<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
@ENTERTAINMENT, INC.
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 06-1487156
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NO.)
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>
------------------------
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(Address, including zip code and telephone number, including area
code, or registrant's principal executive offices)
ROBERT E. FOWLER, III
@ ENTERTAINMENT, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------------
COPIES TO:
MARC R. PAUL, ESQ.
BAKER & MCKENZIE
815 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20006
(202) 452-7034
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AGGREGATE
MAXIMUM
PROPOSED MAXIMUM OFFERING AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT (2) (2)(3) FEE(3)
<S> <C> <C> <C> <C>
14 1/2% Series B Senior Discount Notes due
2009........................................... $256,800,000 39.25% $100,794,000 $28,020.73
</TABLE>
(1) The "Amount to be Registered" with respect to the 14 1/2% Series B Senior
Discount Notes due 2009 represents the maximum amount at maturity of the
notes to be issued upon exchange. Your notes, for which new notes are being
offered in the exchange, were sold at a substantial discount from their
principal amount at maturity.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) under the Securities Act of 1933.
(3) The registration fee for the notes to be issued upon exchange, $28,020.73,
is calculated under Rule 457(f)(1) of the Securities Act of 1933 as follows:
the product of .000278 and $28,020.73, which represents the proposed maximum
aggregate offering price, based on the average of the bid and asked price as
of February 10, 1999 for your notes which the new notes are being offered in
the exchange.
------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not deliver these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
<TABLE>
<S> <C> <C>
EXCHANGE OFFER
[LOGO] FOR [LOGO]
@ENTERTAINMENT, INC.
$256,800,000
</TABLE>
14 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2009
TERMS OF THE EXCHANGE OFFER
We offer to exchange your existing 14 1/2% Senior Discount Notes due 2009
for new 14 1/2% Series B Senior Discount Notes due 2009.
- - If you decide to participate in the exchange offer, the new notes issued to
you will have substantially the same terms as your existing notes, except
the new notes will be registered and will be able to be resold without
complying with the registration requirements of the Securities Act of 1933.
Any existing notes not exchanged will continue to have restrictions on their
transfer.
- - There is no existing public market for your existing notes, and there will
be no public market for the new notes issued in the exchange offer.
- - Your existing notes can be traded in the PORTAL Market.
- - We will exchange all of the existing notes that you validly tender and do
not withdraw.
- - You may withdraw tenders of your existing notes at any time before the
expiration of the exchange offer.
- - The exchange offer expires at 5:00 p.m. New York City time on ,
1999, unless we extend the offer.
- - We will not receive any proceeds from the exchange offer.
- - The exchange of your existing notes into new notes will not be a taxable
exchange for U.S. federal income tax purposes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NEW NOTES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INVESTMENT INVOLVES RISKS. WE URGE YOU TO READ THE "RISK FACTORS"
SECTION OF THIS PROSPECTUS BEGINNING ON PAGE [ ] WHICH DESCRIBES SPECIFIC RISKS
ASSOCIATED WITH THE EXCHANGE OFFER.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information...................................................
Incorporation of Certain Documents by Reference.......................................
Prospectus Summary....................................................................
Summary Consolidated Financial Data...................................................
Summary Operating Data................................................................
Risk Factors..........................................................................
The Exchange Offer....................................................................
Use of Proceeds.......................................................................
Address; Exchange Rate and Statistical Data...........................................
Capitalization........................................................................
Selected Consolidated Financial Data..................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations..........................................................................
The Industry..........................................................................
Business..............................................................................
Regulation............................................................................
Description of Indebtedness...........................................................
Description of the Indenture Governing the New Notes..................................
Book Entry; Delivery and Form.........................................................
United States Tax Considerations......................................................
Plan of Distribution..................................................................
Legal Matters.........................................................................
Experts...............................................................................
Special Note Regarding Forward Looking Statements.....................................
Trademarks/Tradenames Used in the Prospectus..........................................
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission under the Securities Act of 1933. This registration statement covers
the notes that we will issue to you if you exchange your existing notes for new
notes in this exchange offer. The rules and regulations of the Commission allow
us to omit some of the information in the registration statement from this
prospectus. This prospectus is a summary of information and any statements made
in this prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. If we have filed such contract, agreement
or other document as an exhibit to the registration statement, we urge you to
read the exhibit carefully for a more complete understanding of the document or
the matter involved. We qualify all of our statements by reference to the
complete documents. The registration statement and its exhibits and schedules
may be read at no cost to you and copied at the public reference section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, Suite 1300, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may call the Commission at 1-800-SEC-0330 for
further information on its public reference rooms or visit the Commission's web
site at http://www.sec.gov which contains the registration statement and its
schedules and exhibits, as well as reports, proxy and information statements and
other information that we have filed electronically with the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Securities and Exchange
Commission are incorporated by reference into this prospectus:
(a) @Entertainment's Annual Report on Form 10-K for the year ended
December 31, 1997, dated March 27, 1998 as amended by Form 10-K/A-1, dated
August 7, 1998, and by Form 10-K/A-2, dated August 10, 1998; and
(b) @Entertainment's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1998, dated May 15, 1998, for the three months ended June
30, 1998, dated August 14, 1998 and for the three months ended September 30,
1998, dated November 16, 1998; and
(c) @Entertainment's Current Reports on Form 8-K dated as of March 18,
1998, April 17, 1998, June 1, 1998, June 11, 1998, July 14, 1998, August 10,
1998, September 21, 1998, November 5, 1998, December 23, 1998.
All documents that we file with the Commission pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934 prior to the
termination of the offer of the new notes shall be deemed to be incorporated by
reference in this prospectus and to be part of this prospectus from the day we
file such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
This Prospectus Incorporates Documents By Reference Which Are Not Presented
In This Prospectus Or Delivered With This Prospectus. We Will Provide These
Documents Without Charge To Each Person To Whom This Prospectus Is Delivered
Upon The Request Of Such Person To: Donald Miller-Jones @Entertainment, Inc. One
Commercial Plaza Hartford, CT 06103-3585 (860) 549-1674. In Order To Ensure
Timely Delivery Of Documents, Any Request Should Be No Less Than Five Days Prior
To The Expiration Of The Exchange Offer.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION BEGINNING ON PAGE [ ] AND THE FINANCIAL STATEMENTS AND THE NOTES TO
THOSE STATEMENTS.
THE COMPANY
We are the leading provider of pay television services in Poland and are
engaged principally in providing cable television services, providing satellite
television services and developing, packaging and delivering high-quality
programming.
CABLE TELEVISION. We are the largest cable television operator in Poland in
terms of the number of subscribers. As of September 30, 1998, we owned and
operated cable networks running outside (referred to in the cable television
industry as "passing") 1,565,000 homes and serving 887,000 total subscribers.
DIGITAL SATELLITE DIRECT-TO-HOME BROADCASTING. We expanded our distribution
capacity when we launched our digital satellite direct-to-home (known in the pay
television business as "D-DTH") broadcasting service on September 18, 1998. This
service is targeted at homes that are not subscribers to our cable television
service. Our multi-channel Polish language D-DTH service was the first D-DTH
service available in Poland. This service is broadcast from our facilities in
the United Kingdom.
We have entered into an agreement with Philips Business Electronics B.V. for
Philips to supply us with D-DTH reception systems for up to 500,000 subscribers
to our D-DTH service. A reception system includes:
- a satellite dish
- a digital set top box
- all related hardware
Philips has also agreed to distribute, install and service these reception
systems through its authorized retailers in Poland.
As of December 31, 1998, we had sold to Philips' authorized retailers
approximately 125,000 D-DTH packages, which include the rental of the D-DTH
reception system, installation and a one-year subscription to our D-DTH service.
As of December 31, 1998, Philips had sold and installed approximately 93,000 of
these packages to consumers.
PROGRAMMING. We offer a package of 19 channels (17 channels are primarily
Polish-language) under the tradename "Wizja TV." We launched this package of
channels on our cable television networks on June 5, 1998 and on our D-DTH
system on September 18, 1998. We develop and own some of the channels and
programming ourselves, and we license the rest from programming and channel
suppliers. For a description of the channels offered both on our cable networks
and D-DTH system, you should read the sections entitled
"Business--Cable--Services and Fees" and "Business--Programming--Wizja TV
Programming Platform."
RISK FACTORS
Our operations, the pay television industry in which we operate and this
offering are subject to risks. Before you tender your notes for new notes in the
exchange offer, you should consider the risks set forth in the section entitled
"Risk Factors."
4
<PAGE>
OUR STRENGTHS
We believe that we can compete successfully in the Polish pay television
market and take advantage of the significant viewer demand for multi-channel
high-quality Polish-language programming because:
- We have the leading market position as the largest cable television
operator and first Polish-language D-DTH service provider in Poland.
- We have secured some exclusive Polish pay television rights to channels
and events we believe will be attractive to Polish consumers.
- Our advanced technology allows our cable networks to be cost-effectively
reconfigured to provide more channels and other services, such as voice
and data transmission.
- We have a strong D-DTH distribution network with Philips, which has agreed
to distribute, install and service D-DTH reception systems to up to
500,000 subscribers through its authorized retailers in Poland.
- Our cable systems currently reach a large number of subscribers as a
percentage of homes passed (known in the cable industry as "penetration"),
and we have had a low rate of termination by subscribers (known in the
cable industry as "churn").
- We have made a substantial investment in infrastructure, by developing our
production and transmission facility in Maidstone, United Kingdom and our
centralized call center in Katowice, Poland.
- We have a strong management team with extensive experience in the
television industry.
BUSINESS STRATEGY
Our principal objective is to enhance our position as the leading provider
of pay television in Poland by capitalizing on favorable opportunities that we
believe exist in Poland in the cable television, D-DTH and programming markets.
Our business strategy is designed to increase our market share and
subscriber base and to maximize revenue per subscriber. To accomplish our goals,
we intend to do the following:
- Develop and control the content of our programming;
- Increase our distribution capabilities through internal growth and through
acquisitions;
- Control our management of subscribers by using advanced information
systems; and
- Establish Wizja TV as the leading brand name in the Polish pay television
industry.
5
<PAGE>
FINANCING PLAN
The development of our businesses will require significant capital to fund
capital expenditures, working capital, debt service and operating losses,
including contractual commitments in connection with our D-DTH and programming
businesses.
- As of December 31, 1998, we had approximately $12 million in cash on hand.
- On January 20, 1999, we received approximately $9.4 million in net
proceeds from the sale of our Series C Senior Discount Notes due 2008.
- On January 27, 1999, we received approximately $96.1 million in net
proceeds from the sale of the existing notes held by you and other
investors and warrants, as well as approximately $48.2 million in net
proceeds from the issuance of our Series A 12% Cumulative Preference
Shares, Series B 12% Cumulative Preference Shares and warrants.
We believe that the net proceeds of these three offerings and cash on hand
will provide us with sufficient capital to fulfill our current business plan and
to fund our commitments until we achieve positive cash flow from operations. For
a description of situations when we may need additional financing, see "Risk
Factors--We May Need to Obtain Additional Financing if Our Plans or Assumptions
Change and the Terms of the Additional Financing May Restrict Our Operations or
Reduce Our Cash Flow."
RECENT DEVELOPMENTS
You should read the "Recent Developments" section in the "Business" section
of this prospectus for more details on the following recent developments related
to our company:
- Our April 17, 1998, letter of intent with a Polish pay television provider
regarding a potential joint venture and the arbitration proceedings that
resulted; and
- Possible sale of a minority interest in our major cable television
subsidiary, Poland Communications, Inc.
6
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........... We are offering $256,800,000 in principal amount of our
14 1/2% Series B Senior Discount Notes due 2009 in exchange
for an equal aggregate principal amount of our existing
14 1/2% Senior Discount Notes due 2009 on a one for one
basis. These new notes have substantially the same terms as
the existing notes you hold, except these new notes have
been registered under the Securities Act of 1933 and will be
freely tradeable.
Registration Rights
Agreement.................. At the time we sold investors the existing notes, we entered
into a registration rights agreement which requires us to
make this exchange offer.
After the exchange offer is complete, you will no longer be
entitled to exchange your notes for registered notes. We
may, in limited circumstances, be required to file a shelf
registration statement under the Securities Act of 1933 with
respect to your existing notes if you do not accept our
exchange offer.
If either an exchange offer registration statement or a
shelf registration statement is not completed within certain
time periods, we will be required to pay a penalty interest
on the existing notes.
The Exchange Offer........... We are offering to exchange $1,000 principal amount of new
notes for each $1,000 principal amount of your notes. In
order to be exchanged, your notes must be properly tendered
and accepted. All existing notes that are validly tendered
and not withdrawn will be exchanged.
Ability to Resell New
Notes...................... We believe that new notes issued in the exchange offer may
be offered for resale, resold and otherwise transferred by
you without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933 if:
- the new notes issued in the exchange offer are being
acquired in the ordinary course of your business;
- you are not participating, do not intend to
participate and have no arrangement or understanding
with any person to participate in the distribution of
new notes issued to you in the exchange offer; and
- you are not an affiliate of @Entertainment.
If this belief is inaccurate and you transfer any new notes
issued to you in the exchange offer without delivering a
prospectus which meets the requirements of the Securities
Act of 1933 or without an exemption from these requirements,
you may incur liability under the Securities Act of 1933. We
do not assume any liability if you do and will not indemnify
you.
If you are a broker-dealer and wish to exchange existing
notes that you received as a result of market-making or
other trading activities, you must agree to deliver this
propectus in connection with the sale of new notes you
receive in this exchange offer.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
People Excluded from the
Exchange Offer............. You may not participate in the exchange offer if you are:
- A holder of existing notes in any jurisdiction in
which the exchange offer or your acceptance is not legal
under the applicable securities or blue sky laws of
that jurisdiction; or
- A holder of existing notes who is an affiliate (as
such term is defined under the Securities Exchange Act
of 1934) of @Entertainment.
Consequences of Failure to
Exchange Your Notes........ If you do not exchange your existing notes for new notes in
the exchange offer, your notes will continue to have
restrictions on transfer contained in the existing notes and
in the indenture governing the existing notes. In general,
your existing notes may not be offered or sold unless
registered under the Securities Act of 1933, except if there
is an exemption from, or a transaction not governed by, the
Securities Act of 1933 and applicable state securities laws.
We have no current plans to register your existing notes
under the Securities Act of 1933 (except for the requirement
to file a shelf registration statement in some
circumstances).
Expiration Date.............. The exchange offer expires at 5:00 pm, New York City time,
on , 1999, the expiration date, unless we extend
the offer.
Conditions to the Exchange
Offer...................... The exchange offer has certain customary conditions that may
be waived by us. There is no minimum amount of existing
notes that must be tendered to complete the exchange offer.
Procedures for Tendering Your
Notes...................... If you wish to tender your existing notes for exchange in
the exchange offer you must send to Bankers Trust Company,
the exchange agent, on or before the expiration date of the
exchange offer either:
- a properly completed and executed letter of
transmittal, which has been provided to you with this
prospectus, or a facsimile of the letter of
transmittal, together with your existing notes and any
other documentation requested by the letter of
transmittal; or
- a computer generated message transmitted by means of
the Depository Trust Company's Automated Tender Offer
Program system and received by the exchange agent and
forming a part of a confirmation of book entry
transfer in which you acknowledge and agree to be
bound by the terms of the letter of transmittal.
If you execute the letter of transmittal or accept our offer
through the Automated Tender Offer Program, you will make
the representations described under "The Exchange
Offer--Purpose and Effect-- Representations We Need From You
Before You Participate in the Exchange Offer."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Withdrawal Rights............ You may withdraw the tender of your existing notes at any
time prior to 5:00 pm, New York city time, on the expiration
date.
U.S. Tax Considerations...... The exchange of notes is not a taxable exchange for U.S.
federal income tax purposes. You will not recognize any
taxable gain or loss or any interest income as a result of
the exchange. For additional information regarding federal
income tax considerations, you should read the discussion
under the heading "United States Tax Considerations."
Use of Proceeds.............. @Entertainment will not receive any proceeds from the
issuance of the new notes in the exchange offer. We will pay
all expenses incident to the exchange offer, other than
taxes.
Exchange Agent............... Bankers Trust Company is serving as the exchange agent. Its
address, telephone number and facsimile number are:
Bankers Trust Company
Four Albany Street
7th Floor
New York, New York 10006
Att: Corporate Trust Trustee Administration
Phone: (212) 250-6573
Fax: (212) 250-0933
</TABLE>
Please review the information contained under the heading "The Exchange
Offer" for more detailed information concerning the exchange offer.
9
<PAGE>
SUMMARY OF THE TERMS OF THE NEW NOTES
The new notes to be issued to you in the exchange offer will evidence the
same obligations of @Entertainment as the notes you currently hold. The
indenture that currently governs your existing notes is the same indenture that
will govern the new notes, except that there will be no legends on the new notes
restricting their transfer. A more detailed description of the indenture can be
found under the section heading "Description of the Indenture Governing the New
Notes."
<TABLE>
<CAPTION>
Total Amount of New Notes
Offered.................... $256,800,000 in principal amount.
<S> <C>
Maturity..................... February 1, 2009.
Interest Payment Dates....... February 1 and August 1 of each year, starting on August 1,
2004.
Redemption................... On or after February 1, 2004, we may redeem all or a portion
of the new notes, at the redemption prices described in the
section "Description of the Indenture Governing the New
Notes," plus any unpaid interest to the date of redemption.
Change of Control............ If a change of control occurs, you will have the right to
require us to repurchase all or any part of your notes at a
purchase price equal to 101% of the accreted value of the
notes repurchased, plus any accrued and unpaid interest to
the date of repurchase.
Guarantees................... None.
Ranking...................... The new notes:
- are senior unsecured obligations of @Entertainment;
- rank equally in right of payment with all existing and
future unsubordinated debt of @Entertainment; and
- rank senior in right of payment to any existing and
future debt expressly subordinated to the new notes.
As of September 30, 1998, we had approximately $260 million
of debt outstanding. Of this amount approximately $138
million was owed by our subsidiaries.
Certain Covenants............ The indenture under which the new notes will be issued
contains convenants for your benefit which restrict our
ability to, among other things:
- borrow additional money;
- pay dividends on or redeem our capital stock, or make
certain other restricted payments or investments;
- sell certain assets;
- enter into certain transactions with our affiliates;
- merge or consolidate with any other person;
- sell all or substantially all of our assets; or
- impose restrictions on the ability of our subsidiaries
to make certain payments to us and to other
subsidiaries.
Form of the New Notes........ The new notes will be represented by one or more permanent
global securities, in fully registered form, deposited with
a custodian for, and registered in the name of a nominee of
the Depository Trust Company, or in the name of the
Depository Trust Company itself, as
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
depository. You will not receive notes in registered form
unless one of the events under the section heading
"Book-Entry; Delivery and Form" occurs. Instead, beneficial
interests in the new notes will be shown on records
maintained in book-entry form by the Depository Trust
Company and its participants and transfers of these
interests will be effected in the same manner.
Absence of a Public Market... The new notes generally will be transferable without any
restrictions but will be new securities for which there
initially will not be a market. Accordingly, there may not
be a market where you can sell your new notes and, if a
market for the new notes starts, it may end at any time.
Market-making activity may be limited during the exchange
offer and during the effectiveness of a shelf registration
statement. Merrill Lynch and Deutsche Bank have advised us
that they currently intend to make a market in the new
notes. However, they have no obligation to make a market,
and any market making with respect to the new notes may be
discontinued at any time without notice. While the existing
notes are expected to be eligible for trading in the Portal
Market, we currently do not intend to list the new notes on
any securities exchange or to seek approval for their
quotations.
</TABLE>
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below as of and for each
of the years in the three-year period ended December 31, 1997 have been derived
from our consolidated financial statements and the notes to those statements.
These financial statements have been prepared in conformity with U.S. generally
accepted accounting principal ("GAAP") which have been audited by our
independent public accountants, and are included elsewhere in this prospectus.
The consolidated financial data as of September 30, 1998 and for the nine months
ended September 30, 1997 and 1998 have been derived from our unaudited
consolidated financial statements. In the opinion of management, these unaudited
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary for a
fair presentation of our financial position as of the dates and the results of
operations for these periods. The results for the interim periods presented are
not necessarily indicative of the results for a full year. The summary
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................................................ $ 18,557 $ 24,923 $ 38,138 $ 26,801 $ 38,877
Depreciation and amortization.......................................... (5,199) (9,788) (16,294) (10,946) (17,786)
Operating (loss) income................................................ 3,545 (1,347) (42,670) (28,626) (65,342)
Interest expense....................................................... (4,373) (4,687) (13,902) (9,880) (13,814)
Net loss(1)............................................................ (1,289) (6,617) (54,824) (33,580) (75,725)
Net loss applicable to holders of common stock(2)...................... (1,289) (7,676) (91,066) (67,386) (75,725)
OTHER FINANCIAL DATA:
Consolidated EBITDA(3)................................................. $ 8,744 $ 8,441 $ (8,274) $ (17,680) $ (47,556)
Poland Communications, Inc. EBITDA(4).................................. 8,744 8,441 5,387 (2,368) 3,259
Expenditures for the purchase and construction of property, plant and
equipment............................................................ 16,715 26,581 42,454 26,472 67,871
Ratio of earnings to fixed charges(5).................................. 0.86 0.21 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------
ACTUAL AS ADJUSTED(6)
----------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................................ $ 67,888 $ 221,637
Property, plant and equipment, net............................................................... 169,718 169,718
Total assets..................................................................................... 374,991 532,995
Total notes payable.............................................................................. 259,497 361,863
Redeemable cumulative preferred stock............................................................ -- 28,704
Total stockholders' equity....................................................................... 80,807 107,742
</TABLE>
- ----------------------------------
(1) The year ended December 31, 1997 includes non-cash compensation expense of
$18,102,000 relating to the granting of certain management stock options.
See Note 16 to the consolidated financial statements included elsewhere in
this prospectus.
(2) The year ended December 31, 1997 includes a loss of $33,806,000 representing
the difference between the consideration paid for redeemable preferred stock
in excess of the carrying value of such stock. See Note 1 to the
consolidated financial statements included elsewhere in this prospectus.
(3) EBITDA means earnings before interest, taxes, depreciations and amortization
and consists of net loss adjusted for interest and investment income,
depreciation and amortization, interest expense, foreign currency gains and
losses, equity in losses of affiliated companies, income taxes,
extraordinary items, non-recurring items (e.g. compensation expense related
to stock options), gains and losses from the sale of assets other than in
the normal course of business and minority interest. The items excluded from
EBITDA are significant components in understanding and assessing our
financial performance. We believe that EBITDA and related measures of cash
flow from operating activities serve as important financial indicators in
measuring and comparing the operating performance of cable television
companies. EBITDA is not intended to represent cash flow from operations
under U.S. GAAP and should not be considered as an alternative to net loss
as an indicator of our operating performance or to cash flows from
operations as a measure of liquidity.
(4) Poland Communications, Inc. EBITDA reflects the EBITDA for Poland
Communications, Inc. and its subsidiaries, whose primary operations consist
of our cable television business. For the years 1995 and 1996, consolidated
EBITDA was entirely attributable to Poland Communications, Inc. and its
subsidiaries.
(5) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net loss before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness, amortization
of deferred financing costs and that portion of operating lease expense
deemed to be interest expense. For all periods presented, we incurred net
losses before income taxes and hence earnings to fixed charges indicate a
less than one to one coverage. Earnings were insufficient to cover fixed
charges by $689,000 for the year ended December 31, 1995, $3,631,000 for the
year ended December 31, 1996, $55,799,000 for the year ended December 31,
1997, $33,222,000 for the nine months ended September 30, 1997, and
$75,229,000 for the nine months ended September 30, 1998.
(6) Adjusted to give effect to the units offering, the Series C Discount Notes
offering and the Cumulative Preference Shares offering, and the receipt and
application of the net proceeds from those offerings.
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SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------------
Homes passed by cable(1).......................... 298,316 711,545 1,088,540 1,408,099 1,565,287
Basic cable subscribers(2)........................ 112,534 262,077 460,625(5) 636,283 701,122
Basic cable penetration(3)........................ 37.7% 36.8% 42.3% 45.2% 44.8%
Annual cable churn rates(4)....................... 9.1% 9.2% 7.8% 12.2% 11.6%
</TABLE>
- ------------------------
(1) We count as homes passed only those homes for which we have an active signal
and, in the case of a building or other residence consisting of multiple
apartment units, only those homes for which we have an agreement with the
cooperative authority that manages the building or residence.
(2) Includes only subscribers to our package with the largest number of
non-premium channels (referred to as the "basic package") and our package
with more limited programming offerings of 17 to 24 channels (referred to as
the "intermediate package"). For a description of these packages, see
"Business--Cable Operations--Services and Fees."
(3) Basic cable subscribers as a percentage of homes passed by cable at period
end.
(4) Calculated by dividing the number of disconnected basic cable subscribers
during a period by the number of basic cable subscribers (including basic
cable subscribers in cable networks we have acquired) at the end of that
period. The September 30, 1998 annual churn rate is calculated by
annualizing the nine months ended September 30, 1998.
(5) Includes approximately 15,000 subscribers served by a cable system we
acquired on January 1, 1997.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO TENDER YOUR NOTES IN THE
EXCHANGE OFFER.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS WE FACE DESCRIBED BELOW AND ELSEWHERE IN THE PROSPECTUS.
IF YOU DO NOT ELECT TO EXCHANGE YOUR EXISTING NOTES FOR NEW NOTES, YOU WILL HOLD
SECURITIES THAT ARE NOT REGISTERED AND THAT CONTAIN RESTRICTIONS ON TRANSFER
The existing notes not tendered or exchanged will remain restricted
securities. That means that if you wish to resell, pledge or otherwise transfer
your old notes at some future time, they may be resold, pledged or transferred
only:
- if the note is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, to a qualified institutional buyer that purchases
for its own account or for the account of a qualified institutional buyer
to whom notice is given that the resale, pledge or transfer is being made
in reliance on Rule 144A;
- in an offshore transaction in accordance with Regulation S under the
Securities Act of 1933;
- under an available exemption from registration provided by Rule 144 under
the Securities Act of 1933; or
- in reliance on another exemption from the registration requirements of the
Securities Act of 1933, but only upon the receipt by the registrar of a
certification from you and a satisfactory opinion of your counsel to the
effect that your transfer is in compliance with the Securities Act of
1933.
- In addition, your sale, pledge or transfer of the existing notes must be
done in accordance with any applicable securities law of any state of the
U.S.
If you do not participate in the exchange offer you will only be entitled to
certain shelf registration rights and we do not currently intend to file a shelf
registration statement. For a description of these shelf registration rights,
see "The Exchange Offer--Purpose and Effect."
THERE IS NO PUBLICLY TRADED MARKET FOR THE NEW NOTES AND THERE IS NO CERTAINTY
THAT A MARKET WILL DEVELOP IN THE FUTURE
If an active market for the new notes does not develop, the market price and
liquidity of the new notes may be adversely affected. There may not be a market
where you can sell your new notes and, if a market for the new notes starts, it
may end at any time. Merill Lynch and Deutsche Bank have advised us that they
currently intend to make a market in the new notes, but, they have no obligation
to do so and they may discontinue at any time without notice. Market making
activity may be limited during the exchange offer or during the registration
process of a shelf registration statement. While the existing notes are eligible
for trading in the Portal Market, we currently do not intend to list the new
notes on any securities exchange or to seek approval for their quotation on the
National Association of Securities Dealers Automated Quotation or any other
automated quotation system.
OUR SUBSTANTIAL LEVERAGE POSES POTENTIAL FINANCIAL AND OPERATING PROBLEMS
We are, and will continue to be, highly leveraged. Assuming the sale of the
existing notes and warrants and the sale of the Series C Senior Discount Notes
due 2008 had taken place on September 30, 1998, our outstanding indebtedness
would have been approximately $362 million. Also, on January 30, 2010, we will
be required to redeem our Cumulative Preference Shares for $50 million, plus any
unpaid dividends.
We must generate substantial additional cash flow in order to pay interest
and repay principal on our indebtedness, including the existing notes and the
new notes. Our business may not generate sufficient
14
<PAGE>
cash flow that, together with the financing available to us, will allow us to
meet our anticipated requirements for working capital, capital expenditures,
minimum guaranteed contractual commitments, interest payments and scheduled
principal payments, including the payments required on the existing notes and
the new notes. We still need to attract substantial numbers of additional
subscribers beyond the 380,000 initial D-DTH subscribers in order to repay
principal and pay interest on our indebtedness, including the existing notes and
the new notes.
We also expect that we may have to refinance all or a portion of the
existing and new notes at maturity, the Series C Discount Notes and the Series B
Senior Discount Notes when they mature in July 2008, and the notes issued by PCI
when they mature in November 2003. If our cash flow is less than expected, we
may need to refinance all or part of our existing indebtedness or reduce the
scope of our planned expansion or capital expenditures.
Such leverage poses the following risks:
- A significant portion of our cash flow from operations must be dedicated
to servicing our indebtedness.
- We may not be able to generate sufficient cash flow or obtain sufficient
additional financing to service your existing notes and the new notes, the
Series C Discount Notes, the Series B Senior Discount Notes, and notes
issued by our major operating subsidiary Poland Communications, Inc.
("PCI") and any other outstanding indebtedness (A more detailed
description of the Series C Discount Notes, the Series B Senior Discount
Notes, and the notes issued by PCI is set forth in the section entitled
"Description of Indebtedness.").
- We may not be able to adequately fund our contractual commitments.
- We could be more vulnerable to changes in general economic conditions.
- Our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes
may be impaired.
- Our operating and financial flexibility may be impaired by restrictions
imposed by various debt instruments.
- If interest rates increase, we will be subject to higher interest expenses
because at least part of our future borrowings may be at variable rates of
interest.
WE EXPECT OUR OPERATING LOSSES AND NEGATIVE CASH FLOWS TO CONTINUE
We must generate substantial additional cash flow in order to pay interest
and repay principal on our indebtedness, including your existing notes and the
new notes, and we may not be able to do so. We expect to experience substantial
operating losses and negative free cash flows for at least the next two years.
We may not be able to generate operating income or positive cash flows in the
future. We incurred operating losses of $4.6 million in 1992 and $1.2 million in
1993. We also had operating losses of $1.3 million for 1996, $42.7 million for
1997, and $65.3 million for the first nine months of 1998.
For a detailed discussion of the factors we believe have influenced our
historical financial results and the factors we believe will affect our
financial performance in the near future, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
AS A RESULT OF OUR HOLDING COMPANY STRUCTURE, YOUR RIGHT TO PARTICIPATE IN THE
ASSETS OF OUR SUBSIDIARIES WILL BE SUBJECT TO CLAIMS OF THE SUBSIDIARIES'
CREDITORS AND WE ARE DEPENDENT ON OUR SUBSIDIARIES TO PAY INTEREST ON OR REPAY
THE EXISTING NOTES AND THE NEW NOTES OR TO PAY DIVIDENDS
In the event of liquidation or bankruptcy of any of our operating
subsidiaries, your existing notes and the new notes rank behind the holders of
any indebtedness for money borrowed (such as the holders of the notes issued by
our major operating subsidiary, Poland Communications, Inc.), trade creditors of
those subsidiaries, and other persons granted priority claim rights under the
laws applicable to those subsidiaries.
15
<PAGE>
In addition, we may not be able to pay interest on our indebtedness,
including on your existing notes and the new notes (which are solely our
obligation), or to repay our indebtedness, including your existing notes and the
new notes, at maturity or otherwise, if the cash flows and earnings of our
subsidiaries and their payment of funds to us in the form of repayment of loans,
interest payments, dividends or otherwise are not sufficient. In addition, we
may not be able to pay interest on or repay our indebtedness, including your
existing notes and the new notes, if we cannot otherwise realize economic
benefits from equity interests in our subsidiaries.
Our subsidiaries have no obligation to pay dividends to us and may not be
able to make payments to us if funds are not available or if the terms of those
subsidiaries' indebtedness restrict payments, or if other various business
considerations limit payments. Further, we currently do not own, a majority
interest in certain subsidiaries, and may not have operating control of other
entities in which we currently have or may in the future acquire direct or
indirect interests. In such cases, we may be unable, without the consent of the
relevant partners, to cause such entities to pay dividends or implement business
strategies that we may favor.
