<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT 1934
FROM THE TRANSITION PERIOD FROM _________ TO ___________
COMMISSION FILE NUMBER 000-22877
@ ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1487156
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
ONE COMMERCIAL PLAZA
HARTFORD, CONNECTICUT 06103
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 549-1674
Indicate by check (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 _____
The number of shares outstanding of @ Entertainment, Inc.'s common stock as of
June 30, 1999, was:
Common Stock 33,562,320
- --------------------------------------------------------------------------------
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<PAGE>
@ ENTERTAINMENT, INC.
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
@ Entertainment
Consolidated Balance Sheets....................................... 3-4
Consolidated Statements of Operations.............................. 5
Consolidated Statements of Comprehensive Loss...................... 6
Consolidated Statements of Cash Flows.............................. 7
Notes to Consolidated Financial Statements........................ 8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 15-24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................. 24-25
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 25
Item 2. Changes in Securities and Use of Proceeds............................. 25-26
Item 3. Defaults Upon Senior Securities....................................... 26
Item 4. Submission of Matters to a Vote of Security Holders................... 26
Item 5. Other Information..................................................... 27
Item 6. Exhibits and Reports on Form 8-K...................................... 27
</TABLE>
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 74,284 $ 13,055
Accounts receivable, net of allowance for doubtful accounts
of $1,594,000 in 1999 and $1,095,000 in 1998 7,609 7,408
Programming and broadcast rights 12,694 9,030
Other current assets 20,086 21,063
----------- ------------
Total current assets 114,673 50,556
----------- ------------
Property, plant and equipment:
Cable television systems assets 159,378 175,053
D-DTH equipment 66,111 68,419
Construction in progress 4,312 2,739
Vehicles 3,094 2,792
Other 19,740 16,119
----------- ------------
252,635 265,122
Less accumulated depreciation (62,940) (52,068)
Net property, plant and equipment 189,695 213,054
Inventories 7,631 8,869
Intangibles, net 35,530 43,652
Investments in affiliated companies 22,027 19,956
Other assets 16,620 12,287
----------- ------------
Total assets $ 386,176 $ 348,374
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)/EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 30,296 $ 40,464
Accrued interest 2,140 2,140
Deferred revenue 5,729 4,366
Income taxes payable 3,794 3,794
Current portion of notes payable 6,500 6,500
--------------- --------------
Total current liabilities 48,459 57,264
Notes payable (notes 6 and 7) 376,038 257,454
--------------- --------------
Total liabilities 424,497 314,718
12% cumulative redeemable preferred stock (liquidation value
$50,000,000 plus accrued and unpaid dividends;
20,002,500 preferred shares authorized;
45,000 Series A and 5,000 Series B outstanding) (note 8) 30,830 --
Commitments and contingencies (note 10)
Stockholders' (deficiency)/equity:
Common stock, $.01 par value; 70,000,000 shares authorized,
shares issued and outstanding 33,562,320 in 1999
and 33,310,000 in 1998 336 333
Paid-in capital (notes 6 and 8) 264,664 237,954
Accumulated other comprehensive loss (26,422) (467)
Accumulated deficit (307,729) (204,164)
--------------- --------------
Total stockholders' (deficiency)/equity (69,151) 33,656
--------------- --------------
Total liabilities and stockholders' (deficiency)/equity $ 386,176 $ 348,374
--------------- --------------
--------------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
1999 1998 1999 1998
--------- -------- --------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 21,056 $ 12,791 $ 39,855 $ 25,477
Operating expenses:
Direct operating expenses (note 5) 40,984 19,609 59,001 28,257
Selling, general and administrative expenses 21,589 15,580 37,209 29,027
Depreciation and amortization 13,294 5,980 22,699 10,929
--------- -------- --------- -------
Total operating expenses 75,867 41,169 118,909 68,213
--------- -------- --------- -------
Operating loss (54,811) (28,378) (79,054) (42,736)
Interest and investment income 919 695 2,413 1,545
Interest expense (12,532) (3,353) (24,377) (7,002)
Equity in (losses)/profits of affiliated companies (1,555) 451 (530) 721
Foreign exchange loss, net (951) (121) (1,989) (48)
--------- -------- --------- -------
Loss before income taxes and minority interest (68,930) (30,706) (103,537) (47,520)
Income tax expense (8) (229) (27) (562)
Minority interest -- (58) -- (207)
--------- -------- --------- -------
Net loss (68,938) (30,993) (103,564) (48,289)
Accretion of redeemable preferred stock (1,227) -- (2,018) --
--------- -------- --------- -------
Net loss applicable to holders of common stock $ (70,165) $ (30,993) $ (105,582) $ (48,289)
--------- -------- --------- -------
--------- -------- --------- -------
Basic and diluted net loss per common share (note 3) $ (2.10) $ (0.93) $ (3.16) $ (1.45)
--------- -------- --------- -------
--------- -------- --------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
---------- ----------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net loss $ (68,938) $ (30,993) $ (103,564) $ (48,289)
Other comprehensive income/(loss):
Translation adjustment $ 3,224 $ (1,432) $ (25,955) $ 1,335
---------- ----------- ----------- ----------
Comprehensive loss $ (65,714) $ (32,425) $ (129,519) $ (46,954)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1999 1998
----------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (103,564) $ (48,289)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest -- 207
Depreciation and amortization 22,699 10,929
Amortization of notes payable discount and issue costs 16,707 --
Equity in losses of affiliated companies (530) (721)
Other 473 1,338
Changes in operating assets and liabilities:
Accounts receivable (201) (5)
Other current assets 977 (3,344)
Programming and broadcast rights (3,664) (5,699)
Accounts payable (5,789) 15,076
Income taxes payable -- 676
Amounts due to affiliates -- 691
Deferred revenue 1,836 (346)
Other current liabilities -- (221)
----------- ----------
Net cash used in operating activities (71,056) (29,708)
----------- ----------
Cash flows from investing activities:
Construction and purchase of property, plant and equipment (20,311) (45,539)
Other investments (1,753) --
Purchase of intangibles (145) (345)
Purchase of subsidiaries, net of cash received -- (10,559)
----------- ----------
Net cash used in investing activities (22,209) (56,443)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 109,755 6,468
Proceeds from issuance of preferred stock and warrants 48,295 --
Proceeds from issuance of common stock 1,601 --
Costs to obtain loans (5,156) (2,002)
----------- ----------
Net cash provided by financing activities 154,495 4,466
----------- ----------
Net increase/(decrease) in cash and cash equivalents 61,230 (81,685)
Cash and cash equivalents at beginning of period 13,055 105,691
----------- ----------
Cash and cash equivalents at end of period $ 74,285 $ 24,006
----------- ----------
----------- ----------
Supplemental cash flow information:
Cash paid for interest $ 7,159 $ 6,476
----------- ----------
----------- ----------
Cash paid for income taxes $ 53 $ 395
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
1. BASIS OF PRESENTATION
The information furnished by @Entertainment, Inc. and its subsidiaries
("@Entertainment" or the "Company") has been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") and the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to these rules and regulations. The
accompanying consolidated balance sheets, statements of operations, statements
of comprehensive loss and statements of cash flows are unaudited but in the
opinion of management reflect all adjustments (consisting only of items of a
normal recurring nature) which are necessary for a fair statement of the
Company's consolidated results of operations and cash flows for the interim
periods and the Company's financial position as of June 30, 1999. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's 1998 Annual Report on Form 10-K filed with the
SEC (the "1998 Annual Report"). The interim financial results are not
necessarily indicative of the results of the full year.
2. RECLASSIFICATIONS
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statements to conform to the 1999 unaudited consolidated
financial statement presentation.
3. PER SHARE INFORMATION
Basic net loss per share has been computed by dividing net loss attributable to
common stockholders by the weighted average number of common shares outstanding
during the period. The effect of potential common shares (stock options and
warrants outstanding) is antidilutive; accordingly, dilutive net loss per share
is the same as basic net loss per share.
The following table provides a reconciliation of the numerator and denominator
in the net loss per share calculation:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Net loss attributable to common stockholders (in thousands) $ (70,165) $ (30,993) $(105,582) $ (48,289)
Basic weighted average number of common shares outstanding (in
thousands) 33,408 33,310 33,385 33,310
Net loss per share-basic and diluted $ (2.10) $ (0.93) $ (3.16) $ (1.45)
</TABLE>
4. MERGER AGREEMENT
On June 2, 1999, the Company entered into an Agreement and Plan of Merger with
United Pan-Europe Communications N.V. ("UPC"), whereby UPC and its wholly-owned
subsidiary, Bison Acquisition Corp. ("Bison"), initiated a tender offer to
purchase all of the outstanding shares of the Company in an all cash transaction
valuing the Company's shares of common stock at $19.00 per share (see note 13
SUBSEQUENT EVENTS--Consummation of UPC Tender Offer and Merger).
5. D-DTH RECEPTION SYSTEMS
On April 1, 1999, the Company began selling digital direct-to-home ("D-DTH")
reception systems to customers. Prior to April 1, 1999, the systems were
leased to customers, classified as fixed assets and depreciated over 5 years.
Due to this change, the Company now classifies reception systems as
inventory. In the three months ended June 30, 1999 the Company wrote down the
value of all reception systems--both those acquired in the three months ended
June 30, 1999 and those held unsold prior to April 1, 1999 to the net
realizable value. The effect of the change was to increase operating loss by
approximately $22,218,000 or $0.67 per share for the three and six months
ended June 30, 1999.
8
<PAGE>
6. UNITS OFFERING
On January 22, 1999, the Company sold 256,800 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 2009 and four warrants (each a "Warrant"), 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 $9.125 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 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.
Costs associated with the Units offering of approximately $4,937,268, including
the initial purchasers' discount were capitalized and are being amortized over
the term of the Notes using the interest method. 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 on the principal amount and will be payable
semiannually in arrears on August 1 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 originally issued aggregate
principal amount at maturity of the Notes remain 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 Units offering and the Company's
offering of Series A 12% Cumulative Preference Shares and Series B 12%
Cumulative Preference Shares (see note 8 PREFERENCE OFFERINGS). 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.
