemplated by the Warrant
Agreement, have been duly authorized by the Company and, when executed by the
Company and authenticated by the Warrant Agent in the manner provided in the
Warrant Agreement and issued and delivered against payment of the purchase price
therefor, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law) and will be entitled to the benefits of the
Warrant Agreement and the Warrant Registration Rights Agreement;
(xiv) 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;
(xv) The Registration Rights Agreement, the Warrant Registration
Rights Agreement, the Securities, the Common Stock, the Warrant Agreement, the
Indenture and
D-3
<PAGE>
conform in all material respects to the descriptions thereof contained in the
Offering Memorandum;
(xvi) Except as described in the Offering Memorandum, there is not
pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary
thereof is subject, or to which the property of the Company or any subsidiary
thereof is subject, before or brought by any court or governmental agency or
body, which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of (1) the transactions
contemplated in the Purchase Agreement, 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 thereunder
or (2) the transactions contemplated by the Offering Memorandum;
(xvii) The information in the Offering Memorandum under
"Compensation Plans", "Certain Relationships and Related Transactions",
"Description of Indebtedness", "Description of Capital Stock", "Description of
the Units", "Description of the Notes", "Description of the Warrants", "United
States Income Tax Considerations" (except for the Company's allocation of the
issue price as to which they need not express an opinion) and "Plan of
Distribution", to the extent that it constitutes matters of law, summaries of
legal matters or legal proceedings, or legal conclusions, has been reviewed by
them and is correct in all material respects;
(xviii) All descriptions in the Offering Memorandum of contracts,
licenses and other documents to which the Company or any of its subsidiaries is
a party are accurate in all material respects; to the best of their knowledge,
there are no franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments that would be required to be described in the
Offering Memorandum, if the Offering Memorandum were a prospectus filed as part
of a registration statement on Form S-1 under the 1933 Act, that are not
described or referred to in the Offering Memorandum other than those described
or referred to therein or incorporated by reference thereto, and the
descriptions thereof or references thereto are correct in all material respects;
(xix) Neither the Company nor any of its U.S. Designated
Subsidiaries is in violation of its certificate of incorporation or by-laws (or
other similar organizational documents); neither the Company nor any of its
subsidiaries in violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except for such violations as
are specifically identified as such and described in the Offering Memorandum or
for such violations as would not have a Material Adverse Effect, and no default
by the Company or any of its subsidiaries exists in the due performance or
observance of any obligation, agreement, covenant or
D-4
<PAGE>
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Offering Memorandum, except such defaults as are specifically identified as such
and described in the Offering Memorandum and except for such defaults that would
not result in a Material Adverse Effect;
(xx) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the Notes, the
Warrants and the Units will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery of the Purchase Agreement, the Warrant Agreement, the Registration
Rights Agreement, the Warrant Registration Rights Agreement or the Indenture,
for the offering, issuance, sale or delivery of the Units to the Initial
Purchasers or the resale thereof by the Initial Purchasers in accordance with
the Purchase Agreement;
(xxi) It is not necessary in connection with the offer, sale and
delivery of the Units to Initial Purchasers and to each subsequent purchaser in
the manner contemplated by the Purchase Agreement and the Offering Memorandum to
register the Notes, the Warrants and the Units under the 1933 Act or to qualify
the Indenture under the Trust Indenture Act;
(xxii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and in the
Offering Memorandum (including the use of the proceeds from the sale of the
Units as described in the Offering Memorandum under the caption "Use Of
Proceeds") and compliance by the Company with its obligations under the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture, the
Preference Securities and the Securities will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument identified to them by the Company to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company, or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary thereof or
any of their respective properties, assets or operations, that is identified to
such counsel by the Company;
D-5
<PAGE>
(xxiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act;
(xxiv) There are no restrictions (legal, contractual or otherwise)
on the ability of the U.S. Designated Subsidiaries to declare and pay dividends
or make any payment or transfer of property or assets to their shareholders
other than those referred to in the Offering Memorandum;
(xxv) The form of certificate used to evidence the Securities
complies in all material respects with all applicable statutory requirements and
with any applicable requirements of the charter and by-laws of the Company.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (vi), (xv), (xvii) and (xviii) above
insofar as such statements concern legal matters) and that they have
participated in conferences with the Company, representatives of the Initial
Purchasers and their counsel and the independent public accountants for the
Company at which the Offering Memorandum was prepared and the contents thereof
and related matters were discussed. In the course of these conferences and
discussions, no facts have come to their attention that would lead them to
believe that the Offering Memorandum or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein, as to which such counsel need make no
statement), at the time the Offering Memorandum was issued, at the time any such
amended or supplemented Offering Memorandum was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of Dutch law, upon the opinion of Baker & McKenzie,
special Netherlands counsel to Poland Cablevision (Netherlands) B.V. (which
opinion shall be delivered to the Initial Purchasers at the Closing Time
pursuant to the provisions of Section 5(a)(ii)) of the Purchase Agreement, (B)
as to matters involving the application of English law, upon the opinion of
Ashurst Morris Crisp, special English counsel to the Company (which opinion
shall be delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of Section 5(a)(iii)) of the Purchase Agreement, (C) as to matters
involving the application of Polish law, upon the opinion of Baker & McKenzie Sp
z.o.o., special Polish counsel to the Company (which opinion shall be delivered
to the Initial Purchasers at the Closing Time pursuant to the provisions of
Section 5(a)(i)) of the Purchase Agreement and (D) as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document
D-6
<PAGE>
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
D-7
<PAGE>
Exhibit E
FORM OF POLISH LAW OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) Each Polish Designated Subsidiary has been duly incorporated and
is validly existing as a corporation under the laws of the Republic of Poland,
has corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and is not
required to be qualified as a foreign corporation to transact business in any
jurisdiction in which it owns or leases property or conducts business; all of
the issued and outstanding capital stock of each Polish Designated Subsidiary
has been duly authorized and validly issued, is fully paid and non-assessable
and, to the best of their knowledge and information, except as otherwise
disclosed in the Offering Memorandum, is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity, except in the case of any Polish limited
liability company, any statutory liability for taxes and for the Share Pledges;
(ii) Except as described in the Offering Memorandum, there is not
pending or, to the best of their knowledge, threatened, any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of (1) the transactions contemplated in the
Purchase 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 thereunder or (2) the
transactions contemplated by the Offering Memorandum;
(iii) The Company and its Polish Designated Subsidiaries have good
and marketable title to all real property owned by them, in each case free and
clear of all liens, encumbrances and defects, except the Asset Encumbrances,
such as are described in the Offering Memorandum or such as do not result in a
Material Adverse Effect; and any real property and buildings held under lease by
the Company and its Polish Designated Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as do not result in a
Material Adverse Effect;
(iv) The information in the Offering Memorandum under "Risk Factors
- - Regulation of the Polish Cable Television Industry", "Risk Factors - Polish
Regulation of the DTH Market", "Risk Factors - Limitations on Foreign Ownership
of Multi-Channel Pay Television Operators and Broadcasters", the first four
paragraphs of "Risk Factors - Regulation of Competition", the first, second,
third and fifth paragraph of "Risk Factors -
<PAGE>
Political and Economic Risks; Enforcement of Foreign Judgments", "Business
- -Property", "Business - Legal Proceedings", "Regulation", and "Certain
Relationships and Related Transactions", to the extent that it constitutes
matters of law, summaries of legal matters, the charter and bylaws (or similar
organizational documents) of any subsidiaries of the Company or legal
proceedings, or legal conclusions, has been reviewed by them and is correct in
all material respects;
(v) All descriptions in the Offering Memorandum of contracts and
other documents to which the Company or any of its subsidiaries is a party are
accurate in all material respects; to the best of their knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that would be required to be described in the Offering
Memorandum, if the Offering Memorandum were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not described or
referred to in the Offering Memorandum other than those described or referred to
therein or incorporated by reference thereto, and the descriptions thereof or
references thereto are correct in all material respects;
(vi) None of the Polish Designated Subsidiaries is in violation of
its charter or by-laws (or other similar organizational documents) nor is the
Company or any of its subsidiaries in violation of any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties, except
for such violations as are specifically identified as such and described in the
Offering Memorandum and except for such violations that would not result in a
Material Effect and no default by the Company or any of its subsidiaries exists
in the due performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Offering Memorandum, except such defaults as are specifically identified and
described in the Offering Memorandum and except for such defaults that would not
result in a Material Adverse Effect;
(vii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the use of the proceeds from
the sale of the Securities as described in the Offering Memorandum under the
caption "Use Of Proceeds") and compliance by the Company with its obligations
under the Purchase Agreement, the Warrant Agreement, the DTC Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement, the
Indenture and the Securities will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
subsidiary thereof pursuant to any contract, indenture, mortgage, deed of
E-2
<PAGE>
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to them, to which the Company or any subsidiary thereof is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary thereof is subject (except
for such conflicts, breaches or defaults or liens, charges or encumbrances that
would not have a Material Adverse Effect) nor will such action result in any
violation of the provisions of the charter or by-laws (or other similar
organizational documents) of any Polish subsidiary of the Company, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary thereof or any of their
respective properties, assets or operations that is identified to them by the
Company;
(viii) Except as described in the Offering Memorandum, each of the
Polish Designated Subsidiaries owns or possesses or has obtained all material
governmental licenses, certificates, permits, concessions, consents, orders,
approvals and other authorizations necessary to hold all concessions, leases and
permits or own its properties, including, without limitation, all licenses and
permits relating to intellectual property, and to carry on its business as
presently conducted and as contemplated in the Offering Memorandum, and, to the
best of their knowledge after due inquiry, none of the Designated Subsidiaries
has received any notice relating to the revocation or modification of any such
concession, license, certificate, permit, consent, order, approval or other
authorizations;
(ix) Each of the Management Agreements (as such term is defined in
the Indenture) has been duly authorized, executed and delivered by the parties
thereto and constitutes a valid and binding agreement of each of the parties
thereto, enforceable against each of the parties thereto in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law);
(x) There are no restrictions (legal, contractual or otherwise) on
the ability of the Polish Designated Subsidiaries to declare and pay dividends
or make any payment or transfer of property or assets to their shareholder other
than those described in the Offering Memorandum and except for the Share Pledges
and the Asset Encumbrances; and such descriptions, if any, fairly summarize such
restrictions; and
(xi) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the Units will
be offered or sold, as to which they need express no opinion) is required in
connection with the due authorization, execution and delivery of the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement or the Indenture or for the
E-3
<PAGE>
offering, issuance, sale or delivery of the Units to the Initial Purchasers or
the resale by the Initial Purchasers in accordance with the Purchase Agreement.
Such counsel may state that they have not verified, and are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (iv), (v) and (x) above insofar as
such statements concern legal matters) and that they have participated in
conferences with the Company, representatives of the Initial Purchasers and
their counsel and the independent public accountants for the Company at which
the Offering Memorandum was prepared and the contents thereof and related
matters were discussed. In the course of these conferences and discussions, no
facts have come to their attention that would lead them to believe that the
Offering Memorandum (except for financial statements and schedules and other
financial data included or incorporated by reference therein as to which they
need make no statement), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Offering Memorandum or
any amendment or supplement thereto (except for financial statements and
schedules and other financial data included or incorporated by reference
therein, as to which such counsel need make no statement), at the time the
Offering Memorandum was issued, at the time any such amended or supplemented
Offering Memorandum was issued or at the Closing Time, included or includes an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of Netherlands law, upon the opinion of Baker &
McKenzie, special Netherlands counsel to the Company (which opinion shall be
delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of section 5(a)(ii)) of the Purchase Agreement, (B) as to matters
involving the application of English law, upon the opinion of Ashurst Morris
Crisp, special English counsel to the Company (which opinion shall be delivered
to the Initial Purchasers at the Closing Time pursuant to the provisions of
Section 5(a)(iii) of the Purchase Agreement and (C) as to matters involving the
application of the law of the State of New York, the General Corporation Law of
the State of Delaware and the federal law of the United States, upon the opinion
of Baker & McKenzie, United States counsel to the Company (which opinion shall
be delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of Section 5(a)(i) of the Purchase Agreement as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
E-4
<PAGE>
Exhibit F
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) Poland Cablevision ("PCBV") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
Netherlands, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and is duly registered with the local Dutch trade register. Under Dutch law,
PCBV is not required to be qualified as a foreign corporation to transact
business in the Netherlands. All of the issued and outstanding capital stock of
PCBV, consisting of 200,000 shares, has been duly authorized and validly issued,
is fully paid and non-assessable. @Entertainment owns 189,600 out of such
200,000 shares (92.3%) free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity;
(ii) There are no restrictions (legal, contractual or otherwise) on
the ability of PCBV to declare and pay dividends or make any payment or transfer
of property or assets to its shareholders other than those described in the
Offering Memorandum and such descriptions, if any, fairly summarize such
restrictions;
(iii) Except as described in the Offering Memorandum there is not
pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which PCBV is a party, or to which the
property of PCBV is subject, before or brought by any Dutch court or
governmental agency or body, which might be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of (1)
this Agreement or the performance by the Company of its obligations hereunder
(if any) or (2) the transactions contemplated by the Offering Memorandum;
(iv) All descriptions in the Offering Memorandum of contracts and
other documents to which PCBV is a party are accurate in all material respects;
to the best of their knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments that 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 or referred to in the Offering Memorandum other than those
described or referred to therein, and the descriptions thereof and references
thereto are correct in all material respects;
(v) PCBV is not in violation of its statutes or by-laws (or other
similar organizational documents) nor, to the best of their knowledge, is PCBV
in violation of any applicable Dutch law, statute, rule, regulation, judgment,
order, writ or decree of any Dutch government, government instrumentality or
court having jurisdiction over PCBV or any of its
<PAGE>
assets or properties, except as described in the Offering Memorandum, and no
default by PCBV exists in the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract, license, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument that is
described or referred to in the Offering Memorandum, except as described in the
Offering Memorandum and except for such defaults that would not result in a
Material Adverse Effect;
(vi) Except as otherwise disclosed in the Offering Memorandum, PCBV
owns or possesses or has obtained all material licenses, certificates, permits,
concessions, consents, orders, approvals and other governmental authorizations
necessary to hold all its concessions, leases and permits or own its properties,
including, without limitation, all licenses and permits relating to intellectual
property, and to carry on its business as presently conducted and as
contemplated in the Offering Memorandum, and PCBV has not received any notice
relating to the revocation or modification of any such concession, license,
certificate, permit, consent, order, approval or other authorizations;
(vii) No authorization, approval, consent or order of any Dutch
court or Dutch governmental authority or agency (other than such as may be
required under the applicable securities laws of the various jurisdictions in
which the Units will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement or the
Indenture or for the offering, issuance, sale or delivery of the Units to the
Initial Purchasers; and
(viii) The information in the Offering Memorandum under the seventh
paragraph of "Risk Factors - Political and Economic Risks; Enforcement of
Foreign Judgments", to the extent that it constitutes matters of law, summaries
of legal matters, or legal conclusions, has been reviewed by them and is correct
in all material respects.