Our ability to pay dividends will be further restricted by regulatory and
contractual obligations, including the indenture governing the notes issued by
Poland Communications, Inc., our major operating subsidiary, New York Business
Corporation Law, Polish law, English company law, and Dutch corporate law.
WE MAY NEED TO OBTAIN ADDITIONAL FINANCING IF OUR PLANS OR ASSUMPTIONS CHANGE
AND THE TERMS OF THE ADDITIONAL FINANCING MAY RESTRICT OUR OPERATIONS OR REDUCE
OUR CASH FLOW
Sources of financing or refinancing may not be available to us in the
future. We may need to obtain additional financing if one or more of the
following situations occur:
- Our plans change or the assumptions in our business development plan prove
innaccurate;
- We do not acquire sufficient subscribers to our D-DTH business;
- We enter into additional programming agreements;
- We make unanticipated investments in or acquisitions of other companies;
- We experience unexpected costs or competitive pressures;
- We continue to provide D-DTH reception systems to subscribers (other than
the 380,000 initial subscribers) at promotional prices; or
- Our actual cash flow is less than we expect.
Our ability to obtain sources of financing or refinancing may be limited
because certain of our lenders have taken security interests in some of our
assets. We have a $6.5 million credit facility with AmberBank, which was fully
drawn as of June 1998, which is secured. In addition, our subsidiary PCI has
pledged notes issued to PCI by a major subsidiary to the holders of notes issued
by PCI. The amount pledged, together with cash of PCI, must equal 110% of the
outstanding principal amount of the notes issued by PCI and the payments on
those notes. Approximately $153.5 million of the notes of the PCI subsidiary
were pledged by PCI as of September 30, 1998.
Even if sources of financing or refinancing are available, we may only be
able to obtain such financing on less than favorable terms. In this case, we
might be forced to operate under terms that would restrict our operations and
reduce our cash flow. If for any reason additional financing is not available to
us when required, or is only available on less than favorable terms, we may not
be able to meet our minimum guaranteed contractual commitments. Our failure to
meet these commitments may require us to:
- reduce the scope of our presently anticipated expansion of operations;
- reduce capital expenditures (including expenditures related to
acquisitions);
- slow the development of our D-DTH business; and/or
- refinance all or a portion of our indebtedness (including the existing
notes and the new notes).
16
<PAGE>
For a discussion of our liquidity and capital resources, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
OUR LIMITED EXPERIENCE WITH THE D-DTH BUSINESS AND UNCERTAINTIES ASSOCIATED WITH
THE D-DTH MARKET MAY LIMIT THE GROWTH OF OUR D-DTH BUSINESS OR CAUSE US TO LOSE
SUBSCRIBERS
We may face competition from D-DTH providers, which have more experience
than we do in the D-DTH business, and this competition could hinder our ability
to develop our D-DTH business.
The roll out of our D-DTH business may not proceed as planned and our
service may not attract enough subscribers to be profitable and to generate
positive cash flow for us in future years. We also cannot assure you that the
market for D-DTH services in Poland will develop.
In addition, the Polish D-DTH market is subject to a developing regulatory
framework that may change as the market develops. Our broadcast of programming
from outside of Poland could become subject to the application of Polish laws
regulating television broadcasting if certain European Union or trans-European
broadcasting regulations are amended, which could prevent us from broadcasting.
Application of these laws may negatively impact our business.
Our D-DTH business is also subject to the following factors that are beyond
our control and difficult to predict:
- the size of the D-DTH service market in Poland;
- the rates of penetration of such market;
- the acceptance of our D-DTH service by subscribers and commercial
advertisers;
- the sensitivity of our potential subscribers to the price of installation
and subscription fees;
- the technical challenges of providing long-term D-DTH services;
- the extent and nature of the development of multi-channel alternatives,
including the continued expansion of cable television and competition from
other D-DTH services in Poland; and
- the immediate and long-term commercial viability of providing D-DTH
services in Poland.
We may not be able to establish a substantial subscriber base. In addition,
the investment required from subscribers (beyond our target of 380,000 initial
subscribers) may increase unless we decide to continue to provide D-DTH
reception systems at promotional prices. Accordingly, we may not be able to
attract or retain additional subscribers if we cease to provide promotional
incentives to subscribers. For a description of the D-DTH and analog
direct-to-home markets in Poland, see the "Industry" section.
IF PHILIPS FAILS TO SUPPLY THE CRITICAL COMPONENTS AND SERVICES USED IN OUR
D-DTH BUSINESS, THE DEVELOPMENT AND OPERATION OF OUR D-DTH BUSINESS COULD BE
DELAYED AND DAMAGED
If Philips fails to deliver D-DTH reception systems on schedule, or at all,
the development and operation of our D-DTH service could be interrupted or
delayed. In addition, failure by Philips' retail network to provide the desired
levels of service, quality and expertise (which are outside our control) could
have a material adverse impact on our operations and financial condition. Our
agreement with Philips provides a means by which we can obtain a second or third
supplier, in addition to Philips, of our D-DTH reception systems, but we may not
be able to secure these additional suppliers. For a detailed description of the
critical components and services Philips has agreed to supply to us, see
"Business--D-DTH-- Technology and Infrastructure."
OUR D-DTH BUSINESS DEPENDS ON OUR ABILITY TO BROADCAST USING TRANSPONDERS ON
SATELLITES, WHICH ARE SUBJECT TO SIGNIFICANT RISKS AND WHICH WE HAVE NOT INSURED
Our D-DTH business depends on our ability to broadcast using satellites.
Satellites are subject to significant risks that may prevent or impair proper
commercial operations, including satellite defects, destruction and damage.
17
<PAGE>
We are not a "protected customer" under our satellite transponder leases.
This means that if one or more of our transponders fails to operate, we would
not be able to pre-empt any other transponder customer. Due to the high cost of
insurance policies relating to satellite operations, we do not insure against
possible interruption of access to its transponders. The operation of the Astra
satellites is outside of our control and a disruption of transmissions on those
satellites could pose significant operational problems depending upon the
duration of the disruption. For a more detailed discussion of our agreements
relating to the technology of satellites, see the section entitled
"Business--D-DTH--Technology and Infrastructure."
The leases for our Astra satellite transponders will expire in 2007. Our
ability to transmit our programming following the termination of our leases of
the transponders (and following the expiration of the expected useful lives of
the Astra satellites in approximately 2015) will depend upon our ability to
extend our existing leases and/or to obtain rights to utilize additional
transponders on future Astra or other
satellites.
THE ENCRYPTION TECHNOLOGY USED WITH OUR D-DTH SYSTEM MAY NOT PREVENT SIGNAL
THEFT OR PIRACY
The encryption technology, Philips' CryptoWorks-Registered Trademark-, used
with our D-DTH system to prevent signal theft or "piracy" may not remain
effective. If the encryption technology is compromised in a manner which is not
promptly corrected, we may not be able to enter into contracts or maintain
contracts for programming services from unrelated third parties and our revenues
could decrease. For a more detailed description of the encryption technology we
use in our D-DTH system, see "Business--D-DTH-- Technology and Infrastructure."
TERMINATION OF OUR CONDUIT AGREEMENTS WITH TPSA COULD RESULT IN THE LOSS OF OUR
PERMITS, THE TERMINATION OF AGREEMENTS WITH COOPERATIVE AUTHORITIES AND
PROGRAMMERS, AND AN INABILITY TO SERVICE OUR CUSTOMERS
Our ability to build out our existing cable television networks and to
integrate acquired systems into our cable television networks will depend on
many factors that are beyond our control including our ability to design and
obtain access to network routes and to secure other construction resources at a
reasonable cost and on satisfactory terms.
In addition, as of September 30, 1998, approximately 56% of our cable plant
was constructed utilizing pre-existing conduits of the Polish national telephone
company (known in the Polish telecommunications industry by the acronym "TPSA").
For a list of the reasons for which TPSA can terminate a conduit agreement,
and the proportion of subscribers served by conduits subject to immediate
termination, see "Risk Factors--Termination of Our Agreements with TPSA Could
Result in the Loss of our Permits, the Termination of Agreements with
Cooperative Authorities and Programmers, and an Inability to Service Our
Customers."
Any termination by TPSA of such contracts could result in the loss of our
permits, the termination of agreements with cooperative authorities and
programmers, and an inability to service customers in the affected areas. If
TPSA terminated our access to these conduits, we may not be able to replace or
locate a substitute for such conduits. In addition, we would be forced to incur
significant costs if we were forced to build our own conduits.
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<PAGE>
IF WE ARE UNABLE TO OBTAIN HIGH-QUALITY PROGRAMMING OR SUCCESSFULLY DEVELOP OUR
OWN PROGRAMMING, OUR GROWTH MAY BE LIMITED OR WE MAY LOSE SUBSCRIBERS
We may lose subscribers or experience only limited growth in the number of
our subscribers if:
- Our competitors are able to produce or obtain Polish-language programming
at commercially reasonable costs and we are not able to do so;
- Our programming is less popular than our competitors' programming; or
- Our programming is non-exclusive to us.
If our existing programming agreements are canceled, are not renewed, or
otherwise become unenforceable, we will have to seek programming material from
other sources. We may not be able to create or obtain programs acceptable to our
subscribers on commercially favorable terms.
We have purchased exclusive Polish pay television rights from third parties
for programming on 9 of the 19 channels on Wizja TV. In some of the agreements,
there are restrictions that will limit our flexibility in the future to package
some of the channels together or in different combinations.
In addition, we are negotiating additional agreements with channel suppliers
and sports rights organizations that, if consummated, may require us to pay
additional guaranteed minimum payments throughout the term of such agreements
and/or payments at the time of execution. The amounts of our programming and
sport rights commitments are set forth in "Managements' Discussion and Analysis
of Financial Condition and Results of Operation."
The development and production of television programs involve a high degree
of risk associated with the creative content of programs and their acceptance by
the viewing audience, as well as the general economic climate, public tastes and
other intangible factors. Some or all of our programming projects may not be
successful or the programming to which we will have access may lose its audience
appeal more quickly than anticipated. This loss may result in a portion of costs
not being recovered or expected profits not being realized. In addition, we may
not succeed in introducing into the Polish market our additional planned
channels based on specific thematic content.
Certain programming for the Polish market is subject to regulation by the
Polish authorities. For a discussion of the risks related to the regulation of
programming, see the section in "Risk Factors" entitled "Excessive Government
Regulation of the Cable Television and Direct-to-Home Industries Could Restrict
the Way We Operate Our Business" and the section in "Business" entitled "Legal
Proceedings."
OUR GROWTH MAY SUFFER FROM COMPETITION IN THE MULTI-CHANNEL PAY TELEVISION
INDUSTRY
We may be unable to increase our number of subscribers or may lose
subscribers as a result of competition for subscribers from other signal
delivery methods, from competitors with greater financial and operational
resources and from competitors with more experience in the D-DTH market. Also ,
we may not be able to compete with other alternative delivery systems if we are
not able to provide a greater variety of Polish-language programming at more
reasonable prices than those systems offer. In addition, the Polish market for
D-DTH services may not be sufficiently large to support competing D-DTH
businesses.
Our cable operations face competitive threats from Poland's many small cable
operators, which incur lower capital expenditures and operating costs and
therefore have the ability to charge lower fees to subscribers.
Our programming operations compete with other television companies for the
acquisition of sports rights and other programming (particularly for the
exclusive rights to such programming), and also for the hiring of personnel with
creative and production talent.
A more detailed discussion of the competition we face in our cable
television, D-DTH and programming businesses is set forth in the section called
"Business--Competition."
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<PAGE>
WE MAY INCUR SIGNIFICANT COSTS AND LOSE SUBSCRIBERS DUE TO CHANGES IN TECHNOLOGY
The changes in the digital compression technology used in our D-DTH business
may require us to expend substantial financial resources on the development or
implementation of new competitive technologies. In addition, we may from time to
time explore alternative technologies for delivering our programming and
alternative methods for allowing subscribers to receive signals from multiple
satellites.
If another satellite platform, encryption technology or decoder besides the
ones we use becomes the preferred standard in Poland, or if Poland enacts
regulations regarding such technology or decoders, we may not be able to attract
and retain subscribers. We may be required to switch our suppliers and replace
our reception systems and our encryption technology system. This switch would
cause confusion for existing and potential subscribers, delays in providing
subscribers with reception systems and access systems and significant unexpected
costs.
OUR GROWTH MAY SUFFER IF WE CANNOT MAKE STRATEGIC ACQUISITIONS
We may not be able to identify and acquire cable television networks that
either are located in reasonable proximity to our existing networks or are large
enough to serve as the basis for new regional clusters networks. In addition, if
we are able to identify and enter into acquisition agreements with such cable
networks we may not be able to obtain the required approvals from the Polish
Anti-Monopoly Office for these acquisitions. We also may face competition for
the acquisition of cable networks from existing cable television operators and
also from financial investors.
OUR FAILURE TO SUCCESSFULLY MANAGE GROWTH AND TO INTEGRATE ACQUIRED BUSINESSES
MAY POSE OPERATING AND FINANCIAL PROBLEMS
If we fail to successfully manage our expected rapid growth and development
and difficulties in managing the expansion into the D-DTH business and in
integrating that business with our cable and programming operations, our
business, results of operation and financial condition could suffer.
Our recent acquisitions have involved and other possible future acquisitions
will involve risks, including successful integration with our existing systems
and operations and, possibly, lower relative operating margins associated with
such acquisitions before the economic benefits of integration (if successful)
are fully realized. We may also experience increased capital expenditure costs
as the acquired systems are rebuilt (if necessary) to upgrade the networks to
our standards. If we underestimate the costs of integrating and upgrading
acquired networks, these activities could harm our financial condition and
operating results. The integration of acquired systems may also lead to
diversion of management's attention from other ongoing business concerns. Our
short-term operating results have suffered from the costs of integrating some
acquisitions.
In addition, if we were to enter into capital-intensive businesses in which
we have limited experience (such as interactive television, pay per view,
near-video-on-demand, video-in-demand data transfer, services related to
electronic banking, telephone services, internet access, sports clubs ownership,
publishing and other media), there is a risk that we would not be successful or
that the capital utilized in such businesses would decrease the amount of
capital available for use in our cable, D-DTH and programming businesses.
WE HAVE NO INSURANCE ON UNDERGROUND PORTIONS OF OUR CABLE TELEVISION NETWORKS
Any catastrophe affecting a significant portion of our cable television
networks could result in substantial uninsured losses and could disrupt our
business operations. While we carry general liability insurance on our
properties, we do not insure the underground portion of our cable television
networks.
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EXTENSIVE GOVERNMENT REGULATION OF THE CABLE TELEVISION AND DIRECT-TO-HOME
INDUSTRIES COULD RESTRICT THE WAY WE OPERATE OUR BUSINESS
We are subject to extensive regulatory controls and may have to comply with
amended or additional regulations in the future in each of the jurisdictions in
which we operate our business. Currently we are required to comply with
applicable regulations in Poland, the United Kingdom and the European Union,
which regulations address, but are not limited to, the following activities and
subjects:
- securing of and compliance with required permits and licenses related to
the operation of cable networks and digital direct-to-home systems;
- the construction and operation of cable networks in Poland;
- copyright and other intellectual property laws pertaining to programming
which is broadcast over our cable networks and our digital direct-to-home
system;
- restrictions on anti-competitive behavior regarding pricing, contracting
practices and acquisitions;
- restrictions on ownership and operation of cable networks in Poland by
foreign entities;
- protection against unfair competition and anti-monopoly practices; and
- content requirements and restrictions for programming which is broadcast
over our Polish cable networks and our digital direct-to-home system.
We have taken steps to structure the ownership and operation of our cable
networks, our D-DTH system and our programming businesses and other ventures so
as to attempt to comply with all applicable regulations in each of the
jurisdictions in which we operate our business. However, a member of our
acquired cable networks are not yet in full compliance with certain Polish
regulations. In addition, due to the fact that our D-DTH service was the first
such service available in Poland, there are likely to be issues of first
impression arising under Polish law with respect to various aspects of the our
digital direct-to-home business and related programming arrangements.
Furthermore, there can be no assurances that each of the relevant governmental
authorities will conclude that our operations and ownership structure comply
with all applicable regulations. Any determination to the contrary by one or
more of the relevant governmental authorities which regulate our business and
operations could have a material adverse effect on the way we conduct our
business or our ability to carry it on at all, and any fines or penalties which
may be imposed could have a material adverse effect on our business, financial
condition and results of operations.
Changes in laws or regulations (or in the interpretation of existing laws or
regulations), whether caused by changes in the Polish government or otherwise,
could harm our operations. For example, foreign exchange control restrictions,
taxes or limitations could be imposed or increased in the future with regard to
repatriation of earnings and investments from Poland. If these types of exchange
control restrictions, taxes or limitations are imposed, we may not be able to
receive dividends, interest payments, debt repayments or other payments from our
Polish subsidiaries.
We may from time to time have violated, may be violating and may in the
future violate, the requirements of certain Polish laws, including provisions of
labor, foreign exchange, customs, tax, antitrust and corporate laws and
requirements to obtain regulatory approvals, due to the many formalities
required for compliance with the laws in Poland's regulated economy, the rapid
changes that Polish laws and regulations have undergone, and numerous
uncertainties regarding the interpretation of such laws and regulations. These
types of violations could also restrict our operations.
YOU MAY NOT BE ABLE TO ENFORCE U.S. COURT JUDGMENTS AGAINST OUR ASSETS, MOST OF
WHICH ARE HELD OUTSIDE THE U.S.
You may not be able to enforce judgments of U.S. courts against our assets.
Investors in the new notes will be able to effect service of process in the U.S.
upon us and may be able to effect service of process
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upon our directors. However, due to the fact that we are primarily a holding
company which holds stock in various entities in Poland, the United Kingdom and
the Netherlands, all or a substantial portion of our assets are located outside
the U.S. As a result, investors may not be able to enforce asset judgments of
U.S. courts if those judgments are based on the civil liability provisions of
U.S. laws.
Awards of punitive damages in actions brought in the U.S. or elsewhere may
be unenforceable in Poland. Polish courts may not give judgment in your favor in
cases based solely on U.S. laws.
English courts may not give judgment to you in original actions or in
actions for the enforcement of judgments of U.S. courts, of certain civil
liabilities based upon the U.S. federal and state securities laws.
A Netherlands court will not recognize and enforce a judgment obtained in
actions brought in the U.S. and it will be necessary to bring the matter before
the competent Netherlands court. You may, in the course of these proceedings,
submit the judgment rendered by the U.S court. If the Netherlands court is of
the opinion that fairness and good faith so require, it will give binding effect
to such foreign judgment, unless such foreign judgment contravenes Dutch
principles of public policy.
WE ARE DEPENDENT ON OUR EXECUTIVE OFFICERS
If any of our key employees leaves our company, our business could suffer.
We are particularly dependent upon the skills and contributions of the following
individuals:
- Robert E. Fowler, III, Chief Executive Officer of @Entertainment;
- Donald Miller-Jones, Chief Financial Officer, Vice President and Treasurer
of @Entertainment;
- Przemyslaw Szmyt, Vice President, General Counsel and Secretary of
@Entertainment;
- David Warner, Chief Executive Officer of @EL;
- David Keefe, Chief Executive Officer of Poland Communications, Inc.; and
- Dorothy Hansberry, Vice President and General Counsel of PCI.
This is because these individuals have significant experience in our
business and would be difficult to replace. In addition, our success will depend
in part on our ability to hire, train, and retain high-quality personnel.
OUR PRINCIPAL STOCKHOLDERS CAN CONTROL OR INFLUENCE CERTAIN MAJOR CORPORATE
ACTIONS
There is a concentration of ownership of our common stock among Polish
Investments Holding L.P., the Cheryl A. Chase Marital Trust and Advent
International Group. These three entities own approximately 47% of our
outstanding common stock. In addition, Morgan Grenfell Private Equity Limited as
the holder of the Series A 12% Cumulative Preference Shares has the right to
appoint members of the Board of Directors (both immediately and in the future)
and certain special voting rights. Such concentration of ownership of our common
stock, director appointment rights and special voting rights may delay or
prevent transactions involving an actual or potential change in control of
@Entertainment.
THE EXCHANGE RATE OF THE U.S. DOLLAR TO THE ZLOTY MAY AFFECT OUR FINANCIAL
CONDITION AND WE REMAIN EXPOSED TO CURRENCY RISK BECAUSE OUR REVENUES ARE IN
ZLOTY
Our business operations and financial condition may suffer if inflation and
currency exchange rates continue to fluctuate. Historical inflation rates are
provided in the "Industry" section, and historical exchange rates are provided
in the section called "Address; Exchange Rate and Statistical Data".
We may continue to encounter currency exchange rate risks in relation to our
debt obligations. Some of our operating expenses and capital expenditures are
expected to continue to be denominated in or indexed to U.S. dollars. By
contrast, substantially all of our revenue is denominated in zloty. Any
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devaluation of the zloty against the U.S. dollar that we are unable to offset
through price adjustments will require us to use a larger portion of our revenue
to service our U.S. dollar denominated obligations. While we may consider
entering into transactions to hedge the risk of exchange rate fluctuations, it
is unlikely that we will be able to obtain hedging arrangements on commercially
satisfactory terms. Therefore, shifts in currency exchange rates may have an
adverse effect on our financial results and on our ability to meet our U.S.
dollar denominated debt obligations and contractual commitments.
ORIGINAL ISSUE DISCOUNT AND APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
CONSEQUENCES
The notes have been issued at a discount to their principal amount at
maturity because periodic payments of interest are not expected to be paid prior
to August 1, 2004. However, the discount (I.E., the difference between the
"stated redemption price at maturity" and the "issue price" of the notes, as
defined by the Internal Revenue Code (the "Code")) ("OID") will accrue from the
issue date of such notes to the maturity date.
- holders of notes generally will be required to accrue OID into gross
income for United States federal income tax purposes in advance of the
receipt of the cash payments to which the income is attributable.
See "United States Tax Considerations" for a more detailed discussion of the
federal income tax consequences of the purchase, ownership and disposition of
the notes.
In the event a bankruptcy case is commenced by or against @Entertainment
under the United States Bankruptcy Code (the "Bankruptcy Code") after the
issuance of the notes, the claim of a holder of notes may be limited to an
amount equal to the sum of:
- the initial offering price, and
- that portion of the OID which is deemed to constitute "matured interest"
for the purposes of the Bankruptcy Code.
To the extent that the Bankruptcy Code differs from the Code in determining
the method of accrual of OID, a holder of notes may realize taxable gain or loss
on payment of such holder's claim in bankruptcy.
For United States federal income tax purposes, because the yield to maturity
on the notes exceeds 10.14% the notes will be classified as "applicable high
yield discount obligations" within the meaning of section 163(i) of the Code. As
a result,
- @Entertainment will never be entitled to deduct as interest expense for
United States federal income tax purposes the accrued OID to the extent of
the "disqualified portion."
- The "disqualified portion" is the portion of the accrued OID
attributable to the yield on the notes in excess 11.14% per annum.
- @Entertainment will not be entitled to deduct as interest expense for
United States federal income tax purposes the remaining portion of the
accrued OID until such time as the accrued OID is paid to the holders of
such notes.
Therefore, @Entertainment's deduction for United States federal income tax
purposes of interest economically accrued under the notes will be deferred or
denied relative to other types of high yield debt instruments that pay stated
interest currently or that do not defer the payment of accrued OID for more than
five years.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
On January 27, 1999 we sold the existing notes to Merrill Lynch & Company
and Deutsche Bank Securities. In connection with the sale of the existing notes,
we entered into a registration rights agreement with Merrill Lynch and Deutsche
Bank. This agreement requires us to file a registration statement under the
Securities Act of 1933 offering to exchange the new notes for the existing notes
sold on January 22, 1999. Accordingly, we are offering you the opportunity to
exchange your existing notes for the same principal amount of new notes. The new
notes will be registered and issued without a restrictive legend. This means
that, unlike your existing notes, which contain restrictions on their transfer,
the new notes may be reoffered and resold by you to any potential buyer freely
without further registration under the Securities Act of 1933. This is
beneficial to you since, in order to sell your existing notes you must find an
available exemption from the registration requirements of the Securities Act of
1933.
The registration rights agreement further provides that we must use our best
efforts to cause the registration statement to be declared effective on or
before June 6, 1999, or we will owe liquidated damages, a higher rate of
interest, to the existing note holders. Except as discussed below, upon the
completion of the exchange offer we will have no further obligations to register
your existing notes.
We want to advise you that a copy of the registration rights agreement has
been filed as an exhibit to the registration statement and you are strongly
encouraged to read the entire text of the agreement. We expressly qualify all of
our discussions of the registration rights agreement by the terms of the
agreement itself.
REPRESENTATIONS WE NEED FROM YOU BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER:
We need representations from you before you can participate in the exchange
offer.
These representations are:
- the new notes you acquire in an exchange offer are being obtained in the
ordinary course of your business;
- neither you nor any person you are acting for is engaging in or intends to
engage in a distribution of the new notes;
- neither you nor any person you are acting for has an arrangement or
understanding with any person to participate in the distribution of the
new notes;
- neither you nor any such other person is our "affiliate," as defined under
Rule 405 of the Securities Act of 1933; and
- if you or such other person is a broker-dealer, and you receive new notes
for your own account in exchange for existing notes which were acquired as
a result of market-making activities or other trading activities, you will
be required to acknowledge that you will deliver a prospectus in
connection with any resale of such new notes.
In accordance with the registration rights agreements, we are also required
to file a "shelf" registration statement for a continuous offering in accordance
with Rule 415 of the Securities Act of 1933 to register your notes if:
- we are not permitted to effect an exchange offer because of any change in
law or applicable interpretations of the staff of the Commission;
- an exchange offer is not completed by July 6, 1999;
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- you request, for any of the reasons included in the registration rights
agreement, for us to do so following the exchange offer;
- any applicable law or interpretations do not permit you to participate in
an exchange offer;
- you do not receive freely transferrable notes in exchange for your
existing notes; or
- we so elect.
In the event that we are obligated to file a "shelf" registration statement,
we will be required to keep such shelf registration statement effective for up
to 2 years. Other than as described above, no holder will have the right to
participate in the shelf registration or require that we register your notes in
accordance with the Securities Act of 1933.
If you participate in an exchange offer, you will be able to freely sell or
transfer your new notes if:
- the new notes issued in the exchange offer are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the new notes issued to you in the exchange offer; and
- you are not an affiliate of @Entertainment.
We believe that the new notes issued to you in this exchange offer may be
offered for resale, sold and otherwise transferred by you, without compliance
with the registration and prospectus delivery provisions of the Securities Act
of 1933, only if you make the representations that we discuss above.
Our belief is based upon existing interpretations by the Commission's staff
contained in several "no-action" letters to third-parties unrelated to us. If
you tender your existing notes in an exchange offer for the purpose of
participating in a distribution of new notes you cannot rely on this
interpretation by the Commission's staff and you must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with a secondary resale transaction. Each broker-dealer that
receives new notes for its own account in exchange for its notes, whether the
notes were acquired by that broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes.
You may suffer adverse consequences if you fail to exchange your existing
notes.
Following the completion of the exchange offer, except as set forth above
and in the registration rights agreement we refer to, you will not have any
further registration rights and your existing notes will continue to be subject
to certain restrictions on transfer. Accordingly, if you do not participate in
the exchange offer, your ability to sell your existing notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
We will accept any validly tendered existing notes which are not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 principal amount of new notes in exchange for each $1,000 principal
amount of your existing notes tendered. Holders may tender some or all of their
existing notes in an exchange offer.
The form and terms of the new notes will be substantially the same as the
form and terms of your notes except that (1) interest on the new notes will
accrue from the last interest payment date on which interest was paid on your
existing notes, or, if no interest was paid, from the date of the original
issuance of your existing notes, and (2) the new notes have been registered
under the Securities Act of 1933 and will not bear a legend restricting their
transfer. The new notes will be issued under, and entitled to the benefits of,
the same indenture governing your existing notes.
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This prospectus, together with the letter of transmittal you received with
this prospectus, is being sent to you and to others believed to have beneficial
interests in the existing notes. You do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
indenture governing your existing notes as a result of the exchange offer. We
intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the Commission.
We will have accepted your validly tendered existing notes when we have
given oral or written notice to the exchange agent. The exchange agent will act
as agent for the tendering holders for the purpose of receiving the new notes
from us. If any tendered existing notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events, or otherwise,
certificates sent to the exchange agent will be returned, without expense, to
the tendering holder thereof as promptly as practicable after the expiration
date.
You will not be required to pay brokerage commissions, fees, or transfer
taxes in the exchange of your existing notes. We will pay all charges and
expenses other than any applicable taxes you may incur in connection with the
exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on,
, 1999 unless we extend the exchange offer, in which case the
exchange offer shall terminate at 5:00 p.m., New York City time on the last day
of the extension. In any event, the exchange offer will be held open for at
least 30 days. In order to extend the exchange offer, we will issue a notice by
press release or other public announcement prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting your existing notes;
- to extend the exchange offer;
- to terminate the exchange offer, if any of the conditions shall not have
been satisfied; or
- to amend the terms of an exchange offer in any manner.
If we delay, extend or terminate the exchange offer, we will give notice to the
exchange agent and issue a press release or other public announcement.
PROCEDURES FOR TENDERING YOUR EXISTING NOTES
Only you may tender your existing notes in the exchange offer. Except as
stated below under "The Exchange Offer--Book Entry Transfer," to tender in the
exchange offer, prior to the expiration date, you must:
1. complete, sign and date the enclosed letter of transmittal, or a copy of it;
2. have the signature on the letter of transmittal guaranteed if required by
the letter of transmittal; and
3. mail or otherwise deliver the letter of transmittal or copy to the exchange
agent.
In addition, either:
1. certificates for your existing notes must be received by the exchange agent
along with the letter of transmittal; or
2. a timely confirmation of a book-entry transfer of your existing notes, if
that procedure is available, into the account of the exchange agent at the
Depository Trust Company (the "DTC") (the
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"Book-Entry Transfer Facility") under the procedure for book-entry transfer
described below, must be received by such exchange agent prior to the
expiration date; or
3. you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, a letter of transmittal and other required
documents must be received by the exchange agent at its address set forth under
"The Exchange Offer--Exchange Agent" prior to the expiration date.
If do not withdraw your tender before the expiration date, it will
constitute an agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.
The method of delivery of your existing notes, a letter of transmittal, and
all other required documents to the exchange agent is at your election and risk.
Instead of delivery by mail, it is recommended that you use an overnight or
hand delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. No letter of
transmittal or existing notes should be sent to us. You may request your
brokers, dealers, commercial banks, trust companies, or nominees to effect these
transactions on your behalf.
PROCEDURE IF THE EXISTING NOTES ARE NOT REGISTERED IN YOUR NAME
If your existing notes are registered in the name of a broker, dealer,
commercial bank, trust company, or other nominee and you wish to tender, then
you should contact the registered holder promptly and instruct the registered
holder to tender on your behalf. If you wish to tender on behalf of a registered
owner, you must, prior to completing and executing a letter of transmittal and
delivering the registered owner's existing notes, either make appropriate
arrangements to register ownership of the existing notes in your name or obtain
a properly completed bond power or other proper endorsement from the registered
holder. We strongly urge you to act immediately since the transfer of registered
ownership may take considerable time.
SIGNATURE REQUIREMENTS AND SIGNATURE GUARANTEES
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by any eligible guarantor institution that is a member of a
registered national securities exchange or a member of the National Association
of Securities, Inc. or by a commercial bank or trustee having an office or
correspondent in the U.S., or an "Eligible Guarantor Institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 (each, an
"Eligible Institution") unless the existing notes are tendered (1) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the letter of transmittal or
(2) for the account of an Eligible Institution. If signatures on a letter of
transmittal or a notice of withdrawal are required to be guaranteed, the
guarantee must be by an Eligible Institution.
If a letter of transmittal or any notes or bond powers are signed by
trustee, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with such letter of transmittal
unless waived by us.