The Company filed a registration statement on Form S-4 with the SEC in
connection with an offer to exchange the Notes for 14 1/2% Series B Senior
Discount Notes due 2009 (the "Exchange Notes"). The registration statement was
declared effective on May 13, 1999. The Warrants and shares of common stock
underlying the Warrants issued in the Units offering were registered on a
registration statement on Form S-3. This registration statement was declared
effective on July 2, 1999.
7. SERIES C NOTES OFFERING
On January 20, 1999, the Company sold $36,001,000 aggregate principal amount at
maturity of Series C Notes (collectively the "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 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 $9,815,000. Net proceeds to the Company after deducting
the initial purchaser's discount and offering expenses were approximately
$9,500,000. Cash interest on the Series C Notes will not accrue prior to July
15, 2004. Thereafter cash interest will accrue 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. The Series C
Notes will mature on July 15, 2008.
9
<PAGE>
Pursuant to the Series C Indenture governing the Series C 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
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 Series C Notes offering of approximately $319,000 were
capitalized and are being amortized over the term of the Series C Notes using
the interest method.
8. PREFERENCE OFFERINGS
On January 22, 1999, the Company sold 50,000 (45,000 Series A and 5,000 Series
B) 12% Cumulative Redeemable Preference Shares (collectively the "Preference
Shares") and 50,000 Warrants (each a "Preference Warrant") each Preference
Warrant initially entitling the holders thereof to purchase 110 shares of common
stock, par value $0.01 per share, of the Company at an exercise price of $10.00
per share, subject to adjustment. The Preference Shares together with the
Preference Warrants generated gross proceeds to the Company of $50,000,000 of
which approximately $28,812,000 has been allocated to the initial unaccreted
value of the Preference Shares (net of commissions and offering costs payable by
the Company of approximately $1,700,000), and approximately $19,483,000 has been
allocated to the Preference Warrants. 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
U.S. dollars for cash the 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 ($50,000,000 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, at a price in U.S. 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 Shares have been recorded at their redemption value on January 30,
2010 discounted at approximately 17.6% to June 30, 1999. The Company
periodically accretes from paid-in capital an amount that will provide for the
redemption value at January 30, 2010.
The Series A 12% Cumulative Redeemable Preference Shares, the Series A 12%
Cumulative Redeemable Preference Shares, and the Preference Warrants issued in
the Preference offering were registered on a registration statement on Form S-3.
This registration statement was declared effective on July 2, 1999.
9. EXERCISE OF WARRANTS
In June 1999, certain holders of warrants exercised their right to purchase
shares of common stock of the Company. The warrant holders exercised a total of
87,940 warrants of which 64,200 related to the 14 1/2% Senior Discount Notes
due 2009 and 23,740 related to the 14 1/2% Senior Discount Notes due 2008. The
Company issued 156,320 shares of common stock for total cash proceeds of
$1,601,000.
10. COMMITMENTS AND CONTINGENCIES
PROGRAMMING, BROADCAST AND EXHIBITION RIGHTS
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 digital direct-to-home ("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 June 30, 1999, the Company had an
aggregate minimum commitment in relation to these agreements of approximately
$202,024,000 over the next seven years, approximating $29,872,000 for the
remainder of 1999, $35,356,000 in 2000, $38,453,000 in 2001, $40,589,000 in
2002, $29,218,000 in 2003 and $28,536,000 in 2004 and thereafter.
10
<PAGE>
PURCHASE COMMITMENTS
As of June 30, 1999, the Company had an aggregate minimum commitment toward the
purchase of the D-DTH reception systems from Philips Business Electronics B.V.
("Philips") of approximately $87,730,000 by June 30, 2000.
LITIGATION AND CLAIMS
From time to time, the Company is subject to various claims and suits arising
out of the ordinary course of business. While the ultimate result of all such
matters is not presently determinable, based upon current knowledge and facts,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations. (See also note 11 ARBITRATION RELATING TO TELEWIZYJNA KORPORACJA
PARTYCYPACYJNA and note 13 SUBSEQUENT EVENTS - PCBV Minority Stockholders'
Claim)
11. ARBITRATION RELATING TO TELEWIZYJNA KORPORACJA PARTYCYPACYJNA
On April 17, 1998, the Company signed a binding letter of intent with Telewizyna
Korporacja Partycypacyjna ("TKP"), the parent company of Canal+ Polska, to form
a joint venture for the purpose of bringing together @ Entertainment's Wizja TV
programming service and the Canal+ Polska premium pay-television channel and
providing for the joint development and operation of a digital direct-to-home
television service in Poland.
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 $5,000,000 break-up fee if the
definitive agreements were not executed by the Signature Date, unless failure to
obtain such execution was caused by the Company's breach of any of its
obligations under the letter of intent. If there were any such breach by the
Company, the Company would be obligated to pay TKP $10,000,000. 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 $10,000,000
(including the $5,000,000 break-up fee). In the event that TKP fails to pay the
Company any of the above-referenced amounts owed to the Company, TKP's
shareholders are responsible for the payment of such amounts.
The Company has demanded monies from TKP as a result of the failure to execute
the definitive agreements by the Signature Date. While the Company was waiting
for the expiration of the 10-day period for payment of the break-up fee, TKP
initiated arbitration proceedings before a three-member arbitration panel in
Geneva, Switzerland. In their claim, TKP and its shareholders have alleged that
the Company breached its obligations to negotiate in good faith and to use its
best efforts to agree and execute the definitive agreements and claimed the
Company is obligated to pay TKP $10,000,000 pursuant to the letter of intent.
The Company has answered and brought counterclaims against TKP and its
shareholders. The arbitration hearings were conducted in Geneva in June 1999. A
decision is expected to be rendered by the end of 1999. The Company does not
believe that the outcome of the arbitration proceedings will have a material
adverse effect on the Company's business, financial condition or results of
operations.
12. SEGMENT INFORMATION
The Company operates in three business segments: (1) cable television, (2) D-DTH
television and programming, and (3) corporate. 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 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
11
<PAGE>
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.
SELECTED SEGMENT DATA
(unaudited in thousands of US dollars)
<TABLE>
<CAPTION>
D-DTH and
Cable Programming Corporate Total
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Revenues from external customers $ 15,481 $ 5,575 $ -- $ 21,056
Intersegment revenues -- 5,218 -- 5,218
Operating loss (6,116) (45,595) (3,100) (54,811)
EBITDA 149 (38,571) (3,095) (41,517)
Segment total assets 174,063 143,416 68,697 386,176
THREE MONTHS ENDED JUNE 30, 1998
Revenues from external customers $ 12,478 $ 313 $ -- $ 12,791
Intersegment revenues -- -- -- --
Operating loss (2,604) (23,732) (2,042) (28,378)
EBITDA 2,481 (22,837) (2,042) (22,398)
Segment total assets 195,326 77,471 11,961 284,758
SIX MONTHS ENDED JUNE 30, 1999
Revenues from external customers $ 30,264 $ 9,591 $ -- $ 39,855
Intersegment revenues -- 10,350 -- 10,350
Operating loss (10,380) (63,913) (4,761) (79,054)
EBITDA 1,834 (53,436) (4,753) (56,355)
Segment total assets 174,063 143,416 68,697 386,176
SIX MONTHS ENDED JUNE 30, 1998
Revenues from external customers $ 24,571 $ 906 $ -- $ 25,477
Intersegment revenues -- -- -- --
Operating loss (3,540) (35,416) (3,780) (42,736)
EBITDA 6,380 (34,407) (3,780) (31,807)
Segment total assets 195,326 77,471 11,961 284,758
</TABLE>
13. SUBSEQUENT EVENTS
EXERCISE OF WARRANTS
In July and August 1999, certain warrant holders exercised their right to
purchase shares of common stock of the Company. The warrant holders exercised
a total of 203,800 and 7,600 warrants issued with the 14 1/2% Senior Discount
Notes due 2008 and 14 1/2% Senior Discount Notes due 2009, respectively. In
connection with the exercise of these warrants, the Company issued 382,296
shares of common stock for total cash proceeds of approximately $4,992,000.
12
<PAGE>
ACQUISITIONS
Subsequent to June 30, 1999, a subsidiary of the Company entered into an
agreement to acquire 100% of a cable television system for a total consideration
of approximately $7,330,000. The consummation of this transaction is subject to
Polish Ministry of Telecommunications approval. The acquisition will be
accounted for under the purchase method where the purchase price will be
allocated to the underlying assets and liabilities based upon their estimated
fair values and any excess to goodwill. The acquisition is not expected to have
a material effect on the Company's results of operations in 1999.
Subsequent to June 30, 1999, a subsidiary of the Company purchased all of the
assets and subscriber lists of a cable television system for a total
consideration of approximately $2,800,000. The purchase will be accounted for
under the purchase method where the purchase price will be allocated to the
underlying assets based upon their estimated fair values and any excess to
goodwill.
CONSUMMATION OF UPC TENDER OFFER AND MERGER
The tender offer, initiated pursuant to the Agreement and Plan of Merger with
UPC and Bison, closed at 12:00 midnight on August 5, 1999. On August 6, 1999,
Bison reported that it had accepted for payment a total of 33,701,073 shares
of the Company's common stock (including 31,208 shares tendered pursuant to
notices of guaranteed delivery) representing approximately 99% of the
Company's outstanding shares of common stock. In addition UPC has acquired
100% of the outstanding Series A and Series B 12% Cumulative Preference
Shares of the Company.
Also on August 6, 1999, Bison was merged with and into the Company.
Accordingly, the Company became a wholly-owned subsidiary of UPC.
UnitedGlobalCom, Inc. is a 62% stockholder of UPC.