F-2
<PAGE>
Exhibit F
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) Sereke has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Netherlands, has corporate
power and authority to own, lease and operate its properties, to act as a
licensing company and to conduct its business as described in the Units Offering
Memorandum and is duly registered with the local Dutch trade register. Under
Dutch law, Sereke is not required to be qualified as a foreign corporation to
transact business in the Netherlands. Of the authorized capital stock of Sereke,
consisting of 375 shares, 75 have been validly issued, fully paid and
non-assessable. @Entertainment owns all 75 shares free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(ii) There are no restrictions (legal, contractual or otherwise) on
the ability of PCBV to declare and pay dividends or make any payment or transfer
of property or assets to its shareholders other than those described in the
Offering Memorandum and such descriptions, if any, fairly summarize such
restrictions;
(iii) Except as described in the Offering Memorandum there is not
pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which PCBV is a party, or to which the
property of PCBV is subject, before or brought by any Dutch court or
governmental agency or body, which might be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of (1)
this Agreement or the performance by the Company of its obligations hereunder
(if any) or (2) the transactions contemplated by the Offering Memorandum;
(iv) All descriptions in the Offering Memorandum of contracts and
other documents to which PCBV is a party are accurate in all material respects;
to the best of their knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments that 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 or referred to in the Offering Memorandum other than those
described or referred to therein, and the descriptions thereof and references
thereto are correct in all material respects;
(v) PCBV is not in violation of its statutes or by-laws (or other
similar organizational documents) nor, to the best of their knowledge, is PCBV
in violation of any applicable Dutch law, statute, rule, regulation, judgment,
order, writ or decree of any Dutch government, government instrumentality or
court having jurisdiction over PCBV or any of its assets
F-3
<PAGE>
or properties, except as described in the Offering Memorandum, and no default by
PCBV exists in the due performance or observance of any obligation, agreement,
covenant or condition contained in any contract, license, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is described
or referred to in the Offering Memorandum, except as described in the Offering
Memorandum and except for such defaults that would not result in a Material
Adverse Effect;
(vi) Except as otherwise disclosed in the Offering Memorandum, PCBV
owns or possesses or has obtained all material licenses, certificates, permits,
concessions, consents, orders, approvals and other governmental authorizations
necessary to hold all its concessions, leases and permits or own its properties,
including, without limitation, all licenses and permits relating to intellectual
property, and to carry on its business as presently conducted and as
contemplated in the Offering Memorandum, and PCBV has not received any notice
relating to the revocation or modification of any such concession, license,
certificate, permit, consent, order, approval or other authorizations;
(vii) No authorization, approval, consent or order of any Dutch
court or Dutch governmental authority or agency (other than such as may be
required under the applicable securities laws of the various jurisdictions in
which the Units will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement or the
Indenture or for the offering, issuance, sale or delivery of the Units to the
Initial Purchasers; and
(viii) The information in the Offering Memorandum under the seventh
paragraph of "Risk Factors - Political and Economic Risks; Enforcement of
Foreign Judgments", to the extent that it constitutes matters of law, summaries
of legal matters, or legal conclusions, has been reviewed by them and is correct
in all material respects.
F-4
<PAGE>
Exhibit G
FORM OF OPINION OF COMPANY'S ENGLISH COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(a)(iii)
(i) At Entertainment Limited ("AEL") has been duly incorporated and
is validly existing as a limited liability company under the laws of England and
Wales, has corporate power and authority to own and lease its properties and to
conduct its business as described in the Offering Memorandum and is not required
to obtain further authorization to transact business or to own or lease property
in England and Wales; all of the issued and outstanding shares of AEL have been
duly authorized, validly issued and are fully paid up. Their searches at
Companies House in respect of AEL did not reveal any security interest,
mortgage, pledge, lien, encumbrance, claim or equity affecting the issued shares
of AEL;
(ii) They have not been instructed by the Company, AEL or any
subsidiary nor have any notice from our searches of the registry of the High
Court of England and Wales of any action, suit, proceeding, inquiry or
investigation, to which the Company or any subsidiary is a party, or to which
the property of AEL is subject, before or brought by any court or governmental
agency or body, which might be expected to result in a Material Adverse Effect
on AEL;
(iii) They have no notice that any real property has been acquired
by AEL whether by purchase or lease other than Maidstone Studios, Vinters Park,
Kent and lease of premises in Conduit Street, London;
(iv) The information in the Offering Memorandum under "Risk Factors
- - Dependence on Philips as Principal Supplier", "Risk Factors Dependence on
Satellites", "Risk Factors - Availability of Programming and Dependence on Third
Party Programmers; Program Development Risk" (other than the specification of
any financial commitments of the Company), "Risk Factors - United Kingdom
Regulation of D-DTH Business", "Risk Factors - European Union Regulation of
D-DTH Business", "Risk Factors - Regulation of Competition" (insofar as it does
not relate to Poland), the sixth paragraph of "Risk Factors - Political and
Economic Risks; Enforcement of Foreign Judgments", "Regulation - United
Kingdom", and "Regulation - European Union", to the extent that it constitutes
matters of law, summaries of legal matters, or legal proceedings, or legal
conclusions, has been reviewed by them and is correct in all material respects;
(v) All summaries in the Offering Memorandum of the satellite
television services license issued by the Independent Television Commission (the
"ITC License") for the channels known as Atomic TV, Wizja 1, Wizja Sport, Wizja
Pogoda and Twoja Wizja Na Zywo and of the contracts for transponders on Astra 1E
and 1F satellites, the Commercial Cooperation Agreement with Phillips or
agreements set out at Schedule 1 to which AEL is a party are accurate
<PAGE>
summaries of the matters summarized; they have no notice that there are any
franchises, contracts, licenses, indentures, mortgages, loan agreements, notes,
leases or other instruments relating to AEL that are not described or referred
to in the Offering Memorandum, and the descriptions thereof and references
thereto are correct in all material respects;
(vi) AEL is not in violation of its Memorandum and Articles of
Association and, they have no notice that AEL is in violation of any applicable
English law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court having jurisdiction over AEL in
England or any of its assets or properties in England, except as described in
the Offering Memorandum, they have no notice that any default by AEL exists in
the due performance or observance of any obligation, agreement, covenant or
condition of AEL contained in any contract, license, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is described or
referred to in those sections of the Offering Memorandum referred to in
paragraph (iv) above or on the Schedule 1 attached to the opinion;
(vii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement and the Indenture and the consummation of the
transactions contemplated therein and in the Offering Memorandum (including the
use of proceeds from the sale of the Securities and described in the Offering
Memorandum under the caption "Use of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement the
Securities and the Indenture, will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any lien, charge or
encumbrance under English law upon any property or assets of AEL pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument, notified to them, to which AEL is a
party or by which it may be bound, or to which any of the property or assets of
AEL is subject, nor will such action result in any violation of the provisions
of the Memorandum and Articles of Association of AEL, or any applicable English
law, statute, rule, regulation, judgment, order, writ or decree, of any
government, government instrumentality or court having jurisdiction in England
over AEL or any of its respective properties, assets or operations in England;
(viii) AEL owns or possesses or has obtained all material
governmental licenses, certificates, permits, concessions, consents, orders,
approvals and other authorizations in England, as disclosed in the Offering
Memorandum, necessary to hold all concessions, leases and permits or own its
properties, including, without limitation, all broadcasting licenses and permits
relating to intellectual property, and to carry on its business as presently
conducted and as contemplated in the Offering Memorandum, and they have no
notice that AEL has received any notice relating to the revocation or
modification of any such concession, license, certificate, permit, consent,
order, approval or other authorizations;
G-2
<PAGE>
(ix) Other than as described in the Offering Memorandum, there are
no restrictions (legal, contractual or otherwise) on the ability of AEL to
declare and pay dividends in accordance with applicable English company law, and
other than as imposed by law on English companies generally, there are no
restrictions (legal, contractual or otherwise) on the ability of AEL to make any
payment or transfer of property or assets to its shareholder; and
(x) No authorization, approval, consent or order of any court or
governmental authority or agency in England which regulates the operations of
AEL is required in connection with the due authorization, execution and delivery
of the Purchase Agreement, the Warrant Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement and the Indenture, or for
the offering, issuance, sale or delivery of the Units to the Initial Purchasers.
They need give no opinion as to whether the due authorization, execution and
delivery by the Company of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement and the
Indenture or the offering, issuance, sale or delivery of the Units to the
Initial Purchasers complies with applicable securities laws in England and Wales
or any other jurisdiction.
G-3
<PAGE>
Exhibit 10.6
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
(a Delaware corporation)
5,000 Shares of Series B Cumulative Preference Stock and
5,000 Warrants to Purchase an Aggregate of
550,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: January 22, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
PURCHASE AGREEMENT 5
SECTION 1. Representations and Warranties 7
(a) Representations and Warranties by the Company 7
(i) Similar Offerings 7
(ii) Preference Offering Memorandum 7
(iii) Independent Accountants 7
(iv) Financial Statements 8
(v) No Material Adverse Change in Business 8
(vi) Good Standing of the Company 8
(vii) Corporate Standing of Designated Subsidiaries 8
(viii) Restrictions on Payments of Dividends 9
(ix) Capitalization 9
(x) Authorization of Agreement 10
(xi) Authorization of the Preference Registration Rights Agreement 10
(xii) Authorization of the Certificate of Designation and the
Preference Shares 10
(xiii) Authorization of the Preference Warrant Agreement 10
(xiv) Authorization of the Preference Warrants 11
(xv) Authorization of the Preference Warrant Shares 11
(xvi) Authorization of the Preference Warrant Registration Rights
Agreement 11
(xvii) Authorization of the Indenture 12
(xviii) Authorization of the Notes 12
(xix) Authorization of the Note Registration Rights Agreement 12
(xx) Authorization of the Note Warrant Agreement 12
(xxi) Authorization of the Note Warrant Registration Rights Agreement 13
(xxii) Description of the Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Preference
Shares, the Preference Warrants, the Common Stock, the Preference
Warrant Agreement, the MG Securities, the Note Securities, and the
Note Agreements 13
(xxiii) Absence of Defaults and Conflicts 13
(xxiv) Absence of Labor Dispute 14
(xxv) Absence of Proceedings 14
(xxvi) Possession of Intellectual Property 15
(xxvii) Absence of Further Requirements 15
(xxviii) Possession of Licenses and Permits 16
(xxix) No Additional Documents 16
(xxx) Management Agreements 16
(xxxi) Title to Property 17
(xxxii) Tax Returns 17
(xxxiii) Environmental Laws 17
(xxxiv) Investment Company Act 18
(xxxv) Internal Controls 18
(xxxvi) Taxes on Subsidiary Indebtedness 18
-2-
<PAGE>
(xxxvii) Insurance 19
(xxxviii) Rule 144A Eligibility 19
(xxxix) No General Solicitation 19
(xl) No Registration Required 19
(xli) Reporting Company 19
(xlii) Funds 19
(xliii) Subscribers 20
(b) Officers' Certificates 20
SECTION 2. Sale and Delivery to the Purchaser; Closing 20
(a) Preference Securities 20
(b) Payment 20
(c) Qualified Institutional Buyer 20
(d) Denominations; Registration 20
SECTION 3. Covenants of the Company 21
(a) Preference Offering Memorandum 21
(b) Notice and Effect of Material Events 21
(c) Reserved. 21
(d) Reserved. 21
(e) Reserved. 21
(f) DTC 21
(g) Use of Proceeds 21
(h) Reserved. 21
SECTION 4. Payment of Expenses 21
(a) Expenses 21
(b) Termination of Agreement 22
SECTION 5. Conditions of the Chase Purchasers' Obligations 22
(a) Reserved 22
(b) Reserved 22
(c) Reserved 22
(d) Officers' Certificate 22
(e) Reserved 22
(f) Reserved 23
(g) Consummation of Sale of MG Securities and Note Securities 23
(h) Reserved 23
(i) Additional Documents 23
(j) Execution of Agreements 23
(k) Termination of Agreement 23
SECTION 6. Resales of the Preference Securities 23
(a) Representation and Warranty of the 23
(c) Covenants of the Company 24
(i) Due Diligence 24
(ii) Integration 24
(iii) Rule 144A Information 24
-3-
<PAGE>
(d) Resales 25
(e) Offers and Sales in Poland and The Netherlands 25
(f) Offers and Sales in the United Kingdom 25
(g) Darland 26
SECTION 7. Indemnification 26
(a) Indemnification of the Chase Purchasers 26
(b) Indemnification of the Company, Directors and Officers 27
(c) Actions Against Parties; Notification 27
(d) Settlement Without Consent if Failure to Reimburse 27
SECTION 8. Contribution 28
SECTION 9. Representations, Warranties and Agreements to Survive Delivery 29
SECTION 10. Termination of Agreement 29
(a) Termination; General 29
(b) Liabilities 30
SECTION 11. Notices 30
SECTION 12. Parties 30
SECTION 13. GOVERNING LAW AND TIME 30
SECTION 14. Effect of Headings 30
SECTION 15. Counterparts 30
EXHIBITS
Exhibit A - Form of Certificate of Designation ............................A-1
Exhibit B - Form of Preference Warrant Agreement ..........................B-1
Exhibit C - Form of Preference Registration Rights Agreement ..............C-1
Exhibit D - Form of Preference Warrant Registration Rights Agreement ......D-1
-4-
<PAGE>
@ENTERTAINMENT, INC.