CONDITIONS TO THE EXCHANGE OFFER
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered notes will be determined by us
in our sole discretion, and our determination will be final and binding. We
reserve the absolute right to reject any and all existing notes not properly
tendered or any existing notes the acceptance of which would be unlawful in the
opinion of our counsel. We also reserve the right to waive any defects,
irregularities, or conditions of tender as to particular existing notes. Our
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interpretation of the terms and conditions of an exchange offer (including the
instructions in a letter of transmittal) will be final and binding on all
parties. Any defects or irregularities in connection with tenders of existing
notes must be cured within such time as we shall determine, unless waived by us.
Although we intend to notify holders of defects or irregularities with respect
to tenders of existing notes, we (or the exchange agent, or any other person)
shall not incur any liability for failure to give such notification. Tenders of
existing notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any existing notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent as soon as practicable following the expiration date to you, unless you
request in the letter of transmittal that the notes be sent to someone else.
In addition, we reserve the right in our sole discretion to purchase or make
offers for any existing notes that remain outstanding after the expiration date
or to terminate the exchange offer and, to the extent permitted by applicable
law, purchase existing notes in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of an exchange offer.
These conditions are for our sole benefit and may be asserted by us at any
time or for any reason or may be waived by us in whole or in part at any time in
our sole discretion. The failure by us to exercise any of our rights shall not
be a waiver of our rights.
In addition, we will not accept for exchange any existing notes tendered,
and no new notes will be issued in exchange for any existing notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement or the qualification of the indenture relating to the new
notes under the Trust Indenture Act of 1939. We are required to use reasonable
efforts to obtain the withdrawal of any stop order at the earliest possible
time.
In all cases, issuance of new notes for tendered existing notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for existing notes or a timely
confirmation from the Depository Trust Company ("DTC") of such existing notes
into the exchange agent's account at DTC, a properly completed and duly executed
letter of transmittal (or, with respect to the DTC and its participants,
electronic instructions in which the tendering holder acknowledges its receipt
of and agreement to be bound by the letter of transmittal for such exchange
offer) and all other required documents.
If we do not accept your tendered existing notes or if you submitted
existing notes for a greater aggregate principal amount than you desire to
exchange, then the unaccepted or unexchanged existing notes will be returned
without expense to you (or, in the case of notes tendered by book-entry transfer
into the exchange agent's account at the DTC pursuant to the book-entry transfer
procedures described below, such non-exchanged notes will be credited to an
account maintained with such DTC) as promptly as practicable after the
expiration or termination of the exchange offer for the existing notes.
BOOK-ENTRY TRANSFER
The exchange agent will make requests to establish accounts with respect to
the new notes at DTC for purposes of the exchange offer within two business days
after the date of this prospectus. Any financial institution that is a
participant in DTC's system may make book-entry delivery of existing notes being
tendered by causing the DTC to transfer the existing notes into the exchange
agent's account at the DTC in accordance with the appropriate procedures for
transfer. However, although delivery of notes may be effected through book-entry
transfer at the DTC, a letter of transmittal or copy thereof, with any required
signature guarantees and any other required documents, must, except as set forth
in the following paragraph, be transmitted to and received by the exchange agent
at its address set forth under "The Exchange Offer--Exchange Agent" on or prior
to the expiration date or the guaranteed delivery below must be complied with.
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DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system instead of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender existing notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the exchange agent must
contain the participant's acknowledgment of its receipt of and agreement to be
bound by the letter of transmittal for such notes.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your existing notes and the existing notes are not
immediately available, or time will not permit your existing notes or other
required documents to reach the exchange agent before the expiration date, or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the exchange agent received from such
Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery). The Notice of Guaranteed Delivery
shall state your name and address and the amount of the existing notes
tendered, that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for
all physically tendered existing notes, in proper form for transfer, or a
confirmation from DTC and any other documents required by the applicable
letter of transmittal will be deposited by the Eligible Institution with
the exchange agent; and
- the certificates for all physically tendered existing notes, in proper
form for transfer, or a confirmation from DTC and all other documents
required by the applicable letter of transmittal are received by the
exchange agent within three NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
You may withdraw your tender of existing notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal of a tendered notes to be effective, a written or, for a
DTC participant, electronic ATOP transmission, notice of withdrawal must be
received by the exchange agent at its address set forth in this prospectus prior
to 5:00 p.m., New York City time, on the expiration date.
Any such notice of withdrawal must:
- specify your name;
- identify the existing notes to be withdrawn (including the certificate
number or numbers and principal amount of such existing notes);
- be signed by you in the same manner as the original signature on the
letter of transmittal by which existing notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee of the existing notes register the transfer
of such notes into the name of the person withdrawing the tender; and
- specify the name in which you want the withdrawn existing notes to be
registered in, if different from your name.
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All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us and our determination shall be
final and binding on all parties. Any existing notes withdrawn will be
considered not to have been validly tendered for exchange for purposes of the
exchange offer. Any notes which have been tendered for exchange but which are
not exchanged for any reason will be returned to you without cost to such holder
as soon as practicable after withdrawal, rejection of tender, or termination of
the exchange offer relating to such existing notes. Properly withdrawn existing
notes may be retendered by following one of the procedures described in "The
Exchange Offer--Procedures for Tendering" at any time on or prior to the
expiration date.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the exchange
agent. We have appointed Bankers Trust Company as the exchange agent for the
exchange offer. Questions, requests for assistance and requests for additional
copies of the prospectus or a letter of transmittal should be directed to the
exchange agent addressed as follows:
BANKERS TRUST COMPANY
FOUR ALBANY STREET
7TH FLOOR
NEW YORK, NEW YORK 10006
ATT: CORPORATE TRUST TRUSTEE ADMINISTRATION
PHONE: (212) 250-6573
FAX: (212) 250-0933
FEES AND EXPENSES
We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail. However, additional solicitations may be made in person or by telephone by
our officers and employees.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $ (plus
any out-of-pocket expenses, including without limitation legal fees and expenses
incurred by the exchange agent).
TRANSFER TAXES
If you tender existing notes for exchange you will not be obligated to pay
any transfer taxes unless you instruct us to register new notes in a different
name. If you request that your existing notes not tendered or not accepted in
the exchange offer be returned to a different person, you will be responsible
for the payment of any applicable transfer tax.
REGULATORY MATTERS
We are not aware of any governmental or regulatory approvals required in
order to complete the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Your participation in the exchange offer is voluntary. You are urged to
consult your financial and tax advisors in making your own decisions on what
actions to take and should read the "United States Income Tax Considerations"
section.
If you do not exchange your existing notes in the exchange offer, your notes
may be resold only
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- to a person whom you reasonably believe is a qualified institutional buyer
(as defined in Rule 144A under the Securities Act of 1933) in a
transaction meeting the requirements of Rule 144A;
- in a transaction meeting the requirements of Rule 144 under the Securities
Act;
- in accordance with another exemption from the registration requirements of
the Securities Act (and based upon an opinion of your counsel if we so
request);
- to us; or
- under an effective registration statement.
In each case, you must comply with any applicable securities laws of any
state of the U.S. or any other applicable jurisdiction. Under certain
circumstances, we are required to file a shelf registration statement.
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
We will be required to pay a penalty interest on the existing notes in the
event that:
- the exchange offer registration statement is not filed with the Commission
on or before April 7, 1999;
- the exchange offer registration statement is not declared effective on or
before June 6, 1999;
- the exchange offer is not completed on or before July 6, 1999, as the case
may be, a shelf registration statement is not declared effective on or
before July 6, 1999; or
- the exchange offer registration statement or the shelf registration
statement is declared effective but then ceases to be effective or usable
(except in certain limited periods).
Each of these events is a "Registration Default". In the case of a
Registration Default, we will be required to pay additional interest in cash on
each interest payment date in an amount equal to one-half of one percent (0.5%)
per annum of the applicable accreted value of the existing notes with respect to
the first 90-day period following such Registration Default. The amount of this
additional interest will increase by an additional one-half of one percent
(0.5%) per annum for each subsequent 90-day period until the Registration
Default has been cured, up to a maximum of one and one-half percent (1.5%) per
annum. Once the Registration Default is cured, the additional interest will
cease to accrue.
31
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes or the
completion of the exchange offer or any sale of the new notes to any
broker-dealer.
We intend to use:
- the net proceeds of our sale of the existing notes, which was $96.1
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 $9.4 million (after deducting offering expenses and the
initial purchaser's discount)
for the following purposes:
- to fund capital expenditures, operating losses and working capital
primarily related to the development and operation of our 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 our subsidiaries which are held by unaffiliated third
parties.
In the event that we and TKP are able to reach an agreement regarding a
joint venture, investment or some other form of cooperation, our use of
net proceeds from these three recent offerings may be reallocated and some
portion thereof may be used to fund our participation in the joint
venture.
At December 31, 1998, we were committed to pay at least approximately $316
million in guaranteed payments (including but not limited to payments for the
D-DTH reception systems, and payments of guaranteed minimum amounts due under
programming agreements and satellite transponder leases) over the next seven
years, of which at least approximately $119 million was committed through the
end of 1999. These payments may increase if we enter into additional programming
agreements.
We believe that the net proceeds of these three recent offerings and cash on
hand will provide us with sufficient capital to fulfill our current business
plan and to fund these commitments until we achieve positive cash flow from
operations. We expect that we will require additional external funding for our
business development plan in years subsequent to 1999 if the we continue to
provide D-DTH reception systems (other than the 380,000 initial subscribers) at
the promotional prices we are now charging in the start-up phase of our D-DTH
service. We will need to attract a substantial number of additional subscribers
beyond the 380,000 initial subscribers in order to repay principal and interest
on the notes. Future sources of financing for us could include public or private
debt or equity offerings or bank financings or any combination thereof.
32
<PAGE>
ADDRESS; EXCHANGE RATE AND STATISTICAL DATA
Our principal executive office and legal address are located at One
Commercial Plaza, Hartford, Connecticut 06103-3585. Our telephone number is
(860) 549-1674.
In this prospectus, references to "U.S. dollars" or "$" are to U.S.
currency, references to "Deutsche-Marks" or "DM" are to German currency, and
references to "zloty" or "PLN" are to Polish currency. We have presented our
primary consolidated financial statements in accordance with generally accepted
accounting principles in the U.S. in U.S. dollars. Amounts originally measured
in zloty for all periods presented have been translated into U.S. dollars.
For your convenience, this prospectus contains certain zloty amounts not
derived from the consolidated financial statements which have been translated
into U.S. dollars. You should not assume that the zloty amounts actually
represent such U.S. dollar amounts or could be, or could have been, converted
into U.S. dollars at the rates indicated or at any other rate. Unless otherwise
stated, such U.S. Dollar amounts have been derived by converting from zloty to
U.S. dollars at the rate of PLN 3.57 = $1.00, the exchange rate quoted by the
National Bank of Poland at noon on September 30, 1998. This rate may differ from
the actual rates in effect during the periods covered by the financial
information discussed herein. The Federal Reserve Bank of New York does not
certify for customs purposes a noon buying rate for zloty.
The following table sets forth, for the periods indicated, the noon exchange
rate quoted by the NBP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period.................... 1.58 2.13 2.44 2.47 2.88 3.51
Average exchange rate during period(1)............ 1.39 1.84 2.27 2.43 2.71 3.31
Highest exchange rate during period............... 1.58 2.13 2.45 2.54 2.89 3.56
Lowest exchange rate during period................ 1.15 1.58 2.14 2.32 2.47 2.86
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998
-------------------
<S> <C>
Exchange rate at end of period.................... 3.58
Average exchange rate during period(1)............ 3.51
Highest exchange rate during period............... 3.82
Lowest exchange rate during period................ 3.36
</TABLE>
- ------------------------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
This prospectus contains statistical data about the Polish, U.K., U.S.,
German, Czech, and Hungarian pay television industries, which were obtained from
various sources, including industry publications, and is based on our experience
in the Polish, European, and U.S. pay television markets. These sources
generally indicate that they have obtained information from sources believed to
be reliable, but do not guarantee the accuracy and completeness of such
information. While we believe these industry publications to be reliable, we
have not independently verified such data.
Amounts and percentages appearing in this prospectus may not total due to
rounding.
33
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of September 30, 1998: (1) on an actual basis, (2) as
adjusted to reflect the completion of the sale of the existing notes and the
receipt and application of the estimated net proceeds from the sale as described
under "Use of Proceeds," and (3) as adjusted to reflect the completion of the
sale of the Cumulative Preference Shares and the sale of the Series C Senior
Discount Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 67,888 $ 221,637
----------- ------------
----------- ------------
Long-term liabilities:
Notes issued by Poland Communications, Inc.(2).................................... $ 129,613 $ 129,613
14 1/2% Senior Discount Notes due 2008(1)......................................... 121,102 121,102
9 7/8% Series C Senior Discount Notes............................................. -- 9,815
Notes offered hereby(3)........................................................... 92,551
Other notes payable(1)............................................................ 8,782 8,782
----------- ------------
Total long-term liabilities..................................................... 259,497 361,863
Redeemable Cumulative Preference Shares offered in the Cumulative Preference Share
offering; liquidation value $50,000,000(5)........................................ -- 28,704
Stockholders' equity:
Preferred stock, par value $.01 per share; Authorized 20,002,500 shares; none
issued and outstanding(5)....................................................... -- --
Common stock, par value $.01 per share; Authorized 70,000,000 shares; issued and
outstanding 33,310,000 shares(4)................................................ 333 333
Paid-in capital
Warrants accompanying the 14 1/2% Senior Discount Notes due 2008(2)............. 7,615 7,615
Warrants accompanying the 14 1/2% Senior Discount Notes due 2009(3)............. -- 7,452
Warrants accompanying the Cumulative Preference Shares(5)....................... -- 19,483
Other paid-in capital........................................................... 230,339 230,339
----------- ------------
Total paid-in capital......................................................... 237,954 265,222
----------- ------------
Cumulative translation adjustment................................................. (3,654) (3,654)
Accumulated deficit............................................................... (153,826) (153,826)
----------- ------------
Total stockholders' equity...................................................... 80,807 107,742
----------- ------------
Total capitalization.......................................................... $ 340,304 $ 498,308
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(1) See "Description of Indebtedness."
(2) Of the $125.1 million gross proceeds from the issuance of the units offered
by us on July 14, 1998 (each consisting of one Senior Discount Note due 2008
and four warrants, each warrant initially entitling the holder thereof to
purchase 1.81 shares of common stock at an exercise price of $13.20 per
share), $117.5 million was allocated to the initial accreted value of the
Senior Discount Notes and $7.6 million was allocated to the warrants.
(3) Of the approximately $100 million gross proceeds from the sale of 256,800
units (each unit consisting of a $1,000 principal amount at maturity
existing note and four warrants), approximately $92.6 million has been
allocated to the initial accreted value of the notes and approximately $7.4
million has been
34
<PAGE>
allocated to the warrants. No assurance can be given that the value
allocated to the existing notes and warrants will be indicative of the price
at which these notes and warrants may actually trade.
(4) Does not include 1,813,665 shares of common stock reserved for issuance upon
exercise of the warrants, 1,824,514 shares of common stock reserved for
issuance upon exercise of the warrants in connection with the units offering
in July 1998, 5,500,000 shares of common stock reserved for issuance upon
exercise of the warrants in connection with the Cumulative Preference Shares
offering in January 1999, 2,548,900 shares subject to options which were
exercisable within sixty days of the date hereof and 1,887,100 additional
shares of common stock reserved for issuance in connection with options
granted to some of our employees and consultants.
(5) Of the $50 million gross proceeds from the sale of the Series A 12%
Cumulative Preference Shares and warrants, approximately $28.7 million has
been allocated to the Cumulative Preference Shares (net of commissions and
offering costs payable by us of approximately $1.8 million) and $19.5
million has been allocated to the warrants. No assurance can be given that
the value allocated to the Cumulative Preference Shares and warrants will be
indicative of the prices at which they may actually trade.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for each
of the years in the five-year period ended December 31, 1997, have been derived
from our audited consolidated financial statements and the notes to those
statements, prepared in conformity with U.S. GAAP. These consolidated financial
statements have been audited by KPMG Polska Sp. z o.o., our independent public
accountants and are included elsewhere in this prospectus. The consolidated
financial data as of September 30, 1998 and for the nine months ended September
30, 1997 and 1998, have been derived from our unaudited consolidated financial
statements. In the opinion of management, such unaudited financial statements
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, which consist only of normal recurring
adjustments, necessary for a fair presentation of our financial position as of
such dates and the results of operations for such periods. The results for the
interim periods presented are not necessarily indicative of the results for a
full year. You should read the selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in the next section of this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 6,562 $ 8,776 $ 18,557 $ 24,923 $ 38,138 $ 26,801 $ 38,877
Operating expenses:
Direct operating expenses................... (1,481) (2,119) (5,129) (7,193) (14,621) (8,929) (43,072)
Selling, general and administrative
expenses(1)............................... (4,029) (2,818) (4,684) (9,289) (49,893) (35,552) (39,998)
Depreciation and amortization............... (2,257) (3,459) (5,199) (9,788) (16,294) (10,946) (17,786)
Amortization of programming and broadcasting
rights.................................... -- -- -- -- -- -- (3,363)
--------- --------- --------- --------- ----------- --------- ---------
Operating (loss) income................... (1,205) 380 3,545 (1,347) (42,670) (28,626) (65,342)
Interest and investment income.............. 65 78 174 1,274 5,754 3,879 2,811
Interest expense............................ (116) (2,327) (4,373) (4,687) (13,902) (9,880) (13,814)
Equity in income (losses) of affiliated
companies................................. -- -- -- -- (368) -- 1,632
Foreign currency (loss) gain, net........... (315) (27) (17) (761) (1,027) (851) (399)
--------- --------- --------- --------- ----------- --------- ---------
Loss before income taxes, minority interest
and extraordinary item.................... (1,571) (1,896) (671) (5,521) (52,213) (35,478) (75,112)
Income tax (expense) benefit................ (976) (803) (600) (1,273) 975 (358) (496)
Minority interest........................... 205 316 (18) 1,890 (3,586) 2,256 (117)
--------- --------- --------- --------- ----------- --------- ---------
Loss before extraordinary item............ (2,342) (2,383) (1,289) (4,904) (54,824) (33,580) (75,725)
Extraordinary item--loss on early
extinguishment of debt(2)................. -- -- -- (1,713) -- -- --
--------- --------- --------- --------- ----------- --------- ---------
Net loss.................................. (2,342) (2,383) (1,289) (6,617) (54,824) (33,580) (75,725)
Accretion of redeemable preferred stock..... -- -- -- (2,870) (2,436) -- --
Preferred stock dividends................... -- (1,811) -- (1,738) -- -- --
(Excess) deficit of consideration paid for
preferred stock (over) under carrying
amount(3)................................. -- -- -- 3,549 (33,806) (33,806) --
--------- --------- --------- --------- ----------- --------- ---------
Net loss applicable to holders of common
stock..................................... $ (2,342) $ (4,194) $ (1,289) $ (7,676) $ (91,066) $ (67,386) $ (75,725)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Consolidated EBITDA(4)................ $ 1,052 $ 3,839 $ 8,744 $ 8,441 $ (8,274) $ (17,680) $ (47,556)
Poland Communications, Inc.
EBITDA(5)........................... 1,052 3,839 8,744 8,441 5,387 (2,368) 3,259
Expenditures for the purchase and
construction of property, plant and
equipment.(6)....................... 5,490 11,695 16,715 26,581 42,454 26,472 67,871
Net cash provided by/(used in)
operating activities................ 2,709 1,599 3,839 6,112 (18,773) (15,828) (55,411)
Net cash used in investing
activities.......................... (5,817) (12,341) (21,985) (74,861) (64,842) (15,358) (108,031)
Net cash provided by financing
activities.......................... 3,332 12,686 17,996 134,889 120,823 121,277 125,639
Ratio of earnings to fixed
charges(7).......................... N/A 0.37 0.86 0.21 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 549 $ 2,493 $ 2,343 $ 68,483 $ 105,691 $ 158,574 $ 67,888
Property, plant and equipment,
net.............................. 26,828 33,235 52,320 84,833 117,579 101,440 169,718
Total assets....................... 34,165 47,376 68,058 217,537 307,096 327,536 374,991
Total notes payable................ 20,073 35,988 59,405 130,074 130,110 130,090 259,497
Redeemable preferred stock......... -- -- -- 34,955 -- -- --
Total stockholders' equity......... 3,250 1,479 190 31,048 152,355 155,756 80,807
</TABLE>
- ------------------------
(1) The year ended December 31, 1997 includes a non-cash compensation expense of
$18,102,000 relating to the granting of certain management stock options.
See Note 16 to the consolidated financial statements included elsewhere in
this prospectus.
(2) See Note 12 to the consolidated financial statements included elsewhere in
this prospectus.
(3) Represents the amount paid to preferred stockholders in excess of or less
than the carrying value of such shares. See Note 1 to the consolidated
financial statements included elsewhere in this prospectus.
(4) EBITDA means earnings before interest, taxes, depreciation and amortizations
and consists of net loss adjusted for interest and investment income,
depreciation and amortization, interest expense, foreign currency
translation gains and losses, equity in losses of affiliated companies,
income taxes, extraordinary items, non-recurring items (e.g., compensation
expense related to stock options), gains and losses from the sale of assets
other than in the normal course of business and minority interest. The items
excluded from EBITDA are significant components in understanding and
assessing our financial performance. We believe that EBITDA and related
measures of cash flow from operating activities serve as important financial
indicators in measuring and comparing the operating performance of cable
television companies. EBITDA is not intended to represent cash flow from
operations under U.S. GAAP and should not be considered as an alternative to
net loss as an indicator of our operating performance or to cash flows from
operations as a measure of liquidity.
(5) PCI EBITDA reflects the EBITDA for PCI and its subsidiaries, whose primary
operations consist of our cable television business. For the years 1993
through 1996, consolidated EBITDA was entirely attributable to PCI and its
subsidiaries.
(6) Expenditures in 1993 and 1994 include the costs of construction of cable
television systems and exclude the costs of acquiring cable systems and
other property, plant and equipment.
(7) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net loss before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness, amortization
of deferred financing costs and that portion of operating lease expense
deemed to be interest expense. For all periods presented, we incurred net
losses before income taxes and hence earnings to fixed charges indicate a
less than one to one coverage. For the years ended December 31, 1993, 1994,
1995, 1996, and 1997 and the nine months ended September 30, 1997 and 1998.
Earnings were insufficient to cover fixed charges by $1,140,000 for the year
ended December 31, 1993, $1,580,000 for the year ended December 31, 1994,
$689,000 for the year ended December 31, 1995, $3,631,000 for the year ended
December 31, 1996, $55,799,000 for the year ended December 31, 1997,
$33,222,000 for the nine months ended September 30, 1997 and $75,229,000 for
the nine months ended September 30, 1998.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
@Entertainment generated operating income of $3.5 million in 1995, but had
operating losses of $1.3 million for 1996, $42.7 million for 1997 and $65.3
million for the first nine months of 1998, primarily due to the significant
costs associated with the development and launch of its D-DTH and programming
businesses, promotion of those businesses, and the development, production and
acquisition of programming for Wizja TV.
@Entertainment divides operating expenses into (i) direct operating
expenses, (ii) selling, general and administrative expenses, (iii) depreciation
and amortization expenses and (iv) amortization of programming and broadcast
rights. Direct operating expenses consist of programming expenses, maintenance
and related expenses necessary to service, maintain and operate @Entertainment's
cable systems, D-DTH programming platform expenses, billing and collection
expenses and customer service expenses. Selling, general and administrative
expenses consist principally of administrative costs, including office related
expenses, professional fees and salaries, wages and benefits of non-technical
employees, advertising and marketing expenses, bank fees and bad debt expense.
Depreciation and amortization expenses consist of depreciation of property,
plant and equipment and amortization of intangible assets.
SEGMENT RESULTS OF OPERATIONS
@Entertainment classifies its business into three fundamental areas: cable
television, digital direct-to-home television and programming, and corporate.
Information as to the operations of @Entertainment in each of the different
business segments is set forth below based on the nature of the services
offered. Although the D-DTH and programming segment was only operational during
1997, prior year financial data is exhibited for comparative purposes.
The following table presents the segment results of @Entertainment's
operations for the nine months ended September 30, 1998 and 1997. In addition to
other operating statistics, @Entertainment measures its financial performance by
EBITDA, an acronym for earnings before interest, taxes, depreciations and
amortizations. @Entertainment defines EBITDA to be net loss adjusted for
interest and investment income, depreciation and amortization, interest expense,
foreign currency gains and losses, equity in losses of affiliated companies,
income taxes, extraordinary items, non-recurring items (e.g., compensation
expense related to stock options), gains and losses from the sale of assets
other than in a normal course of business and minority interest. The items
excluded from EBITDA are significant components in understanding and assessing
@Entertainment's financial performance. @Entertainment believes that EBITDA and
related measures of cash flow from operating activities serve as important
financial indicators in measuring and comparing the operating performance of
media companies. EBITDA is not a U.S. GAAP measure of loss or cash flow from
operations and should not be considered as an alternative to cash flows from
operations as a measure of liquidity.
SEGMENT RESULTS OF OPERATIONS (UNAUDITED, IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
REVENUES OPERATING LOSS EBITDA
-------------------- -------------------- --------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 1998 1997 1998 1997
- ------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cable..................................... 37,836 26,801 (12,060) (14,394) 3,259 (3,447)
D-DTH and Programming..................... 9,179 -- (46,080) (3,105) (44,470) (3,106)
Corporate and Other....................... -- -- (7,202 (2) (11,127) (6,345 (2) (11,127)
Inter Segment Elimination(1).............. (8,138) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total............................... 38,877 26,801 (65,342) (28,626) (47,556) (17,680)
</TABLE>
- ------------------------
(1) Includes $7,726,000 of Wizja TV programming charged to the cable segment by
the D-DTH and programming segment in the nine months ended September 30,
1998.
(2) Includes $4.1 million of expenses associated with the development of the
Wizja TV brand name.
38
<PAGE>
CABLE SEGMENT OVERVIEW
@Entertainment's cable revenues are derived from monthly subscription fees
for cable television services and one-time installation fees for connection to
its cable television networks. @Entertainment 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. @Entertainment currently offers
"broadcast," "intermediate" (in limited areas) and "basic" packages of cable
service. At September 30, 1998 approximately 74.3% of @Entertainment's
subscribers received @Entertainment's "basic" package. During the nine months
ended September 30, 1998, approximately 88.2% of @Entertainment's revenue was
derived from monthly cable subscription fees compared to 85.0% in the
corresponding period in 1997.
When @Entertainment began operations in 1990, revenue from installation fees
exceeded revenue from monthly subscription fees because of the significant
number of new installations and the high amount of the installation fees
relative to the small existing subscriber base. As @Entertainment's cable
subscriber base has grown, aggregate monthly subscription revenue has increased
and installation fees have declined as a percentage of total revenue.
@Entertainment expects that installation fees will continue to constitute a
declining portion of its revenue.
During 1998, management completed several strategic actions in support of
its business and operating strategy. On June 5, 1998, @Entertainment began
providing the Wizja TV programming package to its basic cable subscribers. Since
that date, the "basic" package has been expanded to 19 channels. Management
believes that this selection of high-quality primarily Polish-language
programming will provide it with a significant competitive advantage in
increasing its cable subscriber penetration rates.
@Entertainment has implemented a pricing strategy designed to increase
revenue per subscriber and to achieve real profit margin increases in U.S.
dollar terms. @Entertainment has increased the monthly price for the "basic"
package to reflect the increased channel availability. Premium channels such as
Wizja 1 (which is owned by @Entertainment) and HBO Poland service (a
Polish-language premium movie channel owned in part by Home Box Office) are each
offered to cable customers for an additional monthly charge. @Entertainment
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 nine months ended September 30, 1998, @Entertainment's churn rate was 11.6%.
@Entertainment continues to expand the coverage areas of its regional
clusters, both through the expansion of its existing cable networks and
acquisitions of additional cable networks. During 1998, @Entertainment focused
the expansion of its existing cable networks primarily in areas where it could
fill-in and expand existing clusters. Additionally, @Entertainment acquired
several smaller cable television operators.
@Entertainment expects to realize additional operating efficiencies during
1999 through the centralization of subscriber management and customer support
services in its call center. @Entertainment is also in the process of installing
an integrated management information system for both its billing and accounting
systems, which is designed to further improve employee productivity and customer
service for its cable business.
Historically, the cable networks @Entertainment has acquired have had lower
operating margins than its existing cable networks. Upon consummation of an
acquisition, @Entertainment seeks to achieve operating efficiencies and reduce
operating costs by rationalizing the number of satellite receivers and reducing
the number of employees, among other things. @Entertainment generally has been
able to manage its acquired cable television networks with experienced personnel
from one of its existing regional clusters and reduce the technical personnel
necessary to operate acquired networks after connecting the networks to
@Entertainment's existing headends, or, if necessary, rebuilding the acquired
networks to @Entertainment's technical standards. In part due to these efforts,
@Entertainment has generally been able to increase the operating margins in its
acquired systems, although there can be no assurance that it will be able to
continue to do so.
39
<PAGE>
EBITDA for @Entertainment's cable subsidiary, PCI, was $8.7 million for
1995, $8.4 million for 1996, $5.4 million for 1997 and $3.3 million for the
first nine months of 1998. @Entertainment expects EBITDA for its cable business
to increase as it increases prices to account for the costs of providing the
Wizja TV programming package to its cable subscribers, and as it fully
integrates acquired networks into its regional clusters. @Entertainment may not
be able to continue to generate positive EBITDA for its cable business in the
future.
D-DTH AND PROGRAMMING SEGMENT OVERVIEW
D-DTH. The principal objectives of @Entertainment 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.
@Entertainment's D-DTH roll-out strategy is to lease D-DTH reception systems
to up to 380,000 initial subscribers at promotional prices in the start-up phase
of its D-DTH service. The launch of its D-DTH service has been supported by
@Entertainment's development of Wizja TV.
As of December 31, 1998, @Entertainment had sold to Philips' authorized
retailers approximately 125,000 D-DTH packages, which include the rental of the
D-DTH reception system, installation and a one-year subscription to our D-DTH
service. As of December 31, 1998, Philips had sold and installed approximately
93,000 of these packages to consumers. In September 1998, the number of Phillips
authorized electronics retailers distributing the Wizja TV package increased
from 70 to 550 stores, and since November more than 1200 of such stores have
been distributing the Wizja TV package. Each store is staffed with personnel
specifically trained by @Entertainment 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. @Entertainment, both directly or through joint ventures,
produces television programming for distribution. @Entertainment has developed a
multi-channel, primarily Polish-language programming package under the brand
name Wizja TV. To promote the launch of Wizja TV, @Entertainment has
substantially completed a $20 million nationwide marketing campaign which
@Entertainment believes is the largest single-year product launch expenditure to
date in Poland. Wizja TV's current channel line-up includes four channels,
Atomic TV, Wizja 1, Wizja Pogoda and Twoja Wizja, that are owned and operated by
@Entertainment, and 15 channels that are produced by third parties, nine of
which are broadcast under exclusive agreements for pay television in Poland.
@Entertainment 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. Subsequent to September 30, 1998 @Entertainment
exchanged letters with two major cable associations in Poland, representing an
aggregate of approximately 2.6 million subscribers (including @Entertainment's
cable subscribers), which would make the Wizja TV programming package available
for distribution within the cable networks to other providers who are members of
the associations.
@Entertainment 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,
@Entertainment has relied primarily on funds raised in its initial public equity
offering in August 1997 and its 14 1/2% Senior Discount Notes offering in July
1998 to fund the development of its D-DTH business. @Entertainment's D-DTH
business plan requires substantial capital expenditures to fund, among other
things, the promotional prices that are anticipated to be required to expand its
business. @Entertainment's business plan anticipates spending up to
approximately $150 million to provide D-DTH reception systems to the 380,000
initial subscribers at promotional prices, in order to drive subscriber
penetration.
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CORPORATE AND OTHER OVERVIEW
Corporate and Other consists of corporate overhead costs. @Entertainment
continues to evaluate opportunities for improving its operations and reducing
its cost structure. Corporate expenses amounted to $7.2 million in the nine
months ended September 30, 1998 as compared to $11.1 million in the
corresponding period in 1997. Corporate expenses for the nine months ended
September 30, 1997 included a portion of the non-cash compensation expense of
$8.7 million related to the options to purchase shares granted to key
executives. Corporate expenses for the nine months ended September 30, 1998
included $4.1 million costs paid for Wizja TV brand name consulting, legal fees
and executive salaries.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
CABLE SEGMENT
CABLE TELEVISION REVENUE. Revenue increased $11.0 million or 41.0% from
$26.8 million in the first nine months of 1997 to $37.8 million in the first
nine months of 1998. This increase was primarily attributable to a 16.4%
increase in the number of basic subscribers from approximately 566,000 at
September 30, 1997 to approximately 659,000 at September 30, 1998, as well as an
increase in monthly subscription rates. Approximately 27.7% of the increase in
basic subscribers was the result of acquisitions and new network build-out.