These transactions constitute a "Change of Control" as that term is defined
in the indentures governing the Company's 14 1/2% Series B Senior Discount
Notes due 2008, 14 1/2% Senior Discount Notes due 2008, Series C Senior
Discount Notes due 2008, 14 1/2% Series B Senior Discount Notes due 2009, and
14 1/2% Senior Discount Notes due 2009 (collectively, the "Notes") and the 9
7/8% Senior Notes due 2003 and 9 7/8% Series B Senior Notes due 2003 of PCI,
the Company's indirect subsidiary (collectively, the "PCI" Notes"). In
accordance with the terms of the indentures governing the Notes, the Company
will be required to make an offer to repurchase the Notes at 101% of their
accreted value plus accrued and unpaid interest. In accordance with the terms
of the indenture governing the PCI Notes, PCI will be required to make an
offer to repurchase the PCI Notes at 101% of their principal amount plus
accrued and unpaid interest. Such an offer will only be made in an offer to
purchase.
PCBV MINORITY STOCKHOLDERS' CLAIM
On or about July 8, 1999, five minority shareholders (the "minority
shareholders") of Poland Cablevision (Netherlands) B.V. ("PCBV"), an indirect
subsidiary of the Company, filed a lawsuit, Civil Action No. C2-99-621,
against the Company, Poland Communications, Inc. ("PCI"), Advent Capital
Corporation, Chase Enterprises, Inc., Chase International Corporation,
Goldman, Sachs & Co., UPC, Cheryl Chase, and Arnold Chase, in the United
States District Court, for the Southern District of Ohio, Eastern Division.
The relief sought by the minority shareholders includes: (1) unspecified
damages in excess of $75,000, (2) an order lifting the restrictions against
transfer of shares set forth in the Shareholders' Agreement among PCBV's
shareholders, as amended (the "Shareholders' Agreement"), so that the
minority shareholders can liquidate their shares in PCBV, (3) damages in the
amount of 1.7 percent of the anticipated payment by UPC for the shares of the
Company as set forth in the Agreement and Plan of Merger between the Company
and UPC dated June 2, 1999, and (4) attorneys' fees and costs incurred in
prosecuting the lawsuit; and such other relief as the Court deems just and
proper.
The amended complaint sets forth eight claims for relief based on allegations
that the defendants, including the Company and PCI, committed the following
wrongful acts: (1) breached a covenant not to compete contained in the
Shareholders' Agreement prohibiting any shareholders of PCBV from having any
direct or indirect interest in any aspect of the cable television business in
Poland, as a result of the Company's and PCI's cable and D-DTH operations in
Poland, (2) breached a covenant in the Shareholders' Agreement requiring that
any contract entered into by PCBV with any other party affiliated with PCI be
commercially reasonable or be approved by certain of the minority
shareholders, by causing PCBV to enter into certain management and service
agreements that were allegedly not commercially reasonable and/or were not
approved by certain minority shareholders, (3) breached a provision in the
Shareholders' Agreement that allegedly required co-defendant Chase
International Corp. ("CIC") to offer the minority shareholders the right to
participate in certain sales of PCBV shares and that required CIC to give
written notice of any offer to purchase the minority shareholders' shares in
PCBV, by failing to provide the minority shareholders with the right to
participate in or with written notice of offers to purchase, (4) breached
their fiduciary duty to the minority shareholders by failing to provide them
with written notice of any offers to purchase PCBV's stock and with timely
information and periodic reports about the financial condition or business or
operating results of PCBV, (5) breached the agreement between PCBV and CIC,
which allegedly limited the amount of management fees that could be paid
annually by PCBV to CIC to $250,000, by causing PCBV to enter into management
agreements with other subsidiaries of PCI calling for payment of annual
management fees in excess of $250,000, (6) made false and misleading
statements in (a) PCI's offering memorandum by referring to negotiations
between PCI and the minority shareholders and to PCI's alleged offer to
purchase their outstanding shares in PCBV, which negotiations and offer
allegedly never transpired, (b) the Company's offering memoranda by
indicating that PCI agreed to share the profits of its subsidiaries with the
minority shareholders on a PRO RATA basis and to purchase their outstanding
shares in PCBV, which agreements allegedly were never made and which
13
<PAGE>
negotiations allegedly never occurred, and (c) the Company's Forms 10-K by
referring to a supplemental agreement under which PCI agreed to share the
profits of entities in which it has a direct or indirect ownership interest
with the minority shareholders on a PRO RATA basis and under which PCI agreed
to share 7.7 percent of the profits from competing endeavors with the
minority shareholders, which supplemental agreement allegedly was never made;
(7) colluding to defraud the minority shareholders by failing to make
reference in certain Forms 8-K, 8-K/A and 14D-1 to the minority shareholders
or their alleged rights and claims, and (8) colluding to divert assets of
PCBV to affiliates of PCI and PCBV, including the Company, that allegedly
compete with PCI and PCBV by failing to make reference in certain Forms 8-K,
8-K/A and 14D-1 to the minority shareholders or their alleged rights and
claims and by failing to provide any information to the minority shareholders
so that they could value their rights and claims.
The Company intends to defend the lawsuit vigorously. The Company has also
conducted negotiations to purchase the minority shareholders' outstanding
shares in PCBV and may engage in such negotiations in the future. If the
negotiations produce a sale by the minority shareholders of their shares in
PCBV to the Company, the lawsuit would most likely be terminated. The Company
is unable to predict the outcome of those negotiations.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Company. Such discussion
and analysis should be read in conjunction with the accompanying unaudited
consolidated financial statements of the Company. Additionally, the following
discussion and analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements included in Part II of the Company's
1998 Annual Report. The following discussion focuses on material trends, risks
and uncertainties affecting the results of operations and financial condition of
the Company.
Certain statements in this Quarterly Report on Form 10-Q 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. The
words "believes," "expects," "intends," "plans," "anticipates," "likely,"
"will", "may", "shall" and similar expressions 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 Quarterly
Report on Form 10-Q. 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; (xiv) acquisition opportunities; and
(xv) the Company's new ownership structure.
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 64.8% from $12.8 million in the three
months ended June 30, 1998 to $21.1 million in the three months ended June 30,
1999 and increased 56.5% from $25.5 million in the six months ended June 30,
1998 to $39.9 million in the six months ended June 30, 1999. These increases
were 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 D-DTH 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 operating losses of $54.8 million for the three months
ended June 30, 1999 and $79.1 million for the six months ended June 30, 1999,
primarily due to the significant costs associated with the Company's D-DTH and
programming 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,
15
<PAGE>
and (iii) depreciation and amortization. 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 consist of depreciation
of property, plant and equipment and amortization of intangible assets.
SEGMENT RESULTS OF OPERATIONS
The Company classifies its business into three segments: (1) cable television,
(2) D-DTH television and programming, and (3) corporate. Information about the
operations of the Company in these different business segments is set forth
below based on the nature of the services offered. 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 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 or
cash flow from operations and should not be considered as an alternative to cash
flows from operations as a measure of liquidity.
The following table presents the segment results of the Company's operations for
the three and six months ended June 30, 1999 and 1998.
SEGMENT RESULTS OF OPERATIONS
(unaudited, in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Revenues Operating Loss EBITDA
------------------ ------------------ ------------------
Three Months ended June 30, 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cable 15,481 12,478 (6,116) (2,604) 149 2,481
D-DTH and programmingg 10,793 313 (45,595) (23,732) (38,571) (22,837)
Corporate and Other -- -- (3,100) (2,042) (3,095) (2,042)
Inter Segment Elimination (1) (5,218) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total 21,056 12,791 (54,811) (28,378) (41,517) (22,398)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
Revenues Operating Loss EBITDA
------------------ ------------------ ------------------
Six Months ended June 30, 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cable 30,264 24,571 (10,380) (3,540) 1,834 6,380
D-DTH and programming 19,941 906 (63,913) (35,416) (53,436) (34,407)
Corporate and Other -- -- (4,761) (3,780) (4,753) (3,780)
Inter Segment Elimination (1) (10,350) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total 39,855 25,477 (79,054) (42,736) (56,355) (31,807)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
(1) Reflects Wizja TV programming costs charged to the cable segment by the
D-DTH and programming segments.
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 June 30, 1999,
approximately 74.0% of the Company's cable subscribers received its basic
package. For the six months ended June 30, 1999, approximately 98.2% of the
Company's cable revenue was derived from monthly subscription fees compared to
approximately 93.3% for the six months ended June 30, 1998. Revenue from
installation fees is deferred to the extent it exceeds direct selling costs and
then amortized to income over the estimated average period that new subscribers
are expected to remain connected to the Company's cable system.
16
<PAGE>
The cable segment's revenue performance during 1999 has been generally strong
with 25% growth in revenues for the six months ended June 30, 1999 as compared
to the six months ended June 30, 1998. This increase was caused mainly by
organic growth in subscribers via increased penetration and build-out of
existing networks, increases in subscription rates and the introduction of an
additional premium channel into the programming offerings.
During 1998 and the first two quarters of 1999, management completed or is in
a process of completing 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 channels of primarily
Polish-language programming, to its basic cable subscribers. Since that date,
the basic Wizja TV package has been expanded to 24 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 to reflect the increased channel availability, and premium channels
such as the HBO Poland service (a Polish-language version of HBO's premium
movie channel) will be 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 six months ended June 30, 1999, the
Company's churn rate increased to 8.9%. For the six months ended June 30,
1999, the Company experienced churn in the HBO Poland service with
penetration falling by 12,890 subscribers or 28.2% from June 30, 1998. 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's revenue performance during 1999 has been generally strong with 25%
growth in revenues for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998. This increase was caused mainly by organic
growth in subscribers via increased penetration and build-out of existing
networks, increases in subscription rates and the introduction of an
additional premium channel into the programming offerings.