(a Delaware corporation)
5,000 Shares of Series B Cumulative Preference Stock and
5,000 Warrants to Purchase an Aggregate of
4,950,000 Shares of Common Stock
PURCHASE AGREEMENT
January 22, 1999
Mr. Arnold Chase
Ms. Cheryl Chase
Ms. Rhoda Chase
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103-3585
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Mr. Arnold Chase, Ms. Cheryl Chase and Ms. Rhoda Chase (the
"Chase Purchasers") with respect to the issue and sale by the Company and the
purchase by the Chase Purchasers, severally and not jointly, of an aggregate of
5,000 of the Company's Series B Cumulative Preference Shares (the "Preference
Shares") and 5,000 warrants (each a "Preference Warrant" and collectively, the
"Preference Warrants" and, together with the Preference Shares, the "Preference
Securities"). The Preference Warrants entitling the holders thereof to purchase
an aggregate of 550,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), of the Company. The number of Preference Shares and Preference
Warrants to be purchased, severally and not jointly, by each of the Chase
Purchasers is set forth on Schedule A. The Preference Shares and Preference
Warrants are more fully described in Schedule B hereto. The Preference Shares
are to be issued pursuant to the Certificate of Designation of the Company in
substantially the form attached hereto as Exhibit A and the Preference Warrants
are to be issued pursuant to a warrant agreement dated as of January 27, 1999
(the "Preference Warrant Agreement"), between the Company and Bankers Trust
Company, as warrant agent (the "Preference Warrant Agent") in substantially the
form attached hereto as Exhibit A. Under the Preference Warrant Agreement, the
Chase Purchasers will have certain preemptive rights in relation to the
Company's Common Stock. Preference 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.
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Concurrently, the Company has entered into a separate purchase agreement
(the "MG Purchase Agreement") for the sale of an aggregate of 45,000 of the
Company's Series A Cumulative Preference Shares (the "Series A Preference
Shares") and 45,000 Warrants (the MG Warrants") to purchase and aggregate of
4,950,000 shares of Common Stock to Morgan Grenfell Private Equity Limited (the
"MG Purchaser"). The MG Warrants will be issued pursuant to the Preference
Warrant Agreement. The Series A Preference Shares and the MG Warrants being sold
to the MG Purchaser are sometimes hereinafter referred to as the "MG
Securities."
The holders of Preference Shares and the Series A Preference Shares will
be entitled to the benefits of a Registration Rights Agreement, in substantially
the form attached hereto as Exhibit C with such changes as shall be agreed to by
the parties hereto and the MG Purchaser (the "Preference Registration Rights
Agreement"), pursuant to which the Company will file a registration statement
(the "Preference Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering the Preference Shares and the Series A
Preference Shares under the Securities Act of 1933, as amended (the "1933 Act").
The holders of Preference Warrants and the MG Warrants will be entitled to
the benefits of a Preference Warrant Registration Rights Agreement in
substantially the form attached hereto as Exhibit D, with such changes as shall
be agreed to by the parties hereto and the MG Purchaser (the "Preference Warrant
Registration Rights Agreement") which provides for the registration of the
Preference Warrants and the MG Warrants under the 1933 Act under certain
circumstances set forth therein.
Pursuant to the terms of the Preference Securities, investors that acquire
Preference Securities may only resell or otherwise transfer such Preference
Securities if such Preference 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 will deliver to the Chase Purchasers, on the
date hereof or the next succeeding day, copies of an offering memorandum dated
January 22, 1999 which was prepared by the Company in connection with the sale
of the MG Securities. "Preference Offering Memorandum" means with respect to any
date or time referred to in this Agreement, the final Preference Offering
Memorandum (including any amendment or supplement thereto) including exhibits
thereto and any documents incorporated by reference, which has been prepared and
delivered by the Company to the Chase Purchasers in connection with the sale of
the MG Securities.
Simultaneously with the execution of this Agreement , the Company is
entering into a separate purchase agreement (the "Note Purchase Agreement") for
the sale of 256,800 the Company's units (the "Note Units"), each Note Unit
consisting of $1,000 aggregate principal amount at maturity of the Company's 14
1/2 Senior Discount Notes due 2009 (the "Notes") and four warrants (each a "Note
Warrant" and collectively, the "Note Warrants" and, together with
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the Note Units and the Notes, the "Note Securities"). The Note Warrants entitle
the holders thereof to purchase an aggregate of 1,813,665 shares of Common
Stock. The Notes are to be issued pursuant to an indenture dated as of January
27, 1999 (the "Indenture") between the Company and Bankers Trust Company, as
trustee (the "Trustee") and the Note Warrants are to be issued pursuant to a
warrant agreement dated as of January 27,1999 (the "Note Warrant Agreement")
between the Company and Bankers Trust Company, as warrant agent (the "Note
Warrant Agent"). The holders of the Note and the Note Warrants will be entitled
to the benefits of two Registration Rights Agreements (the "Note Registration
Rights Agreement" and the "Note Warrant Registration Rights Agreement",
respectively) which provide for the registration of the Notes and the Note
Warrants under the 1933 Act under certain circumstances set forth therein. The
Indenture, the Note Warrant Agreement, the Note Registration Rights Agreement
and the Note Warrant Registration Rights Agreement are sometimes referred to
herein as the "Note Agreements."
All references in this Agreement to financial statements and schedules and
other information which are "contained," "included" or "stated" in the
Preference 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 Preference
Offering Memorandum.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Chase Purchasers as of the date hereof and as of the Closing
Time referred to in Section 2(b) hereof, and agrees with the Chase 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 Preference Securities in a manner that would require
the Preference Securities to be registered under the 1933 Act.
(ii) Preference Offering Memorandum. Neither of its date nor as of
the Closing Time the Preference Offering Memorandum, including any
amendment or supplement thereto, includes or will include an untrue
statement of a material fact or omits 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.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Preference
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.
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(iv) Financial Statements. The financial statements, together with
the related schedules and notes, of the Company included in the Preference
Offering Memorandum present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Preference 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 Preference 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 Preference Offering
Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Preference 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 Preference Offering Memorandum and to enter into and
perform its obligations under this Agreement, the Preference Warrant
Agreement, the Preference Registration Rights Agreement, the Preference
Warrant Registration Rights Agreement, the Certificate of Designation, the
Note Securities, the Note Agreements, and the Preference 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
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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 Preference Offering Memorandum and is not
required to be qualified as a foreign corporation to transact business or
to own or lease property in any jurisdiction where it owns or leases
property or transacts business; except as otherwise disclosed in the
Preference 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 1,818 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 Preference 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 $0.5 million
granted on October 7, 1996 by Polski Bank Rozwoju (which was bought by
Bank Rozucju Eksportu S.A. in July of 1998) 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 at September 30, 1998 was as set forth under the
caption "Capitalization"
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under the heading "Actual" in the Preference 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 Preference
Offering Memorandum other than (i) issuances of shares of Common Stock
upon the exercise of options disclosed to be outstanding in the Preference
Offering Memorandum and (ii) the authorization and issuance of the
Preference Shares, the Warrants, the Series A Preference Shares, the MG
Warrants and the Note Securities as described in the Preference 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 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 Preference Registration Rights Agreement.
The Preference 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 and delivered by the MG
Purchaser and the Chase 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 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 Certificate of Designation and the
Preference Shares. The Certificate of Designation has been duly authorized
by the Board of Directors of the Company and, at the Closing Time, will
have been duly filed with the Secretary of State of Delaware. The
Preference Shares have been duly authorized by the Company for issuance
and sale to the Chase Purchasers pursuant to this Agreement and the
Preference Shares when issued and delivered against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and the Chase Purchasers will receive title to the
Preference Shares free and clear of all liens and encumbrances. The
security holders of the Company have no preemptive rights with respect to
the Preference Shares.
(xiii) Authorization of the Preference Warrant Agreement. The
Preference Warrant 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 duly executed and delivered by the Preference Warrant
Agent, will constitute a valid and binding
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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).
(xiv) Authorization of the Preference Warrants. The Preference
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 Preference 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
Preference Warrant Agreement and the Preference Warrant Registration
Rights Agreement.
(xv) Authorization of the Preference Warrant Shares. The shares of
Common Stock issuable upon exercise of the Preference Warrants (the
"Preference Warrant Shares") have been duly authorized and reserved by the
Company and, when executed by the Company and countersigned by the
Preference Warrant Agent and issued and delivered upon exercise of the
Preference Warrants in accordance with the terms of the Preference
Warrants and the Preference Warrant Agreement, will be validly issued,
fully paid and non-assessable and will not be subject to any preemptive or
similar rights.
(xvi) Authorization of the Preference Warrant Registration Rights
Agreement. The Preference 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 and
delivered by the MG Purchaser and the Chase 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.
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(xvii) 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, when executed and delivered by
the Trustee, 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.
(xviii) 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 Note Registration
Rights Agreement.
(xix) Authorization of the Note Registration Rights Agreement. The
Note 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, when executed and delivered by the
Initial Purchasers, 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.
(xx) Authorization of the Note Warrant Agreement. The Note Warrant
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
duly executed and delivered by the Note 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
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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).
(xxi) Authorization of the Note Warrant Registration Rights
Agreement. The Note 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 and delivered 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.
(xxii) Description of the Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Preference
Shares, the Preference Warrants, the Common Stock, the Preference Warrant
Agreement, the MG Securities, the Note Securities, and the Note
Agreements. The Preference Registration Rights Agreement, the Preference
Warrant Registration Rights Agreement, the Preference Shares, the
Preference Warrants, the Common Stock, the Preference Warrant Agreement,
the MG Securities, the Note Securities and the Note Agreements will
conform in all material respects to the respective statements relating
thereto contained in the Preference Offering Memorandum and will be in
substantially the respective forms previously delivered to the Chase
Purchasers.
(xxiii) 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 Preference
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 Preference Offering
Memorandum; and the execution, delivery and performance of this Agreement,
the Preference Warrant Agreement, the Preference Registration Rights
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Agreement, the Preference Warrant Registration Rights Agreement, the
Certificate of Designation, the Preference Securities, the Note
Securities, the Note Agreements, 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 Preference Offering Memorandum and the
consummation of the transactions contemplated herein and in the Note
Purchase Agreement and the Preference Offering Memorandum (including the
issuance and sale of the Preference Securities and the Note Securities and
the use of the proceeds from the sale of the Preference Securities and the
Note Securities as described in the Preference 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, whethe r 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 Chase Purchasers
comply with all of its obligations under Section 6 hereof. As used herein,
a "Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xxiv) 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.
(xxv) Absence of Proceedings. Except as disclosed in the Preference
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 Preference Offering
Memorandum (other than as disclosed therein) if it were a prospectus filed
as part of a
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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 Preference Warrant Agreement, the Preference Registration Rights
Agreement, the Preference Warrant Registration Rights Agreement, the
Certificate of Designation, the Preference Securities, the Note Securities
or the Note Agreements, 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 Preference Offering Memorandum,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse Effect.
(xxvi) Possession of Intellectual Property. Except as disclosed in
the Preference 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 Preference Offering Memorandum,
neither the Company nor any of its subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xxvii) 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 Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Note
Registration Rights
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<PAGE>
Agreement, the Note 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 Preference Securities hereunder or the consummation of the
transactions contemplated by this Agreement, the Preference Warrant
Agreement, the Preference Registration Rights Agreement, the Preference
Warrant Registration Rights Agreement, the Note Registration Rights
Agreement, the Note Warrant Registration Rights Agreement, or the
Preference Offering Memorandum or (y) to permit the Company to (1) effect
payments of dividends on or redemption of the Preference Shares, or (2)
perform its other obligations under the Certificate of Designation, the
Preference Warrant Agreement, the Preference Warrant Registration Rights
Agreement, the Note Registration Rights Agreement, and the Note Warrant
Registration Rights Agreement.
(xxviii) Possession of Licenses and Permits. Except as disclosed in
the Preference 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 Preference Offering Memorandum; the Company and its subsidiaries,
except as disclosed in the Preference 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 Preference
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 Preference 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 Preference 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.
(xxix) No Additional Documents. There are no contracts or documents
of a character that would be required to be described in the Preference
Offering Memorandum, if it were a prospectus filed as part of a
registration statement on Form S-3 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.
(xxx) 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
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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.
(xxxi) Title to Property. The Company and its subsidiaries own no
real property, except as described in the Preference 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 Preference 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
Preference 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.