Revenue from monthly subscription fees represented 85.0% and 88.2% of cable
television revenue for the nine months ended September 30, 1997 and 1998,
respectively. Installation fee revenue for the nine months ended September 30,
1998 decreased by 57.9% from $1.9 million to $0.8 million compared to the
corresponding period in 1997. During the nine months ended September 30, 1998,
@Entertainment generated approximately $2.4 million of additional premium
subscription revenue as a result of providing the HBO Poland service pay movie
channel to cable subscribers as compared to $0.4 million for the nine months
ended September 30, 1997.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $15.1
million, or 201.3%, from $7.5 million for the nine months ended September 30,
1997 to $22.6 million for the nine months ended September 30, 1998, principally
as a result of the purchase of the Wizja TV programming package and Atomic TV
from @Entertainment's D-DTH and programming segment for $8.1 million and higher
levels of technical personnel and increased maintenance expenses associated with
recently acquired networks as well as the increased size of @Entertainment's
cable television system. Direct operating expenses increased from 28.0% of
revenues for the nine months ended September 30, 1997 to 59.7% of revenues for
the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $10.7 million or 47.1% from $22.7 million for
the nine months ended September 30, 1997 to $12.0 million for the nine months
ended September 30, 1998. A portion of this decrease was attributable to non-
recurring, non-cash compensation expense of approximately $9.4 million recorded
in the nine months ended September 30, 1997 in connection with stock options
granted to certain employees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$4.4 million, or 40.3%, from $10.9 million for the nine months ended September
30, 1997 to $15.3 million for the nine months ended September 30, 1998
principally as a result of depreciation and amortization of additional cable
television systems and related goodwill acquired and the continued build-out of
@Entertainment's cable networks. Depreciation and amortization expense as a
percentage of revenues decreased from 40.7% for the nine months ended September
30, 1997 to 40.5% for the nine months ended September 30, 1998.
Each of these factors contributed to an operating loss of $12.1 million for
the nine months ended September 30, 1998 compared to an operating loss of $14.4
million for the nine months ended September 30, 1997.
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D-DTH AND PROGRAMMING
D-DTH AND PROGRAMMING REVENUE. D-DTH and programming revenue amounted to
$9.2 million for the nine months ended September 30, 1998. Since @Entertainment
only commenced the broadcast of its Wizja TV programming package over its cable
systems on June 5, 1998 and through its D-DTH service in July 1998, no revenue
related to this segment existed in 1997.
Revenue from monthly subscription fees, after elimination of inter-segment
revenue from PCI, represented 29.8% of D-DTH revenue for the nine months ended
September 30, 1998. Advertising revenue for the nine months ended September 30,
1998 represented 5.8% of D-DTH revenue after the inter-segment elimination.
Revenue of $8.1 million from the supply of the Wizja TV programming package
and Atomic TV to the Company's cable systems, which eliminates on consolidation,
represented 88.7% of D-DTH revenue for the nine months ended September 30, 1998.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $19.1
million from $1.4 million to $20.5 million for the nine months ended September
30, 1997 and 1998. These increases principally were the result of the following:
higher levels of technical personnel and increased maintenance expenses
associated with the establishment of a satellite transmission and studio
facility located in Maidstone, U.K., a $5 million payment to Philips to
compensate it for costs incurred as a result of the temporary suspension of the
production process for the D-DTH reception systems and costs associated with the
lease of three transponders on the Astra satellites which provide the capability
to deliver @Entertainment's Polish-language programming platform to cable and
D-DTH customers in Poland. Direct operating expenses amounted to 222.8% of
revenues for the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $19.9 million from $1.7 million to $21.6
million for the nine months ended September 30, 1997 and 1998. As a percentage
of revenue, selling, general and administrative expenses amounted to
approximately 234.8% for the nine months ended September 30, 1998. The increase
in selling, general and administrative expenses over the corresponding 1997
period was attributable mainly to an increase in sales and marketing expenses
incurred in preparation for launch and operation of @Entertainment'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, broadcast/exhibition rights and
negotiations with TKP, a Polish pay television provider, regarding a potential
joint venture.
DEPRECIATION AND AMORTIZATION. @Entertainment incurred $1.6 million of
depreciation and amortization charges of D-DTH tangible assets in the nine
months ended September 30, 1998. Depreciation and amortization expense as a
percentage of revenues amounted to 24.6% in the nine months ended September 30,
1998.
AMORTIZATION OF PROGRAMMING AND BROADCAST RIGHTS. @Entertainment incurred
$3.4 million of amortization charges of capitalized programming and broadcast
rights for the nine months ended September 30, 1998. Amortization of programming
and broadcast rights as a percentage of revenue amounted to 52.3% in the nine
months ended September 30, 1998.
Each of these factors contributed to an operating loss which amounted to
$46.1 million for the nine months ended September 30, 1998, compared to an
operating loss of $3.1 million for the nine months ended September 30, 1997.
NON-OPERATING RESULTS
INTEREST EXPENSE. Interest expense increased $3.9 million, or 39.4%, from
$9.9 million for the nine months ended September 30, 1997 to $13.8 million for
the nine months ended September 30, 1998 mainly as a result of the accretion of
interest of the $252 million aggregate principal amount at maturity of
@Entertainment's 14 1/2% Senior Discount Notes due 2008, which were issued on
July 14, 1998.
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INTEREST AND INVESTMENT INCOME. Interest and investment income decreased
$1.1 million or 28.2%, from $3.9 million to $2.8 million for the nine months
ended September 30, 1998, primarily due to reduction of cash balances resulting
from the increased payments and expenses described above.
EQUITY IN PROFITS OF AFFILIATED COMPANIES. @Entertainment recorded $1.6
million of equity in profits of affiliated companies for the nine months ended
September 30, 1998 relating to @Entertainment's 50% investment in Twoj Styl, a
publishing company.
FOREIGN EXCHANGE LOSS, NET. For the nine months ended September 30, 1998
and 1997 foreign exchange loss amounted to $0.4 million and to $0.9 million,
respectively.
MINORITY INTEREST. Minority interest in subsidiary income was $0.1 million
for the nine months ended September 30, 1998, compared to minority interest in
subsidiary loss of $2.2 million for the corresponding period in 1997.
NET LOSS. For the nine months ended September 30, 1997 and 1998,
@Entertainment had net losses of $33.6 million and $75.7 million. 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 $67.4 million for the nine months ended
September 30, 1997 to a loss of $75.7 million for the nine months ended
September 30, 1998 due to the factors discussed above. For the nine months ended
September 30, 1997, net loss applicable to common stockholders included $33.8
million applicable to the excess of consideration paid for preferred stock over
the carrying amount of those shares.
1997 COMPARED TO 1996
CABLE TELEVISION REVENUE. Revenue increased $13.2 million or 53.0% from
$24.9 million in 1996 to $38.1 million in 1997. This increase was primarily
attributable to a 42.6% increase in the number of basic subscribers from
approximately 446,000 at December 31, 1996 to approximately 636,000 at December
31, 1997. Approximately 69.3% of this increase in basic subscribers was the
result of acquisitions and the remainder was due to build-out of
@Entertainment's existing cable networks.
Revenue from monthly subscription fees represented 87.2% and 90.1% of cable
television revenue in 1996 and 1997, respectively. Installation fee revenue for
1997 decreased by 6.3% compared to 1996, from $3.2 million to $3.0 million.
During 1997, @Entertainment generated approximately $56,000 of additional
premium subscription revenue and approximately $941,000 of additional premium
channel installation revenue as a result of providing the HBO Poland service, a
Polish-language premium movie channel owned in part by Home Box Office, to cable
subscribers.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $7.4
million, or 102.8%, from $7.2 million in 1996 to $14.6 million in 1997,
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with acquired networks which had not yet been
integrated within @Entertainment's networks and standards as well as the
increased size of @Entertainment's cable television system, and costs associated
with the lease of two transponders on the Astra 1F satellite which provide the
capability to deliver @Entertainment's Polish-language programming package to
Polish customers on @Entertainment's cable television networks and its D-DTH
system. Direct operating expenses increased from 28.9% of revenues for 1996 to
38.3% of revenues for 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $40.6 million or 436.6% from $9.3 million in
1996 to $49.9 million in 1997. A portion of this increase was due to non-cash
compensation expense of $18.1 million in 1997 related to options to purchase
shares granted to key executives. The remainder of the increase was attributable
to an increase in sales and marketing expenses incurred in newly acquired
networks, costs associated with the agreement relating to sale of advertising on
Atomic TV, described in Note 9 to @Entertainment's consolidated financial
statements included elsewhere in this prospectus, and costs of launching the
distribution of the HBO Poland service in Poland. Compensation expense also
increased as @Entertainment established a management team of senior executives
with significant experience in the cable television, programming and satellite
broadcasting businesses.
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As a percentage of revenue, selling, general and administrative expenses
increased from 37.3% for 1996 to approximately 130.8% for 1997. However, without
considering the non-cash compensation expense related to the stock options
described above, selling, general and administrative expenses as a percentage of
revenues would have been 83.4% in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$6.5 million, or 66.3%, from $9.8 million in 1996 to $16.3 million in 1997,
principally as a result of depreciation of additional cable television systems
acquired and the continued build-out of @Entertainment's networks. Depreciation
and amortization expense as a percentage of revenues increased from 39.3% in
1996 to 42.7% in 1997.
INTEREST EXPENSE. Interest expense increased $9.2 million, or 195.7%, from
$4.7 million in 1996 to $13.9 million in 1997 primarily due to the inclusion of
a full year's interest on PCI's 9 7/8% Senior Notes which were issued in October
1996.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased
$4.5 million, or 346.2%, from $1.3 million in 1996 to $5.8 million in 1997,
primarily due to the income derived from the investment of a portion of the net
proceeds from the issuance of PCI's 9 7/8% Senior Notes in October 1996 and the
initial public equity offering in August 1997.
FOREIGN CURRENCY LOSS. For 1997 foreign currency loss amounted to $1.0
million as compared to $761,000 for 1996, primarily due to less favorable
exchange rate fluctuations.
MINORITY INTEREST. Minority interest in subsidiaries' income was $3.6
million for 1997, resulting from a fourth quarter adjustment to write off
certain receivable balances that were not recoverable, compared to minority
interest in subsidiary loss of $1.9 million for 1996.
EXTRAORDINARY ITEM. During 1996 @Entertainment prepaid a loan from the
Overseas Private Investment Corporation, resulting in an extraordinary loss of
$1.7 million, consisting of a prepayment penalty of $147,000 and a write off of
$1,566,000 of deferred financing costs.
NET LOSS. @Entertainment had net losses of $6.6 million for 1996 and $54.8
million for 1997. These losses were the result of the factors discussed above.
EBITDA. EBITDA decreased by $16.7 million, or 198.8%, from $8.4 million for
1996 to $(8.3) million for 1997. EBITDA consists of net loss adjusted for
interest and investment income, depreciation and amortization, interest expense,
foreign currency gains and losses, equity in losses of affiliated companies,
income taxes, extraordinary items, non-recurring items (e.g., compensation
expense related to stock options), gains and losses from the sale of assets
other than in the normal course of business and minority interest. The items
excluded from EBITDA are significant components in understanding and assessing
@Entertainment's financial performance. @Entertainment believes that EBITDA and
related measures of cash flows from operating activities serve as important
financial indicators in measuring and comparing the operating performance of
cable television companies. EBITDA is not intended to represent cash flows from
operations under U.S. GAAP and should not be considered as an alternative to net
loss as an indicator of @Entertainment's operating performance or cash flows
from operations as a measure of liquidity. @Entertainment treated the $18.1
million non-cash compensation expense relating to the grant of stock options in
1997 as a non-recurring item and it expects that future grants of stock options
will not give rise to compensation expense.
1996 COMPARED TO 1995
CABLE TELEVISION REVENUE. Revenue increased $6.3 million, or 33.9%, from
$18.6 million in 1995 to $24.9 million in 1996. This increase was primarily
attributable to a 70% increase in the number of basic subscribers from
approximately 262,000 at December 31, 1995 to approximately 446,000 at December
31, 1996. (Such subscriber numbers do not include approximately 15,000
subscribers served by a cable system @Entertainment acquired on January 1,
1997). Approximately 44.6% of this increase in basic subscribers was due to
expansion of @Entertainment's existing cable networks and the remainder was the
result of acquisitions. Revenue from monthly subscription fees represented
approximately 87.2% of cable television revenue in 1996. Installation fee
revenue increased by 39.1% from $2.3 million in 1995 to approximately
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$3.2 million in 1996, primarily as a result of several remarketing campaigns
implemented throughout 1996, which led to increased penetration. In addition,
@Entertainment experienced an increase in subscriber installations as a result
of the continued build-out of @Entertainment's networks.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $2.1
million, or 41.2%, from $5.1 million in 1995 to $7.2 million in 1996,
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks as well as the
increased size of @Entertainment's cable television systems. Direct operating
expenses increased from 27.6% of revenue in 1995 to 28.9% of revenue in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.6 million, or 97.9%, from $4.7 million in
1995 to $9.3 million in 1996, primarily as a result of an increase in sales and
marketing expenses incurred in newly acquired networks, the introduction of
several remarketing campaigns throughout the areas covered by @Entertainment's
networks, and increased compensation and 1996 bonuses. Selling, general and
administrative expenses increased from 25.2% of revenue in 1995 to 37.3% of
revenue in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses rose
$4.6 million, or 88.5%, from $5.2 million in 1995 to $9.8 million in 1996,
principally as a result of depreciation of additional cable television assets
acquired in connection with the build-out of @Entertainment's network. Also,
during 1996, all of the prematurity periods expired and therefore the entire
balance of investment in cable television system assets was subject to
depreciation. Depreciation and amortization expenses as a percentage of revenue
increased from 28.0% in 1995 to 39.3% in 1996.
INTEREST EXPENSE. Interest expense increased $0.3 million, or 6.8%, from
$4.4 million in 1995 to $4.7 million in 1996, primarily due to increased
interest expense resulting from the issuance of $130 million of PCI notes
partially offset by a reduction in interest expense as a result of the repayment
of $55 million of indebtedness with a portion of the proceeds from PCI's sale of
equity securities in March 1996.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased by
$1.1 million from $0.2 million in 1995 to $1.3 million in 1996. This increase
was primarily attributable to a positive cash position in 1996 resulting from
the issuance of shares of PCI and PCI's 9 7/8% Senior Notes.
FOREIGN CURRENCY LOSS. Foreign currency loss increased from $17,000 in 1995
to $761,000 in 1996, primarily due to less favorable exchange rate fluctuations.
MINORITY INTEREST. Minority interest in subsidiaries' loss was $1.9 million
in 1996 resulting from losses incurred in two minority owned subsidiaries
compared to minority interest in subsidiaries' income of $18,000 in 1995. During
1996 @Entertainment completed partial acquisitions which gave rise to the
increase in minority interest in subsidiaries' losses.
EXTRAORDINARY ITEM. During 1996 @Entertainment prepaid a loan from the
Overseas Private Investment Corporation, resulting in an extraordinary loss of
$1.7 million, consisting of a prepayment penalty of $147,000 and a write-off of
$1,566,000 of deferred financing costs.
NET LOSS. Net loss increased from a loss of $1.3 million in 1995 to a loss
of $6.6 million in 1996 as a result of the factors discussed above.
EBITDA. EBITDA decreased $0.3 million, or 3.4%, from $8.7 million in 1995
to $8.4 million in 1996. EBITDA does not include full year results for 1996 from
TV Kabel in the Bydgoszcz regional cluster which was acquired in December 1996
and does not include results from certain other acquisitions. @Entertainment's
EBITDA margin decreased from 47.1% to 33.9% over such period. @Entertainment
believes that EBITDA and related measures of cash flow from operating activities
serve as important financial indicators in measuring and comparing the operating
performance of cable television companies. EBITDA is not intended to represent
cash flow from operations under U.S. GAAP and should not be considered as an
alternative to net loss as an indicator of @Entertainment's operating
performance or to cash flows from operations as a measure of liquidity.
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LIQUIDITY AND CAPITAL RESOURCES
@Entertainment has met its cash requirements in recent years primarily with:
- capital contributions and loans from certain principal stockholders;
- borrowings under available credit facilities;
- cash flows from operations;
- the sale of $130 million aggregate principal amount of 9 7/8% Senior Notes
issued by Poland Communication Inc. in the October 1996 Offering;
- the sale of approximately $200 million of common stock through
@Entertainment's initial public equity offering in August 1997; and
- the sale of $252 million aggregate principal amount at the maturity of the
14 1/2% Senior Discount Notes in July 1998 with gross proceeds of
approximately $125 million.
FINANCING. During 1996, PCI issued common and preferred stock to certain
principal stockholders for approximately $82 million. On March 29, 1996, PCI
consummated a transaction in which ECO Holdings III Limited Partnership
purchased shares of common and preferred stock of PCI for a price of $65
million. On March 29, 1996, Polish Investment Holdings L.P. purchased additional
shares of preferred and common stock of PCI for an aggregate purchase price of
approximately $17 million. PCI applied approximately $55 million of the proceeds
of these transactions to repay indebtedness owed to Chase American Corporation,
which is beneficially owned by the Chase family, and approximately $8.5 million
to redeem preferred stock held by PIHLP, which is beneficially owned by the
Chase family.
PCI has entered into an agreement with AmerBank which provides for a credit
facility of approximately $6.5 million. All amounts under this facility were
drawn in June 1998. Interest, based on LIBOR plus 3%, is due quarterly. All
advances under the loan must be repaid by August 20, 1999.
On October 31, 1996, $130 million aggregate principal amount of 9 7/8%
Senior Notes were sold by PCI to initial purchasers pursuant to a purchase
agreement. The initial purchasers subsequently completed a private placement of
these notes. These notes were issued pursuant to an indenture.
Pursuant to the PCI indenture, PCI is subject to certain restrictions and
covenants, including, without limitation, covenants with respect to the
following matters:
- limitation on additional indebtedness;
- limitation on restricted payments;
- limitation on issuances and sales of capital stock of subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation on guarantees of indebtedness by subsidiaries;
- purchase of the notes issued by PCI upon a change of control;
- limitation on sale of assets;
- limitation on dividends and other payment restrictions affecting
subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- limitation on lines of business; and
- consolidations, mergers, and sale of assets. @Entertainment is in
compliance with these covenants.
Pursuant to the AmerBank credit facility, PCI is subject to certain
informational and notice requirements but is not subject to restrictive
covenants. The PCI indenture limits, but does not prohibit, the payment of
dividends by PCI and the ability of PCI to incur additional indebtedness. PCI
could not pay
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dividends to @Entertainment as of September 30, 1998 because certain financial
ratios did not meet the minimum provided in the PCI indenture.
In August 1997, @Entertainment raised approximately $200 million through its
initial public equity offering. @Entertainment used $60 million to purchase all
of PCI's outstanding Series A Preferred Stock and its Series C Preferred Stock
held by affiliates of the principal stockholders.
On July 14, 1998, $252 million principal amount at maturity of 19 1/2%
Senior Discount Notes were sold by @Entertainment to initial purchasers pursuant
to a purchase agreement, with gross proceeds to @Entertainment of approximately
$125 million. The initial purchasers subsequently completed a private placement
of the 14 1/2% Senior Discount Notes. The 14 1/2% Senior Discount Notes were
issued pursuant to an indenture.
On January 20, 1999, @Entertainment sold $36,001,321 principal amount at
maturity of its Series C Senior Discount Notes 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.
Pursuant to the indenture governing the 14 1/2% Senior Discount Notes sold
on July 14, 1998 and the indenture governing the Series C Senior Discount Notes,
@Entertainment is subject to certain restrictions and covenants, including,
without limitation, covenants with respect to the following matters:
(i) limitation on indebtedness: (ii) limitation on restricted payments;
(iii) limitation on issuances and sale of capital stock of restricted
subsidiaries; (iv) limitation on transactions with affiliates; (v) limitation on
liens; (vi) limitation on sale of assets; (vii) limitation on dividends and
other payment restrictions affecting restricted subsidiaries; (viii)
consolidations, mergers, and sale of assets; and (ix) limitation on lines of
business. @Entertainment is in compliance with these covenants.
At September 30, 1998, on a pro forma basis after giving effect to the
offering of the existing notes and the Series C Senior Discount Notes and the
application of the net proceeds therefrom, @Entertainment would have had, on a
consolidated basis, approximately $362 million aggregate principal amount of
indebtedness outstanding.
@Entertainment had positive cash flows from operating activities in 1995 and
1996 of $3.8 million and $6.1 million, respectively, primarily due to the
increase of cash received from subscribers and the deferral of the payment of
interest expense.
@Entertainment had negative cash flows from operating activities of $18.8
million for the year ended December 31, 1997 and $55.4 million for the nine
months ended September 30, 1998, primarily due to the significant operating
costs associated with the development of its D-DTH service and the Wizja TV
programming platform.
Cash used for the purchase and build-out of @Entertainment cable television
networks and the purchase of other property, plant, and equipment was $16.7
million in 1995, $26.6 million in 1996, $42.5 million in 1997, and $67.9 in the
nine months ended September 30, 1998. The increase primarily relates to
@Entertainment's acquisition of additional cable networks and capital
expenditures associated with the expansion of its existing cable networks and
the development of its D-DTH service and Wizja TV.
Cash used for the acquisition of subsidiaries, net of cash received, was
$4.1 million in 1995, $13.3 million in 1996, $18.0 million in 1997 and $26.6
million in the nine months ended September 30, 1998. @Entertainment spent
approximately $1.2 million in 1995, $3.9 million in 1996, $5.9 million in 1997
and $5.8 million in the nine months ended September 30, 1998, to upgrade major
acquired networks to meet @Entertainment's technical standards. You should read
"Use of Proceeds" to understand how @Entertainment intends to use the proceeds
from the three recent offerings and @Entertainment's potential need to seek
other sources of financing.
YEAR 2000 COMPLIANCE
@Entertainment'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, @Entertainment developed a plan to address
the impact that potential year 2000 problems may have on Company operations and
to
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implement necessary changes to address such problems. During the course of the
development of its Y2K plan, @Entertainment has identified certain critical
operations, which need to be Y2K compliant for @Entertainment 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,
@Entertainment 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 its new customer service and billing center. The vendors of the new
accounting system and of the billing software have confirmed to @Entertainment
that these products are Y2K compliant. @Entertainment has completed the testing
phase of the new accounting system, and the implementation phase is planned to
be completed during 1999. @Entertainment 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.
@Entertainment believes that its most significant Y2K risk is its dependency
upon third party programming, software, services and equipment, because
@Entertainment does not have the ability to control third parties in their
assessment and remediation procedures for potential Y2K problems. Should these
parties not be prepared for Y2K conversion, their products or services may fail
and may cause interruptions in, or limitations upon, @Entertainment's provision
of the full range of its D-DTH and/or cable service to its customers. In an
effort to prevent any such interruptions or limitations, @Entertainment is in
the process of communicating with each of its material third party suppliers of
programming, software, services and equipment to determine the status of their
Y2K compliance programs. @Entertainment 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.
@Entertainment has not yet developed a contingency plan to address the
situation that may result if @Entertainment or its third party suppliers are
unable to achieve Y2K compliance with regard to any products or services
utilized in @Entertainment's operations. @Entertainment does not intend to
decide on the development of such a contingency until it has gathered all of the
relevant Y2K compliance data from its third party suppliers.
@Entertainment has not yet determined the full cost of its Y2K plan and its
related impact on its financial condition. @Entertainment has to date not
incurred any replacement or remediation costs for equipment or systems as a
result of Y2K non-compliance. Rather, due to the rapid growth and development of
its cable system and its D-DTH service, @Entertainment had made substantial
capital investments in equipment and systems for reasons other than Y2K
concerns. The total cost of @Entertainment's new accounting system and billing
software package is estimated to be approximately $2,400,000.
@Entertainment believes that any Y2K compliance issues it may face can be
remedied without a material financial impact on @Entertainment, but no assurance
can be made in this regard until all of the data has been gathered from
@Entertainment's third party suppliers. Today, @Entertainment cannot predict the
financial impact on its operations if Y2K problems are caused by products or
services supplied to @Entertainment by such third parties.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
@Entertainment (effective for the year ended December 31, 1997) has adopted
Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
Pursuant to the provisions of this statement, basic loss per share has been
computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. The
effect of potential common stock (stock options outstanding) is anti-dilutive.
Accordingly, dilutive loss per share does not assume the exercise of stock
options outstanding.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 131, "Disclosures about Segment of an Enterprise and Related
Information," was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," which
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requires reporting segment information by industry and geographic area (industry
approach). Under SFAS No. 131, operating segments are defined as components of a
company for which separate financial information is available and used by
management to allocate resources and assess performance (management approach).
This statement is effective for year-end 1998 financial statements. Interim
financial information will be required beginning in 1999 (with comparative 1998
information). @Entertainment does not anticipate that this standard will
significantly impact the composition of its current operating segments, which
are consistent with the management approach.
In June 1998, the FASB 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 @Entertainment beginning
on July 1, 1999. @Entertainment currently has no derivative instruments or
hedging activities.
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THE INDUSTRY
GENERAL
With approximately 39 million people and 12.3 million televison households
(as estimated by us at December 31, 1997), we believe that Poland represents a
highly attractive and dynamic market for pay television services. Television
viewing rates in Poland are among the highest in Europe with an average
television viewing rate in 1996 of approximately 252 minutes per day per adult.
This rate compares favorably to the average television viewing rates in 1996 of
approximately 240 minutes per adult in the U.S. and 215 minutes per day per
adult in the U.K. In addition, as there are only approximately 11 free
television channels generally available in Poland that contain primarily
Polish-language programming, @Entertainment believes that significant
opportunities exist to provide high-quality Polish-language programming on a
multi-channel basis.
THE POLISH ECONOMY
Poland has experienced significant growth in its economy in recent years.
Poland's real gross domestic product grew at annual rates of 7.0% in 1995, 6.1%
in 1996, and 6.0% in 1997, which were the highest growth rates in Europe for
1995 and one of the highest in Europe in 1996. In recent years, the government
has encouraged foreign private investment, which has risen from approximately
$0.1 billion in 1990 to approximately $6.1 billion in 1996, and to approximately
$6.6 billion in 1997. Poland has also successfully reduced its annual inflation
rate from approximately 250% in 1990 to approximately 27% in 1995, approximately
20% in 1996, and approximately 14.9% in 1997. Following a period of rising
unemployment, unemployment in Poland declined to 10.5% at December 31, 1997. In
part due to these factors, the sovereign credit rating of Poland was upgraded in
early 1996 to investment grade by Moody's Investors Service (Baa3) and Standard
& Poor's Corporation (BBB-). We believe that the growth and stability in the
economy have led to recent increases in disposable income levels in Poland,
which grew at average annual rates of 9% in 1995, 7% in 1996, and 10% in 1997.
Furthermore, in certain urban markets where we operate our cable networks,
including Warsaw, Krakow, Wroclaw and Katowice, disposable income levels are
significantly higher and unemployment is significantly lower than the national
average. For example, unemployment in Warsaw was approximately 2.8% at December
31, 1997.
THE POLISH MULTI-CHANNEL PAY TELEVISION INDUSTRY
POLISH CABLE MARKET
Poland is the fifth-largest television market in Europe, with approximately
12.3 million television households (as we estimated at December 31, 1997).
Poland is also the largest single-language market in Central Europe. We believe
that there are several primary factors which are highly favorable for the
provision of multi-channel services, and which distinguish the Polish cable
market from other cable markets, as outlined below.
VIEWER DEMAND. Television viewing is a significant leisure activity in
Poland, and in 1996 Poland had one of the highest television viewing rates in
Europe. We believe that several factors contribute to such high television
viewing and indicate Polish consumers' willingness to allocate disposable income
for multi-channel pay television. These factors include limited entertainment
alternatives, strong demand for high-quality programming, a long and generally
cold winter season and a low telephone penetration rate of approximately 15
telephones per 100 persons.
We also believe that, as the leading cable operator in Poland, our
subscriber penetration rates and relatively low churn rates are further
indicators of the potential demand for cable television services by large
operators in Poland. There is a relatively low percentage of television homes
for which cable service is available in Poland. Based on our estimates only
approximately 33% of television households had a TV cable running outside their
dwelling (in the cable television industry, "were passed by cable") as of
December 31, 1997. Houses which are passed by cable are frequently referred to
as "homes passed" in the cable television industry. We believe this provides a
substantial market opportunity for cable operators.
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Once homes are passed by our cable, approximately 44.8% of these homes
subscribed to our cable services, as of September 30, 1998. In certain areas
where we have operated our networks for an extended period of time, such as
portions of Gdansk, 62% of the homes passed subscribe.
In addition, we have experienced low churn rates since our inception. Our
annual churn rates have historically averaged less than 10%, which compare
favorably to other markets such as the U.K. where in 1996 churn rates were
approximately three times this figure. We believe that our churn rates are low
because of our customer care program, the high technical quality of our cable
television networks and our desirable program offerings. In addition, we benefit
from a shortage of housing in Poland that results in low move-related churn. In
1997, our annual churn rate increased to 12.2%, though it would have been 9.8%
had we not disconnected approximately 17,000 non-paying subscribers in one of
our acquired and rebuilt networks. We expect, however, that we may continue to
experience increases in our churn rate above historical levels during the
implementation of our current pricing strategy, which commenced in January 1997
and is designed to increase revenue per subscriber and to achieve real profit
margin increases in U.S. Dollar terms. For the nine months ended September 30,
1998, our churn rate was 11.6%.
The following table compares a number of cable market characteristics in
Poland with certain industrialized countries and certain developing countries in
Central Europe. All data in the following table are for 1996 except where
indicated.
<TABLE>
<CAPTION>
AVERAGE TV
NUMBER OF VIEWING
TELEVISION MINUTES
HOUSEHOLDS PER DAY PER COLOR TV VCR
(IN MILLIONS) ADULT PENETRATION PENETRATION(1)
--------------- ------------- --------------- -------------------
<S> <C> <C> <C> <C>
Poland........................................... 12.0 252 88% 53%
United States.................................... 97.0 240 99% 81%
United Kingdom................................... 23.4 215 99% 81%
Germany.......................................... 33.7 195 99% 63%
Czech Republic................................... 4.1 197 93% 32%
Hungary.......................................... 3.9 N/A 81% 39%
<CAPTION>
HOMES
PASSED BY
CABLE AS A %
OF TELEVISION
HOUSEHOLDS
-----------------
<S> <C>
Poland........................................... 23%
United States.................................... 97%(2)
United Kingdom................................... 35%
Germany.......................................... 72%
Czech Republic................................... 56%
Hungary.......................................... 44%
</TABLE>
---------------------------
(1) VCR households as a percentage of television households.
(2) 1995 figure.
Sources: Baskerville Communications Corp., TV International Sourcebook 1997,
ZenithMedia, European Market and MediaFact (1998) and ZenithMedia, Americas
Market and Mediafact (1997).
HOUSING DENSITIES. Poland is one of the most densely populated countries in
Central Europe. The housing market in Poland's urban areas is characterized by
buildings with multiple apartments or units which are typically owned or
controlled by co-op authorities. These co-op authorities often control more than
2,000 apartments each, and in our experience, individual apartments often house
multiple generations of families and multiple wage earners. In many of our
markets, housing densities exceed 645 homes per kilometer of cable plant, which
results in extremely low costs per subscriber to build the cable network and
significantly exceeds the average in the U.S. of 48 homes per kilometer of cable
plant. Such densities provide significant advantages for cable operators,
including extremely low building costs per subscriber. From our existing cable
network infrastructure base, our incremental costs to add cable to add an
adjacent building with multiple apartments or additional subscribers to existing
networks average approximately $200 per subscriber. (Subscribers in buildings
with multiple apartments represent more than 95% of our total subscribers.) In
addition, the number and density of MDUs offer marketing and other cost benefits
in terms of targeting, attracting and servicing customers.