An analysis of quarterly cable subscriber growth is presented in the table
below:
<TABLE>
<CAPTION>
June 30, March 31, December 31, September 30, June 30,
1999 1999 1998 1998 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Homes Passed
1,669,384 1,624,119 1,591,981 1,565,287 1,546,540
Basic Subscribers
715,474 706,179 698,342 658,584 660,067
Subscriber Growth (three month period)
Organic 45,646 38,226(1) 70,935 41,904 57,007
Through Acquisitions -- -- -- (10,245)(2) 1,363
Churn (36,351) (30,389) (31,177) (33,142) (26,016)
---------- ---------- ---------- ---------- ----------
Total net growth 9,295 7,837 39,758 (1,483) 32,354
---------- ---------- ---------- ---------- ----------
Basic penetration 42.9% 43.5% 43.9% 42.1% 42.7%
Intermediate subscribers 32,128 33,587 40,037 42,538 43,204
---------- ---------- ---------- ---------- ----------
Basic and intermediate subscribers 747,602 739,766 738,379 701,122 703,271
---------- ---------- ---------- ---------- ----------
Broadcast subscribers 219,165 208,457 196,961 186,334 167,859
---------- ---------- ---------- ---------- ----------
Total Subscribers 966,767 948,223 935,340 887,456 871,130
---------- ---------- ---------- ---------- ----------
Premium subscribers - HBO
32,784 34,332 36,615 39,035 45,674
Premium penetration - HBO 4.6% 4.9% 5.2% 5.9% 6.9%
Basic revenue / basic sub./month $ 6.35 $ 6.20 $ 5.69 $ 5.19 $ 4.99
Total revenue/ basic sub./month $ 7.13 $ 6.97 $ 6.75 $ 6.42 $ 6.08
</TABLE>
(1) The increase in basic subscribers for the three months ended March 31, 1999
included 4,121 subscribers in Szczecin that switched from the
"intermediate" to the "basic" package.
(2) As part of the purchase of a minority interest in one of the Company's
cable systems, the Company sold an isolated part of that system to the
previous owner.
17
<PAGE>
CABLE TELEVISION REVENUE. Revenue increased $3.0 million or 24.0% from $12.5
million in the three months ended June 30, 1998 to $15.5 million in the three
months ended June 30, 1999 and increased $5.7 million or 23.2% from $24.6
million in the six months ended June 30, 1998 to $30.3 million in the six months
ended June 30, 1999. These increases were primarily attributable to a 6.3%
increase in the number of basic and intermediate subscribers from approximately
703,300 at June 30, 1998 to approximately 747,600 at June 30, 1999, as well as
an increase in monthly subscription rates. This increase in basic and
intermediate subscribers was primarily due to the build out of the Company's
existing cable networks.
Revenue from monthly subscription fees represented 94.6%, 94.6%, 93.3% and 98.2%
of cable television revenue for the three months ended June 30, 1998 and 1999
and for the six months ended June 30, 1998 and 1999, respectively. The Company
generated approximately $0.5 million and $1.1 million of premium subscription
revenue during the three- and the six-month periods ended June 30, 1999,
respectively, as a result of providing the HBO Poland service pay movie channel
to cable subscribers as compared to $0.8 million and $1.6 million for the same
periods in 1998.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $4.7 million,
or 81.0%, from $5.8 million for the three months ended June 30, 1998 to $10.5
million for the three months ended June 30, 1999, and increased $11.1
million, or 116.8%, from $9.5 million for the six months ended June 30, 1998
to $20.6 million for the six months ended June 30, 1999, principally as a
result of the purchase of the Wizja TV programming package for approximately
$5.2 million and $10.3 million for the three and six months ended June 30,
1999, respectively, from the Company's D-DTH and programming segment as well
as the increased size of the Company's cable television system. Direct
operating expenses increased from 46.4% of revenues for the three months
ended June 30, 1998 to 67.7% of revenues for the three months ended June 30,
1999 and increased from 38.6% of revenues for the six months ended June 30,
1998 to 68.0% of revenues for the six months ended June 30, 1999. However,
without considering the programming cost for the purchase of the Wizja
programming package recorded in June 1998 and the six months in 1999 the
comparison would have been 46.4% and 33.1% for the three months ended June
30, 1998 and 1999, respectively, and 31.7% and 34.0% for the six months ended
June 30, 1998 and 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million or 14.3% from $4.2 million for
the three months ended June 30, 1998 to $4.8 million for the three months ended
June 30, 1999 and decreased $0.9 million or 10.3% from $8.7 million for the six
months ended June 30, 1998 to $7.8 million for the six months ended June 30,
1999. This decrease was attributable to operating efficiencies realized by the
Company in the six months ended June 30, 1999. As a percentage of revenue,
selling, general and administrative expenses decreased from 33.6% for the three
months ended June 30, 1998 to approximately 31.0% for the three months ended
June 30, 1999 and from 35.4% for the six months ended June 30, 1998 to
approximately 25.7% for the six months ended June 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$1.2 million, or 23.5%, from $5.1 million for the three months ended June 30,
1998 to $6.3 million for the three months ended June 30, 1999 and rose $2.3
million, or 23.2%, from $9.9 million for the six months ended June 30, 1998
to $12.2 million for the six months ended June 30, 1999, 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 40.8% for the three months ended June
30, 1998 to 40.6% for the three months ended June 30, 1999 and increased from
40.2% for the six months ended June 30, 1998 to 40.3% for the six months
ended June 30, 1999.
Each of these factors contributed to an operating loss of $2.6 million, $6.1
million, $3.5 million and $10.4 million for the three months ended June 30, 1998
and 1999, and for the six months ended June 30, 1998 and 1999, respectively.
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 was to lease D-DTH reception systems to
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.
Subsequent to March 31, 1999, the Company began selling D-DTH reception systems
to customers at a price substantially reduced by promotional incentives.
18
<PAGE>
As of June 30, 1999, the Company had sold to Philips' authorized retailers
approximately 160,000 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 June 30, 1999, Philips had sold and installed approximately
146,095 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. 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 20 channels that are produced by third parties, 11 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 of intent and is
continuing 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.
An analysis of D-DTH subscribers is presented in the table below:
<TABLE>
<CAPTION>
@ Entertainment, Inc.
Summary of Selected Operating Statistics
June 30, March 31, December 31, September 30,
D-DTH 1999 1999 1998 1998
--------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Satellite receiver packages sold to dealers 159,827 137,629 125,167 34,699
Installed subscribers 146,095 130,000 95,378 23,390
Churn -- -- -- --
Total Subscribers 146,095 130,000 95,378 23,390
Premium subscribers - HBO - promotional(1) 16,755 56,162 76,633 23,390
Premium subscribers - HBO - paying 76,179 58,705 15,555 --
HBO churn(2) 29,738 15,133 3,190 --
HBO churn 39.0% 25.8% 20.5% --
</TABLE>
(1) From July 5, 1998 to March 31, 1999, the Company offered a three-month
trial period of the HBO Poland service to each new D-DTH subscriber. From
April 1, 1999, this was changed to a one-month trial period of the HBO
Poland service for each new D-DTH subscriber.
(2) The churn figures relate only to paying subscribers.
19
<PAGE>
D-DTH AND PROGRAMMING REVENUE. D-DTH and programming revenue amounted to $0.3
million and $10.8 million for the three months ended June 30, 1998 and 1999, and
to $0.9 million and $20.0 million for the six months ended June 30, 1998 and
1999, respectively. Since the Company only commenced the broadcast of its Wizja
TV programming package over its cable systems on June 5, 1998 and on its D-DTH
service in July 1998, no subscription revenue related to this segment existed
for the three months ended June 30, 1998.
Revenue from monthly subscription fees, after elimination of inter-segment
revenue from Poland Communications, Inc., a wholly owned subsidiary of the
Company ("PCI"), represented 94.7% of D-DTH and programming revenue for the
three months ended June 30, 1999 and 92.8% for the six months ended June 30,
1999. Advertising revenue for the three and the six months ended June 30, 1999
represented respectively 5.3% and 7.2% of D-DTH and programming revenue after
the inter-segment elimination.
Revenue from the supply of the Wizja TV programming package to the Company's
cable systems, which eliminates on consolidation, represented $5.2 million and
$10.4 million of D-DTH and programming revenue for the three and the six months
ended June 30, 1999, respectively.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $26.4 million,
or 216.4%, from $12.2 million for the three months ended June 30, 1998 to
$35.7 million for the three months ended June 30, 1999 and increased $34.6
million, or 202.3%, from $17.1 million for the six months ended June 30, 1998
to $48.7 million for the six months ended June 30, 1999. These increases
principally were the result of: the $19.2 million write down of the D-DTH
reception systems included in inventory from April 1, 1999 to net realizable
value, a $12.6 million increase in programming costs in the six months ended
June 30, 1999, 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 330.6% and 244.7% of revenues for the
three and the six months ended June 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.8 million or 25.7% from $10.9 million for
the three months ended June 30, 1998 to $13.7 million for the three months ended
June 30, 1999 and increased $6.4 million or 35.2% from $18.2 million for the six
months ended June 30, 1998 to $24.6 million for the six months ended June 30,
1999. As a percentage of revenue, selling, general and administrative expenses
amounted to approximately 126.7% and 123.5% for the three and the six months
ended June 30, 1999, respectively. The increase in selling, general and
administrative expenses over the corresponding 1998 periods was attributable
mainly to sales and marketing expenses associated with promotion of the
Company's D-DTH service and Wizja TV programming platform, an increase in the
number of administrative staff associated with the Maidstone facility and the
Wizja TV programming platform, as well as an increase in professional fees
associated with obtaining long-term programming contracts and
broadcast/exhibition rights.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges of D-DTH
tangible assets increased $6.1 million from $0.9 million for the three months
ended June 30, 1998 to $7.0 million for the three months ended June 30, 1999 and
increased $9.5 million from $1.0 million for the six months ended June 30, 1998
to $10.5 million for the six months ended June 30, 1999. Depreciation and
amortization expense as a percentage of revenues amounted to 37.5% and 37.6% for
the three and the six months ended June 30, 1999, respectively. This primarily
relates to D-DTH production equipment and decoders leased to consumers.
Each of these factors contributed to an operating loss of $45.6 million and
$63.9 million for the three and the six months ended June 30, 1999,
respectively, compared to an operating loss of $23.7 million and $35.4 million
for the three and the six months ended June 30, 1998, respectively.
CORPORATE SEGMENT OVERVIEW
Corporate segment consists of corporate overhead costs. The Company continues to
evaluate opportunities for improving its operations and reducing its cost
structure. Corporate expenses amounted to $3.1 million and $4.8 million for the
three and the six months ended June 30, 1999, respectively, as compared to $2.0
million and $3.8 million for the corresponding periods in 1998.