(xxxii) Tax Returns. Except as disclosed in the Preference Offering
Memorandum, the Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith and
by appropriate proceedings, and except for such claims as could not result
in a Material Adverse Effect; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all domestic and foreign taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
(xxxiii) Environmental Laws. Except as described in the Preference
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
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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.
(xxxiv) Investment Company Act. The Company is not, and upon the
issuance and sale of the Preference Securities, the MG Securities and the
Note Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Preference 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").
(xxxv) 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 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 Preference Offering Memorandum if it were a prospectus
filed as part of a registration statement on Form S-1 under the 1933 Act.
(xxxvi) Taxes on Subsidiary Indebtedness. Except as described in the
Preference Offering Memorandum, as of the date hereof, no material income,
stamp or other taxes or levies, imposts, deductions, charges, compulsory
loans or withholdings
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<PAGE>
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.
(xxxvii) Insurance. Except as otherwise disclosed in the Preference
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.
(xxxviii) Rule 144A Eligibility. The Preference 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.
(xxxix) 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 Chase Purchasers, the MG Purchaser and the Initial Purchasers, as to
whom the Company makes no representation) has engaged or will engage, in
connection with the offering of the Preference Securities, in any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(xl) No Registration Required. Subject to compliance by the Chase
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 offer, sale and delivery of the Preference Securities
to the Chase Purchasers in the manner contemplated by this Agreement, the
Preference Warrant Agreement and the Preference Offering Memorandum to
register the Preference Securities under the 1933 Act.
(xli) Reporting Company. The Company is subject to, and has complied
with all applicable reporting requirements of Section 13 or Section 15(d)
of the 1934 Act.
(xlii) Funds. With the net proceeds of the sale of the Preference
Securities and the MG Securities pursuant to this Agreement and the MG
Purchase Agreement, respectively, the sales of the Note Securities
pursuant to the Note Purchase Agreement and the sale of the Company's
Series C Senior Discount Notes which was consummated on January 20, 1999,
together with cash on hand, the Company has sufficient capital to fulfill
its current business plan and to fund its commitments until the Company
achieves
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positive cash flow from operations, subject to the matters disclosed in
the Preference Offering Memorandum.
(xliii) Subscribers. As of December 31, 1998, the Company had at
least 675,000 basic cable subscribers and had sold approximately 125,000
Wizja TV packages to authorized retailers in Poland (as described in the
Preference Offering Memorandum).
(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 Chase Purchasers or to
counsel for the Chase Purchasers shall be deemed a representation and warranty
by the Company to the Chase Purchasers as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Purchaser; Closing.
(a) Preference 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 Chase Purchasers and the Chase
Purchasers, severally and not jointly, agree to purchase from the Company, at an
aggregate purchase price of $5,000,000 (less a commission of $150,000), the
aggregate number of Preference Shares and Preference Warrants set forth in
Schedule A opposite its name.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Preference 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 Chase Purchasers and the Company, at
9:00 A.M. on the third 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 Chase
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
each of the Chase Purchasers for the account of such Chase Purchasers of
certificates for the Preference Securities to be purchased by it.
(c) Qualified Institutional Buyer. Each Chase Purchaser represents
and warrants to, and agrees with, the Company that it is an "accredited
investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited
Investor").
(d) Denominations; Registration. Certificates for the Preference
Securities shall be in such denominations and registered in such names as the
Chase Purchasers may request in writing at least one full business day before
the Closing Time. The certificates representing the Preference Shares and the
Preference 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
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the Chase 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 the Chase
Purchasers as follows:
(a) Preference Offering Memorandum. The Company, as promptly as possible,
will furnish to each Chase Purchaser, without charge, such number of copies of
the Preference Offering Memorandum and any amendments and supplements thereto
and documents incorporated by reference therein as the Chase Purchaser may
reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify the Chase Purchasers, and confirm such notice in writing, of any filing
made by the Company of information relating to the offering of the Preference
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction.
(c) Reserved.
(d) Reserved.
(e) Reserved.
(f) DTC. The Company will cooperate with the Chase Purchasers and use its
best efforts (i) to permit the Preference Securities to be eligible for
clearance and settlement through the facilities of DTC.
(g) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Preference Securities in the manner specified in the
Preference Offering Memorandum under "Use of Proceeds."
(h) Reserved.
(i) Notification of Current Accumulated Earnings and Profits. The Company
will disclose its current and accumulated earnings and profits, if any, for each
fiscal year in its annual report on Form 10-K so long as it is required to file
such a report. Thereafter, the Company will provide such information to any
holder of Preference Securities upon receipt of a written request from such
holder.
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 Preference Offering Memorandum
(including financial statements and any schedules or exhibits and any document
incorporated therein by reference) and of each amendment or supplement
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thereto, (ii) the preparation, printing and delivery to the Chase Purchasers of
this Agreement, the Preference Warrant Agreement, the Preference Registration
Rights Agreement, the Preference Warrant Registration Rights Agreement, the
Certificate of Designation and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Preference Securities, (iii) the preparation, issuance and delivery of the
certificates for the Preference Securities to the Chase Purchasers, including
any charges of DTC in connection therewith, (iv) the fees and disbursements of
the Company's counsel, accountants and other advisors, (v) any filing for review
of the offering with the National Association of Securities Dealers (the
"NASD"), and (vi) any fees payable to the NASD.
(b) Termination of Agreement. If this Agreement is terminated by the Chase
Purchasers in accordance with the provisions of Section 5 or Section 10(a)(i)
hereof, the Company shall reimburse the Chase Purchasers for all of its
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Chase Purchasers incurred through the date of termination.
SECTION 5. Conditions of the Chase Purchasers' Obligations. The
obligations of the Chase 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) Reserved
(b) Reserved
(c) Reserved
(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 Preference 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
Chase 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) Reserved
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(f) Reserved
(g) Consummation of Sale of MG Securities and Note Securities. The sale of
the Note Securities and the sale of MG Securities to the MG Purchasers pursuant
to the MG Purchase Agreement shall have been consummated at the Closing Time.
(h) Reserved
(i) Additional Documents. At the Closing Time, counsel for the Chase
Purchasers shall have been furnished with such documents and opinions as it may
require for the purpose of enabling it to pass upon the issuance and sale of the
Preference 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 Preference Securities as herein
contemplated shall be satisfactory in form and substance to the Chase Purchasers
and counsel for the Chase Purchasers.
(j) Execution of Agreements. At the Closing Time, the Preference Warrant
Agreement, the Preference Registration Rights Agreement, the Preference Warrant
Registration Rights Agreement and the Certificate of Designation, each in form
and substance reasonably satisfactory to the Chase 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 Chase 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 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. Resales of the Preference Securities.
(a) Representation and Warranty of the Chase Purchasers. Each Chase
Purchaser represents and agrees that (i) it has not entered and will not enter
into any contractual arrangements with respect to the distribution of the
Preference Securities, except with its affiliates or with the prior written
consent of the Company; (ii) it has received and carefully reviewed the
Preference Offering Memorandum prior to the execution of this Agreement; (iii)
it has been furnished by the Company during the course of this transaction with
all information regarding the Company which it had requested or desired to know,
all documents which could be reasonably provided have been made available for
its inspection and review and it has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or other
representatives of the Company concerning the terms and conditions of the
offering and any additional information which it had requested; (iv) except as
set forth herein, no representations or warranties have been made to it by the
Company or any agent, employee or
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affiliate of the Company and in entering into this transaction, it is not
relying on any information, other than that contained herein or in the
Preference Offering Memorandum and the results of its independent investigation;
(v) no person other than the Company has made any representations to the Chase
Purchaser concerning this Offering and the Chase Purchaser has relied on no
representations or documentation other than that supplied by the Company and in
particular, for avoidance of doubt, the Chase Purchaser is not relying on
information supplied in connection with (X) the concurrent sale of the Note
Securities by the Initial Purchasers or (Y) the sale of the Company's Series C
Senior Discount Notes which was consummated on January 20, 1999; (vi) it is
purchasing the Preference Securities for investment purposes only for its
account and not with any view toward a distribution thereof; and (vii) it has
evaluated the risks of investing in the Preference Securities and has determined
that the Preference Securities are a suitable investment, and that it can bear
the economic risk of this investment and can afford a complete loss of its
investment.
(b) Restrictions on Transfer. The transfer restrictions and the other
provisions set forth in the Preference Offering Memorandum under the heading
"Notice to Investors", including the legend required thereby, shall apply to the
Preference Securities except as otherwise agreed by the Company and the Chase
Purchasers.
(c) Covenants of the Company. The Company covenants with the Chase
Purchasers as follows:
(i) Due Diligence. In connection with the original purchase of the
Preference Securities, the Company agrees that, prior to any offer or
resale of the Preference Securities by the Chase Purchasers, the Chase
Purchasers and counsel for the Chase Purchasers shall have the right to
make reasonable inquiries into the business of the Company and its
subsidiaries.
(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 the sale of the Preference Securities by the Company to the
Chase Purchasers the exemption from the registration requirements of the
1933 Act provided by Section 4(2) thereof or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Preference Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Preference Securities remain
outstanding, it will make available, upon request, to any holder of
Preference Securities or prospective purchasers of Preference Securities
the information specified in Rule 144A(d)(4), unless the Company furnishes
information to the Commission pursuant to Section 13 or 15(d) of the 1934
Act (such information,
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whether made available to holders or prospective purchasers or furnished
to the Commission, is herein referred to as "Additional Information").
(d) Resales. The Chase Purchasers understand that the Preference
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 Chase Purchaser represents and agrees, that
it will offer and sell Preference Securities at any time only in accordance with
an applicable exemption from the registration provisions of the 1933 Act. Each
Chase Purchaser agrees that, at or prior to confirmation of a sale of Preference
Securities it will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Preference
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 an exemption from the
registration requirements of the Securities Act."
(e) Offers and Sales in Poland and The Netherlands. Each Chase Purchaser
has advised the Company and hereby represents and warrants to and agrees with
the Company that it will not offer or sell the Preference Securities in Poland
except in accordance with Polish foreign exchange regulations under
circumstances which do not constitute a public offering or distribution of
securities under Polish laws and regulations. Each Chase Purchaser further
agrees it will not offer or sell the Preference 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.
(f) Offers and Sales in the United Kingdom. Each Chase Purchaser hereby
represents, warrants and agrees that (i) it has not offered or sold and prior to
the expiration of the period six months after the date of issue of the
Preference Securities will not offer to sell by means of any document any
Preference 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 Preference 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 Preference Securities to a person who
is of a kind described in Article 11(3) of the Financial
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Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a
person to whom such document may otherwise lawfully be issued or passed on.
(g) Darland. Cheryl Chase may assign any or all of her right to purchase
Preference Securities to The Darland Trust and the Company hereby consents to
such assignment.
SECTION 7. Indemnification.
(a) Indemnification of the Chase Purchasers. The Company agrees to
indemnify and hold harmless each of the Chase Purchasers and each person, if
any, who controls the Chase Purchasers 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 the Preference Offering
Memorandum (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Purchaser), 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 the
Chase Purchasers or the Initial Purchasers expressly for use in the Preference
Offering Memorandum (or any amendment thereto) and provided further 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 which
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was, at any time prior to the sales of the Preference Securities by the Chase
Purchaser, known or believed to be untrue or omitted by the Chase Purchaser
seeking indemnification.
(b) Indemnification of the Company, Directors and Officers. Each Chase
Purchaser 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 Preference Offering
Memorandum in reliance upon and in conformity with written information furnished
to the Company by the Chase Purchasers expressly for use in the Preference
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 parties shall be selected by Arnold Chase, 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
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<PAGE>
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 Chase Purchasers on the other hand from the offering of the
Preference 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
Chase 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.
The relative benefits received by the Company on the one hand and the
Chase Purchasers on the other hand in connection with the offering of the
Preference 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
Preference Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total commission received by the Chase
Purchasers, bear to the aggregate initial offering price of the Preference
Securities.
The relative fault of the Company on the one hand and the Chase 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 Chase Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Chase Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
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<PAGE>
Notwithstanding the provisions of this Section 8, the Chase Purchasers
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Preference Securities purchased by it and
distributed to the subsequent purchasers were offered to the subsequent
purchasers exceeds the amount of any damages which the Chase Purchasers has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls the
Chase Purchasers 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 Chase
Purchasers, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company 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 the Chase Purchasers or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Preference Securities to the Chase Purchasers.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Chase 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 Preference 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
Preference 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 Chase Purchasers, impracticable to market the Preference
Securities or to enforce contracts for the sale of the Preference 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
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<PAGE>
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. 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 Chase Purchasers shall be directed to the
Chase Purchasers c/o Chase Enterprises, Inc., One Commercial Plaza, Hartford,
Connecticut 06103-3585, attention of John Redding. Notices to the Company shall
be directed to it at One Commercial Plaza, Hartford, Connecticut 06103-3585,
attention of Robert E. Fowler, III.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Chase 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 Chase
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 Chase 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 Preference Securities from the
Chase Purchasers shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
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<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 Chase Purchasers and the Company in accordance with its terms.
Very truly yours,
@ENTERTAINMENT, INC.
By
Title:
By
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
ARNOLD CHASE CHERYL CHASE
- ---------------- ----------------
Arnold Chase Cheryl Chase
RHODA CHASE
- ----------------
Rhoda Chase
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<PAGE>
SCHEDULE A
Name Number of Number of Price
---- Preference Preference -----
Shares Warrants
------ --------
$2,000,000 (less a
Arnold Chase 2,000 2,000 commission of $60,000)
$2,000,000 (less a
Cheryl Chase* 2,000 2,000 commission of $60,000)
$1,000,000 (less a
Rhoda Chase 1,000 1,000 commission of $30,000)
$5,000,000 (less
=====================================================
Total ........... 5,000 5,000 commissions of $150,000)
===== =====
* Cheryl Chase has assigned her right to purchase 1,000 Preference Shares and
1,000 Preference Warrants for a price of $1,000,000 (less a commission of
$30,000) to The Darland Trust.