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CO-OPERATIVE HOUSING FRANCHISE PROCESS. The franchise process in Poland is
unique in that the right to build a cable system is typically secured by
reaching an agreement with individual co-op authorities and is not dependent
upon issuance of a franchise for a particular region by a governmental
authority. Reaching an agreement with the co-op authority provides the cable
operator with the right to connect its system to dwellings within the co-op
authority's jurisdiction. Our contracts with co-op authorities generally have
terms ranging from ten to twenty years and have optional renewal periods of five
years, though certain of the contracts may be terminated by either party on
relatively short notice. Co-ops are legal entities created under Polish law
which resemble corporations. Co-ops are run by management boards which are
appointed, pursuant to their statutes, by either the co-op's supervisory board
or its general assembly of members. There is no requirement that a member of the
management board be a resident of the co-op. Members of the management boards of
co-ops are generally university graduates and have some managerial experience.
Although contracts with co-op authorities usually do not provide exclusivity
for the cable operator, the access granted to every dwelling unit does provide
significant benefit to the first cable operator reaching an agreement with the
co-op authority. We own all of our network plant in the ground and, in almost
all cases, in the buildings of the co-op authorities with which we have
contracts. Therefore, any potential competitor would be required to build a
network parallel to ours in order to compete with us during or after the term of
such contracts. In the cable television industry, this process is called
"overbuilding." Accordingly, we believe it would be difficult for competitors to
successfully compete in buildings with multiple apartment units with which we
have contracts due to the cost of overbuilding, pricing discounts likely to be
necessary to attract our subscribers and the low likelihood of achieving
significant numbers of subcribers.
Although the financial costs and subscription rates generally do not favor
building systems parallel to large cable operators, the lack of contractual
exclusivity provides an opportunity for well-capitalized operators to overbuild
their weaker competitors. In situations where a smaller, poor-quality operator
has a contract with a co-op authority, the co-op authority will often encourage
a large, professional operator such as us to develop systems in order to improve
the quality of service to its residents. In these circumstances, this type of
overbuilding can be a cost-effective means of achieving growth because of the
high probability of attracting a significant number of subscribers from the
existing operator.
POLISH CABLE MARKET CONSOLIDATION. The cable industry in Poland has
experienced significant consolidation in recent years. We believe that this
consolidation will continue as small operators face the burden of compliance
with regulations that set minimum technical standards for cable television
networks and require payment for programming produced by others. As Poland's
economy has grown and become more stable, certain well-capitalized cable
television operators have acquired numerous cable television operators in Poland
in order to build systems and acquire a critical mass of subscribers. We have
actively pursued acquisitions, acquiring approximately 47 cable television
operators since 1992. These acquisitions have added approximately 350,000 of our
total subscribers.
DEVELOPMENT OF THE POLISH CABLE INDUSTRY. Prior to 1989, during the
Communist political regime, the Polish government controlled and regulated the
television industry and all frequency usage. Channel offerings were limited
primarily to government broadcast programs. During this period, buildings with
multiple apartments were required by law to provide master antenna systems to
all of their residents to ensure reception of such government programs. In the
early years of the post-Communist era, there was no effective regulatory
authority, which we believe led to the proliferation of small cable operators
that often capitalized on the lack of viewing alternatives and the unregulated
market. These operators built low-cost, poorly constructed cable systems in
densely populated urban areas of Poland, often by modifying the existing master
antenna systems in buildings with multiple apartments to deliver satellite
programs. Primarily targeting these buildings with multiple apartments in order
to secure access to a significant number of potential subscribers with minimal
capital commitment, these operators often charged relatively high installation
fees which were used to finance the building of their systems. Currently, there
are over 400 small cable operators in Poland, and they are generally
characterized by small subscriber bases, poor-quality signals, failure to comply
with technical standards, lack of customer service and limited channel
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capacity and programming offerings that are often obtained from satellites
without paying full copyright fees to the program producers.
As part of the Polish government's efforts to encourage rapid infrastructure
and economic development, it has begun to establish a regulatory framework for
the cable television industry that is similar, in many respects, to that of the
U.S. and other Western countries, but without any regulation of prices charged
to subscribers. In 1993, to improve the quality of the country's cable
television systems, Poland began to implement technical and licensing standards
for cable operators that established requirements for such items as signal
quality and radio frequency leakage. In the same year, the Polish government
began to monitor compliance with regulations requiring all cable operators to
obtain government permits and, more recently, has begun to enforce such
regulations. Poland has also ratified the Rome Convention, extending copyright
protection to programs of foreign producers. We believe that the enforcement of
technical standards and copyright laws in Poland will require cable television
operators to rebuild or upgrade their systems as necessary to comply with
technical standards and to pay for programming that is currently being obtained
free of charge. We believe that this will improve our competitive position by
forcing poorly capitalized competitors to either sell their systems to better
capitalized operators which have the resources to comply with such standards and
laws or to cease operations altogether.
Since 1990, the Polish cable industry has developed rapidly, due in part to
the growth in the economy and to the development of cable industry regulations.
This development has included the entry of well-capitalized Western-style cable
operators, such as @Entertainment, that have constructed high-quality cable
systems with numerous channel offerings. The following chart illustrates the
growth of the Polish cable market in terms of homes passed and basic subscribers
since 1990.
GROWTH IN THE CABLE INDUSTRY
(IN THOUSANDS)
[CHART]
[Chart shows the number of basic subscribers plotted against the number of
homes passed demonstrating growth in the Polish cable television industry from
1990 to 1996 from approximately 100,000 basic subscribers and 500,000 homes
passed in 1990 to approximately 1,500,000 basic subscribers and 2,700,000 homes
passed in 1996.]
Source: Baskerville Communications Corp., TV International Sourcebook 1997.
Despite the strong recent growth in the cable television industry, we
estimate only approximately 33% of the households with televisions in Poland had
cables running outside their dwellings at May 31, 1998, which we believe
provides a substantial market opportunity for cable operators. We believe that
there are a considerable number of homes remaining in Poland, particularly in
urban areas, that would be suitable for the construction of cable television
networks and the provision of cable television services.
ANALOG DIRECT-TO-HOME
Until our full-scale launch of our D-DTH service in September 1998, the only
multi-channel distribution method widely available in Poland other than cable
television was analog direct-to-home satellite services. The analog
direct-to-home (known in the pay television business as "A-DTH") market in
Poland developed rapidly following the repeal in 1989 of legislation that
required residents of Poland to acquire special permits in order to own
satellite dishes. Subsequent to this repeal, demand for A-DTH satellite services
was driven primarily by the widespread availability of high-quality, unencrypted
programming that could be obtained without charge from various European
satellites, including the Astra and Eutelsat satellites.
In the mid 1990s, programmers began encrypting the signals transmitted over
European satellites and moving their programming to a variety of satellites.
These actions had the effects of (i) limiting access to satellite programming to
paying subscribers, and (ii) reducing the quality of reception due to the
location
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of the new satellites. In order to receive a similar number of channel offerings
and clear reception, Polish consumers had to subscribe to an A-DTH service and
purchase more expensive, motorized satellite dishes and related equipment.
During this same time period, the Polish market also experienced the
introduction and growth, predominantly in urban areas, of Western-style cable
operators that offered the Polish consumer a high-quality multi-channel pay
television alternative to A-DTH at an attractive price. As the cable market has
grown, A-DTH has continued to lose market share. We believe that this trend will
continue particularly in urban markets because of A-DTH poor signal quality
relative to cable television, limited channel offerings, expensive equipment and
short life of motorized dishes as well as an increasing reluctance by co-op
authorities to permit the use of satellite dishes, particularly the larger 36"
diameter dishes used for A-DTH.
The following chart shows the relative market shares of A-DTH and cable in
Poland as measured by the number of subscribers for the years 1991 through 1997.
MARKET SHARE OF CABLE OPERATORS
VERSUS A-DTH PROVIDERS IN POLAND
[CHART]
[Chart shows the relative market share of cable operators versus A-DTH
providers in Poland from 1991 to 1997 demonstrating that the market share of
cable operators against A-DTH providers has grown from 20/80% ratio in 1991 to a
70/30% ratio in 1997.]
Source: Baskerville Communications Corp., TV International Sourcebook 1997
(includes 1991-1995 data), AGB Polska (includes 1996 and 1997 data).
D-DTH
We believe that a digital direct-to-home satellite television ("D-DTH")
service offers Polish consumers significant advantages over the current A-DTH
offerings, due to, among other factors:
- wider range of Polish-language programming available due to the
compression ability of digital technology from a single satellite
position;
- less expensive, smaller non-motorized dishes;
- the improved signal quality of D-DTH; and
- the increasing availability of premium services.
We believe that significant opportunity exists for a D-DTH service in
Poland. Approximately 8.3 million homes currently are not passed by cable and
approximately 1.6 million homes currently are equipped with an A-DTH satellite
dishes, Based on Polish consumers' willingness to spend disposable income on
television entertainment, evidenced in part by the country's 53% VCR penetration
rate at an average cost of $225 per VCR, we believe that our D-DTH service
serves as an attractive and affordable entertainment alternative. We believe
that our D-DTH system, when combined with the continued expansion of our cable
television and programming businesses, will enhance its position as the leading
provider of pay television in Poland.
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BUSINESS
INTRODUCTION
@Entertainment is the leading provider of pay television in Poland and is
engaged principally in the provision of cable television services and in the
development, packaging and delivery of high-quality programming. Over the past
three years, @Entertainment has experienced rapid growth in revenues and
subscribers, both through acquisitions and through expansion of its own cable
networks, resulting in an average increase in revenues of 66% and an average
increase in total cable subscribers of 56% per year. @Entertainment also has
increased its average revenue per subscriber by 12% per year during the past
three years. On June 5, 1998, @Entertainment launched its Wizja TV programming
package, originally consisting of 11 channels of primarily Polish-language
programming, over its cable networks. @Entertainment believes that Wizja TV will
provide it with a significant competitive advantage for attracting new
subscribers and increasing revenue per subscriber. Wizja TV will also be sold on
a wholesale basis to other cable operators in Poland.
In order to reach television households in Poland which it does not expect
to cover with its cable networks, on September 18, 1998 @Entertainment launched
a complementary digital satellite direct-to-home (known in the pay television
business as "D-DTH") television service allowing subscribers to receive Wizja TV
via a satellite dish. @Entertainment's multi-channel Polish-language D-DTH
service was the first D-DTH service available in Poland. @Entertainment has
entered into an agreement with Philips to supply the satellite dish, digital set
top box and related hardware and to distribute @Entertainment's D-DTH service
through the Philips' retail network. As of December 31, 1998 @Entertainment had
sold to Philips' authorized retailers approximately 125,000 D-DTH packages,
which include the rental of the D-DTH reception system, installation and a
one-year subscription to @Entertainment's D-DTH service. As of December 31,
1998, Philips had sold and installed approximately 93,000 of these packages to
consumers. With the launch of @Entertainment's D-DTH service, @Entertainment has
started the transmission of Wizja TV, which currently consists of 19 channels
(of which 17 are primarily Polish-language), on both its D-DTH system and its
cable networks.
OUR STRENGTHS
@Entertainment has certain strengths that it believes position it to compete
successfully in the Polish pay television market and to take advantage of the
significant viewer demand for multi-channel high-quality Polish-language
programming. These strengths include:
- leading market position;
- compelling programming;
- advanced technology;
- strong D-DTH distribution network; and
- high cable penetration and low churn.
LEADING MARKET POSITION. @Entertainment is currently the largest cable
television operator in Poland. At September 30, 1998, its cable television
networks served approximately 887,000 subscribers, representing approximately
30% of all cable subscribers in Poland and approximately 54% of all cable
subscribers in Poland to systems offering approximately 20 or more channels.
Many cable subscribers in Poland are served by small, often poorly capitalized,
cable operators, which generally feature poor quality and limited channel
offerings but at low rates and with relatively large number of subscribers as a
percentage of homes passed (known in the cable industry as "penetration").
@Entertainment believes that there are opportunities to acquire, at attractive
prices, or to displace these smaller cable operators. In addition, since cable
operators' agreements with co-op authorities are often non-exclusive, it is
easier for
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@Entertainment to build larger systems parallel to these smaller cable
operators. In the cable television industry, this process is called
"overbuilding."
With the launch of its D-DTH service, @Entertainment's strategy is to
achieve rapid penetration of the Polish market by distributing D-DTH reception
systems to 380,000 initial subscribers at the promotional prices it is now
charging in the start-up phase of its D-DTH service. @Entertainment's D-DTH
service was the first Polish-language D-DTH service available in Poland which,
when combined with the continued expansion of its cable television and
programming businesses, will enhance @Entertainment's position as the leading
provider of pay television in Poland.
COMPELLING PROGRAMMING. @Entertainment has secured exclusive Polish pay
television rights to channels and events covering what it believes are the most
important types of programming for viewers in the Polish market, including
movies, sports, children's programming, documentaries and music. @Entertainment
believes that this selection of high-quality Polish-language programming will
provide it with a significant competitive advantage in increasing its cable
subscriber base and establishing its D-DTH subscriber base.
ADVANCED TECHNOLOGY. @Entertainment's own cable television networks (other
than those it has acquired and is in the process of rebuilding to its standards)
have bandwidths of at least 550MHz which allows it to offer many television
channels. In most cases, these networks have the capacity to be cost-effectively
reconfigured to provide services such as voice and data transmission.
@Entertainment believes that in the future it will be able to provide its D-DTH
customers with additional value-added services, including interactive
television, pay per view television, near-video-on-demand, data transfer, and
services related to electronic banking, should @Entertainment decide to pursue
such ancillary sources of revenue.
STRONG D-DTH DISTRIBUTION NETWORK. Philips has agreed to distribute,
install and service D-DTH reception systems to up to 500,000 initial subscribers
through more than 1,200 Philips authorized electronics retailers located
throughout Poland. @Entertainment believes this distribution network through
Poland's largest electronics retailer provides @Entertainment with a competitive
advantage for distributing its D-DTH service into the Polish market.
HIGH CABLE PENETRATION AND LOW CHURN. @Entertainment's cable systems are
currently achieving premise penetration of approximately 57% of homes with cable
running outside ("homes passed"). In certain areas where @Entertainment has
operated its networks for an extended period of time, such as portions of the
Gdansk regional cluster, the penetration rate is approximately 62%.
@Entertainment believes that its offering of Wizja TV across its cable networks
will improve its penetration by expanding its program offering from 10 primarily
Polish-language channels not available on terrestrial frequencies to 19
channels.
In addition, @Entertainment has historically experienced annual rates
at which subscribers are terminated ("churn rates") of less than 10%, which
compare favorably to other markets such as the U.K., where in 1997 churn
rates were approximately three times this figure. In 1997, @Entertainment's
churn rate increased to 12.2%, though it would have been 9.8% had
@Entertainment not disconnected approximately 17,000 non-paying subscribers
in one of its acquired and rebuilt networks. For the nine months ended
September 30, 1998, @Entertainment's churn rate was 11.6% due primarily to
the implementation of its current pricing strategy, which commenced in
January 1997 and is designed to increase revenue per subscriber and to
achieve real profit margin increases in U.S. dollar terms. @Entertainment
expects that it will continue to experience churn rates above historical
levels during the implementation of its current pricing strategy.
SUBSTANTIAL INFRASTRUCTURE INVESTMENT. @Entertainment has developed an
advanced facility in Maidstone, U.K. for the production and transmission of
Wizja TV. In addition, @Entertainment has created a
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centralized call center to handle sales and service for both its cable and D-DTH
customers. @Entertainment believes that the call center is among the most
sophisticated in Poland. @Entertainment believes that its facilities provide it
with a competitive advantage in terms of subscriber management services and cost
efficiency.
EXPERIENCED MANAGEMENT. @Entertainment has established a strong management
team, with extensive experience in the television industry. In addition,
@Entertainment has executed consulting agreements with Samuel Chisholm and David
Chance, who were formerly Chief Executive Officer and Deputy Managing Director,
respectively, of British Sky Broadcasting Group plc, which is the leading pay
television broadcasting service in the U.K. and Ireland. In addition to
providing consulting services, Messrs. Chisholm and Chance serve on
@Entertainment's Board of Directors.
RECENT DEVELOPMENTS
- LETTER OF INTENT WITH TKP.
On April 17, 1998, @Entertainment signed a letter of intent with TKP, a
Polish company that currently operates an A-DTH and terrestrial single channel
premium pay television service in Poland, and the shareholders of TKP, namely,
Canal+ S.A., Agora S.A., and PolCom Invest S.A. The letter of intent provided
for bringing together @Entertainment's Wizja TV programming platform and the
Canal+ Polska premium pay television channel and for the joint development and
operation of a D-DTH service in Poland. The letter of intent called for
@Entertainment to invest approximately $112 million in TKP, and to sell
substantially all of @Entertainment's D-DTH and programming assets to TKP for
approximately $42 million. The TKP joint venture was to be owned 40% by
@Entertainment, 40% by Canal+ S.A., 10% by Agora S.A. and 10% by PolCom Invest
S.A. The letter of intent also contained a standstill provision whereby neither
@Entertainment nor TKP could, for a period of 45 days after the execution of the
letter of intent, launch any digital pay television service. As a result,
@Entertainment postponed its launch of the Wizja TV programming platform and its
D-DTH service, which was originally scheduled for April 18, 1998. The
establishment of the joint venture was subject to the execution of definitive
agreements, regulatory approvals and certain other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
required date set forth in the letter of intent. Therefore, @Entertainment
terminated the letter of intent on June 1, 1998. @Entertainment has informed TKP
and its shareholders that @Entertainment remains willing to discuss other joint
marketing arrangements which may include some form of joint venture, investment,
or cooperation in the future. A portion of the net proceeds of the sale of the
existing notes may be used for such purpose. TKP and its shareholders have
informed @Entertainment that they believe @Entertainment did not have the right
to terminate the letter of intent, and have initiated arbitration proceedings
against @Entertainment. For a general description of the arbitration
proceedings, you should read the "Legal Proceedings" section at the end of the
"Business" section.
- POSSIBLE SALE OF MINORITY INTEREST IN POLAND COMMUNICATIONS, INC.
@Entertainment is considering the possibility of selling a minority interest
in PCI, which operates @Entertainment's cable business, and using the proceeds
to further the development of PCI's business. Currently, @Entertainment owns
100% of PCI. @Entertainment may not be able to consummate this transaction.
- SERIES C SENIOR DISCOUNT NOTES OFFERING.
On January 20, 1999, @Entertainment sold $36,001,321 aggregate principal
amount at maturity of Series C Senior Discount Notes due 2008 for gross proceeds
of approximately $9.8 million.
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- UNITS OFFERING.
On January 27, 1999, @Entertainment sold 256,800 units, each unit consisting
of a $1,000 principal amount at maturity 14 1/2% Senior Discount Note due 2009
and four warrants to purchase an aggregate of 1,813,665 shares of common stock,
for gross proceeds of approximately $100 million. These notes are the existing
notes we are offering to exchange.
- CUMULATIVE PREFERENCE SHARE OFFERING.
On January 27, 1999, @Entertainment sold 45,000 shares of its Series A 12%
Cumulative Preference Shares, 5,000 shares of its Series B 12% Cumulative
Preference Shares, and 50,000 warrants for gross proceeds of approximately $50
million.
CABLE OPERATIONS
@Entertainment operates the largest cable television system in Poland with
approximately 1,565,000 homes passed and approximately 887,000 total
subscribers. @Entertainment's cable subscribers are located in regional clusters
encompassing eight of the ten largest cities in Poland, including those cities
which @Entertainment believes provide the most favorable demographics for cable
television in the country. @Entertainment believes that additional subscriber
growth can be achieved through a combination of increased penetration, new
network expansion and acquisitions. At September 30, 1998, @Entertainment had
invested more than $133.9 million to construct fiber-optic cable networks, which
it believes are among the most technologically advanced in Poland and are
comparable to modern cable networks in the U.S. The networks constructed by
@Entertainment provide excess channel capacity and are designed to maximize
reliability. It is @Entertainment's policy to upgrade as rapidly as possible
substandard networks that it has acquired.
CABLE OPERATING STRATEGY
With the fall of Communist rule in 1989, @Entertainment believed that it
could gain significant market advantages by becoming one of the first cable
operators to establish a high-quality cable television system in Poland.
@Entertainment believes that it has achieved its initial goals of rapidly
increasing its coverage areas, establishing its business reputation, and
providing a high-quality signal, wide channel offerings and quality of service
comparable to that provided by world-class cable operators.
Having established itself as the leading cable television service provider
in Poland, @Entertainment's current strategic objective is to increase cash flow
and enhance the value of its cable networks. To accomplish this objective,
@Entertainment's business and operating strategy in the cable television
business is to:
<TABLE>
<S> <C>
- - PROVIDE COMPELLING @Entertainment currently provides the Wizja TV programming
PROGRAMMING. package, which currently has 19 television channels of
primarily Polish-language programming, to its cable
subscribers. @Entertainment believes that this selection of
high-quality Polish- language programming will provide it
with a significant competitive advantage in increasing its
cable subscriber base.
- - INCREASE PRICING AND @Entertainment has implemented a pricing strategy designed
MAXIMIZE REVENUE PER to increase revenue per subscriber and to achieve real
CABLE SUBSCRIBER. profit margin increases in U.S. dollar terms. In connection
with this pricing strategy, @Entertainment intends to
continue to introduce new program offerings and to improve
its services. As a result, @Entertainment has experienced
and expects that it will continue to experience subscriber
termination rates above historical levels resulting from the
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
implementation of its pricing strategy. @Entertainment
generally receives a premium for its cable television
services over the prices charged by its competitors,
particularly poor-quality small operators. Despite its
generally higher price levels, @Entertainment has achieved
significant growth in penetration and market share while
maintaining relatively low annual cable television
subscriber termination rates. @Entertainment believes its
ability to successfully command higher prices reflects its
higher levels of customer service, broader selection of
quality programming and the greater technical quality of its
cable television networks.
- - EXPAND REGIONAL CLUSTERS. @Entertainment's strategy is to continue to expand the
coverage areas of its regional clusters, both through
selected building of its existing networks and acquisitions.
@Entertainment intends to expand primarily in areas where it
can fill-in existing regional clusters and into cities and
towns adjacent to its regional clusters through the
continued building of its existing networks. @Entertainment
also plans to expand its regional clusters through the
continued acquisition of smaller cable television operators.
In addition, in markets where @Entertainment has established
operations, it intends to selectively overbuild in an effort
to consolidate the market. By implementing this strategy for
expanding its regional clusters, @Entertainment believes it
can limit its per-subscriber build-out costs and realize
significant synergies from leveraging its existing
infrastructure and asset base, both in terms of personnel
and in terms of capital costs. Because @Entertainment has a
management structure and operating systems in place in each
of its regional clusters, it is able to realize significant
cash flow margins from each dollar of revenue generated
through the addition of subscribers to its existing regional
clusters.
- - INCREASE SUBSCRIBER @Entertainment believes the most profitable means of
PENETRATION. expanding its cable television business is to leverage its
investment in its cable networks by increasing subscriber
penetration in its regional clusters. Once a building with
multiple apartment units is passed by @Entertainment's cable
television networks, @Entertainment can add subscribers who
generate average annual subscription revenue of
approximately $65 in return for an average capital
investment of approximately $20 per subscriber.
@Entertainment plans to increase subscriber penetration by
(A) executing an aggressive sales, marketing and promotional
strategy using @Entertainment's highly trained and
commissioned Polish sales force, with particular emphasis on
company-wide quarterly remarketing campaigns, (B) continuing
to enhance @Entertainment's program offerings, particularly
through expanding Wizja TV's channel line-up, and (C)
applying prompt, courteous and professional customer service
standards.
- - REALIZE ADDITIONAL @Entertainment aggressively seeks to realize operating
OPERATING EFFICIENCIES. efficiencies in both its acquired as well as its existing
cable networks by, among other things, eliminating redundant
satellite signal receivers, combining customer service
offices and reducing administrative personnel.
@Entertainment generally has been able to eliminate
personnel in its acquired cable television systems by
managing the systems with experienced personnel from one of
its existing regional clusters.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
@Entertainment can also generally reduce the technical
personnel necessary to operate acquired systems after
connecting them to @Entertainment's existing satellite
signal receivers or, if required, rebuilding them to
@Entertainment's standards. @Entertainment also intends to
reduce the number of employees through consolidation of its
existing clusters of regional operations from eight to four,
and through centralizing its subscriber management and
customer support services in the call center.
The call center is operational for cable customers in the
Katowice regional cluster and for D-DTH customers and is
expected to be operational for all cable customers by the
middle of 1999. The call center is located in Katowice, a
low cost area of Poland, and will consolidate the functions
of @Entertainment's existing regional customer service
centers. Moreover, @Entertainment believes the
centralization of service functions will improve the general
level of customer service available to subscribers.
@Entertainment is also in the process of installing an
integrated management information system for both its
billing and accounting systems, which is designed to further
improve employee productivity and customer service for both
its cable and D-DTH businesses. @Entertainment believes that
its size and market share give it a competitive advantage by
creating economies of scale, including minimized building
and reduced operating costs per subscriber and volume price
discounts for programming and construction expenditures.
@Entertainment's size also provides it with the operating
leverage to spread certain expenses (such as promotional
materials, advertisements, local programming and sales
materials) over its large number of subscribers, which
economies of scale should continue to improve as its
subscriber base increases.
</TABLE>
REGIONAL CLUSTERS
@Entertainment has established eight regional clusters for its cable
television business encompassing eight of the ten largest cities in Poland,
which @Entertainment believes are among those with the strongest economies and
most favorable demographics for cable television in the country.
The following table illustrates certain operating data of each of
@Entertainment's existing regional clusters.
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OVERVIEW OF THE COMPANY'S EXISTING CABLE SYSTEMS(1)
<TABLE>
<CAPTION>
AVERAGE
BASIC
SUBSCRIPTION
REVENUE PER
TOTAL HOMES TOTAL BASIC BASIC BASIC
REGION HOMES PASSED SUBSCRIBERS SUBSCRIBERS(2) PENETRATION(2) SUBSCRIBER PER MONTH(2)(3)
- -------------------- ------------ ------------ ----------- ------------- ------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Gdansk.............. 280,000 236,795 148,352 118,930 50.22% $6.08
Szczecin............ 160,000 71,182 61,633 45,683 64.18% $4.94
Katowice............ 1,200,000 475,647 229,138 187,092 39.33% $5.94
Krakow.............. 400,000 151,942 79,005 67,177 44.21% $5.67
Warsaw.............. 800,000 245,220 115,822 94,209 38.42% $5.92
Lublin.............. 120,000 83,217 71,915 35,707 42.91% $5.07
Wroclaw............. 624,000 237,250 140,667 115,005 48.47% $4.17
Bydgoszcz........... 134,000 64,034 40,924 37,319 58.28% $4.46
------------ ------------ ----------- ------------- ------------- ------
Total........... 3,718,000 1,565,287 887,456 701,122 44.79% $5.46
------------ ------------ ----------- ------------- ------------- ------
------------ ------------ ----------- ------------- ------------- ------
</TABLE>
- ------------------------
(1) All subscriber data at September 30, 1998.
(2) Includes "basic" and "intermediate" packages. For a description of these
packages, see the section entitled "Service and Fees" that follows.
(3) For the nine months ended September 30, 1998.
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ACQUISITIONS
@Entertainment regularly evaluates potential acquisitions of cable networks.
@Entertainment currently has no definitive agreement with respect to any
material acquisition, although from time to time it has discussions with other
companies and assesses opportunities on an ongoing basis. @Entertainment may be
required to apply for the approval of the Polish Anti-Monopoly Office with
respect to any acquisitions it wishes to consummate. @Entertainment's ability to
enter into definitive agreements relating to material acquisition, and on what
terms, and its ability to obtain the necessary antimonoply approvals, cannot be
assured.
SERVICES AND FEES
@Entertainment charges cable television subscribers an initial installation
fee and fixed monthly fees for their choice of service packages and for other
services such as premium channels and rental of remote control devices.
@Entertainment currently offers three packages of cable television service: a
"basic package" throughout its cable television systems, and "broadcast" and
"intermediate" packages in selected areas of Poland. At September 30, 1998,
approximately 74.3% of @Entertainment's subscribers received the "basic
package", approximately 4.7% received the "intermediate package" and
approximately 21% received the "broadcast package" of service.
BASIC PACKAGE. The "basic package" includes approximately 30 to 62
channels. This package generally includes all Polish terrestrial broadcast
channels, most major European satellite programming legally available in Poland,
regional and local programming and, on most of its cable networks, Wizja TV,
including @Entertainment's proprietary Polish-language channel, Atomic TV.
@Entertainment's "basic package" offerings vary by location. In most of our
major markets, the "basic package" includes the following types of channels:
- 28 primarily Polish-language channels (including most channels on Wizja
TV);
- 9 English-language channels (including certain channels on Wizja TV);
- 12 German-language channels;
- 5 French-language channels;
- 1 Spanish-language channel;
- 1 Italian-language channel;
- 1 Russian-language channel; and
- 1 Swedish-language channel.
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<PAGE>
The following table sets forth the programming currently or proposed to be
offered in @Entertainment's "basic package":
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
Wizja TV(1)(2)(3) Programming platform Primarily Polish
TVP1 State-owned terrestrial general entertainment Polish
TVP2 State-owned terrestrial general entertainment Polish
Formula 11 Regional state-owned terrestrial general entertainment Polish
Polsat Terrestrial and satellite general entertainment Polish
TVN Terrestrial and satellite general entertainment Polish
NASZA TV Terrestrial general entertainment Polish
TV Niepokalanow and Other Terrestrial religious and/or general entertainment Polish
Local Stations
TV Polonia State-owned satellite general entertainment Polish
Polsat 2 Satellite general entertainment Polish
Polonia 1 Satellite general entertainment Polish
RTL7 Satellite general entertainment Polish
PTK 1 Cable information Polish
Planete(4) Satellite documentaries French/Polish
NBC Satellite general entertainment English
CNBC Satellite general entertainment English
ONYX Satellite music German
TNT Satellite general entertainment English
Euronews Satellite news English
BBC World Satellite news and information English
BBC Prime Satellite general entertainment English
ARD 1 Satellite general entertainment German
SAT 1 Satellite general entertainment German
RTL Satellite general entertainment German
RTL 2 Satellite general entertainment German
3 SAT Satellite general entertainment German
PRO 7 Satellite general entertainment German
NTV Satellite news and information German
Deutsche Welle Satellite news and information German
DSF Satellite sports German
VIVA 2 Satellite music German
VIVA Satellite music German
M6 Satellite general entertainment French
TV 5 Satellite general entertainment French
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
MUZZIK(4) Satellite music French/Polish
TVE Satellite general entertainment Spanish
RAI UNO Satellite general entertainment Italian
Ostankino Satellite general entertainment Russian
TV 4 Satellite general entertainment Swedish
La Cinq Satellite general entertainment French
</TABLE>
- ------------------------
(1) The channels offered on Wizja TV became available to @Entertainment's cable
subscribers beginning June 5, 1998. As part of the Wizja TV programming
platform for cable, VH-1 is expected to become available to @Entertainment's
cable subscribers in the first quarter of 1999.
(2) Including Atomic TV, which became available as a separate digitally
delivered satellite channel during the second quarter of 1997.
(3) The Discovery Channel-Europe has been distributed to cable subscribers since
March 1994 and @Entertainment has agreed to launch Animal Planet on its
cable networks, on a non-exclusive basis, in early 1999.
(4) Limited amount (at least three hours per day) of Polish-language commentary,
with audio encryptions.
With the launch of Wizja TV across @Entertainment's cable networks on June
5, 1998, all of the Wizja TV programming, other than Wizja 1 and the HBO Poland
Service, a Polish-language premium movie channel owned in part by Home Box
Office, became part of the "basic package."
INTERMEDIATE PACKAGE. The "intermediate package" includes approximately 17
to 24 channels. This package is offered for monthly fees equal to approximately
one-half of the amount charged for the "basic package." The "intermediate
package" is designed to compete with small cable operators on a basis of price,
using a limited programming offering. @Entertainment's "intermediate package"
offerings vary by location.