20
<PAGE>
NON-OPERATING RESULT
INTEREST EXPENSE. Interest expense increased $9.1 million, or 267.6%, from $3.4
million for the three months ended June 30, 1998 to $12.5 million for the three
months ended June 30, 1999 and increased $17.3 million, or 247.1%, from $7.0
million for the six months ended June 30, 1998 to $24.4 million for the six
months ended June 30, 1999. Interest expense increased 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, $256.8 million aggregate principal amount at maturity
of the Company's 14 1/2% Senior Discount Notes due 2009, which were issued on
January 22, 1999, and the $36.0 million aggregate principal amount at maturity
of the Company's Series C Senior Discount Notes due 2008 issued on January 20,
1999. In addition, the increase is a result of loans assumed by the Company in
its acquisition of subsidiaries and an additional loan drawdown in June 1998.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased $0.2
million, or 28.6%, from $0.7 million for the three months ended June 30, 1998 to
$0.9 million for the three months ended June 30, 1999 and increased $0.9
million, or 60.0%, from $1.5 million for the six months ended June 30, 1998 to
$2.4 million for the six months ended June 30, 1999, primarily due to investment
of part of the proceeds from the notes and preferred stock issuances.
EQUITY IN PROFITS/LOSSES OF AFFILIATED COMPANIES. The Company recorded $1.5
million and $0.5 million of equity in losses of affiliated companies for the
three and the six months ended June 30, 1999 compared to $0.5 million and $0.7
million of equity in profits of affiliated companies for the three and the six
months ended June 30, 1998. The losses relate to amortization of goodwill of the
Company's 50% investment in Twoj Styl, a publishing company and 20% investment
in Fox Kids Poland.
FOREIGN EXCHANGE LOSS, NET. For the three and the six months ended June 30,
1999, foreign exchange losses amounted to $1.0 million and $2.0 million,
respectively, primarily due to the 10.8% appreciation of the U.S. dollar against
the Polish zloty during the six months ended June 30, 1999.
MINORITY INTEREST. No minority interest was recorded for the three and six
months ended June 30, 1999 compared to minority interest income of $58,000 and
$207,000 for the corresponding periods in 1998. All minority interest was
eliminated in 1998 as the minority interest share of the losses in subsidiaries
exceeded the value of minority interest investments.
NET LOSS. For the three months ended June 30, 1998 and 1999, the Company had net
losses of $31.0 million and $68.4 million, respectively. For the six months
ended June 30, 1998 and 1999, the Company had net losses of $48.3 million and
$103.0 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 $31.0 million for the three months ended
June 30, 1998 to a loss of $69.6 million for the three months ended June 30,
1999 and increased from a loss of $48.3 million for the six months ended June
30, 1998 to a loss of $105.0 million for the six months ended June 30, 1999, due
to the accretion of preferred stock and the factors discussed above. For the
three and the six months ended June 30, 1999, net loss applicable to common
stockholders included $1.2 million and $2.0 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 by PCI of $130 million of 9 7/8% Senior
Notes due 2003 and 9 7/8% Series B Senior Notes due 2003 (collectively, the "PCI
Notes"), (v) the sale of approximately $200 million of common stock through the
Company's initial public equity offering in August 1997 and (vi) the sale of
$252 million at maturity of 14 1/2% Senior Discount Notes due 2008 in July 1998.
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.
21
<PAGE>
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 PCI Notes, 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:
a. limitation on indebtedness;
b. limitation on restricted payments;
c. limitation on issuances and sale of capital stock of restricted subsidiaries;
d. limitation on transactions with affiliates;
e. limitation on liens;
f. limitation of guarantees of indebtedness by subsidiaries;
g. purchase of the notes upon a change of control;
h. limitation on sale of assets;
i. limitation on dividends and other payment restrictions affecting restricted
subsidiaries;
j. limitation on investments in unrestricted subsidiaries;
k. consolidations, mergers, and sale of assets; and
l. limitation on lines of business.
The Company is in compliance with these covenants.
For purpose of the above-mentioned indentures, the consummation of UPC's
tender offer on August 5, 1999 resulted in a change in control of the
Company, and as a result, the Company will be obligated to offer to
repurchase any notes that the note holders put to the Company. In the case of
the notes issued by @Entertainment, the Company will be required to offer to
purchase the notes at 101% of their accreted value, plus accrued and unpaid
interest. In the case of the PCI notes, the Company will be required to offer
to purchase the PCI notes at 101% of their principal amount, plus accrued and
unpaid interest. If all of the note holders of the notes issued by both
@Entertainment and PCI were to put their notes, the Company would be required
to pay approximately $410 million to repurchase the notes if such repurchases
are consummated in mid-September 1999.
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.
The Company had negative cash flows from operating activities for the six months
ended June 30, 1998 and 1999 of $29.7 million and $71.1 million, respectively,
due to the significant operating costs associated with the promotion and
operation of its D-DTH service and the Wizja TV programming package.
Cash used for the purchase and build-out of the Company's cable television
networks, D-DTH equipment and the purchase of other property, plant and
equipment was $20.3 million in the six months ended June 30, 1999 and $45.5
million in the corresponding period in 1998. The decrease primarily relates to
the purchase of fixed assets related to the development of the Maidstone uplink
facility for the three months ended June 30, 1998. Cash used for the acquisition
of subsidiaries, net of cash received, was none and $10.6 million for the six
months ended June 30, 1999 and 1998, respectively.
At June 30, 1999, the Company was committed to pay at least approximately $488
million in guaranteed payments (including but not limited to payments for the
D-DTH reception systems and payments of guaranteed minimum amounts due under
programming agreements and satellite transponder leases) over the next nine
years, of which at least approximately $188 million was committed through the
end of 2000. These payments may increase if the Company enters into additional
programming agreements.
22
<PAGE>
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 $48.2 million (after deducting offering expenses and
commissions), and
- - the net proceeds of the sale of the Series C Senior Discount Notes, which
was approximately $9.5 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 a joint venture.
In connection with the Agreement and Plan of Merger, the Company's preferred
stockholders granted to UPC the option to purchase all of the Preference Shares
at a purchase price per share equal to the liquidation preference of such shares
plus all accrued and unpaid dividends thereon on the date of purchase. UPC
purchased all of these Preferred Shares on August 6, 1999 and these Preference
Shares were subsequently canceled.
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 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 D-DTH 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.
In the future, the Company may also look to its parent, United Pan-Europe
Communications N.V. ("UPC"), to provide financing to achieve the Company's
business strategy. However, there is no obligation from UPC, contractually or
otherwise, to make such financing available 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 (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
23
<PAGE>
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 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 its service to its D-DTH and/or cable 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 in 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.
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 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 $3.0 million.
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.
CURRENT OR ACCUMULATED EARNINGS AND PROFITS
For the six months ended June 30, 1999, the Company had no current or
accumulated earnings and profits. Therefore, none of the interest which accreted
during the six months ended June 30, 1999 with respect to the Company's 14 1/2%
Senior Discount Notes due 2008 and its 14 1/2% Series B Discount Notes due 2008,
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.
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, 2000. The Company currently has no derivative
instruments or hedging activities.
ITEM 3. 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.
24
<PAGE>
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 incorporate these other important economic factors.
International operations constitute 100% of the Company's consolidated operating
loss for the six months ended June 30, 1999. 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. Therefore, 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 further 10% change in foreign exchange rates would
impact reported operating loss by approximately $4.8 million. In other terms a
10% depreciation of the Polish zloty and British pound against the U.S. dollar,
would result in a $4.8 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 currency 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 rate of inflation for the six months ended June
30, 1999 was approximately 6.5%. The exchange rate for the zloty has stabilized
and the rate of devaluation of the zloty has generally decreased since 1991. The
zloty appreciated against the U.S. dollar by approximately 0.4% for the year
ended December 31, 1998. For the first six months of 1999 the zloty has
depreciated against the U.S. dollar by approximately 10.8%. Inflation and
currency exchange fluctuations may have, a material adverse effect on the
business, financial condition and results of operations of the Company.
PART II. OTHER INFORMATION
ITEM 1. 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. See also Notes
11 and 13 to the unaudited consolidated financial statements, for a description
of the Company's arbitration relating to TKP and the PCBV minority stockholders'
claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
On January 20, 1999, the Company sold $36,001,321 aggregate principal amount at
maturity of its Series C Notes due 2008 to Merrill Lynch International. 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 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 $9.5 million.
25
<PAGE>
On January 22, 1999, the Company sold 256,800 Units to Merrill Lynch & Co and
Deutsche Bank Securities 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
$9.125 per share, subject to adjustment (the "Units Offering"). Net proceeds to
the Company after deducting initial purchasers' discount and offering expenses
were approximately $96,000,000.
The Company filed a registration statement in connection with an offer to
exchange its 14 1/2% Series B Senior Discount Notes due 2009 (each an "Exchange
Note") for each of its outstanding Notes. The form and terms of the Exchange
Notes will be substantially the same as the form and terms of the Old Notes
except that the Exchange Notes were registered under the Securities Act. The
Exchange Notes were registered under the Securities Act on a registration
statement on Form S-4, which registration statement was declared effective on
May 13, 1999. The exchange offer relating to the Exchange Notes expired on June
24, 1999.
On January 22, 1999, the Company also sold 45,000 Series A 12% Cumulative
Preference Shares, $0.01 par value, 5,000 Series B 12% Cumulative Preference
Shares, $0.01 par value, and warrants, each warrant entitling the holder thereof
to purchase 110 shares of common stock, par value $0.01, at an exercise price of
$10 per share to Morgan Grenfell Private Equity Ltd. and certain members of the
Chase Family, with gross proceeds of approximately $50.0 million (the
"Preference Offering"). Net proceeds to the Company after deducting the initial
purchaser's discount was approximately $48.2 million.
The warrants and shares of common stock underlying the warrants issued in the
Units Offering and the warrants and Series A 12% Cumulative Preference Shares
and Series B 12% Cumulative Preference Shares issued in the Preference Offering
were registered on a registration statement on Form S-3. This registration
statement was declared effective on July 2, 1999.