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<PAGE>
SCHEDULE B
@ENTERTAINMENT, INC.
[Separately Attached]
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<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
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. Szczecinska Telewizja Kablowa Sp. z o.o.
13. TV Kabel Sp. z o.o.
14. At Entertainment Limited
15. Poland Communications, Inc.
16. Poland Cablevision (Netherlands) B.V.
17. Sereke Holding B.V.
18. Wizja TV Sp. z o.o.
19. WPTS Sp. z o.o.
20. @Entertainment Programming, Inc.
21. ProCable Sp. z o.o.
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<PAGE>
Exhibit A
FORM OF CERTIFICATE OF DESIGNATION
[Separately Attached]
-35-
<PAGE>
Exhibit B
FORM OF PREFERENCE WARRANT AGREEMENT
[Separately Attached]
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<PAGE>
Exhibit C
FORM OF PREFERENCE REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
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<PAGE>
Exhibit D
FORM OF PREFERENCE WARRANT REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
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<PAGE>
Exhibit 10.7
==============================================================================
EXECUTION COPY
@ENTERTAINMENT, INC.
(a Delaware corporation)
45,000 Shares of Series A Cumulative Preference Stock and
45,000 Warrants to Purchase an Aggregate of
4,950,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: January 22, 1999
================================================================================
<PAGE>
Table of Contents
PURCHASE AGREEMENT 6
SECTION 1. Representations and Warranties 8
(a) Representations and Warranties by the Company 8
(i) Similar Offerings 8
(ii) Preference Offering Memorandum 8
(iii) Independent Accountants 8
(iv) Financial Statements 9
(v) No Material Adverse Change in Business 9
(vi) Good Standing of the Company 9
(vii) Corporate Standing of Designated Subsidiaries 9
(viii) Restrictions on Payments of Dividends 10
(ix) Capitalization 10
(x) Authorization of Agreement 11
(xi) Authorization of the Preference Registration Rights
Agreement 11
(xii) Authorization of the Certificate of
Designation and the Preference Shares 11
(xiii) Authorization of the Preference Warrant
Agreement 11
(xiv) Authorization of the Preference Warrants 12
(xv) Authorization of the Preference Warrant Shares 12
(xvi) Authorization of the Preference Warrant
Registration Rights Agreement 12
(xvii) Authorization of the Indenture 12
(xviii) Authorization of the Notes 13
(xix) Authorization of the Note Registration Rights
Agreement 13
(xx) Authorization of the Note Warrant Agreement 13
(xxi) Authorization of the Note Warrant Registration
Rights Agreement 14
(xxii) Description of the Preference Registration
Rights Agreement, the Preference Warrant
Registration Rights Agreement, the Preference
Shares, the Preference Warrants, the Common Stock,
the Preference Warrant Agreement, the Chase
Securities, the Note Securities, and the Note
Agreements 14
(xxiii) Absence of Defaults and Conflicts 14
(xxiv) Absence of Labor Dispute 15
(xxv) Absence of Proceedings 15
(xxvi) Possession of Intellectual Property 16
(xxvii) Absence of Further Requirements 16
(xxviii) Possession of Licenses and Permits 17
(xxix) No Additional Documents 17
(xxx) Management Agreements 17
(xxxi) Title to Property 18
(xxxii) Tax Returns 18
(xxxiii) Environmental Laws 18
(xxxiv) Investment Company Act 19
(xxxv) Internal Controls 19
(xxxvi) Taxes on Subsidiary Indebtedness 19
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<PAGE>
(xxxvii) Insurance 20
(xxxviii) Rule 144A Eligibility 20
(xxxix) No General Solicitation 20
(xl) No Registration Required 20
(xli) Reporting Company 20
(xlii) Funds 20
(xliii) Subscribers 21
(b) Officers' Certificates 21
SECTION 2. Sale and Delivery to the Purchaser; Closing 21
(a) Preference Securities 21
(b) Payment 21
(c) Qualified Institutional Buyer 21
(d) Denominations; Registration 21
SECTION 3. Covenants of the Company 21
(a) Preference Offering Memorandum 22
(b) Notice and Effect of Material Events 22
(c) Reserved. 22
(d) Reserved. 22
(e) Reserved. 22
(f) DTC and PORTAL 22
(g) Use of Proceeds 22
(h) Reserved. 22
SECTION 4. Payment of Expenses 22
(a) Expenses 22
(b) Termination of Agreement 23
SECTION 5. Conditions of the Purchaser's Obligations 23
(a) Opinions of Counsel for the Company 23
(b) Opinion of United States Counsel for the Purchaser 23
(c) Opinion of Polish Counsel for the Purchaser 23
(d) Officers' Certificate 24
(e) Accountants' Comfort Letter 24
(f) Bring-down Comfort Letter 24
(g) Consummation of Sale of Chase Securities and Note Securities 24
(h) PORTAL 24
(i) Additional Documents 24
(j) Execution of Agreements 25
(k) Termination of Agreement 25
SECTION 6. Subsequent Offers and Resales of the Preference Securities 25
(a) Offer and Sale Procedures 25
(i) Offers and Sales only to Qualified Institutional Buyers 25
(ii) No General Solicitation 25
(iii) Purchases by Non-Bank Fiduciaries 25
(iv) Subsequent Purchaser Notification 25
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<PAGE>
(v) Restrictions on Transfer 26
(b) Covenants of the Company 26
(i) Due Diligence 26
(ii) Integration 26
(iii) Rule 144A Information 27
(iv) Restriction on Repurchases 27
(c) Resale Pursuant to Rule 144A 27
(d) Offers and Sales in Poland and The Netherlands 27
(e) Offers and Sales in the United Kingdom 28
(f) Representation and Warranty of the Purchaser 28
SECTION 7. Indemnification 29
(a) Indemnification of the Purchaser 29
(b) Indemnification of the Company, Directors and Officers 29
(c) Actions Against Parties; Notification 30
(d) Settlement Without Consent if Failure to Reimburse 30
SECTION 8. Contribution 30
SECTION 9. Representations, Warranties and Agreements to Survive Delivery 32
SECTION 10. Termination of Agreement 32
(a) Termination; General 32
(b) Liabilities 32
SECTION 11. Notices 33
SECTION 12. Parties 33
SECTION 13. GOVERNING LAW AND TIME 33
SECTION 14. Effect of Headings 33
SECTION 15. Counterparts 33
EXHIBITS
Exhibit A - Form of Certificate of Designation ....................... A-1
Exhibit B - Form of Preference Warrant Agreement ..................... B-1
Exhibit C - Form of Preference Registration Rights Agreement ......... C-1
Exhibit D - Form of Preference Warrant Registration Rights Agreement . D-1
Exhibit E - Form of United States Law Opinion of Company's Counsel ... E-1
Exhibit F - Form of Polish Law Opinion of Company's Counsel .......... F-1
Exhibit G - Form of Opinion of Company's Dutch Counsel ............... G-1
Exhibit H - Form of Opinion of Company's English Counsel ............. H-1
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<PAGE>
@ENTERTAINMENT, INC.
(a Delaware corporation)
45,000 Shares of Series A Cumulative Preference Stock and
45,000 Warrants to Purchase an Aggregate of
4,950,000 Shares of Common Stock
PURCHASE AGREEMENT
January 22, 1999
Morgan Grenfell Private Equity Limited,
on behalf of
Morgan Grenfell Development Capital Syndication Limited
23 Great Winchester Street
London EC2P 2AX
Great Britain
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Morgan Grenfell Private Equity Limited ("Morgan Grenfell" or the
"Purchaser"), with respect to the issue and sale by the Company and the purchase
by the Purchaser of 45,000 of the Company's Series A Cumulative Preference
Shares (the "Preference Shares") and 45,000 warrants (each a "Preference
Warrant" and collectively, the "Preference Warrants" and, together with the
Preference Shares, the "Preference Securities"); the Preference Warrants
entitling the holder thereof to purchase an aggregate of 4,950,000 shares of
common stock, par value $0.01 per share (the "Common Stock"), of the Company.
The Preference Shares and Preference Warrants are more fully described in
Schedule B hereto. The Preference Shares are to be issued pursuant to the
Certificate of Designation of the Company in substantially the form attached
hereto as Exhibit A and the Preference Warrants are to be issued pursuant to a
warrant agreement dated as of January 27, 1999 (the "Preference Warrant
Agreement"), between the Company and Bankers Trust Company, as warrant agent
(the "Preference Warrant Agent") in substantially the form attached hereto as
Exhibit A. Under the Preference Warrant Agreement, the Purchaser will have
certain preemptive rights in relation to the Company's Common Stock. Preference
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.
Concurrently, the Company has entered into a separate purchase agreement
(the "Chase Purchase Agreement") for the sale of an aggregate of 5,000 of the
Company's Series B Cumulative Preference Shares (the "Series B Preference
Shares") and 5,000 Warrants (the Chase
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<PAGE>
Warrants") to purchase and aggregate of 550,000 shares of Common Stock to Mr.
Arnold Chase, Ms. Cheryl A. Chase and Ms. Rhoda Chase (collectively, the "Chase
Purchasers"). The Chase Warrants will be issued pursuant to the Preference
Warrant Agreement. The Series B Preference Shares and the Chase Warrants being
sold to the Chase Purchasers are sometimes hereinafter referred to as the "Chase
Securities."
The holders of Preference Shares and the Series B Preference Shares will
be entitled to the benefits of a Registration Rights Agreement, in substantially
the form attached hereto as Exhibit C with such changes as shall be agreed to by
the parties hereto and the Chase Purchasers (the "Preference Registration Rights
Agreement"), pursuant to which the Company will file a registration statement
(the "Preference Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering the Preference Shares and the Series B
Preference Shares under the Securities Act of 1933, as amended (the "1933 Act").
The holders of Preference Warrants and the Chase Warrants will be entitled
to the benefits of a Preference Warrant Registration Rights Agreement in
substantially the form attached hereto as Exhibit D, with such changes as shall
be agreed to by the parties hereto and the Chase Purchasers (the "Preference
Warrant Registration Rights Agreement") which provides for the registration of
the Preference Warrants and the Chase Warrants under the 1933 Act under certain
circumstances set forth therein.
Pursuant to the terms of the Preference Securities, investors that acquire
Preference Securities may only resell or otherwise transfer such Preference
Securities if such Preference 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 will deliver to the Purchaser, on the date
hereof or the next succeeding day, copies of an offering memorandum dated
January 22, 1999 which was prepared by the Company in connection with the sale
of Preference Securities. "Preference Offering Memorandum" means with respect to
any date or time referred to in this Agreement, the final Preference Offering
Memorandum (including any amendment or supplement thereto) including exhibits
thereto and any documents incorporated by reference, which has been prepared and
delivered by the Company to the Purchaser in connection with the sale of
Preference Securities.
Simultaneously with the execution of this Agreement , the Company is
entering into a separate purchase agreement (the "Note Purchase Agreement") for
the sale of 256,800 the Company's units (the "Note Units"), each Note Unit
consisting of $1,000 aggregate principal amount at maturity of the Company's
14 1/2 Senior Discount Notes due 2009 (the "Notes") and four warrants (each a
"Note Warrant" and collectively, the "Note Warrants" and, together with the Note
Units and the Notes, the "Note Securities"). The Note Warrant entitle the
holders thereof to purchase an aggregate of 1,813,665 shares of Common Stock.
The Notes are to be
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<PAGE>
issued pursuant to an indenture dated as of January 27, 1999 (the "Indenture")
between the Company and Bankers Trust Company, as trustee (the "Trustee") and
the Note Warrants are to be issued pursuant to a warrant agreement dated as of
January 27,1999 (the "Note Warrant Agreement") between the Company and Bankers
Trust Company, as warrant agent (the "Note Warrant Agent"). The holders of the
Note and the Note Warrants will be entitled to the benefits of two Registration
Rights Agreements (the "Note Registration Rights Agreement" and the "Note
Warrant Registration Rights Agreement", respectively) which provide for the
registration of the Notes and the Note Warrants under the 1933 Act under certain
circumstances set forth therein. The Indenture, the Note Warrant Agreement, the
Note Registration Rights Agreement and the Note Warrant Registration Rights
Agreement are sometimes referred to herein as the "Note Agreements."
All references in this Agreement to financial statements and schedules and
other information which are "contained," "included" or "stated" in the
Preference 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 Preference
Offering Memorandum.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Purchaser as of the date hereof and as of the Closing Time
referred to in Section 2(b) hereof, and agrees with the Purchaser 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 Preference Securities in a manner that would require
the Preference Securities to be registered under the 1933 Act.
(ii) Preference Offering Memorandum. Neither of its date nor as of
the Closing Time the Preference Offering Memorandum, including any
amendment or supplement thereto, includes or will include an untrue
statement of a material fact or omits 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.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Preference
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.