BROADCAST PACKAGE. The "broadcast package" includes 6 to 12 broadcast
channels with clear reception for monthly fees which are substantially less than
the amounts charged for the "intermediate package." Receiving a high-quality
signal over the air can be a problem in Poland and many cable television
subscribers would otherwise have to depend on antenna broadcast reception, which
tends to have poor signal quality and considerable outages caused by neglect and
equipment age. @Entertainment often uses the "broadcast package" to establish a
relationship with co-op authorities. In some cases, @Entertainment will offer
the "broadcast package" at a nominal monthly charge to all residents within a
co-op authority's jurisdiction in return for a long-term exclusive contract to
provide cable services. In such cases, @Entertainment uses the "broadcast
package" as a marketing vehicle to attract subscribers to its cable networks and
subsequently to convert them to subscribers who will subscribe for a package of
cable television service that includes more channels than the "broadcast
package". There are Polish regulations on the order in which channels can be
added to cable systems. As a result, most "broadcast packages" include public
television programs, which Polish law requires to be the first channels carried
on any Polish cable television system.
PREMIUM AND OTHER SERVICES. For an additional monthly charge, certain of
@Entertainment's cable networks currently offer three premium television
services--Wizja 1, the HBO Poland service (a Polish-language premium movie
channel owned in part by Home Box Office) and Canal+ Polska--to customers on a
monthly basis. @Entertainment plans to create additional premium channels that
will also be offered to cable customers for an additional charge.
Other optional services include additional outlets and stereo service, which
enables a subscriber to receive 12 or more radio channels in stereo. Cable
television subscribers who require the use of a tuner to receive certain of
@Entertainment's cable services are charged an additional fee of approximately
$1.10
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per month. Installation fees vary according to the type of connection required
by a cable television subscriber. The standard initial installation fee is
approximately $23 to $51 in buildings with multiple apartment units and
approximately $83 to $186 for single family dwellings, but such fees may be
subject to reductions as a result of promotional campaigns.
PRICING STRATEGY. Prior to December 1996, @Entertainment's cable television
pricing strategy was designed to keep its profit margin relatively constant in
U.S. dollar terms in more mature systems and to increase rates in more recently
acquired or rebuilt systems. @Entertainment has historically experienced annual
churn rates of less than 10%, and has been able to pass on the effects of
inflation through price increases. In 1997, the churn rate increased to 12.2%,
though it would have been 9.8% had @Entertainment not disconnected approximately
17,000 non-paying subscribers in one of its acquired and rebuilt networks. For
the nine months ended September 30, 1998, @Entertainment's churn rate was 11.6%
due primarily to the implementation of its current pricing strategy. This
pricing strategy commenced in January 1997 and is designed to increase revenue
per subscriber and to achieve real profit margin increases in U.S. dollar terms.
@Entertainment expects that it will continue to experience churn rates above
historical levels during the implementation of its current pricing strategy.
Although operators of small, poor quality cable networks often offer
services at lower prices than @Entertainment, @Entertainment believes that the
enforcement of technical standards and of copyright laws in Poland will require
such operators to rebuild or upgrade their systems as necessary to comply with
technical standards and pay for programming that is currently being obtained
free of charge.
Cable television subscribers are billed monthly in advance and, as is
customary in Poland, most of @Entertainment's customers pay their bills through
their local post office or bank. @Entertainment has strict enforcement policies
to encourage timely payment. Such policies include notices of late payment,
visits from service personnel, and ultimately, disconnection for nonpaying
customers 60 days after a bill becomes past due. @Entertainment's system
architecture in most networks enables it to promptly shut off service to
nonpaying customers and is designed to reduce non-authorized use of its cable
systems. @Entertainment does not consider bad debt to be material to its
operations. @Entertainment's bad debt expense has historically averaged 1.3% of
revenue.
SALES AND MARKETING
@Entertainment's sales and marketing process is divided into the following
four parts:
- Operating area development;
- New market sales;
- Remarketing sales; and
- Customer service.
OPERATING AREA DEVELOPMENT. The operating area development process in
Poland is very different from that in Western cable television markets, because
a Polish cable operator's geographic build is dependent on reaching agreements
with individual co-op authorities rather than upon the issuance of an operating
area development permit for a region by the government. The co-op authorities
make decisions on behalf of the residents, including decisions as to the
carriers of cable television. @Entertainment's operating area development
process begins with targeting a building with multiple apartment units, is
followed by negotiations with the relevant co-op authority, and ultimately
involves reaching an agreement with the co-op authority to allow construction
and installation of the cable television network. @Entertainment's strategy is
to identify those geographic areas and housing estates with the most favorable
demographic characteristics, highest population densities and lowest levels of
competition from other cable operators.
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<PAGE>
NEW MARKET SALES. After an agreement with a co-op authority has been
reached and construction of the cable network infrastructure has been completed,
@Entertainment focuses its efforts on direct, door-to-door sales to individual
households. While @Entertainment utilizes advertising in a variety of media
(including television, radio, newspapers, magazines, co-op and association
publications, billboards, bus shelter posters and taxi placards) to build
general awareness and recognition of the advantages of its cable television
services, direct sales is the primary focus of the its marketing efforts. The
distribution of promotional materials (via direct mail, leaflets and door
hangers) begins several days in advance of the arrival of @Entertainment's sales
force. The materials provide for telephone and mail response, but are designed
so that the potential customer expects a direct sales visit. @Entertainment's
sales force consists of native Poles who are trained in professional sales
skills, personal interaction, product knowledge and appearance. All sales
persons are compensated by direct sales commissions and incentive bonuses. Such
employees are hired, trained and managed by @Entertainment managers whose
incentive compensation is tied directly to sales results. New market sales tend
to be highly seasonal, with the fourth calendar quarter being the most active
sales period.
REMARKETING SALES. After new areas have been marketed, @Entertainment's
remarketing efforts focus on attracting new subscribers and selling additional
products and services, such as premium channels and stereo services, to existing
subscribers. Direct door-to-door remarketing sales are enhanced through
advertising on its proprietary channels, bill inserts, door hangers, coupons,
prizes and contests, as well as advertising in other media accessible to the
general public. Company-wide remarketing campaigns are conducted quarterly and
seasonal promotions coincide with holidays and cultural events. Sales persons
are entitled to additional incentive commissions for remarketing sales.
CUSTOMER SERVICE. By implementing a Western-style customer care program
that includes such features as courteous customer service representatives,
prompt responses to service calls and overall reliability, @Entertainment has
introduced a quality of service generally not found in Polish consumer markets.
@Entertainment generally guarantees service within 24 hours of a subscriber
request. @Entertainment is in the process of establishing a customer service
facility within the call center for both the cable and D-DTH businesses. The
call center will provide telemarketing and sales and service support and will
include specialized billing software with on-line real time access to customer
accounts, designed to provide better access to customer information and to
improve customer service. The call center is operational for cable customers in
the Katowice regional cluster and for D-DTH customers and is expected to be
operational for all cable customers by the middle of 1999. @Entertainment
believes this will allow it to offer a high level of customer service at
relatively low cost to its cable customers.
@Entertainment believes that its customer care program gives it a distinct
competitive advantage over other cable providers in the Polish market, has
contributed to @Entertainment's low churn rate and has been a primary motivation
for consumers to select @Entertainment as their cable television provider when
provided with a choice.
TECHNOLOGY AND INFRASTRUCTURE
@Entertainment believes the fiber-optic cable television networks that it
has constructed, which serve approximately 60% of its subscribers, are among the
most technologically advanced in Poland and are comparable to modern cable
television networks in the U.S. All of @Entertainment's networks that have been
constructed by @Entertainment have bandwidths of at least 550 MHz, with one
network as high as 1 GHz. New portions of the networks which are currently being
constructed are being designed to have minimum bandwidths of 860 MHz.
@Entertainment's goal is to upgrade any portions of its cable television
networks that have bandwidths below 550 MHz (generally acquired from other
entities) to at least 860 MHz in an effort to reduce the number of satellite
signal receivers and parts inventory required in the networks. @Entertainment
uses fiber-optic and coaxial cables, electronic components and connectors
supplied by leading Western firms in its cable television networks.
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@Entertainment's cable television networks, in most cases, use a combination
of fiber optic and coaxial cables in groupings of 2,000 homes, @Entertainment
uses a "switched-star" configuration for its cable television networks by
installing a discreet drop cable which runs from a secure lockbox to each home
(as opposed to a loop system which feeds multiple homes from a single cable),
allowing @Entertainment to more efficiently disconnect non-paying customers, add
or remove service options to individual homes and audit its systems to detect
theft of signal. Where required, high-quality tuners are used in cable
television subscriber homes.
@Entertainment's cable television networks were constructed with the
flexibility and capacity to be cost-effectively reconfigured. These networks
could be reconfigured to offer an array of interactive and integrated
entertainment, telecommunications and information services, including combined
telephone and cable television services and digital data transmission, if
@Entertainment decides to pursue such ancillary sources of revenue in the
future. @Entertainment's systems provide excess channel capacity and are
designed to maximize reliability. Most of @Entertainment's cable networks
currently have the ability to carry 40 to 60 television channels. @Entertainment
operates its systems at approximately 49% to 69% of channel/bandwidth capacity.
Two-way capability can be added to most of @Entertainment's networks at limited
cost to provide addressable and interactive services in the future. The cable
television networks constructed by @Entertainment meet or exceed the technical
standards established by Polish regulatory authorities, and @Entertainment's
policy is to upgrade as rapidly as possible substandard cable television
networks obtained in acquisitions. @Entertainment is considering teaming
arrangements with certain Western telecommunication companies in order to create
one or more consortia to bid on regional telephone licenses, utilizing excess
capacity from @Entertainment's cable networks.
@Entertainment has been able to avoid constructing its own underground
conduits in certain areas by entering into a series of agreements with regional
and local branches of the Polish national telephone company (known in the Polish
telecommunications industry as "TPSA") which permit @Entertainment to use TPSA's
conduit infrastructure for an indefinite period of time or for fixed periods up
to 20 years. @Entertainment also has agreements to undertake joint construction
with TPSA and other utilities for new conduits in certain areas. These
agreements represent a major advantage to @Entertainment since they permit
@Entertainment to minimize the costly and time-consuming process of building new
conduit infrastructure where TPSA conduit infrastructure exists and provide for
joint construction with TPSA and other utilities of conduit infrastructure where
none currently exists. On September 30, 1998, approximately 56% of
@Entertainment's cable television plant had been constructed utilizing
pre-existing conduits of TPSA. A substantial portion of @Entertainment's
contracts with TPSA permit termination by TPSA without penalty at any time
either immediately upon the occurrence of certain conditions or upon provision
of three to six months' notice without cause.
Generally speaking, TPSA may terminate a conduit agreement immediately (and
without penalty) if:
- @Entertainment does not have a valid permit from the Polish State Agency
of Radio Communications authorizing the construction and operation of a
cable television network in a specified geographic area covering the
subscribers to which the conduit delivers the signal;
- @Entertainment's cable network serviced by the conduit does not meet the
technical specifications required by the Polish Communications Act of
1990;
- @Entertainment does not have a contract with the cooperative authority
allowing for the installation of the cable network; or
- @Entertainment does not pay the rent required under the conduit agreement.
As of September 30, 1998, TPSA was legally entitled to terminate conduit
agreements covering approximately 79,000 or 9% of @Entertainment's subscribers.
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@Entertainment estimates that at the end of September 1998 it had over 4,153
kilometers of cable television plant constructed and that the fiber-optic
backbone of its networks was substantially complete. @Entertainment expects that
its future capital expenditures for the cable business will consist primarily of
capital needed for the incremental addition of new buildings with multiple
apartment units and cable television subscribers to its existing networks for
building or rebuilding associated with the acquisition of new cable television
systems, and for other capital costs in connection with such acquisitions. From
its existing infrastructure base, @Entertainment's incremental build cost to add
an adjacent building with multiple apartments or additional subscribers in
buildings with multiple apartments to existing networks averages approximately
$200 per subscriber (subscribers in buildings with multiple apartments represent
more than 95% of @Entertainment's total subscribers). @Entertainment believes
that several primary factors contribute to its favorable cost structure. The
significant density of homes per kilometer of cable plant in @Entertainment's
core markets and @Entertainment's conduit agreements substantially reduce its
build costs. Moreover, @Entertainment believes that the size of its construction
program allows it to negotiate attractive construction labor contracts and
discounts on materials.
D-DTH
@Entertainment has expanded its distribution capacity with the launch of its
D-DTH broadcasting service for Poland, targeted at homes that are not
subscribers to @Entertainment's cable service. The programming provided is Wizja
TV. @Entertainment's multi-channel Polish-language D-DTH service, which is the
first D-DTH service available in Poland, is being broadcast to Poland from its
transmission facilities in Maidstone, U.K. At December 31, 1998, @Entertainment
had sold to Philips' authorized retailers approximately 125,000 D-DTH packages,
which include the rental of the D-DTH reception system, installation and a
one-year subscription to @Entertainment's D-DTH service. As of December 31,
1998, Philips had sold and installed approximately 93,000 of these packages to
consumers.
D-DTH ROLL OUT STRATEGY
@Entertainment's D-DTH roll out strategy is to lease D-DTH reception systems
to up to 500,000 targeted initial subscribers. @Entertainment will make D-DTH
reception systems available to the first 380,000 subscribers at the promotional
price it is now changing in the start-up phase of its D-DTH service. This
strategy is designed to achieve high penetration of the Polish market. The
launch of the D-DTH service is supported by @Entertainment's development of
Wizja TV, which @Entertainment believes responds to the demand for high-quality
Polish-language programming in Poland.
@Entertainment broadcasts digital programming from its Maidstone facility
through its satellite transmission facilities to one of three transponders
leased by it on the Astra 1E and 1F satellites. These satellites then retransmit
the signals to the D-DTH reception systems of the Polish subscribers and to
@Entertainment's cable networks. In the future, @ Entertainment will also
transmit the signals to other Polish cable operators, if any, having
distribution agreements with @Entertainment.
@Entertainment believes that its multi-channel D-DTH service is among the
first digital television platforms launched in Europe. D-DTH systems use medium
or high-power satellites to deliver signals to satellite dish antennae at homes,
hotels and apartment buildings. Unlike locally transmitted signals from
multi-channel multi-point distribution systems ("MMDS"), which allow for a
one-way radio transmission of television channels over microwave frequencies
from a fixed station to multiple receiving facilities located at fixed points,
transmissions from D-DTH satellites can cover large land areas.
The advantages of a D-DTH system are:
- A D-DTH system significantly decreases the cost of transmitting a channel,
because of its ability to transmit more channels from one transponder;
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- Additional capacity available from digital compression enables
@Entertainment to offer a much wider range of programming, sports and film
channels, which @Entertainment believes will lead to increased demand for
its services;
- Digital technology also provides enhanced picture and sound quality and
allows interactive features, such as an electronic programming guide,
which is not available using A-DTH technology; and
- A D-DTH system allows @Entertainment to reach homes in the Polish market
that are not passed by @Entertainment's cable networks.
The disadvantages of D-DTH systems presently include:
- Limited ability to tailor local programming packages to serve different
geographic markets in Poland;
- The satellite dish must be able to "see" the satellite which limits the
system's ability to reach subscribers (although less than for MMDS
systems);
- Interference from atmospheric conditions and radio frequency noise on
earth; and
- Risk of losing a satellite.
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D-DTH SERVICES AND FEES
@Entertainment began broadcasting to Poland from its transmission facilities
in Maidstone, U.K. and retransmitting Wizja TV across its cable networks on June
5, 1998, and on its D-DTH system on a limited basis on July 1, 1998, and on a
full-scale basis on September 18, 1998. For the channel-line up on Wizja TV, see
the "Programming" section that follows.
@Entertainment expects to be able to offer an event pay per view service to
its D-DTH subscribers by late 1999. @Entertainment also expects to offer certain
recently released feature films and sports and other live events on such a
service.
@Entertainment expects that its D-DTH services will also include an
electronic programming guide, an interactive service which will allow
@Entertainment to communicate with subscribers with respect to movie, sports
event and channel promotions and subscriptions. In addition, this guide will be
linked to @Entertainment's subscriber magazine, "Twoja Wizja," which is
described in the "Programming" section that follows. The digital nature of
@Entertainment's D-DTH signals will also allow @Entertainment to offer stereo
audio channels to its subscribers in the future. @Entertainment believes that in
the future it will be able to provide its D-DTH customers with additional
value-added services, should @Entertainment decide to pursue such ancillary
sources of revenue in the future.
@Entertainment currently charges its D-DTH subscribers an up-front fee of
approximately $135 plus applicable taxes. This fee includes the D-DTH reception
system rental, installation, and a one year's subscription for all channels
(other than any premium channels). After the first year of service, subscribers
will be required to pay a fee in advance for the service plus separate amounts
to receive premium channels. @Entertainment will retain ownership of the D-DTH
reception systems.
SALES AND MARKETING
To promote the launch of Wizja TV on its D-DTH system, @Entertainment has
substantially completed a $20 million nationwide marketing campaign, which
@Entertainment believes is the largest single-year product launch expenditure to
date in Poland. The marketing campaign primarily utilizes terrestrial
television, press, radio and outdoor poster sites. @Entertainment's paid
advertising spots began on September 1, 1998 and @Entertainment launched its
D-DTH service on a full-scale basis on September 18, 1998, with an aim to
establishing a base of approximately 500,000 targeted initial subscribers.
@Entertainment believes that it will be able to draw upon its extensive internal
experience in the Polish cable television business to support the introduction,
development and marketing of its D-DTH service.
Philips has agreed to supply @Entertainment with D-DTH reception systems for
up to 500,000 initial subscribers to @Entertainment's D-DTH service. Philips has
also agreed to distribute, install and service @Entertainment's D-DTH reception
systems through more than 1,200 Philips authorized electronics retailers located
throughout Poland. Philips has operated in Poland since 1991 and has experience
introducing new products to the Polish market through its extensive retail
network. In addition, Philips has supplied an end-to-end product package for
MEASAT's D-DTH service in Malaysia, utilizing CryptoWorks-Registered Trademark-
technology similar to that used in @Entertainment's D-DTH service.
@Entertainment has designed a customer service program which is intended to
produce a high level of customer satisfaction and to minimize churn rates. As
part of this strategy, @Entertainment is in the process of establishing a
customer service facility within the call center for both its cable and D-DTH
businesses. The call center will provide telemarketing and sales and service
support and will include specialized billing software with on-line real time
access to customer accounts, designed to provide better access to customer
information and to improve customer service. The call center is currently
operational for D-DTH customers. @Entertainment believes the call center will
allow it to offer a high level of customer service at relatively low cost to its
D-DTH subscribers.
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@Entertainment's D-DTH service targets homes that are not subscribers to its
cable television service. @Entertainment does not believe that there is much
incentive for @Entertainment's existing cable subscribers to switch from
@Entertainment's cable service to its D-DTH service, because with their cable
service they are able to enjoy equally good signal quality, access to the same
Wizja TV programming, and more total channels than @Entertainment's D-DTH
service offers, at a monthly cost that will, in most cases, be comparable to
that of @Entertainment's D-DTH service and without the need for investing any
funds for installation of D-DTH reception systems. However, @Entertainment will
be disadvantaged to the extent that any existing cable subscribers switch to the
D-DTH service, particularly if they are subscribers who will receive promotional
incentives from @Entertainment to significantly decrease the price of the D-DTH
reception systems, and they do not substantially increase the amount of their
monthly fees payable to @Entertainment.
TECHNOLOGY AND INFRASTRUCTURE
@Entertainment's D-DTH service is encoded, processed, compressed, encrypted,
multiplexed (i.e., combined with other channels), modulated (i.e., applied to
the designated carrier frequency for transmission to satellite) and broadcast
from Maidstone, U.K. to geosynchronous satellites ("uplinked") which receive,
convert and amplify the digital signals and retransmit them to earth in a manner
that allows individual subscribers to receive and be billed for the particular
program services to which they subscribe.
TRANSMISSION AND UPLINK FACILITIES. The channels available on
@Entertainment's D-DTH service include @Entertainment's own proprietary channels
and channels from third parties originating from a number of sources in Poland,
the U.K. and elsewhere. Most of the tailoring of programs for the local market
("localization") to be undertaken by @Entertainment, which will principally
consist of adding voiceovers or dubbing into Polish for @Entertainment's
proprietary channels on Wizja TV, will occur in Poland. For most of the channels
on Wizja TV, localization, editorial control and program packaging will be the
responsibility and at the cost of the channel supplier. The channels provided by
third parties will be delivered in tape format, through a landline or will be
backhauled (i.e., transmitted via satellite or other medium) to @Entertainment's
transmission facility in Maidstone for broadcasting to Poland.
@Entertainment has a 5 year contract with British Telecommunications plc
("BT") for the provision and maintenance of uplink equipment at Maidstone. Other
than the BT uplink equipment, @Entertainment owns all the required broadcasting
equipment at its facility in Maidstone. @Entertainment's programming is
currently transmitted to @Entertainment's transponders on Astra satellites 1E
and 1F.
@Entertainment's D-DTH signal is beamed by these satellites back to earth
and may be received in Poland by those who have the appropriate dedicated
satellite reception equipment and who have been connected by @Entertainment to
its D-DTH service as subscribers. The signal is currently received by
@Entertainment's own cable networks, and will also be received by the cable
networks of other cable operators, if any, having distribution agreements with
@Entertainment. Once the D-DTH signal has been received at the cable networks,
the signal is transmitted by cable to those who have been connected by
@Entertainment to its cable service as subscribers or connected by such other
cable operators, if any, to their own cable systems.
Philips will initially provide the following critical components and
services used in @Entertainment's D-DTH satellite transmission system and will
be the primary point of contact for subscribers to @Entertainment's D-DTH
service:
- the Philips' digital integrated receiver decoders;
- a smartcard-based proprietary conditional access system which uses Philips
CryptoWorks-Registered Trademark- technology;
- a satellite receiving dish and related equipment;
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- installation; and
- support services.
@Entertainment's agreement with Philips provides for the following:
- Philips will be the exclusive supplier of the first 500,000 D-DTH
reception systems in connection with the launch of @Entertainment's D-DTH
business in Poland.
- Philips has granted @Entertainment an exclusive license of its
CryptoWorks-Registered Trademark-technology in Poland for the term of the
agreement, which will terminate when @Entertainment has purchased 500,000
D-DTH reception systems from Philips, unless terminated earlier in
accordance with the terms of the agreement or extended by mutual consent
of Philips and @Entertainment.
- Philips will not to distribute any other IRDs under the Philips' trademark
in Poland until December 31, 1999 or any earlier date on which
@Entertainment has secured 500,000 initial subscribers to its D-DTH
service in Poland. After such period @Entertainment may license one or two
suppliers of IRDs in addition to Philips and Philips shall license its
CryptoWorks-Registered Trademark- technology to such additional suppliers
for the Polish market. However, there can be no assurance that
@Entertainment will be able to secure such additional suppliers, if
necessary.
Any new D-DTH broadcaster wishing to commence the operation of an encrypted
pay television service within Poland would need to obtain a license from Philips
to use CryptoWorks-Registered Trademark- (after the exclusive license of
CryptoWorks-Registered Trademark- for Poland granted to @Entertainment ends), or
acquire an alternative encryption and conditional access technology and build
its own decoder base capable of receiving transmissions encrypted using such
technology. If a competitor obtained a license from Philips, it could contract
with @Entertainment for access to the installed encryption decoder base utilized
by @Entertainment.
Transmissions using conditional access technology are encrypted prior to
being transmitted to satellites. The signal from the satellite is received by a
subscriber through an antenna and integrated receiver decoder, and is decrypted
via a smartcard inserted into a decoder, which is usually integrated with a
receiver into the integrated receiver decoder and connected to a viewer's
television set. A smartcard is a plastic card, usually the size of a credit
card, carrying an embedded computer chip that implements the secure management
and delivery of decryption keys necessary to descramble pay television channels
and thereby enable and disable viewing according to whether the subscriber is
authorized to receive a particular service. The smartcard receives instructions
as to whether to enable, disable, upgrade or downgrade a subscriber's level of
service via the datastream sent to the decoder within the broadcast signal. The
encryption codes contained in the smartcards can be updated via over-the-air
addressing or physically replaced.
The delivery of subscription programming requires the use of encryption
technology to prevent signal theft or "piracy." Historically, piracy in the
cable television and European A-DTH industries has been widely reported. To
@Entertainment's knowledge, there has not been a breach of
CryptoWorks-Registered Trademark- since its introduction in Malaysia in 1996. To
the extent a breach occurs, however, @Entertainment will take countermeasures,
including over-the-air measures, and if necessary the replacement of smartcards.
Although @Entertainment expects its conditional access system, subscriber
management system and smartcard system to adequately prevent unauthorized access
to programming, there can be no assurance that the encryption technology to be
utilized in connection with @Entertainment's D-DTH system will remain effective.
@Entertainment believes that the Astra satellites,
CryptoWorks-Registered Trademark- encryption technology and the integrated
receiver decoder together constitute a reliable, end-to-end cost-effective D-DTH
system, certain other large European providers of D-DTH services have selected
different satellites, encryption technology and decoders. For the risks involved
if another satellite encryption technology or decoder
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becomes the preferred standard, see "Risk Factors.--We May Incur Significant
Costs and Lose Subscribers Due to Changes in Technology."
SATELLITES. @Entertainment currently broadcasts and expects to broadcast
all of its proprietary programming and that of most of its third party
programmers from its transmission facility in the U.K. by cable to an earth
station transmitting antenna, located at its Maidstone site. The uplink facility
transmits @Entertainment's programming signal via a transponder on an orbiting
satellite transponder to the cable system receiving antennae and also to D-DTH
subscribers' reception equipment throughout Poland. @Entertainment has been
studying and discussing with relevant Polish authorities the feasibility of
locating its uplink and production facilities in Poland and applying for Polish
broadcasting licenses necessary to engage in such activities.
In March 1997, @Entertainment entered into contracts with Societe Europeenne
des Satellites S.A. ("SES") for the lease of three transponders on two
satellites, Astra 1E and 1F. The leases for the one transponder on the Astra 1E
satellite and two transponders on the Astra 1F satellite will expire in 2007.
All three transponders are currently operational and available to
@Entertainment. Aggregate charges for each transponder are capped at $6.75
million per year for each transponder and approximately $182 million for all
three transponders for the remaining term of the contract. @Entertainment's
transponder leases provide that @Entertainment's rights are subject to
termination in the event that SES's franchise is withdrawn by the Luxembourg
Government.
@Entertainment has been designated a "non-pre-emptible customer" under each
of its relevant transponder leases. As a result, in the event of satellite or
transponder malfunction, @Entertainment's use of its transponders cannot be
suspended or terminated by a broadcaster which has pre-emption rights permitting
it to gain access to additional transponders in preference to certain other
Astra customers. @Entertainment does not, however, have the right to pre-empt
other customers if its transponders stop working. A "protected customer has
pre-emption rights if its transponders stop working and its service would be
moved on to the transponder carrying a pre-emptible customer's service.
While @Entertainment has sufficient channel capacity to broadcast its D-DTH
service and to add approximately 10 additional channels to its initial Wizja TV
channel line-up on the three transponders to which it currently has access,
@Entertainment's ability to add channels to its D-DTH programming platform
beyond that point will depend upon its ability to obtain access to additional
transponder capacity on the Astra satellites or other favorably positioned
satellites or an improvement in the digital compression techniques. Due to the
high cost of insurance policies relating to satellite operations, @Entertainment
does not insure against possible interruption of access to the transponders
leased by it for satellite transmission of its programming platform. For the
risks involved in the event of a failure of one or more of the transponders
leased by @Entertainment, see "Risk Factors--Our D-DTH Business Depends on Our
Ability to Broadcast Using Transponders in Satellites, Which Are Subject to
Significant Risks and Which We Have Not Insured."
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PROGRAMMING
@Entertainment believes that there is unsatisfied demand in the Polish
market for high-quality Polish-language programming and that the quality and
variety of Polish-language programming offered is a critical factor in building
and maintaining successful multi-channel pay television systems in Poland. The
principal programming objective of @Entertainment is to develop and acquire
high-quality Polish-language programming that can be commercially exploited
throughout Poland through D-DTH and cable television exhibition and advertising
sales. @Entertainment intends to use Wizja TV to increase the penetration rate
for its cable television networks and its D-DTH system and to increase per
subscriber revenue from its cable systems. @Entertainment also expects to
distribute Wizja TV on a wholesale basis to other cable operators in Poland.
The Polish television industry, like those in many emerging markets,
currently relies primarily on programming from foreign sources (translated or
dubbed into Polish) and limited local broadcasting alternatives.
PROGRAMMING STRATEGY
@Entertainment's programming strategy is focused on the development and
acquisition of high-quality Polish-language programming. Its programming
strategy is based upon four elements.
<TABLE>
<S> <C>
- - ESTABLISH AND EXPAND
PROGRAMMING PACKAGE....... 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 @Entertainment and 15 channels that
are produced by third parties, nine of which are broadcast
under exclusive agreements for pay television in Poland.
@Entertainment expects to expand Wizja TV's initial channel
line-up to include additional basic and premium channels,
including Wizja Le Cinema, E! Entertainment and
@Entertainment's proprietary Wizja Sport channel, and
eventually to introduce tiered packages containing a variety
of combinations of 21 or more channels.
- - DEVELOP AND EXPAND
PROPRIETARY CHANNELS...... @Entertainment intends to develop and expand its sports
programming through Wizja Sport. In addition, to developing
additional proprietary programming, @Entertainment has
entered into and intends to enter into joint ventures and
other similar arrangements with other programming companies.
- - CONTROL CONTENT........... @Entertainment believes that the programming on Wizja TV
will provide it with a significant advantage over
competitors, and therefore @Entertainment's strategy is to
secure exclusive rights to as much high-quality
Polish-language programming as is commercially feasible.
@Entertainment has secured certain exclusive Polish pay
television rights to channels and events covering what it
believes are the most important programming genres to
viewers in the Polish market, including movies, sports,
children's programming, documentaries and music.
@Entertainment intends to continue to use exclusive
agreements, where practicable, in expanding the programming
available on Wizja TV.
- - USE PROGRAMMING TO DRIVE
DISTRIBUTION.............. @Entertainment intends to use its programming to increase
penetration of its cable distribution business. Wizja TV is
intended to be the primary selling point of @Entertainment's
D-DTH service. @Entertainment believes that its programming
will be a significant factor in increasing the penetration
of its cable and D-DTH systems and in increasing
per-subscriber revenue from its cable networks.
</TABLE>
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THE WIZJA TV PROGRAMMING PACKAGE
The channels offered to @Entertainment's D-DTH and cable subscribers include
the following:*
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE HOURS PER DAY TERMS OF DISTRIBUTION**
- --------------------- --------------------------- -------------------- -------------- ------------------------
<S> <C> <C> <C> <C>
Wizja 1*** General entertainment Polish(1) 20 Proprietary channel
channel including movies, (Sunday to
series, exclusive sport Thursday)
and documentaries 24
(Friday and
Saturday)
Atomic TV Music Polish(1) 24 Proprietary channel
BET Music Polish/English(2) 12 Exclusive in Poland** -
on Jazz 5 year term
Wizja Pogoda Weather Channel Polish(1) 24 Proprietary channel
Twoja Wizja Programming Directory Polish(1) 8 Proprietary channel
Channel
HBO Poland Service*** Premium Movie Channel Polish(11) 18 Exclusive D-DTH in
Poland-7-year term.
Non-exclusive cable in
Poland-7-year term.
Cartoon Network Cartoons and other Polish/English(3) 18 Exclusive in Poland** -
programming 5 year term
Turner Classic Films and other programming Polish/English(5) 6 Exclusive in Poland** -
Movies(4) 5 year term
Fox Kids Poland Children's programming Polish(6) 14 Exclusive in Poland** -
5 year term
Hallmark Movies and Mini Series Polish(1) 24 Exclusive in Poland** -
Entertainment 5 year term
Channel
National Geographic Documentary Programming Polish/English(7) 12 Exclusive in Poland** -
Channel 5 year term
QuesTV Documentary programming Polish/English(8) 16 Exclusive in Poland** -
with themes of speed, 5 year term
action, and adventure
Romantica Channel Latin American romantic Polish(9) 12 Exclusive in Poland** -
series 5 year term
Travel Travel related and vacation Polish/English(10) 12 Exclusive in Poland** -
programming 5 year term
CNN International International news and English 24 Non-exclusive in Poland
feature programming - 5 year term
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE HOURS PER DAY TERMS OF DISTRIBUTION**
- --------------------- --------------------------- -------------------- -------------- ------------------------
<S> <C> <C> <C> <C>
MTV: Music Television Music and youth- oriented English 24 Exclusive D-DTH in
entertainment Poland.