These securities (other than the Exchange Notes) were sold to the initial
purchasers pursuant to Section 4(2) of the Securities Act and subsequent sales
of the securities were made pursuant to Rule 144A of the Securities Act.
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 $48.2 million (after deducting offering expenses and
commissions), and
- - the net proceeds of the sale of the Series C Senior Discount Notes, which
was approximately $9.5 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 a joint venture.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
26
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement and Plan of Merger among @ Entertainment, Inc, United Pan-
Europe Communications N.V., and Bison Acquisition Corp., dated as of
June 2, 1999 (Incorporated by reference to Exhibit (c)(1) of
@Entertainment, Inc.'s Schedule 14D-9)
2.2 Form of Common Stockholder Agreement, dated as of June 2, 1999, between
United Pan-Europe Communications N.V., Bison Acquisition Corp., and
certain common stockholders of @Entertainment, Inc.
2.3 Form of Preferred Stockholder Agreement, dated as of June 2, 1999, between
United Pan-Europe Communications N.V., Bison Acquisition Corp., and
each of @Entertainment, Inc.
2.4 Confidentiality Agreement between @Entertainment, Inc. and United Pan-
Europe Communications, N.V., dated April 12 1999 (Incorporated by
reference to Exhibit (c)(2) of @Entertainment, Inc.'s Schedule 14D-9)
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed the following Reports on Form 8-K during the quarter ended
June 30, 1999:
Report on Form 8-K, filed on May 7, 1999, regarding a press release dated May 6,
1999 relating to the Company's financial result for the quarter ended March 31,
1999 (including selected financial data).
Report on Form 8-K, filed on May 12, 1999, regarding a press release dated May
11, 1999 relating to the Company retaining Goldman Sachs & Co. to advise the
Board of Directors in discussions with potential strategic investor.
Report on Form 8-K, filed on June 2, 1999, as amended on June 9, 1999, regarding
a press release dated June 2, 1999, relating to the announcement of United
Pan-Europe Communications N.V's tender offer for all of the outstanding shares
of the Company's common stock.
Report on Form 8-K/A filed on June 9, 1999 including Agreement and Plan of
Merger, dated June 2, 1999, among United Pan-Europe Communications N.V., Bison
Acquisition Corp. and @ Entertainment, Inc.
Report on Form 8-K, filed on July 8, 1999, regarding a press release dated
July 7, 1999, relating to the extension of the expiration date of United
Pan-Europe N.V.'s tender offer until Midnight (New York time) on Thursday,
August 5.
Report on Form 8-K, filed on August 3, 1999, regarding completion of debt
offering for financing of United Pan-Europe Communications N.V.'s tender offer.
Report on Form 8-K, filed on August 9, 1999, relating to the termination of
United Pan-Europe N.V.'s tender offer.
27
<PAGE>
SIGNATURES
Pursuant to the requirements 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/ Donald Miller-Jones
------------------------------
Donald Miller-Jones
Chief Financial Officer,
Vice President and Treasurer
DATE: August 13, 1999
28
<PAGE>
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of June 2, 1999, among UNITED PAN-EUROPE
COMMUNICATIONS NV, a corporation organized under the laws of The Netherlands
("Parent"), BISON ACQUISITION CORP., a Delaware corporation and an indirect
wholly owned subsidiary of Parent ("Sub"), and the other parties signatory
hereto (individually and collectively, the "Stockholder").
W I T N E S S E T H :
WHEREAS, prior to entering into this Agreement, Parent, Sub
and Eagle, Inc., a Delaware corporation (the "Company"), entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement),
pursuant to which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company
desire that as soon as practicable (and not later than five business days) after
the execution and delivery of the Merger Agreement, Sub commence a cash tender
offer to purchase all outstanding shares of Company Common Stock (as defined in
Section 1) including all of the Shares (as defined in Section 2); and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, Parent has required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Company Common Stock" shall mean at any time the
common stock, $.01 par value, of the Company.
(b) "Company Securities" shall mean the Existing Options and
the Existing Company Warrants, together with any Options or Company Warrants
acquired by the Stockholder after the date hereof and prior to the termination
of this Agreement, whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution or otherwise.
(c) "Existing Company Warrants" shall mean the Company
Warrants set forth opposite the Stockholder's name on Schedule I hereto.
(d) "Existing Options" shall mean the Options set forth
opposite the Stockholder's name on Schedule I hereto.
<PAGE>
(e) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
2. TENDER OF SHARES.
(a) Stockholder hereby agrees to validly tender (and not to
withdraw) pursuant to and in accordance with the terms of the Offer, in a timely
manner for acceptance by Sub in the Offer, the number of shares of Company
Common Stock (if any) set forth opposite the Stockholder's name on Schedule I
hereto (the "Existing Shares" and, together with any shares of Company Common
Stock acquired by the Stockholder after the date hereof and prior to the
termination of this Agreement whether upon the exercise of options, warrants or
rights, the conversion or exchange of convertible or exchangeable securities, or
by means of purchase, dividend, distribution or otherwise, the "Shares"), owned
by it. The Stockholder hereby acknowledges and agrees that Parent's obligation
to accept for payment and pay for Company Common Stock in the Offer, including
the Shares, is subject to the terms and conditions of the Offer. The Stockholder
shall be entitled to receive the highest price paid by Sub pursuant to the
Offer. The Offer Price shall not be less than $19.00, payable in cash.
(b) The Stockholder hereby agrees to permit Parent and Sub to
publish and disclose in the Offer Documents and, if approval of the stockholders
of the Company is required under applicable law, the Proxy Statement (including
all documents and schedules filed with the Securities and Exchange Commission)
its identity and ownership of Company Common Stock and the nature of its
commitments, arrangements and understandings under this Agreement.
3. PROVISIONS CONCERNING COMPANY COMMON STOCK. The Stockholder
hereby agrees that during the period commencing on the date hereof and
continuing until the first to occur of (i) the Effective Time, (ii) the last
date the Option is exercisable pursuant to Section 4 and (iii) the termination
date set forth in Section 9, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, the Stockholder shall vote (or cause to be voted) the
Shares (if any) owned by the Stockholder whether issued, heretofore owned or
hereafter acquired, (i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other actions contemplated by the Merger Agreement and this
Agreement and any actions required in furtherance thereof and hereof; (ii)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (iii) except as otherwise agreed to
in writing in advance by Parent, against the following actions (other than the
Merger and the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (B) a sale,
lease or transfer of a material amount of assets of the Company or its
subsidiaries, or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (C) (1) any change in a majority of the
persons who constitute the board of directors of the Company; (2) any change in
the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-laws; (3) any other material change in the
Company's corporate structure or business; or (4) any other action involving the
Company or its subsidiaries which is intended, or
-2-
<PAGE>
could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person or entity the effect of which would
be to violate the provisions and agreements contained in this Section 3.
4. STOCK OPTION; CERTAIN PURCHASE OBLIGATIONS.
(a) The Stockholder hereby grants to Sub (x) an irrevocable
option (the "Stock Option") to purchase the Shares at a purchase price per Share
(the "Purchase Price") equal to $19.00, payable in cash, and (y) an irrevocable
option (the "Securities Option" and, together with the Stock Option, the
"Option") to purchase the Company Securities at a price per Company Security
equal to the Purchase Price LESS the exercise price of such Company Security,
payable in cash, in each case until the termination date set forth in Section 9.
Until the termination date set forth in Section 9, if (i) the Offer is
terminated, abandoned or withdrawn by Parent or Sub (whether due to the failure
of any of the conditions thereto or otherwise), (ii) the Offer is consummated
but the Shares have not been validly tendered into the Offer or (iii) the Merger
Agreement is terminated in accordance with its terms, the Option shall, in any
such case, become exercisable, in whole but not in part, upon the first to occur
of any such event and remain exercisable, in whole but not in part, until the
date which is 90 days after the date of the occurrence of such event, but shall
not be exercisable in each case unless: (x) all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), required for the purchase of Shares and/or Company Securities, as the
case may be, upon the exercise of the Option shall have expired or been waived
and all other necessary governmental consents required for Sub to purchase
Shares and/or Company Securities, as the case may be, upon the exercise of the
Option, including, but not limited to, all necessary approvals of the Polish
Anti-Monopoly Commission, and (y) there shall not then be in effect any
preliminary or final injunction or other order issued by any court or
governmental, administrative or regulatory agency or authority prohibiting the
exercise of the Option pursuant to this Agreement. Provided that this Agreement
has not been terminated, in the event that the Option is not exercisable because
the circumstances described in clauses (x) and (y) have not occurred, then the
Option shall be exercisable for the 90 day period commencing on the date that
the circumstances set forth in clauses (x) and (y) have occurred. In the event
that Parent wishes to exercise the Option, Parent shall send a written notice to
the Stockholder identifying the place for the closing of such purchase at least
three business days prior to such closing.
(b) In the event that Sub shall have purchased Shares
purchased in the Offer in an amount necessary to satisfy the Minimum Condition
in accordance with the terms of the Merger Agreement, Sub shall thereafter
purchase all of the Company Securities then held by the Stockholder no later
than the date which is the third business day after the date of such
consummation, at a purchase price per Company Security equal to the Offer Price
for the Shares underlying such Company Security less the exercise price of such
Company Security.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent as follows:
-3-
<PAGE>
(a) OWNERSHIP OF SHARES. The Stockholder is the record and
beneficial owner of the number of Shares and Company Securities set forth
opposite such Stockholder's name on Schedule I hereto. On the date hereof, the
Existing Shares, Existing Options and Existing Company Warrants set forth
opposite such Stockholder's name on Schedule I hereto constitute all of the
Shares and Company Securities owned beneficially or of record by such
Stockholder. The Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 2, 3 and 4
hereof, sole power of disposition, sole power of conversion, sole power to
demand appraisal rights and sole power to agree to all of the matters set forth
in this Agreement, in each case with respect to all of the Existing Shares,
Existing Options and Existing Company Warrants set forth opposite Stockholder's
name on Schedule I hereto, with no limitations, qualifications or restrictions
on such rights, subject to applicable securities laws and the terms of this
Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal
capacity, power and authority to enter into and perform all of the Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to which
the Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which the Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) NO CONFLICTS. Except for (i) filings and approvals under
the HSR Act or any other applicable Laws related to competition, antitrust,
monopoly or similar matters, (A) no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
performance by such Stockholder of its obligations hereunder and (B) none of the
execution and delivery of this Agreement by such Stockholder, the performance by
such Stockholder of its obligations hereunder or compliance by such Stockholder
with any of the provisions hereof shall (1) conflict with or result in any
breach of any applicable organizational documents applicable to such
Stockholder, or (2) violate any order, writ, injunction, decree, judgment,
statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) NO FINDER'S FEES. Except as disclosed in the Merger
Agreement, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder.