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<PAGE>
(iv) Financial Statements. The financial statements, together with
the related schedules and notes, of the Company included in the Preference
Offering Memorandum present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Preference 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 Preference 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 Preference Offering
Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Preference 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 Preference Offering Memorandum and to enter into and
perform its obligations under this Agreement, the Preference Warrant
Agreement, the Preference Registration Rights Agreement, the Preference
Warrant Registration Rights Agreement, the Certificate of Designation, the
Note Securities, the Note Agreements, and the Preference 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
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<PAGE>
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 Preference Offering Memorandum and is not
required to be qualified as a foreign corporation to transact business or
to own or lease property in any jurisdiction where it owns or leases
property or transacts business; except as otherwise disclosed in the
Preference 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 1,818 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 Preference 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 $0.5 million
granted on October 7, 1996 by Polski Bank Rozwoju (which was bought by
Bank Rozucju Eksportu S.A. in July of 1998) 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 at September 30, 1998 was as set forth under the
caption "Capitalization"
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under the heading "Actual" in the Preference 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 Preference
Offering Memorandum other than (i) issuances of shares of Common Stock
upon the exercise of options disclosed to be outstanding in the Preference
Offering Memorandum and (ii) the authorization and issuance of the
Preference Securities, the Series B Preference Shares, the Chase Warrants
and the Note Securities as described in the Preference 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 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 Preference Registration Rights Agreement.
The Preference 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 and delivered by the Purchaser
and the Chase 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 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 Certificate of Designation and the
Preference Shares. The Certificate of Designation has been duly authorized
by the Board of Directors of the Company and, at the Closing Time, will
have been duly filed with the Secretary of State of Delaware. The
Preference Shares have been duly authorized by the Company for issuance
and sale to the Purchaser pursuant to this Agreement and the Preference
Shares when issued and delivered against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and the Purchaser will receive title to the Preference
Shares free and clear of all liens and encumbrances. The security holders
of the Company have no preemptive rights with respect to the Preference
Shares.
(xiii) Authorization of the Preference Warrant Agreement. The
Preference Warrant 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 duly executed and delivered by the Preference Warrant
Agent, will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its
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<PAGE>
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).
(xiv) Authorization of the Preference Warrants. The Preference
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 Preference 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
Preference Warrant Agreement and the Preference Warrant Registration
Rights Agreement.
(xv) Authorization of the Preference Warrant Shares. The shares of
Common Stock issuable upon exercise of the Preference Warrants (the
"Preference Warrant Shares") have been duly authorized and reserved by the
Company and, when executed by the Company and countersigned by the
Preference Warrant Agent and issued and delivered upon exercise of the
Preference Warrants in accordance with the terms of the Preference
Warrants and the Preference Warrant Agreement, will be validly issued,
fully paid and non-assessable and will not be subject to any preemptive or
similar rights.
(xvi) Authorization of the Preference Warrant Registration Rights
Agreement. The Preference 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 and
delivered by the Purchaser and the Chase 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.
(xvii) 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
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<PAGE>
the Company and, when executed and delivered by the Trustee, 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.
(xviii) 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 Note Registration
Rights Agreement.
(xix) Authorization of the Note Registration Rights Agreement. The
Note 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, when executed and delivered by the
Initial Purchasers, 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.
(xx) Authorization of the Note Warrant Agreement. The Note Warrant
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
duly executed and delivered by the Note 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
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<PAGE>
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xxi) Authorization of the Note Warrant Registration Rights
Agreement. The Note 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 and delivered 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.
(xxii) Description of the Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Preference
Shares, the Preference Warrants, the Common Stock, the Preference Warrant
Agreement, the Chase Securities, the Note Securities, and the Note
Agreements. The Preference Registration Rights Agreement, the Preference
Warrant Registration Rights Agreement, the Preference Shares, the
Preference Warrants, the Common Stock, the Preference Warrant Agreement,
the Chase Securities, the Note Securities and the Note Agreements will
conform in all material respects to the respective statements relating
thereto contained in the Preference Offering Memorandum and will be in
substantially the respective forms previously delivered to the Purchaser.
(xxiii) 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 Preference
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 Preference Offering
Memorandum; and the execution, delivery and performance of this Agreement,
the DTC Agreement, the Preference Warrant Agreement, the Preference
Registration Rights Agreement, the Preference Warrant Registration Rights
Agreement,
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<PAGE>
the Certificate of Designation, the Preference Securities, the Note
Securities, the Note Agreements, 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 Preference Offering Memorandum and the
consummation of the transactions contemplated herein and in the Note
Purchase Agreement and the Preference Offering Memorandum (including the
issuance and sale of the Preference Securities and the Note Securities and
the use of the proceeds from the sale of the Preference Securities and the
Note Securities as described in the Preference 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 Purchaser complies
with all of its obligations under Section 6 hereof. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xxiv) 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.
(xxv) Absence of Proceedings. Except as disclosed in the Preference
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 Preference 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
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<PAGE>
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
Preference Warrant Agreement, the Preference Registration Rights
Agreement, the Preference Warrant Registration Rights Agreement, the
Certificate of Designation, the Preference Securities, the Note Securities
or the Note Agreements, 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 Preference Offering Memorandum,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse Effect.
(xxvi) Possession of Intellectual Property. Except as disclosed in
the Preference 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 Preference Offering Memorandum,
neither the Company nor any of its subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xxvii) 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 Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Note
Registration Rights Agreement, the Note 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 Preference Securities hereunder or the
consummation of the transactions contemplated by this Agreement, the
Preference Warrant Agreement, the Preference Registration Rights
Agreement, the Preference Warrant Registration Rights Agreement, the Note
Registration Rights Agreement, the Note Warrant Registration Rights
Agreement, or the Preference Offering Memorandum or (y) to permit the
Company to (1)
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<PAGE>
effect payments of dividends on or redemption of the Preference Shares, or
(2) perform its other obligations under the Certificate of Designation,
the Preference Warrant Agreement, the Preference Warrant Registration
Rights Agreement, the Note Registration Rights Agreement, and the Note
Warrant Registration Rights Agreement.
(xxviii) Possession of Licenses and Permits. Except as disclosed in
the Preference 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 Preference Offering Memorandum; the Company and its subsidiaries,
except as disclosed in the Preference 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 Preference
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 Preference 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 Preference 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.
(xxix) No Additional Documents. There are no contracts or documents
of a character that would be required to be described in the Preference
Offering Memorandum, if it were a prospectus filed as part of a
registration statement on Form S-3 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.
(xxx) 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.
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<PAGE>
(xxxi) Title to Property. The Company and its subsidiaries own no
real property, except as described in the Preference 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 Preference 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
Preference 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.
(xxxii) Tax Returns. Except as disclosed in the Preference Offering
Memorandum, the Company and its subsidiaries have filed all domestic and
foreign tax returns that are required to be filed or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith and
by appropriate proceedings, and except for such claims as could not result
in a Material Adverse Effect; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all domestic and foreign taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
(xxxiii) Environmental Laws. Except as described in the Preference
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
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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.
(xxxiv) Investment Company Act. The Company is not, and upon the
issuance and sale of the Preference Securities, the Chase Securities and
the Note Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Preference 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").
(xxxv) 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 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 Preference Offering Memorandum if it were a prospectus
filed as part of a registration statement on Form S-1 under the 1933 Act.
(xxxvi) Taxes on Subsidiary Indebtedness. Except as described in the
Preference 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,
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penalties or other amounts payable under any indebtedness of any of the
Company's subsidiaries held by the Company.
(xxxvii) Insurance. Except as otherwise disclosed in the Preference
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.
(xxxviii) Rule 144A Eligibility. The Preference 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.
(xxxix) 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 Purchaser and the Initial Purchasers, as to whom the Company
makes no representation) has engaged or will engage, in connection with
the offering of the Preference Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502(c)
under the 1933 Act.
(xl) No Registration Required. Subject to compliance by the
Purchaser with the representations and warranties set forth in Section 2
and the procedures set forth in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Preference Securities
to the Purchaser in the manner contemplated by this Agreement, the
Preference Warrant Agreement and the Preference Offering Memorandum to
register the Preference Securities under the 1933 Act.
(xli) Reporting Company. The Company is subject to, and has complied
with all applicable reporting requirements of Section 13 or Section 15(d)
of the 1934 Act.
(xlii) Funds. With the net proceeds of the sale of the Preference
Securities and the Chase Securities pursuant to this Agreement and the
Chase Purchase Agreement, respectively, the sales of the Note Securities
pursuant to the Note Purchase Agreement and the sale of the Company's
Series C Senior Discount Notes which was consummated on January 20, 1999,
together with cash on hand, the Company has sufficient capital to fulfill
its current business plan and to fund its commitments until the Company
achieves positive cash flow from operations, subject to the matters
disclosed in the Preference Offering Memorandum.
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(xliii) Subscribers. As of December 31, 1998, the Company had at
least 675,000 basic cable subscribers and had sold approximately 125,000
Wizja TV packages to authorized retailers in Poland (as described in the
Preference Offering Memorandum).
(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 Purchaser or to counsel for the Purchaser
shall be deemed a representation and warranty by the Company to the Purchaser as
to the matters covered thereby.
SECTION 2. Sale and Delivery to the Purchaser; Closing.
(a) Preference 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 Purchaser and the Purchaser agrees to
purchase from the Company, at an aggregate purchase price of $45,000,000 (less a
commission of $1,350,000), the aggregate number of Preference Shares and
Preference Warrants set forth in Schedule A opposite its name.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Preference 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 Purchaser and the Company, at 9:00
A.M. on the third 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 Purchaser and
the Company (such time and date of payment and delivery being herein called the
"Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Purchaser for the account of the Purchaser of certificates for the
Preference Securities to be purchased by it.
(c) Qualified Institutional Buyer. The Purchaser 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 Preference
Securities shall be in such denominations and registered in such names as the
Purchaser may request in writing at least one full business day before the
Closing Time. The certificates representing the Preference Shares and the
Preference 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 Purchaser 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 the
Purchaser as follows:
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(a) Preference Offering Memorandum. The Company, as promptly as possible,
will furnish to the Purchaser, without charge, such number of copies of the
Preference Offering Memorandum and any amendments and supplements thereto and
documents incorporated by reference therein as the Purchaser may reasonably
request.
(b) Notice and Effect of Material Events. The Company will immediately
notify the Purchaser, and confirm such notice in writing, of any filing made by
the Company of information relating to the offering of the Preference Securities
with any securities exchange or any other regulatory body in the United States
or any other jurisdiction.
(c) Reserved.
(d) Reserved.
(e) Reserved.
(f) DTC and PORTAL. The Company will cooperate with the Purchaser and use
its best efforts (i) to permit the Preference Securities to be eligible for
clearance and settlement through the facilities of DTC and (ii) include
quotation of the Preference Securities on PORTAL.
(g) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Preference Securities in the manner specified in the
Preference Offering Memorandum under "Use of Proceeds."
(h) Reserved.
(i) Notification of Current Accumulated Earnings and Profits. The Company
will disclose its current and accumulated earnings and profits, if any, for each
fiscal year in its annual report on Form 10-K so long as it is required to file
such a report. Thereafter, the Company will provide such information to any
holder of Preference Securities upon receipt of a written request from such
holder.
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 Preference 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 Purchaser of this Agreement,
the Preference Warrant Agreement, the Preference Registration Rights Agreement,
the Preference Warrant Registration Rights Agreement, the Certificate of
Designation and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Preference Securities,
(iii) the preparation, issuance and delivery of the certificates for the
Preference Securities to the Purchaser, including any charges of DTC in
connection therewith,
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(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) any filing for review of the offering with the National
Association of Securities Dealers (the "NASD"), and (vi) any fees payable to the
NASD and any fees and expenses payable in connection with the initial and
continued designation of the Preference 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
Purchaser in accordance with the provisions of Section 5 or Section 10(a)(i)
hereof, the Company shall reimburse the Purchaser for all of its out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Purchaser incurred through the date of termination.
SECTION 5. Conditions of the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 1 hereof or in certificates of
any officer of the Company or any of its subsidiaries delivered pursuant to the
provisions hereof, to the performance by the Company of its covenants and other
obligations hereunder, and to the following further conditions:
(a) Opinions of Counsel for the Company. (i) At the Closing Time, the
Purchaser 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 Purchaser, one to the effect as set
forth in Exhibit E hereto and one to the effect set forth in Exhibit F hereto
and each to such further effect as counsel to the Purchaser may reasonably
request.
(ii) At the Closing Time, the Purchaser 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 Purchaser, to the effect set forth in
Exhibit G hereto and to such other effect as counsel to the Purchaser may
reasonably request.
(iii) At the Closing Time, the Purchaser 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 Purchaser, to the effect set forth in Exhibit H hereto
and to such other effect as counsel to the Purchaser may reasonably
request.
(b) Opinion of United States Counsel for the Purchaser. At the Closing
Time, the Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Shearman & Sterling, counsel for the Purchaser, with respect to
certain of the matters set forth in Exhibit E hereto and to such other effect as
the Purchaser and such counsel may reasonably agree.
(c) Opinion of Polish Counsel for the Purchaser. At the Closing Time, the
Purchaser 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
Purchaser, in form satisfactory to the
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Purchaser with respect to certain of the matters set forth in paragraphs (i)
through (vii), inclusive, of Exhibit F 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 Preference 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
Purchaser shall have received a certificate of the chief executive officer of
the Company and of the chief financial or chief accounting officer of the
Company, dated as of the Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in Section
1 hereof are true and correct with the same force and effect as though expressly
made at and as of the Closing Time, and (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time.
(e) Accountants' Comfort Letter. At the time of the execution of this
Agreement and upon delivery of an underwriters' request for comfort letter (the
"Request Letter") in form and substance satisfactory to KPMG Polska Sp. z o.o.,
the Purchaser shall have received from KPMG Polska Sp. z o.o. a letter dated
such date, in form and substance satisfactory to the Purchaser, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to the Purchaser with respect to the financial statements and
certain financial information contained in the Preference Offering Memorandum.