Non-exclusive cable in
Poland-5-year term
Discovery Channel Documentary Programming Polish/English(12) 18 Exclusive D-DTH in
Poland
Animal Planet Documentary Programming Polish/English(12) 18 Exclusive D-DTH in
Poland
Eurosport Sports Programming Polish/English (13) at least 17 Non-exclusive D-DTH in
Poland-5-year term.
Wizja Le Cinema(14) European Films Polish 12 Exclusive in Poland** -
5 year term.
E! Entertainment(14) Entertainment Programming Polish 24 Exclusive in Poland** -
2 year term.(15)
</TABLE>
(1) @Entertainment is responsible for localizing programming into Polish.
(2) @Entertainment is responsible for localizing into Polish a level of the
programming determined by @Entertainment.
(3) The channel supplier is contractually required to localize a minimum of 14
hours per day of programming.
(4) TNT has been rebranded as Turner Classic Movies.
(5) The channel supplier is contractually required to localize an average of
three films per night or two films where the films are longer than two hours
and film related programs which must be a minimum of 6 hours of programming
content per day.
(6) The channel supplier is contractually required to have the programming
content completely localized into Polish.
(7) The channnel supplier is contractually required to localize 75% of the
program content into Polish beginning in October 1998 and 85% of the program
content beginning in January 1999.
(8) The channel supplier is contractually required to have a minimum of 95% of
the programming content into Polish beginning in January 1999.
(9) The channel supplier is contractually required to localize all programming
into Polish.
(10) The channel supplier is contractually required to use its reasonable
endeavours to localize a minimum of 85% of the qualifying programming into
Polish beginning January 18, 1999.
(11) The channel supplier is contractually required to localize a substantial
amount of the programming into Polish.
(12) The channel supplier is contractually required to use its reasonable
endeavors to localize the majority of programming into Polish and the level
of localization will continue to grow in 1999.
(13) The channel supplier is contractually required to localize 70% of
programming content into Polish by June 1, 1999 and to localize 80% of
programming content into Polish by January 1, 2000, subject to being able to
clear the Polish language rights.
(14) @Entertainment expects to launch the channel in early 1999.
(15) Term of contract is eligible for extension to five years based on the
achievement of certain viewing figures.
* The information contained in this chart summarizes only some of the
contractual terms and is not a complete description of the agreements with
the channel suppliers. @Entertainment is continuing to negotiate license
agreements for distribution to Poland of additional channels.
** Exclusive in Poland means exclusive DTH distribution rights and exclusive
cable distribution and agency rights in Poland.
*** Premium channel.
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@Entertainment has also entered into long-term exclusive agreements to
broadcast to Poland live coverage of certain sports events, including the
following:
- certain of the Polish national soccer team's games;
- certain European matches of Lech Poznan, a Polish Premier League soccer
team;
- European soccer matches, including matches from the Dutch and Portuguese
leagues;
- Polish Speedway League events;
- Speedway Grand Prix World Championships (1998-2002);
- International Skating Union Champion Series ice skating;
- games of three leading teams in the Polish Premier Hockey League; and
- certain boxing events including local Polish boxing and fights involving
Prince Naseem.
These events have been initially carried on Wizja 1 or Twoja Wizja, and they
will be carried on Wizja Sport when it is established. When established, Wizja
Sport will initially provide approximately 12 hours of local and international
sporting events per week. @Entertainment believes that Wizja Sport will be the
first channel in the Polish market principally dedicated to Polish sports
programming. Wizja Sport is expected to be launched by late 1999.
@Entertainment's ability to broadcast certain of these sporting events on an
exclusive basis may be limited by pending regulatory changes.
Several of the sports rights contracts give @Entertainment the ability to
obtain additional seasons of those sports events, either by way of a right of
first refusal or a right of first offer. Most of the sports rights agreements
grant @Entertainment exclusive rights to broadcast the sports events live in
Poland. The exclusivity in some cases is subject to the ability of the rights
owner to grant limited rights to other broadcasters to show the events on a
delayed or highlights basis. @Entertainment is currently in negotiations with
other sports rights holders to purchase the rights to additional local and
international sports events.
@Entertainment has purchased exclusive rights from third parties for
programming on 9 of the current 19 channels on Wizja TV. In some of the
agreements, however, the channel supplier may terminate the agreement and/or
eliminate the exclusivity rights if @Entertainment does not achieve specified
milestones for subscriber numbers by certain specified dates. In addition, most
of the agreements impose certain restrictions on the tiering of the particular
channel, which will limit the flexibility of @Entertainment in determining
program tiering in the future, and also include provisions whereby
@Entertainment agrees to indemnify the channel supplier against any claims,
including claims made by governmental authorities, resulting from the exclusive
nature of the rights granted or from the tiering restrictions. Some of the
agreements require payments based on a guaranteed minimum number of subscribers,
and some require payments at the time of execution. At December 31, 1998,
@Entertainment was committed to pay approximately $201.7 million in guaranteed
minimum payments over the next seven years in respect of broadcasting and
programming agreements, of which approximately $32.6 million was committed
through the end of 1999. In addition, @Entertainment is continuing to negotiate
additional agreements with channel and program suppliers and sports rights
organizations, which agreements if consummated may require @Entertainment to pay
additional guaranteed minimum payments and/or payments at the time of execution.
In most of @Entertainment's programming agreements, the channel supplier, at its
own expense, must localize its programming into the Polish language prior to the
launch of Wizja TV. In most of its programming agreements, @Entertainment is
required to make payments to the channel supplier on a monthly basis based on
the number of subscribers to whom the programming is made available.
In addition, some of the agreements impose certain limitations, including:
- the channel must be received by 100% of subscribers to the Company's D-DTH
service and by all "basic package" subscribers of @Entertainment's cable
system or by most of its cable subscribers;
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- the channel must be provided, under certain restricted circumstances, on a
stand alone basis as well as part of a package of programming in certain
situations;
- the programming @Entertainment may purchase for Wizja TV may be
restricted;
- distribution of other channels as part of @Entertainment's programming
package may be limited (consequently, the consummation of an agreement
with one channel supplier has had, and will in the future continue to
have, the effect of precluding @Entertainment from entering into
agreements with other potential channel suppliers);
- suppliers of programming to a channel supplier may require @Entertainment
to assume the channel supplier's obligations to license the programming on
financial terms which are more favorable to the program provider than
those under @Entertainment's existing agreement with the channel supplier;
- @Entertainment may be required to install encryption decoder-based
technology in homes of cable subscribers receiving premium services; and
- if @Entertainment undertakes certain investments or enters into certain
transactions, certain minimum guarantees payable under the agreement would
increase and @Entertainment would lose certain rights.
As opportunities permit, @Entertainment intends to expand the channel
offerings on Wizja TV. @Entertainment is considering adding more thematic
channels to its programming package. These channels may be based on such themes
as sports, movies, news, weather, lifestyle, gameshows or childrens'
programming. @Entertainment expects it will own and develop certain of these
additional thematic channels.
PROPRIETARY PROGRAMMING
Wizja TV contains four channels, Atomic TV, Wizja 1, Wizja Pogoda and Twoja
Wizja that are owned and operated by @Entertainment. @Entertainment intends to
create additional proprietary channels, including Wizja Sport, to be added to
the Wizja TV line-up. In addition, @Entertainment has established and intends to
continue to establish entities to engage in the production of programming either
to be included on @Entertainment's proprietary channels, or to be licensed to
@Entertainment for distribution as part of the Wizja TV line-up.
@Entertainment has established entities to engage in the development and
production of Polish-language thematic television channels. Those entities plan
to develop programming designed to drive subscriber growth on @Entertainment's
cable television networks and on its D-DTH system and increase revenue per cable
subscriber. In December 1996, @Entertainment acquired 45% of Ground Zero Media
Sp. z o.o. ("GZM"), a joint venture with Polygram, the recording company, Atomic
Entertainment LLC, and Planet 24 Productions Limited, an independent production
company. In February and March 1998, @Entertainment acquired the remaining 55%
interest in GZM from the GZM stockholders. GZM's only business is the
development and production of Atomic TV, a Polish-language music television
channel aimed at the 14-29 year old audience. Atomic TV began to be broadcast
via satellite on April 7, 1997 across the cable systems of @Entertainment and
other cable operators. Atomic TV is currently distributed to more than 900,000
cable subcribers, and @Entertainment believes that based on distribution it is
the leading cable television channel in the Polish market.
In addition, @Entertainment is developing Wizja 1 as the primary channel for
entertainment, Wizja Pogoda as the weather channel, and Twoja Wizja as the
programming directory channel, and intends to develop Wizja Sport as the sports
channel for its programming platform. Wizja 1 offers a wide range of
Polish-language programming, including full-length feature films, music,
lifestyle and childrens' programs, and sports events. A description of
@Entertainment's sports programming is set forth in "Business--
Programming--Wizja TV Programming Package."
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@Entertainment has entered into additional program license agreements for
high-quality programming for exhibition on Wizja 1. These agreements are with
leading international film production companies, including Channel 4
International, Minotaur, Capitol, Eaton, Itel, IMP, and BBC Worldwide for
exclusive first run pay television rights in Poland to films, mini-series and
documentaries. @Entertainment is also acquiring local Polish programming and is
in negotiations to purchase rights for other high-quality programming. It is
also investing in new Polish productions.
Wizja Sport is expected to be launched by late 1999. @Entertainment's
ability to broadcast certain of these sporting events on an exclusive basis may
be limited by pending regulatory changes.
Several of the sports rights contracts give @Entertainment the ability to
obtain additional seasons of those sports events, either by way of a right of
first refusal or a right of first offer. Most of the sports rights agreements
grant @Entertainment exclusive rights to broadcast the sports events live in
Poland. The exclusivity in some cases is subject to the ability of the rights
owner to grant limited rights to other broadcasters to show the events on a
delayed or highlights basis. @Entertainment is currently in negotiations with
other sports rights holders to purchase the rights to additional local and
international sports events.
In November 1997, @Entertainment purchased 50% of WPTS Sp. z o.o. ("Twoj
Styl"), a Polish company producing, among others, the leading Polish lifestyle
magazine, for the purpose of producing Polish lifestyle programming.
@Entertainment believes that the combination of its television expertise and
Twoj Styl's publishing experience will result in the production of high quality
lifestyle television programming, targeting primarily female audiences.
In February 1998, @Entertainment purchased, for approximately $500,000, an
option to buy a 50% plus one share interest in "Polonia" Sportowa S.A., a soccer
club in Poland. The purchase option will expire in February 1999. If
@Entertainment exercises the option, the purchase price will approximate $4.4
million.
As opportunities arise in the rapidly developing pay television market in
Poland, @Entertainment intends to consider adding more thematic channels to its
programming package. In particular, @Entertainment currently intends to create
additional thematic channels, such as sports, movies, news, weather, lifestyle,
gameshows and childrens' programming. Thematic channels permit subscribers to
choose easily the theme of the programming to be viewed at any particular time.
@Entertainment will use Wizja 1 as an anchor channel to introduce entertainment
and sports programming to the Polish market. Concepts that are well received may
become the basis for new channels. For example, Atomic TV, which debuted on a
proprietary cable channel in the spring of 1996, had generated substantial cable
television viewer and advertising interest, and it began to be offered as a
separate channel in April 1997.
In certain instances, @Entertainment has acquired equity interests in
programming produced by third parties and included on Wizja TV. Such an equity
investment allows @Entertainment access to the programming in exchange for
@Entertainment sharing the costs incurred in the creation of the Polish-language
version of the programming. For example, @Entertainment purchased an equity
interest in Fox Kids Poland, a children's entertainment channel aimed at an
audience in the 4 to 12 age group. @Entertainment expects to continue this
practice, and intends to acquire equity interests in a number of programming
providers in order to secure additional proprietary programming.
PREMIUM TELEVISION CHANNELS. @Entertainment has introduced its own premium
channel as well as premium channels supplied by third parties. On July 1, 1998,
@Entertainment introduced Wizja 1 as a premium channel. @Entertainment has also
introduced a Polish-language version of premium movie channels to its cable
subscribers for an additional monthly fee. Currently, two premium movie channels
are available in Poland, Canal+ and the HBO Poland service. Both feature movies
and also carry, or will carry, live sports and other entertainment.
@Entertainment has distributed Canal+ on a non-exclusive basis on its cable
networks since entering into a preliminary distribution agreement with Canal+ in
October 1995. @Entertainment currently has approximately 7,800 subscribers to
the Canal+ service.
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@Entertainment has signed agreements for the exclusive distribution on its
D-DTH system, and non-exclusive distribution across its cable networks, for the
HBO Poland service, a Polish-language premium movie channel owned in part by
Home Box Office. HBO currently has exclusive rights in Poland to movies from
Warner Bros., Columbia TriStar International Television and Buena Vista
International.
The HBO Poland service was launched on @Entertainment's cable network in
September 1996. To date, the service has generated significant subscriber
interest. At September 30, 1998, the service had achieved a penetration rate of
5.6% across @Entertainment's cable networks. @Entertainment began distribution
of the HBO Poland service in Warsaw in April and in Gdansk and Krakow in May
1997, and had rolled out such service to most of @Entertainment's remaining
cable systems by the end of 1997. The HBO Poland service was launched on
@Entertainment's D-DTH system in July 1998.
ADVERTISING. @Entertainment expects to attract significant advertising to
its channels as part of the Polish television advertising market, which
@Entertainment believes is still relatively underdeveloped, with television
advertising expenditures on a per capita basis being lower than in comparable
European markets. According to the TV International Sourcebook, the current size
of the Polish television advertising market was approximately $795 million in
1995. @Entertainment believes that this market is dominated by TVP and Polsat.
@Entertainment expects that its channels will provide advertisers new and better
targeted outlets in Polish television. In particular, @Entertainment believes
that its channels will be attractive to advertisers because of the relatively
affluent demographic profile of @Entertainment's anticipated subscribers, the
focus of @Entertainment on large, high economic growth areas, and the
opportunity to target viewers of particular thematic channels with
advertisements for goods and services. Furthermore, @Entertainment's channels
will give advertisers local customer access that cannot easily be replicated
through any other advertising media. In the majority of the programming
agreements, @Entertainment is entitled to at least a 50% share of the net
advertising revenue generated in connection with the particular channel, and the
channel supplier is required to contribute to the cost of marketing its channel
in Poland. @Entertainment is responsible for selling the advertising for most of
the channels. This arrangement will enable @Entertainment to market a package of
channels to advertisers in the Polish market and offer them a selection of
advertising opportunities for different market segments. In most of the
agreements with the channel suppliers, @Entertainment has the right to include
on that particular channel, for at least one minute per hour, segments promoting
the Wizja TV platform and the other Wizja TV channels. This will enable
@Entertainment to implement a comprehensive promotional strategy reinforcing the
Wizja TV brand. In addition, @Entertainment will produce and mail to its
subscribers a monthly subscriber magazine, announcing channel line-ups,
programming schedules and special events, and providing further opportunities
for promoting Wizja TV and for obtaining revenues from commercial advertisers.
COMPETITION
The multi-channel pay television industry in Poland has been, and is
expected to remain, highly competitive. The Company competes with other cable
television operators, as well as with companies employing numerous other methods
of delivering television signals to subscribers. The extent to which the
Company's multi-channel pay television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of Polish-language programming at a more reasonable price than
the programming and prices available through alternative delivery systems.
CABLE TELEVISION. In the cable television industry, @Entertainment believes
that competition for subscribers is primarily based on price, program offerings,
customer service, and quality and reliability of cable networks.
Operators of small cable networks, which are active throughout Poland, pose
a competitive threat to @Entertainment because they often incur lower capital
expenditures and operating costs and therefore have the ability to charge lower
fees to subscribers than does @Entertainment. While such operators often do not
meet the technical standards for cable systems under Polish law, enforcement of
regulations
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governing technical standards has historically been poor. Regardless of the
enforcement of these laws and regulations, @Entertainment expects that operators
of small cable networks will continue to remain a competitive force in Poland.
In addition, certain of @Entertainment's competitors or their affiliates
have greater experience in the cable television industry and have significantly
greater resources (including financial resources and access to international
programming sources) than @Entertainment. The largest competitors of
@Entertainment in Poland include Bresnan Communications, which owns at least
three cable systems (including Aster City Cable Sp. z o.o.) and Multimedia
Polska S.A., a Polish entity. In addition, @Entertainment understands that a
number of cable operators in Poland (led by Bresnan Communications) have formed,
or are in the process of forming, a consortium for the joint creation and
production of Polish-language programming.
@Entertainment's cable television business also competes with companies
employing other methods of delivering television signals to the subscribers,
such as terrestrial broadcast television signals and A-DTH television services,
and with a multi-channel multi-point distribution system and D-DTH services
(including @Entertainment's own D-DTH service).
D-DTH. @Entertainment's D-DTH business will compete with traditional cable
systems, including its own, and terrestrial broadcast and A-DTH services as well
as other potential D-DTH and MMDS services. TKP, which is partially owned by
Canal+ S.A., currently offers a single channel Polish-language pay television
service (including A-DTH). TKP, in conjunction with other Polish broadcasting
entities such as Polsat S.A. (a Polish private broadcaster), Telewizja Polska
S.A. (the Polish national public broadcaster), Polskie Media S.A. (a Polish
regional broadcaster and Aster City Cable (a Warsaw-based cable television
operator), launched a multi-channel D-DTH service in Poland in November 1998
under the name Cyfra+.
@Entertainment cannot predict whether other European or Polish broadcasters,
such as BSkyB, Bertelsmann, Kirch or Polsat, will choose to enter the Polish
D-DTH market. Certain of @Entertainment's current and potential competitors,
either alone or in joint ventures with other competitors, have either launched
or announced plans to launch D-DTH systems for other European countries. Many of
@Entertainment's current and potential competitors have significantly greater
financial, managerial and operational resources and more experience in the DTH
business than @Entertainment.
Pay television services also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
video cassette recorders. The extent of such competition depends upon, among
other things, the price, variety and quality of programming offered by pay
television services and the popularity of television itself.
PROGRAMMING. In the programming business, @Entertainment competes with
other television companies, both free (broadcast) television and pay television
(including Canal + and HBO), for the acquisition of sports rights and most other
programming, including the rights to feature films and television series and the
right to participate in joint ventures with other creators of programming.
@Entertainment also competes with other programming creators for the hiring of
personnel with creative and production talent for the development of
programming. If @Entertainment is precluded from creating or obtaining
programming due to exclusive agreements entered into between programming
creators and @Entertainment's competitors, @Entertainment will face difficulty
in creating or acquiring sufficient high-quality programming to attract and
retain subscribers and commercial advertising customers for its cable and D-DTH
services. If @Entertainment cannot negotiate exclusive agreements with suppliers
of its programming or such agreements become unenforceable, @Entertainment will
not be able to preclude its competitors from obtaining access to such
programming. If @Entertainment's competitors have access to the same programming
as @Entertainment, @Entertainment's programming line-up will be less unique and
less attractive to subscribers.
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PROPERTIES
At September 30, 1998, @Entertainment owned equipment used for its cable
television business, including 116 satellite receivers for cable networks, and
approximately 4,153 kilometers of cable plant. @Entertainment has approximately
206 lease agreements for offices, storage spaces and land adjacent to the
buildings. The total area leased amounts to approximately 26,300 square meters
(most of which is land adjacent to buildings). The areas leased by
@Entertainment range from approximately 10 square meters up to more than 12,500
square meters. The agreements are for specified and unspecified periods of time
and those for an unspecified period may be terminated with relatively short
notice periods by either party, usually three months.
@Entertainment has entered into conduit leases with TPSA (the Polish
national telephone company) and, in certain cases, with other entities. The
majority of the TPSA leases require @Entertainment to bear the costs of the
maintenance of the cable. @Entertainment may not sublease the conduit or cables
or allow a third party to use the conduits or cables free of charge without
TPSA's consent. The rental charge for the conduit is usually determined on each
100 meters of conduit occupied. The agreements also contain indexation clauses
for rent adjustment purposes (based on the change of U.S. dollar exchange rates
or on the increase of real maintenance costs). A substantial portion of
@Entertainment's contracts with TPSA for the use of such conduits permit
termination by TPSA without penalty at any time either immediately upon the
occurrence of certain conditions or upon provision of three to six months'
notice without cause. Any termination by TPSA of such contracts could result in
@Entertainment losing its permits, the termination of agreements with co-op
authorities and programmers, and an inability to service customers with respect
to the areas where its networks utilize the conduits that were the subject of
such TPSA contracts. For a list of the reasons for which TPSA can terminate a
conduit agreement, the proportion of @Entertainment's cable subscribers serviced
by conduits leases subject to immediate termination and the consequences to
@Entertainment of the loss of those conduit leases, see "Risk
Factors--Termination of Our Agreements with TPSA Could Result in the Loss of our
Permits, the Termination of Agreements with Co-op Authorities and Programmers,
and an Inability to Service Our Customers."
@Entertainment believes that its existing owned properties, lease agreements
and conduit agreements are adequate for purposes of @Entertainment's cable
television operations, although additional space and conduits will be needed in
the future if @Entertainment consummates further acquisitions of cable
television networks.
In connection with the establishment of its D-DTH service and the
development of its programming business, @Entertainment has leased office space
and premises providing satellite receiving (to receive programs from suppliers),
production, post-production and program packaging facilities. This space is in
aggregate approximately 6,500 square meters and is located in Maidstone, United
Kingdom.
@Entertainment believes that its existing owned properties, lease agreements
and conduit agreements are adequate for purposes of @Entertainment's D-DTH and
programming operations, although additional space may be needed in the future
for @Entertainment's programming production activities.
TRADEMARKS
@Entertainment, either itself or through its subsidiaries, has filed or is
in the process of filing for registration of its various trademarks. The PTK
logo was registered for use in connection with television and programming
services in July 1997. Trademark applications are pending in Poland for other
variations of PTK trademarks. Also, numerous trademark applications have been
filed in Poland for the various Wizja trademarks, including but not limited to
Atomic TV, Wizja, Wizja TV and Wizja 1 logos. Additional applications for other
Wizja trademarks and related trademarks will be filed in Poland in the near
future.
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EMPLOYEES
At September 30, 1998, @Entertainment had approximately 1,266 permanent
full-time employees and approximately 64 part-time employees. In addition, as of
such date @Entertainment employed approximately 69 salesmen who received both
commissions and a nominal salary, and from time to time @Entertainment employs
additional salesmen on an as needed, commission only basis. In connection with
the establishment of its D-DTH business and the development of its programming
business, @Entertainment expects to hire a further 56 employees by the end of
1999, the majority of whom will be administrative, post-production and technical
personnel located at @Entertainment's facility in the U.K. and customer service
representatives in the call center in Poland. @Entertainment expects that
certain functions, such as satellite transmission and receiving and program
production, will be performed by employees of third parties pursuant to medium-
and long-term service agreements with @Entertainment. None of @Entertainment's
employees are unionized. @Entertainment believes that its relations with its
employees are good.
LEGAL PROCEEDINGS
@Entertainment is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which
@Entertainment is currently involved, individually and in the aggregate, is not
material to @Entertainment's business, financial condition or results of
operations.
Two of @Entertainment's cable television subsidiaries, Telewizja Kablowa
Gosat-Service Sp. z o.o. and PTK S.A., and four unrelated Polish cable operators
and HBO Polska Sp. z o.o. ("HBO Polska") have been made defendants in a lawsuit
instituted by Polska Korporacja Telewizyjna Sp. z o.o., an indirect
partially-owned subsidiary of Canal+ S.A. The lawsuit was filed in the
Provincial Court in Warsaw, XX Economic Division (Sad Wojewodzki w Warszawie,
Wydzial XX Gospodarczy) (the "Court"). The main defendant in the proceedings is
HBO Polska which is accused of broadcasting HBO television programming in Poland
without a license from the Council as required by the Polish Television Act and
thereby undertaking an activity constituting an act of unfair competition. The
plaintiff has asked the Court to order HBO Polska to cease broadcasting of its
programming in Poland until it has received a broadcasting license from the
Council, and that the defendant cable operators be ordered (i) to cease carrying
the HBO Polska programming on their cable networks in Poland until HBO Polska
has received a broadcasting license from the Council, (ii) not to use their
current filters for the purpose of unscrambling the HBO Polska programming, and
(iii) in the future, to use effective endcoding systems and systems of
controlled access to the HBO Polska programming. @Entertainment does not believe
that the lawsuit will have a material adverse effect on its business operations.
On April 17, 1998, @Entertainment signed a letter of intent with TKP, which
provided for bringing together @Entertainment's Wizja TV programming platform
and the Canal+ Polska premium pay television channel and for the joint
development and operation of a D-DTH service in Poland. For the general terms of
the letter of intent, you should read the "Recent Developments" section at the
beginning of the "Business" section. The letter of intent contained a standstill
provision whereby neither @Entertainment nor TKP could for a period of 45 days
after the execution of the letter of intent, launch any digital pay television
service. As a result, @Entertainment postponed its launch of the Wizja TV
programming platform and its D-DTH service, which was originally scheduled for
April 18, 1998. The establishment of the joint venture was subject to the
execution of definitive agreements, regulatory approvals and certain other
closing conditions.
The definitive agreements were not agreed to and executed by the parties by
the date set forth in the letter of intent (the "signature date"). Therefore,
@Entertainment terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed @Entertainment that they believe @Entertainment did
not have the right to terminate the letter of intent.
Under the terms of the letter of intent, TKP is obligated to pay
@Entertainment a $5 million break-up fee within 10 days of the signature date if
the definitive agreements were not executed by the Signature
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Date, unless the failure to obtain such execution was caused by @Entertainment's
breach of any of its obligations under the letter of intent. If there was any
such breach by @Entertainment, @Entertainment would be obligated to pay TKP $10
million. However, if any breach of the letter of intent by TKP caused the
definitive agreements not to be executed, TKP would be obligated to pay
@Entertainment a total of $10 million (including the $5 million break-up fee).
In the event that TKP fails to pay @Entertainment any of the above-referenced
amounts owed to @Entertainment, TKP's shareholders are responsible for the
payment of such amounts.
@Entertainment has demanded TKP to pay @Entertainment the $5 million
break-up fee as a result of the failure to execute the definitive agreements by
the signature date. While @Entertainment was waiting for the expiration of the
10-day period for payment of the break-up fee, TKP initiated arbitration
proceedings before a three-member arbitration panel in Geneva, Switzerland. In
the arbitration proceedings TKP and its shareholders contend that @Entertainment
breached the letter of intent, that such breach was the cause of the parties'
failure to agree and execute the definitive agreements, and that @Entertainment
is therefore liable for $10 million in damages under the letter of intent. In
its response @Entertainment denies these allegations and claims that TKP is
liable for at least $15 million in damages pursuant to the letter of intent.
This $15 million figure is composed of a claim for a $5 million break-up fee, $5
million dollars in damages due to the claim that TKP and its shareholders
breached the letter of intent, thereby causing the parties' failure to agree and
execute the definitive agreements, and at least $5 million as an indemnification
for liabilities incurred by @Entertainment as a result of certain actions taken
with respect to assets to be acquired or contracts to be assumed by TKP.
@Entertainment does not believe that the arbitration proceedings will have a
material adverse effect on @Entertainment's business, financial condition or
results of operations.
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REGULATION
We are subject to regulation in Poland, the U.K. and the European Union.
GENERAL
POLAND
The operation of cable and digital satellite direct-to-home broadcasting
("D-DTH") television systems in Poland is regulated under the Polish
Communications Act of 1990 (the "Communications Act") and the Polish Radio and
Television Act of 1992 (the "Television Act"). These are regulated:
- The Polish Minister of Communications;
- The Polish State Agency of Radio Communications ("PAR");
- The Polish National Radio and Television Council (the "Council");
Cable television operators in Poland are required to obtain permits from PAR
to install and operate cable television systems and must register certain
programming that they transmit over their networks with the Council.
In contrast to cable television regulatory schemes in the U.S. and in
certain other Western nations, neither the Minister of Communications nor PAR
currently has the authority to regulate the rates charged by operators of cable
television and D-DTH services. However, excessive rates could be challenged by
the Polish Anti-Monopoly Office should they be deemed to constitute monopolistic
or other anti-competitive practices. Cable television and D-DTH operators in
Poland also are subject to the Law on Copyright and Neighboring Rights of 1994
(the "Copyright Act") which provides intellectual property rights protection to
authors and producers of programming. Under the terms of the Television Act,
broadcasters in Poland are regulated by, and must obtain a broadcasting license
from the Council.
Because our D-DTH service is the first D-DTH service available in Poland,
there are likely to be issues of first impression not currently addressed under
Polish law with respect to certain aspects of our D-DTH business and related
programming arrangements. In addition, the Polish D-DTH market is subject to a
developing regulatory framework that may change as the market develops. Such
regulatory changes could have a material adverse effect on our business,
financial condition and results of operations.
COMMUNICATIONS ACT
PERMITS. The Communications Act and the required permits issued by PAR set
forth the terms and conditions for providing cable television services,
including:
- the terms of the permits;
- the area covered by the permits;
- technological requirements for cable television networks; and
- restrictions on ownership of cable television operators.
If a cable operator breaches the terms of its permits or the provisions of
the Communications Act, or if such operator fails to acquire permits covering
areas serviced by its networks, PAR can impose penalties on such operator,
including:
- fines;
- the revocation of all permits covering the cable networks where such
breach occurred; or
- the forfeiture of the cable operator's cable networks.
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In addition, the Communications Act provides that PAR may not grant a new
permit to, or renew an expiring permit held by, any applicant that has had, or
that is controlled by an entity that has had, a permit revoked within the
previous five years.
FOREIGN OWNERSHIP RESTRICTIONS. The Communications Act and applicable
Polish regulatory restrictions provide that permits may only be issued to and
held by Polish citizens, or companies in which foreign persons hold no more than
49% of the share capital, ownership interests and voting rights. In addition, a
majority of the management and supervisory board of any cable television
operator holding permits must be comprised of Polish citizens residing in
Poland. These restrictions do not apply to any permits issued prior to July 7,
1995.
OUR PERMITS AND NEW CORPORATE ORGANIZATIONAL STRUCTURE. Prior to the
creation of PAR and the permit system, one of our subsidiaries, Polska Telewizja
Kablowa S.A. ("PTK S.A."), received a license to operate cable television
systems in Warsaw, Krakow and the areas surrounding these cities under the
Polish Foreign Commercial Activity Act.
PTK S.A. will own all of our cable network assets and operate in the areas
covered by permits that were granted before the foreign ownership restrictions
were instituted.
To comply with the foreign ownership requirements discussed above in areas
that are not covered by the licences currently held by PTK S.A., we are in the
process of creating a new entity, Polska Telewizja Kablowa Operator Sp. Z o.o.
("PTK Operator"), which will own and operate our new or existing cable networks
whose permits are subject to the foreign ownership restrictions discussed above.
Our operating subsidiary PCI will hold a 49% ownership stake in PTK Operator
while the remaining 51% will be held by a Polish entity. PCI will, in turn, hold
49% of the Polish entity, and the remaining 51% interest in the Polish entity is
expected to be owned by a Polish financial company. We believe that this
ownership and operating structure complies with the requirements of Polish law.
PAR has granted several permits to us and our competitors, based on the lease of
assets, for networks using an ownership and operating structure substantially
similar to the one described above.
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OUR CORPORATE STRUCTURE
The following chart outlines the organizational structure of @Entertainment
and certain of our principal subsidiaries. We are currently implementing this
structure.