(e) NO ENCUMBRANCES. The Stockholder's Shares and Company
Securities and the certificates representing such Shares and Company Securities
are now, and at all times during the term hereof will be, held by such
Stockholder, or by a nominee or custodian for the benefit of such Stockholder,
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder. The
transfer by the Stockholder of its
-4-
<PAGE>
Shares and Company Securities to Sub in the Offer or hereunder shall pass to and
unconditionally vest in Sub good and valid title to all such Shares and Company
Securities, free and clear of all claims, liens, restrictions, security
interests, pledges, limitations and encumbrances whatsoever.
(f) RELIANCE BY PARENT. The Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and delivery of
this Agreement.
6. COVENANTS OF THE STOCKHOLDER. The Stockholder covenants and
agrees as follows:
(a) NO SOLICITATION. Beginning on the date hereof and ending
on the last date the Option is exercisable pursuant to Section 4 hereof, the
Stockholder shall not, in its capacity as such, directly or indirectly,
initiate, solicit (including by way of furnishing information), encourage or
respond to or take any other action knowingly to facilitate, any inquiries or
the making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) with respect to the Company that constitutes or reasonably
may be expected to lead to, an Acquisition Proposal, or enter into or maintain
or continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain any Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, or authorize or permit any Person or entity acting on
behalf of the Stockholder to do any of the foregoing. If the Stockholder
receives any inquiry or proposal regarding any Acquisition Proposal, the
Stockholder shall promptly inform Parent of that inquiry or proposal and the
details thereof.
(b) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE.
Beginning on the date hereof and ending on the last date the Stock Option is
exercisable pursuant to Section 4 hereof, except as expressly contemplated by
this Agreement, the Stockholder shall not (i) directly or indirectly, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Shares and Company Securities or any interest therein; provided
that the Stockholder may transfer any Shares and/or Company Securities to any
Affiliate of the Stockholder; provided, further that such transferee shall have
become a party to this Agreement (or an agreement identical to this Agreement)
and shall be deemed to make all representations and warranties set forth in
paragraph 5 hereof on the date of the transfer of such Shares and/or Company
Securities; (ii) grant any proxies or powers of attorney (except for powers of
attorney granted to Affiliates of the Stockholder solely for administrative
purposes and which require the holder thereof to vote any and all Shares subject
to such powers in accordance with this Agreement), deposit any Shares and/or
Company Securities into a voting trust or enter into a voting agreement with
respect to any Shares and/or Company Securities; or (iii) take any action that
would make any representation or warranty of such Stockholder contained herein
untrue or incorrect or have the effect of preventing the Stockholder from
performing the Stockholder's obligations under this Agreement.
(c) WAIVER OF APPRAISAL RIGHTS. The Stockholder hereby
irrevocably waives any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
-5-
<PAGE>
(d) STOP TRANSFER; CHANGES IN SHARES. The Stockholder agrees
with, and covenants to, Parent that the Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares or Company
Securities, unless such transfer is made in compliance with this Agreement. In
the event of a stock dividend or distribution, or any change in the Company
Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the term "Shares" shall be deemed
to refer to and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Shares
may be changed or exchanged and the Purchase Price shall be appropriately
adjusted. The Stockholder shall be entitled to receive any cash dividend paid by
the Company during the term of this Agreement until Shares are purchased in the
Offer or hereunder.
7. FIDUCIARY DUTIES. Notwithstanding anything in this
Agreement to the contrary, the covenants and agreements set forth herein shall
not prevent of the Stockholder (or any of its designees) from taking any action,
subject to the applicable provisions of the Merger Agreement, while acting in
his or her (or such designee's) capacity as a director of the Company.
8. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement; provided that no party shall be required to incur unreasonable
expense in complying with this paragraph.
(b) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understanding, both
written and oral, between the parties with respect to the subject matter hereof.
(c) CERTAIN EVENTS. The Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations under this Agreement of the
transferor in the event such transferee does not perform such obligations.
(d) ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
party provided that Parent may assign, at its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of
Parent, although no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
-6-
<PAGE>
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
relevant parties hereto.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholders: At the addresses set forth on
Schedule I hereto
copy to:
If to Parent or Sub:
c/o United Pan-Europe Communications NV
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Anton H.E. van Voskuijlen
Facsimile: +31 20 778 9817
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: William F. Wynne, Jr., Esq.
Facsimile +212 354 8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity;
provided that no party shall be liable for any consequential or punitive damages
or damages for lost profits or lost opportunities, whether or
-7-
<PAGE>
not such damages, profits or opportunities were foreseen or foreseeable by such
party, except to the extent such damages are the result of a breach of this
Agreement arising out of the gross negligence or willful misconduct of such
party.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of any United States District Court or any court of the
State of Delaware, in each case located in the City of Wilmington, Delaware, in
any action, suit or proceeding arising in connection with this Agreement, and
agrees that any such action, suit or proceeding may be brought in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein); provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this paragraph (m) and shall not be deemed
to be a general submission to the jurisdiction of said Courts or in the State of
Delaware other than for such purposes. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
9. TERMINATION. This Agreement shall terminate, and no party
shall have any rights or obligations hereunder and this Agreement shall become
null and void and have no effect upon the fifth day after the earlier of (1) the
expiration of the 90 day exercise period set forth in
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<PAGE>
Section 4 hereof, (2) at the Stockholders, option upon the valid termination of
the Merger Agreement by the Company pursuant to Section 10.3 thereof or (3) the
date which is 180 days after the date hereof.
10. BINDING AGREEMENT. All authority and rights herein
conferred or agreed to be conferred by the Stockholder shall survive the death
or incapacity of the Stockholder. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and each Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
[ ]
By: _______________________
Name:
Title:
[ ]
By: _______________________
Name:
Title:
[ ]
By: _______________________
Name:
Title:
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<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES AND/OR COMPANY SECURITIES OWNED
<S> <C>
</TABLE>
Attention:
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<PAGE>
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of June 2, 1999, among UNITED PAN-EUROPE
COMMUNICATIONS NV, a corporation organized under the laws of The Netherlands
("Parent"), BISON ACQUISITION CORP., a Delaware corporation and an indirect
wholly owned subsidiary of Parent ("Sub"), and the other parties signatory
hereto (individually and collectively, the "Stockholder").
W I T N E S S E T H :
WHEREAS, prior to entering into this Agreement, Parent, Sub
and Eagle, Inc., a Delaware corporation (the "Company"), entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement),
pursuant to which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company
desire that as soon as practicable (and not later than five business days) after
the execution and delivery of the Merger Agreement, Sub commence a cash tender
offer to purchase all outstanding shares of Company Common Stock (as defined in
Section 1) including all of the Shares (as defined in Section 2); and
WHEREAS, as a condition to entering into the Merger Agreement,
Parent has required that all of the holders of the Company Preference Shares
agree to sell such Company Preference Shares to Parent; and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, Parent has required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Company Common Stock" shall mean at any time the common
stock, $.01 par value, of the Company.
(b) "Company Preference Shares" shall mean the Series A
Cumulative Preference Shares of the Company, par value $.01 per share and the
Series B Cumulative Preference Shares of the Company, par value $.01 per share.
"Existing Shares" shall mean the Company Preference Shares set
forth on Schedule I hereto.
<PAGE>
(d) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
(e) "Shares" shall mean the Existing Shares, together with
any other Company Preference Shares, in each case which such Company Preference
Shares were acquired by the Stockholder after the date hereof and prior to the
termination of this Agreement, whether upon the exercise of options, warrants or
rights, the conversion or exchange of convertible or exchangeable securities, or
by means of purchase, dividend, distribution or otherwise
2. PROVISIONS CONCERNING COMPANY PREFERENCE SHARES. (a) The
Stockholder hereby agrees that during the period commencing on the date hereof
and continuing until the first to occur of (i) the Effective Time, (ii) the last
date the Stock Option is exercisable pursuant to Section 3 and (iii) the
termination date set forth in Section 8, at any meeting of the holders of
Company Preference Shares (or of the Company Common Stock, to the extent the
holders of Company Preference Shares are entitled to vote as with the holders of
Company Common Stock, whether as a single class or otherwise), however called,
or in connection with any written consent of the holders of Company Preference
Shares, the Stockholder shall vote (or cause to be voted) the Shares owned by
the Stockholder whether issued, heretofore owned or hereafter acquired, (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; (ii) against any action or agreement that
would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement; and (iii) except as otherwise agreed to in writing in advance by
Parent, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (B) a sale, lease or
transfer of a material amount of assets of the Company or its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (C) (1) any change in a majority of the persons who constitute
the board of directors of the Company; (2) any change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation or By-laws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action involving the Company
or its subsidiaries which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by this Agreement and the Merger
Agreement. The Stockholder shall not enter into any agreement or understanding
with any Person or entity the effect of which would be to violate the provisions
and agreements contained in this Section 2.
(b) The Stockholder hereby agrees to permit Parent and Sub to
publish and disclose in the Offer Documents and, if approval of the stockholders
of the Company is required under applicable law, the Proxy Statement (including
all documents and schedules filed with the Securities and Exchange Commission)
its identity and ownership of Company Preference Shares and the nature of its
commitments, arrangements and understandings under this Agreement.