If the Purchaser is unable or unwilling to provider the Request Letter, at the
time of the execution of this Agreement, the Purchaser shall have received from
KPMG Polska Sp. z o.o. a letter dated such date, in form and substance
satisfactory to the Purchaser, containing statements and information of the type
ordinarily included in accountants' "agreed procedures letter" to the Purchaser
with respect to the financial statements and certain financial information
contained in the Preference Offering Memorandum.
(f) Bring-down Comfort Letter. At the Closing Time, the Purchaser 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) Consummation of Sale of Chase Securities and Note Securities. The sale
of the Note Securities and the sale of Chase Securities to the Chase Purchasers
pursuant to the Chase Purchase Agreement shall have been consummated at the
Closing Time.
(h) PORTAL. At the Closing Time, the Preference Securities shall have been
designated for trading on PORTAL.
(i) Additional Documents. At the Closing Time, counsel for the Purchaser
shall have been furnished with such documents and opinions as it may require for
the purpose of enabling it
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to pass upon the issuance and sale of the Preference 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 Preference Securities as herein contemplated shall be satisfactory
in form and substance to the Purchaser and counsel for the Purchaser.
(j) Execution of Agreements. At the Closing Time, the Preference Warrant
Agreement, the Preference Registration Rights Agreement, the Preference Warrant
Registration Rights Agreement and the Certificate of Designation, each in form
and substance reasonably satisfactory to the Purchaser, 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 Purchaser by notice to the Company at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7, 8 and 9 shall survive any such termination and remain
in full force and effect.
SECTION 6. Subsequent Offers and Resales of the Preference Securities.
(a) Offer and Sale Procedures. The Purchaser and the Company hereby
establish and agree to observe the following procedures in connection with the
offer and sale of the Preference Securities:
(i) Offers and Sales only to Qualified Institutional Buyers. Offers
and sales of the Preference 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). The Purchaser agrees
that it will not offer, sell or deliver any of the Preference 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 Preference 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
Preference Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
subsequent purchaser of a Preference Security acting as a fiduciary for
one or more third parties, each third party shall, in the judgment of the
Purchaser, be a Qualified Institutional Buyer.
(iv) Subsequent Purchaser Notification. The Purchaser will take
reasonable steps to inform, and cause each of its U.S. Affiliates to take
reasonable steps to inform,
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persons acquiring Preference Securities from the Purchaser or affiliate,
as the case may be, in the United States that the Preference 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 Preference 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 Preference
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 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 Preference Offering Memorandum under the
heading "Notice to Investors", including the legend required thereby,
shall apply to the Preference Securities except as otherwise agreed by the
Company and the Purchaser. Following the sale of the Preference Securities
by the Purchaser to subsequent purchasers pursuant to the terms hereof,
the Purchaser shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the 1933 Act, arising
from or relating to any resale or transfer of any Security.
(b) Covenants of the Company. The Company covenants with the Purchaser as
follows:
(i) Due Diligence. In connection with the original purchase of the
Preference Securities, the Company agrees that, prior to any offer or
resale of the Preference Securities by the Purchaser, the Purchaser and
counsel for the Purchaser shall have the right to make reasonable
inquiries into the business of the Company and its subsidiaries.
(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 Preference Securities by the Company to the
Purchaser, (ii) the resale of the Preference Securities by the Purchaser
to subsequent purchasers or (iii) the resale of the Preference 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.
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(iii) Rule 144A Information. The Company agrees that, in order to
render the Preference Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Preference Securities remain
outstanding, it will make available, upon request, to any holder of
Preference Securities or prospective purchasers of Preference Securities
the information specified in Rule 144A(d)(4), unless the Company furnishes
information to the Commission pursuant to Section 13 or 15(d) of the 1934
Act (such information, whether made available to holders or prospective
purchasers or furnished to the Commission, is herein referred to as
"Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Preference Securities, the Company will
not, and will cause its Affiliates not to, purchase or agree to purchase
or otherwise acquire any Preference 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
cancel such Preference Securities.
(c) Resale Pursuant to Rule 144A. The Purchaser understands that the
Preference 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. The Purchaser represents and agrees,
that, except as permitted by Section 6(a) above, it has offered and sold
Preference Securities and will offer and sell Preference 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. The Purchaser agrees that, at or prior to confirmation of a sale of
Preference Securities (other than a sale of Preference 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 Preference
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 Purchaser has
advised the Company and hereby represents and warrants to and agrees with the
Company that it will not offer or sell the Preference Securities in Poland
except in accordance with Polish foreign exchange regulations under
circumstances which do not constitute a public offering or
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distribution of securities under Polish laws and regulations. The Purchaser
further agrees it will not offer or sell the Preference Securities in The
Netherlands except under circumstances which do not constitute a public offering
or distribution (aanbod buiten besloten kring) of securities under the laws and
regulations of The Netherlands.
(e) Offers and Sales in the United Kingdom. The Purchaser hereby
represents, warrants and agrees that (i) it has not offered or sold and prior to
the expiration of the period six months after the date of issue of the
Preference Securities will not offer to sell by means of any document any
Preference 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 Preference 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 Preference 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 the Purchaser. The Purchaser represents
and agrees that (i) it has not entered and will not enter into any contractual
arrangements with respect to the distribution of the Preference Securities,
except with its affiliates or with the prior written consent of the Company;
(ii) it has received and carefully reviewed the Preference Offering Memorandum
prior to the execution of this Agreement; (iii) it has been furnished by the
Company during the course of this transaction with all information regarding the
Company which it had requested or desired to know, all documents which could be
reasonably provided have been made available for its inspection and review and
it has been afforded the opportunity to ask questions of and receive answers
from duly authorized officers or other representatives of the Company concerning
the terms and conditions of the offering and any additional information which it
had requested; (iv) except as set forth herein, no representations or warranties
have been made to it by the Company or any agent, employee or affiliate of the
Company and in entering into this transaction, it is not relying on any
information, other than that contained herein or in the Preference Offering
Memorandum and the results of its independent investigation; (v) no person other
than the Company has made any representations to the Purchaser concerning this
Offering and the Purchaser has relied on no representations or documentation
other than that supplied by the Company and in particular, for avoidance of
doubt, the Purchaser is not relying on information supplied in connection with
(X) the concurrent sale of the Note Securities by the Initial Purchasers or (Y)
the sale of the Company's Series C Senior Discount Notes which was consummated
on January 20, 1999; (vi) it is purchasing the Preference Securities for
investment purposes only for its account and not with any view toward a
distribution thereof; and (vii) it has evaluated the risks of investing in the
Preference Securities and has determined that the
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Preference Securities are a suitable investment, and that it can bear the
economic risk of this investment and can afford a complete loss of its
investment.
SECTION 7. Indemnification.
(a) Indemnification of the Purchaser. The Company agrees to indemnify and
hold harmless the Purchaser and each person, if any, who controls the 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 the Preference Offering
Memorandum (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Purchaser), 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 the
Purchaser expressly for use in the Preference Offering Memorandum (or any
amendment thereto).
(b) Indemnification of the Company, Directors and Officers. The Purchaser
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 Preference Offering
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Memorandum in reliance upon and in conformity with written information furnished
to the Company by the Purchaser expressly for use in the Preference 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 parties shall be selected by the Purchaser, 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
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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 Purchaser on the other hand from the offering of the Preference
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
Purchaser on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Purchaser on the other hand in connection with the offering of the Preference
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
Preference Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
Purchaser, bear to the aggregate initial offering price of the Preference
Securities.
The relative fault of the Company on the one hand and the Purchaser on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Purchaser and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Purchaser shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Preference Securities underwritten by it and distributed to
the subsequent purchasers were offered to the subsequent purchasers exceeds the
amount of any damages which the 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.
-31-
<PAGE>
For purposes of this Section 8, each person, if any, who controls the
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 the 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.
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 the Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Preference Securities to the Purchaser.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Purchaser may terminate this Agreement, by
notice to the Company, at any time at or prior to the Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Preference 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 Preference 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 Purchaser,
impracticable to market the Preference Securities or to enforce contracts for
the sale of the Preference 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.
-32-
<PAGE>
SECTION 11. 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 Purchaser shall be directed to the Purchaser
at 23 Great Winchester Street, London EC2P 2AX
Great Britain, attention of Scott Lanphere. Notices to the Company shall be
directed to it at One Commercial Plaza, Hartford, Connecticut 06103-3585,
attention of Robert E. Fowler, III.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Purchaser and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Purchaser and
the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Purchaser 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 Preference Securities from the Purchaser shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
-33-
<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 Purchaser 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:
MORGAN GRENFELL
PRIVATE EQUITY LIMITED,
on behalf of
MORGAN GRENFELL DEVELOPMENT
CAPITAL SYNDICATION LIMITED
By
------------------------
Authorized Signatory
-34-
<PAGE>
SCHEDULE A
Number of Number of
Preference Preference
Name Shares Warrants
---- ------ --------
Morgan Grenfell Private Equity Limited
on behalf of
Morgan Grenfell Development
Capital Syndication Limited.................. 45,000 45,000
------ ------
Total........................................ 45,000 45,000
====== ======
-35-
<PAGE>
SCHEDULE B
@ENTERTAINMENT, INC.
[Separately attached]
-36-
<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
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. Szczecinska Telewizja Kablowa Sp. z o.o.
13. TV Kabel Sp. z o.o.
14. At Entertainment Limited
15. Poland Communications, Inc.
16. Poland Cablevision (Netherlands) B.V.
17. Sereke Holding B.V.
18. Wizja TV Sp. z o.o.
19. WPTS Sp. z o.o.
20. @Entertainment Programming, Inc.
21. ProCable Sp. z o.o.
-37-
<PAGE>
Exhibit A
FORM OF CERTIFICATE OF DESIGNATION
[Separately Attached]
-38-
<PAGE>
Exhibit B
FORM OF PREFERENCE WARRANT AGREEMENT
[Separately Attached]
-39-
<PAGE>
Exhibit C
FORM OF PREFERENCE REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
-40-
<PAGE>
Exhibit D
FORM OF PREFERENCE WARRANT REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
-41-
<PAGE>
Exhibit E
FORM OF UNITED STATES LAW OPINION OF COMPANY'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
[Separately Attached]
-42-
<PAGE>
Exhibit F
FORM OF POLISH LAW OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
[Separately Attached]
-43-
<PAGE>
Exhibit G
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
[Separately Attached]
-44-
<PAGE>
Exhibit H
FORM OF OPINION OF COMPANY'S ENGLISH COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(a)(iii)
[Separately Attached]
-45-
<PAGE>
Exhibit 10.10
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 tat 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 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
2
<PAGE>
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.
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:
3
<PAGE>
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, 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
4
<PAGE>
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 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.
5
<PAGE>
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.
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.
6
<PAGE>
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 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
7
<PAGE>
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.
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.
8
<PAGE>
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
accordingly, Szmyt may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
1. 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.
9
<PAGE>
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 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.
10
<PAGE>
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
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.
11
<PAGE>
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.
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: /s/ Robert E. Fowler, III
-------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
/s/ Przemyslaw A. Szmyt
-----------------------------
Przemyslaw A. Szmyt
<PAGE>
Exhibit 10.11
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 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.
/s/ Robert E. Fowler III
- ------------------------
Robert E. Fowler III
Chief Executive Officer
@Entertainment, Inc.
/s/ Przemyslaw Szmyt
- ------------------------
Przemyslaw Szmyt
<PAGE>
EXHIBIT 10.12
@Entertainment Inc.
One Commercial Plaza 24th Floor
Hartford CT 06103
PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF JANUARY 1, 1999
March 1, 1999
Mr. Przemyslaw Szmyt
Ul. Orzechowa # 3
05-B30 Nadarzyn
POLAND
Dear Przemyslaw:
As agreed, below please find amendments to the agreement signed between you
and Poland Communications, Inc. on February 7, 1997 (as subsequently amended
and assigned to @Entertainment, Inc.).
Section 1A. shall read as follows:
Your engagement with the Company shall be for a five- (5) year period,
commencing February 7, 1997.
Section 1B. shall read as follows:
You shall hold the position of Senior Vice President Business Development
and General Counsel.
Section 1D. shall read as follows:
You shall be eligible to receive an annual bonus, at the discretion of
the Chief Executive Officer.
Section 11A, second sentence, shall read as follows:
The Company may terminate this Agreement upon six (6) months notice at
any time during the term.
The foregoing amendments are effective as of January 1, 1999.
Best regards,
By: /S/ ROBERT E. FOWLER, III
--------------------------
Robert E. Fowler, III
Chief Executive Officer
<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 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
2
<PAGE>
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.
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 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.
(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
4
<PAGE>
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 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'
5
<PAGE>
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 interest therein, he will do so only in compliance with
applicable securities 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.
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,
6
<PAGE>
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
Attention: John Frelas
7
<PAGE>
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.
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: /s/ Robert E. Fowler, III
---------------------------
Its: Chief Executive Officer
/s/ Przemyslaw A. Szmyt
------------------------------
Przemyslaw A. Szmyt
8
<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: /s/ Robert E. Fowler, III
--------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
/s/ Przemyslaw A. Szmyt
-------------------------------
Przemyslaw A. Szmyt
9
<PAGE>
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).
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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 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. 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.
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:
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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, 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
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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 5-8 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 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.
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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.
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.
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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 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
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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.
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.
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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
accordingly, Warner may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
1. 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
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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 parties. Such remedy
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedy which the parties may have.
b. In furtherance of and not in limitation of the foregoing, should
any dispute arise concerning a sale, purchase, encumbrance, pledge, transfer,
hypothecation, assignment or other disposition of the Option or any of the
Shares which is alleged to contravene the provisions of this Option Agreement,
an injunction may be issued restraining any such transaction pending the
determination of such controversy.
14. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
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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
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.
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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.
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
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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 (75,000) 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 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.