-2-
<PAGE>
3. PURCHASE RIGHT. (a) The Stockholder hereby grants to Sub an
irrevocable option (the "Stock Option") to purchase the Shares at a purchase
price per Share (the "Purchase Price") equal to the liquidation preference of
such share PLUS all accrued and unpaid dividends thereon on the date of
purchase, payable in cash, until the termination date set forth in Section 8.
Until the termination date set forth in Section 8, if (i) the Offer is
terminated, abandoned or withdrawn by Parent or Sub (whether due to the failure
of any of the conditions thereto or otherwise), (ii) the Offer is consummated
but Sub has not accepted for payment and paid for the Shares or (iii) the Merger
Agreement is terminated in accordance with its terms, the Stock Option shall, in
any such case, become exercisable, in whole but not in part, upon the first to
occur of any such event and remain exercisable, in whole but not in part, until
the date which is 90 days after the date of the occurrence of such event, but
shall not be exercisable in each case unless: (x) all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), required for the purchase of Shares upon the exercise of the Stock Option
shall have expired or been waived and all other necessary governmental consents
required for Sub to purchase Shares upon the exercise of the Stock Option,
including, but not limited to, all necessary approvals of the Polish
Anti-Monopoly Commission, and (y) there shall not then be in effect any
preliminary or final injunction or other order issued by any court or
governmental, administrative or regulatory agency or authority prohibiting the
exercise of the Stock Option pursuant to this Agreement. Provided that this
Agreement has not been terminated, in the event that the Stock Option is not
exercisable because the circumstances described in clauses (x) and (y) have not
occurred, then the Stock Option shall be exercisable for the 90 day period
commencing on the date that the circumstances set forth in clauses (x) and (y)
have occurred. In the event that Parent wishes to exercise the Stock Option,
Parent shall send a written notice to the Stockholder identifying the place for
the closing of such purchase at least three business days prior to such closing.
(b) In the event that Sub shall have purchased Shares of
Company Common Stock in the Offer in an amount necessary to satisfy the Minimum
Condition in accordance with the terms of the Merger Agreement, Sub shall
thereafter purchase all of the Shares then held by the Stockholder no later than
the date which is the third business day after the date of such consummation at
a purchase price per Share equal to the liquidation preference of such share
PLUS all accrued and unpaid dividends thereon on the date of purchase.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record and
beneficial owner of the number of Shares set forth opposite such Stockholder's
name on Schedule I hereto. On the date hereof, the Existing Shares set forth
opposite such Stockholder's name on Schedule I hereto constitute all of the
Shares owned beneficially or of record by such Stockholder. The Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Sections 2 and 3 hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Existing Shares set forth opposite Stockholder's name on
Schedule I hereto, with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of this Agreement.
-3-
<PAGE>
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal
capacity, power and authority to enter into and perform all of the Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to which
the Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which the Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) NO CONFLICTS. Except for (i) filings and approvals under
the HSR Act or any other applicable Laws related to competition, antitrust,
monopoly or similar matters, (A) no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
performance by such Stockholder of its obligations hereunder and (B) none of the
execution and delivery of this Agreement by such Stockholder, the performance by
such Stockholder of its obligations hereunder or compliance by such Stockholder
with any of the provisions hereof shall (1) conflict with or result in any
breach of any applicable organizational documents applicable to such
Stockholder, or (2) violate any order, writ, injunction, decree, judgment,
order, statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) NO FINDER'S FEES. Except as disclosed in the Merger
Agreement, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder.
(e) NO ENCUMBRANCES. The Stockholder's Shares and the
certificates representing such Shares are now, and at all times during the term
hereof will be, held by such Stockholder, or by a nominee or custodian for the
benefit of such Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder. The transfer by the Stockholder of its Shares to Sub
in the Offer or hereunder shall pass to and unconditionally vest in Sub good and
valid title to all Shares, free and clear of all claims, liens, restrictions,
security interests, pledges, limitations and encumbrances whatsoever.
(f) RELIANCE BY PARENT. The Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and delivery of
this Agreement.
5. COVENANTS OF THE STOCKHOLDER. The Stockholder covenants and
agrees as follows:
(a) NO SOLICITATION. Beginning on the date hereof and ending
on the last date the Stock Option is exercisable pursuant to Section 3 hereof,
the Stockholder shall not, in its
-4-
<PAGE>
capacity as such, directly or indirectly, initiate, solicit (including by way of
furnishing information), encourage or respond to or take any other action
knowingly to facilitate, any inquiries or the making of any proposal by any
person or entity (other than Parent or any affiliate of Parent) with respect to
the Company that constitutes or reasonably may be expected to lead to, an
Acquisition Proposal, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain any Acquisition Proposal, or agree to or endorse any Acquisition
Proposal, or authorize or permit any Person or entity acting on behalf of the
Stockholder to do any of the foregoing. If the Stockholder receives any inquiry
or proposal regarding any Acquisition Proposal, the Stockholder shall promptly
inform Parent of that inquiry or proposal and the details thereof.
(b) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE.
Beginning on the date hereof and ending on the last date the Stock Option is
exercisable pursuant to Section 4 hereof, except as expressly contemplated by
this Agreement, the Stockholder shall not (i) directly or indirectly, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Shares or any interest therein; provided that the Stockholder may
transfer any Shares to any Affiliate of the Stockholder; provided, further that
such transferee shall have become a party to this Agreement (or an agreement
identical to this Agreement) and shall be deemed to make all representations and
warranties set forth in paragraph 4 hereof on the date of such transfer of
Shares; (ii) grant any proxies or powers of attorney (except for powers of
attorney granted to Affiliates of the Stockholder for purely administrative
purposes and which require the holder thereof to vote any and all Shares subject
to such powers in accordance with this Agreement), deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing the Stockholder from performing the Stockholder's obligations under
this Agreement.
(c) WAIVER OF APPRAISAL RIGHTS. The Stockholder hereby
irrevocably waives any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
(d) STOP TRANSFER; CHANGES IN SHARES. The Stockholder agrees
with, and covenants to, Parent that the Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares, unless
such transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Company Preference Shares by
reason of any stock dividend, split-up, recapitalization, combination, exchange
of shares or the like, the term "Shares" shall be deemed to refer to and include
the Shares as well as all such stock dividends and distributions and any shares
into which or for which any or all of the Shares may be changed or exchanged and
the Purchase Price shall be appropriately adjusted. The Stockholder shall be
entitled to receive any cash dividend paid by the Company during the term of
this Agreement until Shares are purchased in the Offer or hereunder.
6. FIDUCIARY DUTIES. Notwithstanding anything in this
Agreement to the contrary, the covenants and agreements set forth herein shall
not prevent of the Stockholder (or
-5-
<PAGE>
any of its designees) from taking any action, subject to the applicable
provisions of the Merger Agreement, while acting in his or her (or such
designee's) capacity as a director of the Company.
7. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement; provided that no party shall be required to incur an unreasonable
expense in complying with this paragraph.
(b) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understanding, both
written and oral, between the parties with respect to the subject matter hereof.
(c) CERTAIN EVENTS. The Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations under this Agreement of the
transferor in the event such transferee does not perform such obligations.
(d) ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
party provided that Parent may assign, at its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of
Parent, although no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
relevant parties hereto.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholders: At the addresses set forth on
Schedule I hereto
copy to:
-6-
<PAGE>
If to Parent or Sub:
c/o United Pan-Europe Communications NV
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Anton H.E. van Voskuijlen
Facsimile: +31 20 778 9817
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: William F. Wynne, Jr., Esq.
Facsimile: +212 354 8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity;
provided that no party shall be liable for any consequential or punitive damages
or damages for lost profits or lost opportunities, whether or not such damages,
profits or opportunities were foreseen or foreseeable by such party, except to
the extent such damages are the result of a breach of this Agreement arising out
of the gross negligence or willful misconduct of such party.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a
-7-
<PAGE>
waiver by such party of its right to exercise any such or other right, power or
remedy or to demand such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court or any court of the
State of Delaware, in each case, located in the City of Wilmington, Delaware in
any action, suit or proceeding arising in connection with this Agreement, and
agrees that any such action, suit or proceeding may be brought in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein); provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this paragraph (m) and shall not be deemed
to be a general submission to the jurisdiction of said Courts or in the State of
Delaware other than for such purposes. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
8. TERMINATION. This Agreement shall terminate, and no party
shall have any rights or obligations hereunder and this Agreement shall become
null and void and have no effect upon the fifth day after the earlier of (1) the
expiration of the 90 day exercise period set forth in Section 4 hereof, (2) at
the Stockholder's option upon the valid termination of the Merger Agreement by
the Company pursuant to Section 10.3 thereof or (3) the date which is 180 days
after the date hereof.
9. BINDING AGREEMENT. All authority and rights herein
conferred or agreed to be conferred by the Stockholder shall survive the death
or incapacity of the Stockholder. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
-8-
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and each Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
[ ]
By: ________________________
Name:
Title:
[ ]
By: ________________________
Name:
Title:
[ ]
By: ________________________
Name:
Title:
-9-
<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES OWNED
<S> <C>
</TABLE>
Attention:
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements included in the Company's Quarterly Report on Form 10-Q for the three
months ended June 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 74,284
<SECURITIES> 0
<RECEIVABLES> 7,609
<ALLOWANCES> 0
<INVENTORY> 7,631
<CURRENT-ASSETS> 114,673
<PP&E> 189,695
<DEPRECIATION> 22,699
<TOTAL-ASSETS> 386,176
<CURRENT-LIABILITIES> 48,459
<BONDS> 376,038
0
0
<COMMON> 336
<OTHER-SE> (69,487)
<TOTAL-LIABILITY-AND-EQUITY> 386,176
<SALES> 0
<TOTAL-REVENUES> 39,855
<CGS> 0
<TOTAL-COSTS> 118,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,377
<INCOME-PRETAX> (103,537)
<INCOME-TAX> 27
<INCOME-CONTINUING> (103,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,564)
<EPS-BASIC> (3.16)
<EPS-DILUTED> (3.16)
</TABLE>