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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.
5. No Stock Rights.
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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.
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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 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.
(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
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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 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'
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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 securities 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.
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
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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
Attention: Przemyslaw Szmyt
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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 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.
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.
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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
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Exhibit 10.18
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 "L" 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).
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.
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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 (L10,225) 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 (L30,500) during
the first year of his employment hereunder. Of such amount, Employee shall be
guaranteed to receive at least Eighteen Thousand Three Hundred Pounds (L18,300).
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.
(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 ,30,000
toward the purchase of an automobile, which automobile shall belong to
Employee at the termination of this Agreement.
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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
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
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<PAGE>
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 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
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<PAGE>
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.
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
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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 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).
7
<PAGE>
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:
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.
8
<PAGE>
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 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
9
<PAGE>
(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.
@Entertainment, Inc., a
Delaware corporation
By:/s/ Robert E. Fowler, III
-----------------------------
Robert E. Fowler, III
Its:Chief Executive Officer
/s/ Donald Miller-Jones
-----------------------------
Donald Miller-Jones
10
<PAGE>
Exhibit 10.19
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
(including but not limited to Miller-Jones's death, disability, voluntary
termination or involuntary termination).
Exhibit A - Page 1
<PAGE>
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. 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.
Exhibit A - Page 2
<PAGE>
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:
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.
Exhibit A - Page 3
<PAGE>
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 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.
Exhibit A - Page 4
<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) 668-7200
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.
c. Any party may change its address for notices by communicating its
new address in writing to the other party.
Exhibit A - Page 5
<PAGE>
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: /s/ Robert E. Fowler, III
---------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
---------------------------------
/s/ Donald Miller-Jones
--------------------------------------
Donald Miller-Jones
Exhibit A - Page 6
<PAGE>
Exhibit 10.21
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 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process.
<PAGE>
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.
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
2
<PAGE>
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, 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
3
<PAGE>
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.
(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.
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(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:
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.
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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 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
6
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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.
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.
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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: /s/ Robert E. Fowler, III
----------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
/s/ Samuel Chisholm
--------------------------------
Samuel Chisholm
8
<PAGE>
Exhibit 10.22
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 from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This
1
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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.
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
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<PAGE>
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 "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.
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, 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
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<PAGE>
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 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.
4
<PAGE>
(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.
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.
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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.
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
6
<PAGE>
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.
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.
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<PAGE>
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: /s/ Robert E. Fowler, III
------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
/s/ David Chance
--------------------------------
David Chance
8
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Exhibit 10.23
@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.
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.
<PAGE>
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
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made and
entered into as of this _____ day of ___________, by and between
@Entertainment, Inc., a Delaware corporation (the "Company"), and [ NAME ]
("Indemnitee").
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee, intending to be legally bound, do
hereby covenant and agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement:
(a) "BOARD" means the board of directors of the Company.
(b) "CHANGE IN CONTROL" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not the Company is then subject to such reporting requirement; PROVIDED,
HOWEVER, that, without limitation, such a Change in Control shall be deemed to
<PAGE>
have occurred if after the Effective Date: (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding securities
without the prior approval of at least two-thirds of the members of the Board in
office immediately prior to such person attaining such percentage interest; (ii)
there occurs a proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other reorganization not
approved by at least two-thirds of the members of the Board then in office, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter; or
(iii) during any period of two consecutive years, other than as a result of an
event described in clause (b)(ii) of this Section 1, individuals who at the
beginning of such period constituted the Board (including for this purpose any
new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board.
(c) "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee or agent of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is not
and was not a party to a Proceeding in respect of which indemnification is
sought by Indemnitee.
(e) "EFFECTIVE DATE" means ________________.
(f) "EXPENSES" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other reasonable disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in, or
otherwise participating in, a Proceeding.
(g) "INDEPENDENT COUNSEL" means a law firm, or a member of a law firm,
that is experienced in matters of corporate law and neither presently is, nor in
the past five (5) years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party; or (ii) any other party
to a Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person, who, under the applicable standards of professional conduct
2
<PAGE>
then prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(h) "PROCEEDING" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
(i) initiated by Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement or (ii) pending on or before the Effective Date.
SECTION 2. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a
director, officer, employee or agent of the Company. Indemnitee may, at any time
and for any reason, resign from such position (subject to any other contractual
obligation or any obligation imposed by operation of law), in which event the
Company shall have no obligation under this Agreement to continue Indemnitee in
such position. This Agreement shall not be deemed an employment contract between
the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically
acknowledges that Indemnitee's employment with the Company (or any of its
subsidiaries), if any, is at will, and the Indemnitee may be discharged at any
time for any reason, with or without cause, except as may be otherwise provided
in any written employment contract between Indemnitee and the Company (or any of
its subsidiaries), other applicable formal severance policies duly adopted by
the Board, or, with respect to service as a director of the Company, by the
Company's Certificate of Incorporation, Bylaws, and the General Corporation Law
of the State of Delaware. The foregoing notwithstanding, this Agreement shall
continue in force after Indemnitee has ceased to serve as an officer, director,
agent or employee of the Company.
SECTION 3. INDEMNIFICATION - GENERAL. The Company shall indemnify, and
advance Expenses to, Indemnitee (a) as provided in this Agreement and (b)
(subject to the provisions of this Agreement) to the fullest extent permitted by
applicable law in effect on the date hereof and as amended from time to time.
The rights of Indemnitee provided under the preceding sentence shall include,
but shall not be limited to, the rights set forth in the other sections of this
Agreement.
SECTION 4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 4 if, by reason of his Corporate Status, he is, or is threatened
to be made, a party to or a participant in any threatened, pending or completed
Proceeding, other than a Proceeding by or in the right of the Company. Pursuant
to this Section 4, Indemnitee shall be indemnified against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to
3
<PAGE>
be in or not opposed to the best interests of the Company and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
SECTION 5. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 5
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or a participant in any threatened, pending or completed Proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Pursuant to this Section 5, Indemnitee shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company; PROVIDED, HOWEVER,
that, if applicable law so provides, no indemnification against such Expenses
shall be made in respect of any claim, issue or matter in such Proceeding as to
which Indemnitee shall have been adjudged to be liable to the Company unless and
to the extent that the court in which such Proceeding shall have been brought or
is pending shall determine that such indemnification may be made.
SECTION 6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. In addition to indemnification authorized under any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a party to (or a participant in) and is successful, on the
merits or otherwise, in defense of any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in defense of such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
indemnify Indemnitee against all Expenses actually and reasonably incurred by
him or on his behalf in connection with each successfully resolved claim, issue
or matter. The parties hereto shall make a reasonable allocation of those
Expenses that relate to each such claim, issue or matter. For purposes of this
section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
SECTION 7. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 8. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee
4
<PAGE>
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
evidence the Expenses reasonably incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses.
SECTION 9. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 9(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control shall have occurred, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred,
(A) by a majority vote of the Disinterested Directors, even though less than a
quorum of the Board, or (B) if there are no such Disinterested Directors or, if
such Disinterested Directors so direct, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if
so directed by the Board, by the stockholders of the Company; and, if it is so
determined that Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within ten (10) days after such determination. Indemnitee shall
cooperate with the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including providing to
such person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably necessary to such
determination. Such determination shall be made as promptly as is reasonably
practicable, taking into account all facts and circumstances. Any reasonable
costs or expenses (including reasonable attorneys' fees and disbursements)
actually incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 9(b) hereof, the
Independent Counsel shall be selected as provided in this Section 9(c). If a
Change of Control shall not have occurred, the
5
<PAGE>
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within ten (10) days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; PROVIDED,
HOWEVER, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 1 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is so made and substantiated, the Independent Counsel so selected may
not serve as Independent Counsel unless and until such objection is withdrawn or
a court has determined that such objection is without merit. If, within thirty
(30) days after submission by Indemnitee of a written request for
indemnification pursuant to Section 9(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition any court of competent jurisdiction for resolution of any objection
which shall have been made by the Company or Indemnitee to the other's selection
of Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the court or by such other person as the court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 9(b)
hereof. The Company shall pay any and all reasonable fees and Expenses of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to Section 9(b) hereof, and the Company shall pay all reasonable
fees and Expenses incident to the procedures of this Section 9(c), regardless of
the manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
11(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
SECTION 10. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 9(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
6
<PAGE>
The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
SECTION 11. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 9
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8
of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 9(b) of this Agreement within 90 days
after receipt of the Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 6 or 7 of this Agreement within
ten (10) days after receipt by the Company of a written request therefor or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification,
Indemnitee shall be entitled to an adjudication by a court of competent
jurisdiction of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within one hundred eighty (180) days following the date on which Indemnitee
first has the right to commence such proceeding pursuant to this Section 11(a);
PROVIDED, HOWEVER, that the foregoing clause shall not apply in respect of a
proceeding brought by Indemnitee to enforce his rights under Section 6 of this
Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 9(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 11 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and the Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred, in
any judicial proceeding or arbitration commenced pursuant to this Section 11 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 9(b) of
this Agreement that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this
7
<PAGE>
Section 11, absent (i) a misstatement by Indemnitee of a material fact, or an
omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 11, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all Expenses actually and reasonably incurred by him in such
judicial adjudication or arbitration, but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
Expenses sought, the Expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
SECTION 12. SELECTION OF COUNSEL. In the event the Company shall be
obligated under this Agreement to pay the Expenses of any Proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such Proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written notice
of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his counsel in any
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and Expenses of Indemnitee counsel
shall be at the expense of the Company.
SECTION 13. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in certain instances Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
8
<PAGE>
SECTION 14. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement or of any provision hereof
in respect of any action taken or omitted by such Indemnitee in his Corporate
Status prior to such amendment, alteration or repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall have the status as an insured under
such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all actions necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee who is or was serving at the request of the Company as a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise shall be reduced by any amount
Indemnitee has actually received as indemnification or advancement of Expenses
from such other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise.
SECTION 15. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee or agent
of the Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee
9
<PAGE>
served at the request of the Company (the "ANNIVERSARY DATE"); or (b) the final
termination of any Proceeding then pending on the Anniversary Date in respect of
which Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
SECTION 16. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 17. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee, or any claim
therein prior to a Change in Control, unless the bringing of such Proceeding or
making of such claim shall have been approved by the Board.
SECTION 18. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
SECTION 19. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
SECTION 20. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a
10
<PAGE>
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 21. NOTICE BY INDEMNITEE. Indemnitee agrees to notify promptly
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
SECTION 22. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand or air courier and receipted for by the
party to whom said notice or other communication shall have been directed or
(ii) mailed by certified or registered mail, with postage prepaid, on the fifth
(5th) business day after the date on which it is so mailed:
If to Indemnitee, to:
Name
Street Address
City, State, Zip Code
If to the Company, to:
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be, in accordance with the
foregoing requirements.
SECTION 23. CONTRIBUTION. To the fullest extent permissible under the
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of such Proceeding in
order to reflect (i) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding, and /or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 24. GOVERNING LAW. This Agreement and the legal relations among
the parties shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to its conflict of laws rules.
11
<PAGE>
SECTION 25. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
INDEMNITEE:
_________________________________________
COMPANY:
By:______________________________________
Its:_____________________________________
12
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
COMPANY JURISDICTION
Poland Communications, Inc. New York
At Entertainment Limited United Kingdom
Wizja TV Sp. z o.o. Poland
Poland Cablevision (Netherlands) B.V. Netherlands
Sereke Holding B.V. Netherlands
@Entertainment Programming, Inc. Delaware
Czestochowska TK Sp. z o.o. Poland (in liquidation)
Wizja TV Spoka Produkcyjna Sp. z o.o Poland
ETV Sp. z o.o. Poland
Gosat-Service Sp. z o.o. Poland
Ground Zero Media Sp. z o.o. Poland
At Media Sp. z o.o. Poland
At Entertainment Services Limited United Kingdom
Kolor-Sat Sp. z o.o. Poland
Mazurska Telewizja Kablowa Sp. z o.o. Poland
Opolskie TTT S.A. Poland
Mozaic Entertainment, Inc. Delaware
Polska Telewizja Kablowa Krakow S.A. Poland
Polska Telewizja Kablowa Lublin S.A. Poland
Polska Telewizja Kablowa Operator Sp. z o.o. Poland
Polska Telewizja Kablowa S.A. Poland
Polska Telewizja Kablowa Szczecin Sp. z o.o. Poland
Polska Telewizja Kablowa Warszawa S.A. Poland
Poltelkab Sp. z o.o. Poland
Szczecinska Telewizja Kablowa Sp. z o.o. Poland
Telkat Sp. z o.o. Poland
TV Kabel Sp. z o.o. Poland
TV-SAT Ursus Sp. z o.o. Poland (in liquidation)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,055
<SECURITIES> 0
<RECEIVABLES> 8,503
<ALLOWANCES> 1,095
<INVENTORY> 8,869
<CURRENT-ASSETS> 50,556
<PP&E> 265,122
<DEPRECIATION> 52,068
<TOTAL-ASSETS> 348,374
<CURRENT-LIABILITIES> 57,264
<BONDS> 257,454
0
0
<COMMON> 333
<OTHER-SE> 33,323
<TOTAL-LIABILITY-AND-EQUITY> 348,374
<SALES> 0
<TOTAL-REVENUES> 61,859
<CGS> 0
<TOTAL-COSTS> 162,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,383)
<INTEREST-EXPENSE> 21,957
<INCOME-PRETAX> (125,855)
<INCOME-TAX> 210
<INCOME-CONTINUING> (126,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,065)
<EPS-PRIMARY> (3.78)
<EPS-DILUTED> (3.78)
</TABLE>