[Chart shows our ownership in certain of our principal subsidiaries in our
D-DTH, programming, and cable businesses. D-DTH: We own 100% of AT Entertainment
Limited and 100% of Wizja TV Sp. z o.o. PROGRAMMING: We own 100% of Sereke
Holding B.V., 50% of WPTS Sp. z o.o., 100% of Ground Zero Media Sp. z o.o., and
100% of @Enteratinment Programming, Inc. CABLE: We own 100% of Poland
Communications, Inc. PCI Owns 100% of Polsak Telewizja Kablowa S.A., and has an
ownership interest in other cable subsidiaries. PCI will own 49% of Cable
Television Newco (in formation) and 49% of PTK Operator Sp. z o.o. ('PTK
Operator') (structure to be implemented). CATV will own 51% of PTK Operator
(structure to be implemented.]
* Certain of the cable television operating subsidiaries are owned directly by
Poland Cablevision (Netherlands) B.V., of which 92.3% is owned by Poland
Communications, Inc., our major operating subsidiary.
Certain of our subsidiaries do not have valid permits covering certain of
the areas in which they operate cable networks. Most of these areas are serviced
by recently acquired or constructed cable networks for which permit applications
cannot be made until all permit requirements are satisfied (including obtaining
agreements with co-op authorities, upgrading of the acquired networks to meet
technical standards and satisfying of foreign ownership limitations), while the
remaining networks are located in areas serviced by networks for which our
subsidiaries have permit applications pending.
We may be subject to penalties if PAR or other Polish regulatory authorities
determine that all or part of our ownership and operating structure violates
Polish regulatory restrictions on foreign ownership. We would also be subject to
penalties if PAR chooses to take action against us for operating cable
television networks in areas not covered by valid permits.
Any such actions by PAR or other Polish regulatory authorities would have a
material adverse effect on the our business, financial condition and results of
operations.
TELEVISION ACT
THE POLISH NATIONAL RADIO AND TELEVISION COUNCIL. The Council, an
independent agency of the Polish government, was created under the Television
Act to regulate broadcasting in Poland. The Council has regulatory authority
over both the programming that cable television operators transmit over their
networks and the broadcasting operations of broadcasters.
REGISTRATION OF PROGRAMMING. Under the Television Act, cable television
operators must register each channel and the programming which will be aired on
that channel with the Chairman of the Council prior to transmission. In general,
the Chairman of the Council will refuse registration of programming if:
- the applicant is not legally entitled to use the cable network over which
the programming will be distributed (i.e., does not have a PAR permit
covering the network);
- the broadcasting of the programming in Poland would violate Polish law,
including provisions of the Television Act governing sponsorship,
advertising and minimum Polish and European content requirements for
programming broadcast by Polish broadcasters; or
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- the transmission of the programming over the cable network would violate
the Television Act or other provisions of applicable Polish law.
Our subsidiaries have registered most of the programming that they transmit
on their cable networks, except programming transmitted on networks for which
they do not have permits. The Chairman of the Council may revoke the
registration of any of our programming, or may not register all additional
programming that we desire to transmit over our networks. In addition, the
Council may take action regarding unregistered programming that we transmit over
cable networks for which we do not yet have PAR permits. Such actions could
include the levying of monetary fines against us, and the seizure of equipment
involved in transmitting such unregistered programming as well as criminal
sanctions against our management. These actions could have a material adverse
effect on our business, financial condition and results of operations.
RESTRICTIONS ON FOREIGN OWNERSHIP OF POLISH BROADCASTERS. The Television
Act provides that programming may be broadcast in Poland only by Polish entities
in which foreign persons hold no more than 33% of the share capital, ownership
interest and voting rights. In addition, the Television Act and applicable
Polish regulatory restrictions provide that the majority of the management and
supervisory boards of any broadcaster company holding a broadcasting license
must be comprised of Polish citizens residing in Poland. Companies that engage
in broadcasting in Poland are required to obtain a broadcasting license from the
Chairman of the Council under the Television Act. The Council may revoke a
broadcasting license for, among other things:
- violations of the Television Act;
- violations of the terms of the broadcasting license; or
- violations of restrictions on foreign ownership of broadcasters.
If the Polish regulatory authorities were to conclude that our ownership or
distribution structure is not to in compliance with Poland's regulatory
restrictions on foreign ownership, we could be forced to incur significant costs
in order to bring our ownership structure and distribution system into
compliance with the applicable regulations and we may be forced to dispose of
our ownership interests in various entities. These regulatory restrictions may
materially adversely affect our ability to enter into relationships with other
entities that produce, broadcast and distribute programming in Poland, which in
turn would have a material adverse effect on the our business, results of
operations and financial condition.
REQUIREMENTS CONCERNING PROGRAMS BROADCAST FROM OUTSIDE OF POLAND AND THEIR
POSSIBLE IMPACT ON @ENTERTAINMENT. The Television Act does not include
regulations directly applicable to the broadcasting of programs being broadcast
from abroad and received in Poland. Specifically, there are no regulations in
force concerning satellite broadcasting of a program directed to a Polish
audience if the transmission to the satellite for the broadcasting of such
program is made by a foreign broadcaster from outside of Poland. We believe that
the Television Act does not apply to such broadcasting and that such activity is
not subject to Polish broadcasting requirements. The Council has not officially
adopted an interpretation of this issue and there have been no court rulings on
this issue.
We have established and intend to continue to establish entities to engage
in the development and production of Polish-language thematic television
programming outside of Poland. While all of the content and programs which we
distribute across our cable networks and our D-DTH system are distributed via
satellite systems which are located outside of Poland, much of the programming
is produced or assembled entirely in Poland. We believe that the ownership
structure of entities involved in the process described in the preceding
sentence, as well as the operating strategy discussed above, are not subject to
Poland's regulatory restrictions on foreign ownership, licencing requirements,
restrictions and regulations on the operation of cable networks and the
broadcasting of programming.
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We could become subject to significantly increased regulations and
restrictions with respect to our business in the event that the Polish
regulatory authorities were to:
- determine that Polish regulations apply to the satellite broadcasting of a
program directed at a Polish audience, if the transmission is made by a
foreign broadcaster from outside of Poland;
- determine that the ownership and operation structure that we have
implemented with respect to the development, production and transmission
of programming across our cable networks and our D-DTH system does not
comply with applicable regulations regarding the ownership and operation
of Polish broadcasters and cable operators;
- determine that an entity which produces or assembles programming entirely
in Poland, and which provides such programming to a third-party for
transmission from abroad is a broadcaster for purposes of the Television
Act;
- undertake to regulate the D-DTH market in general or by attempting to
impose standards on encryption technology or integrated reception systems;
- adopt regulations specifying requirements for Polish or European content
of programs of distributed by non-Polish broadcasters through cable
networks in Poland; or
- change the 1989 European Convention of Transfrontier Television so that
Poland would be able to waive the protection of freedom of reception of
programs broadcast from outside of Poland by foreign broadcasters in order
to avoid Polish broadcasting regulations.
Such a determination or determinations could require us to:
- secure additional licences from the Chairman of the Council and permits
from PAR;
- modify the nature and content of our programming;
- potentially subject us to fines or other penalties for lack of compliance
with various aspects of the; or
- comply with Polish regulations governing the production and transmission
of programming across cable networks and across a D-DTH system.
The burden of complying with any such future regulations or any failure to
so comply could have a material adverse effect on our business, results of
operations and financial conditions.
COPYRIGHT PROTECTION
PROTECTION OF RIGHTS OF POLISH AUTHORS AND PRODUCERS OF
PROGRAMMING. Television operators, including cable and D-DTH operators, in
Poland are subject to the provisions of the Polish Copyright Act, which governs
the enforcement of intellectual property rights. Polish copyright law
distinguishes between authors, who are the creators of programming, and
producers, who acquire intellectual property rights in programs created by
others. In general, the holder of a Polish copyright for a program transmitted
over the cable networks of a cable television operator or the system of a D-DTH
operator has a right to receive compensation from such operator or to prevent
transmission of the program.
The rights of Polish copyright holders are generally enforced by
organizations for collective copyright administration and protection such as
Zwiazek Autorow i Kompozytorow Scenicznych ("ZAIKS") and Zwiazek Artystow Scen
Polskich ("ZASP"), and can also be enforced by the holders themselves. In
practice, the compensation paid to the holder of a Polish copyright on
programming that is transmitted over a cable television system is usually set by
contract between collective rights organizations such as ZAIKS and ZASP and the
individual cable television operator or D-DTH operator. Most of our cable
subsidiaries operate under a contract with ZASP and all of our cable
subsidiaries operate under a contract with ZAIKS. In the event that a cable or
D-DTH operator transmits programming in violation of a Polish
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copyright, either the copyright holder or the collective rights organization
which the copyright holder is a member of may sue the cable or D-DTH operator
for an injunction preventing further violations or an accounting for profits or
damages. In addition, a violation of the Copyright Act by a cable television
operator also constitutes a violation of the Communications Act and of the
operator's permits. See "--Communications Act" for a discussion of the penalties
and consequences associated with violations of the Communications Act and of a
television operator's permits.
PROTECTION OF RIGHTS OF FOREIGN AUTHORS AND PRODUCERS OF
PROGRAMMING. Foreign authors of programming receive protection under the
Copyright Act for programing that is either:
- originally published in Poland;
- originally published simultaneously in Poland and abroad; or
- originally published in Polish-language form.
In addition, foreign authors of programming receive Polish copyright
protection under the terms of the Berne Convention of 1886 as amended in Paris
in 1971 (the "Berne Convention"), which was adopted by Poland in 1994.
Under the Berne Convention, authors of programming located in other
signatory countries must be extended the same copyright protection over their
programming that Polish authors receive under the Copyright Act. Polish cable
television operators must thus make copyright payments to foreign authors
holding copyrights in programming that is transmitted over the cable networks of
such operators. The Berne Convention, however, does not grant any protection to
foreign producers of programming.
Poland has adopted the Rome Convention, which extends copyright protection
to programs of foreign producers. Poland became bound by its terms on June 13,
1997. We currently make copyright payments to the foreign programmers requiring
such payments, such as CNN, Eurosport and the Cartoon Network.
ANTI-MONOPOLY ACT
Competition in Poland is governed by the Anti-Monopoly Act. The
Anti-Monopoly Act established the Anti-Monopoly Office which is responsible for
the detection and regulation of monopolistic and other anti-competitive
practices. The current Polish anti-monopoly laws with respect to the cable,
D-DTH and programming industries are not well established, and the Anti-Monopoly
Office has not articulated comprehensive standards that may be applied in an
antitrust review in such industries. In general, the Anti-Monopoly Act prohibits
such anti-competitive arrangements and practices as:
- monopolistic agreements;
- abuse of dominant market position;
- price-fixing arrangements;
- division of market arrangements; and
- creation of market entry barriers.
If detected, the Anti-Monopoly Office may deem agreements which embody or
employ such practices, as null and void. A finding by the Anti-Monopoly Office
that our past, present or future operations, agreements or strategic actions
constituted violations of the anti-monopoly laws could adversely impact our
business, strategy, financial condition or results of operations.
EXCLUSIVE PROGRAMMING AGREEMENTS. An important factor in determining the
commercial value of programming which is distributed by a cable or D-DTH
operator, is whether such programming is widely available or if such programming
is only available on a limited or exclusive basis. Many of the programming
agreements that we have entered into for our cable networks and our D-DTH
service contain
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exclusivity clauses which restrict or prohibit the provider of such programming
from providing such programming to other cable or D-DTH operators. Although such
exclusivity clauses are not specifically prohibited under the Anti-Monopoly Act,
such agreements may be found unlawful, and therefore unenforceable, if they
restrict or hinder competition or otherwise involve the abuse of a dominant
position. A decision by the Anti-Monopoly Office to deem one or more of these
programming agreements as void due to the fact that it contains an illegal
exclusivity clause could have a material adverse effect on our business and
financial results in that such a decision would potentially reduce the
commercial value of these contracts and could reduce the consumer of appeal of
the programming offered on our cable networks and our D-DTH system.
MARKET DOMINANCE. Although the Anti-Monopoly Act does not preclude an
enterprise from occupying a dominant market position, any activities by such
enterprise is subject to detailed scrutiny by the Anti-Monopoly Office. Market
dominance is often defined as a company's ability to act independently of
competitors, contractors, and consumers. Companies that obtain control of 40% or
more of the relevant market are usually deemed to have market dominance, and
therefore face greater scrutiny from the Anti-Monopoly Office. The Anti-Monopoly
Office has been granted the power to review a company's past and present
activities, including its pricing policies, for potential anti-competitive
behavior.
PRE-NOTIFICATION OF TRANSACTIONS. The Anti-Monopoly Act requires parties to
certain types of transactions to notify the Anti-Monopoly Office prior to the
consummation of the proposed transaction. Pursuant to the current interpretation
of the Anti-Monopoly Office, transactions between non-Polish parties affecting
market conditions in Poland may also require notification to the Anti-Monopoly
Office. Sanctions for failure to notify the Anti-Monopoly office include the
imposition of fines on parties to the transaction at issue. We believe that we
may be required to obtain the Anti-Monopoly Office's approval for future
acquisitions. The Anti-Monopoly Office may not approve the our future
acquisitions and dispositions.
RECENT ANTI-MONOPOLY OFFICE FINDINGS WITH RESPECT TO OUR COMPANY AND OUR
SUBSIDIARIES. From time to time, we receive inquiries from and are subject to
review by various divisions of the Anti-Monopoly Office. The Anti-Monopoly
Office recently issued a decision that PCI, our primary cable operating
subsidiary, had achieved a dominant position and abused that dominant position
in one of the areas in which it operates by moving certain satellite channels to
a different frequency. A number of PCI's subscribers, whose television sets are
not equipped to receive the new frequency, received several different channels
to replace the channels which had been moved. We appealed both the finding of
dominance and the finding that it acted improperly by moving certain channels to
the new frequency. The Anti-Monopoly Court modified the Anti-Monopoly Office's
decision by ruling that PCI had abused its dominant position by moving certain
channels to the new frequency without termination of its agreements with
subscribers whose television sets are not equipped to receive the new frequency.
The Anti-Monopoly Court did not impose a fine on us or our subsidiaries. We
estimate that less than 1% of our subscribers in the area under review have such
television sets and would be affected by the ruling if, in the future, we find
it necessary for technical reasons to move channels to another frequency. We are
appealing both the finding of dominance and the finding that we must terminate
some of our agreements with certain subscribers before moving channels to
another frequency.
In another market, the Anti-Monopoly Office recently issued a decision that
PCI had achieved a dominant position and abused that dominant position by: (1)
failing to create a uniform system for customer complaints, (2) increasing rates
without providing subscribers a detailed basis for the price increases, and (3)
by changing the programming line-up without sufficient notice to subscribers.
The Anti-Monopoly Office did not impose a fine in connection with its decision.
We are appealing both the finding of dominance and the finding that we acted
improperly in our relations with subscribers.
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UNITED KINGDOM
BROADCASTING REGULATION
All of the channels in our D-DTH service are or will be regulated by U.K
authorities (primarily the Independent Television Commission) as satellite
television services ("STS"). Under the U.K. Broadcasting Act 1990 (the
"Broadcasting Act"), satellite broadcasters established in the U.K. are required
to obtain an STS license. We have received an STS license for Atomic TV, Wizja
1, Twoja Wizja, Wizja Sport, and Wizja Pogoda. For most of the other channels on
Wizja TV, the relevant channel supplier is required to obtain an STS license
from the ITC. The Independent Television Commission has wide discretion to vary
the conditions of licenses issued under the Broadcasting Act or amend its codes
(including codes on electronic programming guides, advertising and content) to
which U.K.-licensed broadcasters are subject. Under the terms of our Astra
transponder agreements, we cannot carry programming if the channel supplier does
not have a valid broadcast license for that programming. An STS license is
issued for an initial period of 10 years but can be renewed.
The Independent Television Commission has issued a direction to all STS
licence holders following its investigation into competition issues relating to
the practice of channel bundling in the U.K. and has concluded that a number of
anti-competitive factors exist in the current pay television market which
restrict viewer choice. Under the direction, STS licensees are not allowed (in
specified circumstances) to:
- maintain or enter into certain agreements which contain minimum carriage
guarantees (where the licensee is required to carry the channel to a
minimum percentage of subscribers); or
- maintain certain tiering obligations (where the licensee requires a
channel to be included in a certain tier) or arrangements with similar
effects.
The Independent Television Commission has not explicitly prohibited the
practice of requiring subscribers to buy basic channel packages before being
allowed to buy premium channels. However, it is requiring licensees to permit
subscribers to buy all available premium channels available from any basic
package. We believe that the Independent Television Commission will not apply
the direction to the channels in the Wizja TV package.
The Broadcasting Act classifies some persons as "disqualified persons" who
are not permitted to hold STS licenses, including (A) any bodies whose objects
are wholly or mainly of a political or religious nature and advertising
agencies, or (B) any person owned by more than 5% by a disqualified person or
otherwise associated with a disqualified person in any manner specified in the
relevant provisions of the Broadcasting Act. There are no foreign ownership
restrictions which apply to STS licensees. If any person with an interest in
excess of 5% of our issued capital stock is or becomes a disqualified person or
is or becomes associated with such a disqualified person, or if we or any person
with an interest in our capital stock does or were to fall within the scope of
the restriction, then we may not be entitled to hold STS licenses.
In issuing STS licenses, the ITC follows the "establishment" test set out in
the EU's Television Without Frontiers Directive which provides that each EU
broadcaster should be regulated primarily by the authorities in the member state
of the EU where that broadcaster is established, without regard to the country
or countries within the EU in which its transmits signal is received. Meanwhile,
the 1989 European Convention on Transfrontier Television (the "Convention on
Transfrontier Television") currently provides that the country in which a
broadcaster transmits its programming to a satellite (or the country which
grants the broadcast frequency or satellite capacity) has jurisdiction over that
broadcaster. However, the Convention on Transfrontier Television was recently
amended and if this amendment is implemented, the Convention on Transfrontier
Television would conform to the "establishment" test and authorities in a
receiving state would invariably have the power to regulate a broadcaster whose
services are intended to be received in that state.
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REGULATION OF COMPETITION
Today, U.K. law controls agreements which affect competition through the
Restrictive Trade Practices Act 1976 (the "Restrictive Trade Practices Act"),
resale price maintenance through the Resale Price Act 1973 ("RPA") monopolies
and mergers through the Fair Trading Act 1973 ("Fair Trading Act"), and
unilateral anti-competitive practices through the Competition Act of 1980 (the
"CA"). We are not involved in any current proceedings relating to competition
law before the U.K. courts, nor are any investigations which involve us underway
before any authority exercising powers under the Restrictive Trade Practices
Act, the RPA, the CA or Fair Trading Act.
A new Competition Act which substantially reforms U.K. competition law,
replacing most of the current legislation except the Fair Trading Act was given
royal assent on November 9, 1998. Under this act, companies have until March 1,
2000 to prepare for the new regime to come into effect. The new regime will
introduce provisions based on Articles 85 and 86 of the EC Treaty and will give
the U.K. authorities broad investigative powers. For a more detailed description
of Articles 85 and 86, see the discussion on "European Union--Regulation of
Competition" that follows.
EUROPEAN UNION
BROADCASTING REGULATION
TELEVISION WITHOUT FRONTIERS DIRECTIVE. The Television Without Frontiers
Directive sets forth the following basic principles for the regulation of
broadcasting activity in the EU:
- Each EU broadcasting service should be regulated by the authorities of one
member state (the "home member state") and some minimum standards should
be required by each member state of all broadcasting services which that
state's authorities regulate. (The U.K., which is regarded as our "home
member state" for the purposes of its D-DTH services because At
Entertainment Limited is established in the U.K. and is the licensed
broadcaster of its proprietary channels, has adopted a variety of
statutory and administrative measures based on the Directive to give
effect to the requirements of the Directive.)
- Each member state is required to ensure "where practicable and by
appropriate means" that broadcasters reserve "a majority proportion of
their transmission time" for European works. The Directive does not define
the term "where practicable and by appropriate means" and the European
Commission has been receiving comments on the interpretation of this
Directive.
- Each member states is required to ensure "where practicable and by
appropriate means" that broadcasters reserve at least 10% of their
transmission time (excluding time covering news, sports events, games,
advertising, teleshopping and teletext services) or, at the option of the
member state, 10% of their programming budget, for European works created
by producers who are independent of broadcasters. An adequate proportion
of the relevant works should be recent works. (Polish-language programming
we produce or commission will be counted for the purposes of determining
whether any service broadcast by us complies with these quotas.)
- There are restrictions on advertising including restrictions on the timing
of commercial breaks, restrictions on the content of advertising,
limitations or prohibitions on tobacco, non-prescription drug and alcohol
advertising and restrictions limiting commercials to a maximum of 20% of
transmission time per hour, subject to an overall limit of 15% per day.
- There are restrictions on (A) the content of programs to the extent
necessary to protect minors and (B) to prevent the incitement of hatred on
the grounds of race, sex, religion or nationality.
1989 EUROPEAN CONVENTION ON TRANSFRONTIER TELEVISION. In addition to the
Television Without Frontiers Directive, the 1989 European Convention on
Transfrontier Television is the other primary source of European regulation
affecting television broadcasting in Europe. The 1989 European Convention on
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Transfrontier Television contains provisions that are substantially similar to
the Television Without Frontiers Directive. The 1989 Convention on Transfrontier
Television is effective in those countries which have ratified it. Both the U.K.
and Poland have ratified the 1989 Convention on Transfrontier Television. The
1989 Convention on Transfrontier Television currently provides that the country
in which a broadcaster transmits its programming to the satellite (or, if this
is not the case, the country which grants the broadcast frequency or satellite
capacity to the broadcaster) has jurisdiction over that broadcaster.
Neither the Television Without Frontiers Directive nor the 1989 Convention
on Transfrontier Television contains any requirements or restrictions regarding
foreign ownership of broadcasters.
A change to the 1989 Convention on Transfrontier Television (the
"Transfrontier Television Amendment") was agreed by member states of the 1989
Convention on Transfrontier Television on September 9, 1998. The Transfrontier
Television Amendment will be effective if and when all member states have signed
the Transfrontier Television Amendment or automatically on October 1, 2000,
unless a member state objects to the Transfrontier Television Amendment coming
into force. The Transfrontier Television Amendment, if it becomes effective,
would have three significant effects:
- First, it would bring the 1989 Convention on Transfrontier Television into
conformity with the Television Without Frontiers Directive's establishment
test, providing that a broadcaster should be regulated primarily by the
authorities in the 1989 Convention on Transfrontier Television country in
which the broadcaster is established.
- Second, the Transfrontier Television Amendment would provide that when a
broadcaster engages in conduct that constitutes an "abuse of rights", the
broadcaster would become subject to the laws of the country of reception.
Under the Transfrontier Television Amendment, an "abuse of rights" would
occur when a broadcaster's channel is wholly or principally directed at a
country, other than that where it is established, for the purpose of
evading the laws of that country in the areas covered by the 1989
Convention on Transfrontier Television. (We believe that its broadcasting
into Poland from the U.K. would not constitute an "abuse of rights" under
the Transfrontier Television Amendment because it has valid business
reasons for broadcasting from the U.K. and it has not established its
broadcasting facilities in the U.K. in order to evade Polish laws in the
areas covered by the 1989 Convention on Transfrontier Television. An
adverse decision on this issue, if the Transfrontier Television Amendment
becomes effective and Poland decides to invoke it against our broadcasts
emanating from the U.K. could prevent us from broadcasting its programming
package.)
- Third, the Transfrontier Television Amendment would allow parties to the
1989 Convention on Transfrontier Television to designate that certain
important events (e.g., major sporting events) cannot be broadcast
exclusively by a single television station so as to deprive a large
proportion of the public of that 1989 Convention on Transfrontier
Television country from seeing the event live or on a deferred coverage
basis on free-to-air television, and also to ensure that broadcasters
under the jurisdiction of one 1989 Convention on Transfrontier Television
country cannot purchase exclusive rights to major events specified by
another 1989 Convention on Transfrontier Television country which would
deprive a large proportion of the public in such member countries of the
1989 Convention on Transfrontier Television from seeing the specified
event on a live or deferred coverage basis on free-to-air television. (If
the Transfrontier Television Amendment becomes effective and if it were
applied to the Polish pay television rights to certain sporting events
purchased on an exclusive basis by us, we may lose the right to broadcast
such events in Poland on an exclusive basis and may not be able to acquire
the exclusive Polish pay television rights to such events and to similar
events in the future.)
The 1989 Convention on Transfrontier Television currently provides that
where a broadcaster under the jurisdiction of one member country of the 1989
Convention on Transfrontier Television transmits advertisements which are
directed specifically at audiences in another member country of the 1989
Convention on Transfrontier Television, such advertisements must comply with the
advertising rules of the
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receiving member state. This rule will require advertisements inserted in the
channels we distribute to comply with both Polish advertising rules as well as
the rules applicable in the jurisdiction in which the broadcaster is licensed.
TELEVISION WITHOUT FRONTIERS DIRECTIVE ON THE USE OF STANDARDS IN
TRANSMISSION OF TELEVISION SIGNALS. The EU Directive on the Use of Standards in
Transmission of Television Signals has been implemented into U.K. law by the
Advanced Television Services Regulations 1996 and also the Conditional Access
Class License ("CAC License") which are enforced by the U.K. Office of
Telecommunications ("Oftel"). The CAC License addresses several issues relating
to digital television, including pricing of conditional access services and set
top box subsidies, how electronic programming guides can be made competitively
neutral, and potential operation of more than one smartcard by competing
broadcasters. Although the Directive and the CAC License do not currently apply
to our D-DTH broadcasting services since they are not transmitted to viewers in
the EU, Poland would be required to implement the provisions of that the
Directive if it joined the EU. In addition, because At Entertainment Limited (as
our license holding company) will be subject to the jurisdiction of the ITC and
will be established in the U.K., it is possible that, in the future, Oftel may
seek to assert jurisdiction over the activities of this subsidiary in these
areas including in relation to conditional access services.
TELEVISION WITHOUT FRONTIERS DIRECTIVE ON THE LEGAL PROTECTION OF
CONDITIONAL ACCESS SERVICES. In November 1998, the European Commission adopted
a directive on the Legal Protection of Conditional Access Services which, among
other things, aims to protect legitimate pay television services against abusive
practice, such as pay television piracy. It requires EU member states to
prohibit the manufacture, import, distribution, rental, sale, possession,
installation, maintenance, replacement or marketing of illicit devices. If
Poland joins the EU, it would also have to implement such protections.
REGULATION OF COMPETITION
EC competition law governs agreements which prevent, restrict or distort
competition and prohibits the abuse of dominant market positions through
Articles 85 and 86 of the EC Treaty.
Article 85 (1) renders unlawful agreements and concerted practices which may
affect trade between member states and which have as their object or effect the
prevention, restriction or distortion of competition within the member states of
the European Community/European Economic Area. Article 85 (2) voids the
offending provision or the entire agreement, if the offending parts are not
severable. Article 85 (3) allows for exemption from the provisions of Articles
85 (1) and 85 (2) for agreements whose beneficial effects in improving
production or distribution or promoting technical or economic progress outweigh
their restrictive effects, provided that consumers receive a fair share of the
benefit, that competition will not be eliminated and that no unnecessary
restrictions are accepted. Such an exemption may only be granted by the European
Commission and notification to that body is essential to secure this protection.
Article 86 prohibits undertakings from abuse of a dominant market position
in the EC or a substantial part of it, in so far as the abuse may affect trade
between member states. A company may be dominant in several member states or
part of a single member state. A company enjoys a dominant position whenever it
possesses such market strength that it can act to an appreciable extent
independently of its competitors and customers. Generally speaking, a market
share of as little as 40% can raise concern that a form may be dominant.
However, dominance is not unlawful PER SE; only the abuse of a dominant position
is prohibited by Article 86. Any action that is designed to, or could, seriously
injure competitors, suppliers, distributors, or consumers is likely to raise
issues under Article 86. Agreements or pratice that breach these provisions will
be void and unenforceable in national courts and third parties that suffer loss
as a result of a breach of Article 85 or Article 86 can sue for damages and/or
seek injunction relief.
The European Commission has the power to fine heavily (up to 10% of a
group's annual worldwide turnover) in relation to a breach of Article 85 or in
relation to abusive conduct under Article 86.
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We do not believe that any of our current agreements infringe Article 85(1)
or Article 86 and therefore does not intend to notify them to the European
Commission. If the European Commission were to find the agreements infringed
Article 85(1) or Article 86, the agreements would be void and unenforceable. The
parties could also be fined and liable to damages to third parties.
POLAND'S EU MEMBERSHIP APPLICATION
In 1994 Poland made an official application for membership of the EU.
Negotiations on the terms of Poland's proposed admission to the EU commenced in
March 1998. If Poland joins the EU, it would be required to implement and obey
all of the laws and regulations emanating from the European Commission,
including the Television Without Frontiers Directive and EC competition law in
their then current versions.
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DESCRIPTION OF INDEBTEDNESS
JULY 1998 UNITS OFFERING
On July 14, 1998, @Entertainment sold 252,000 units to two initial
purchasers pursuant to a purchase agreement. Each unit consisted of a $1,000
principal amount at maturity 14 1/2% Senior Discount Note due 2008 and four
warrants. Each warrant entitles the holder to purchase 1.81 shares of common
stock at an exercise price of $13.20 per share, which exercise price is subject
to adjustment. In August 1998, @Entertainment exchanged most of the notes issued
in its July 1998 units offering for an equal aggregate principal amount at
maturity of its 14 1/2 Series B Senior Discount Notes due 2008 which had been
registered.
The notes issued in the July 1998 units offering were issued at a discount
to their aggregate principal amount at maturity. The July 1998 units offering
generated gross proceeds to @Entertainment of approximately $125,100,000. Of
this amount, $117,485,000 has been allocated to the initial accreted value of
the notes and approximately $7,615,000 has been allocated to the warrants. The
portion of the proceeds allocated to the warrants was accounted for as part of
paid-in capital. This allocation was based on the relative fair values of the
two securities at the time of issuance. After deducting the initial purchasers'
discount and offering expenses net proceeds to @Entertainment from the July 1998
units offering were approximately $120,000,000.
Both the notes issued in the July 1998 units offering and the exchange notes
issued in the August 1998 exchange offer are unsubordinated and unsecured
obligations of @Entertainment. Cash interest on the old notes and the exchange
notes will not accrue prior to July 15, 2003. After that cash interest on the
old notes and the exchange notes will accrue at a rate of 14.5% per year and
will be payable semiannually in arrears on January 15 and July 15 of each year,
beginning on January 15, 2004. The notes will mature on July 15, 2008. At any
time prior to July 15, 2001, @Entertainment may redeem up to a maximum of
approximately $64 million of the old notes and exchange notes at a redemption
price equal to 114.5% of the accreted value of the notes at the date of the
redemption, plus any accrued and unpaid interest, to the date of such redemption
with some or all of the net cash proceeds of one or more public equity
offerings. However, if @Entertainment chooses to engage in this type of
redemption, at least approximately $192 million of old notes and exchange notes
must remain outstanding immediately after giving effect to such redemption.
The warrants issued in connection with the July 1998 units offering
initially entitle their holders to purchase a total of 1,824,514 shares of
common stock, representing, in the aggregate, approximately 5% of
@Entertainment's outstanding common stock on a fully-diluted basis immediately
after giving effect to the sale of the units. The warrants are exercisable at
any time and will expire on July 15, 2008.
Pursuant to the indenture governing the notes which were issued pursuant to
the July 1998 units offering, @Entertainment is subject to certain restrictions
and covenants, including, without limitation, covenants with respect to the
following matters:
- limitation on additional indebtedness;
- limitation on restricted payments;
- limitation on issuance and sales of capital stock of restricted
subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation on guarantees of indebtedness by restricted subsidiaries;
- purchase of notes and exchange notes upon a change of control;
- limitation on sale of assets;
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- limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- limitation on lines of business; and
- provision of financial statements and reports.
SERIES C SENIOR DISCOUNT NOTES OFFERING
On January 20, 1999, @Entertainment sold $36,001,321 aggregate principal
amount at maturity of its Series C Senior Discount Notes. The Series C Senior
Discount Notes are senior unsecured obligations of @Entertainment ranking
equally with the right of payment for all other existing and future
unsubordinated obligations of @Entertainment. The Series C Senior Discount Notes
were issued at a discount to their aggregate principal amount at maturity and
generated gross proceeds to @Entertainment of approximately $9.8 million. After
deducting the initial purchaser's discount and offering expenses, net proceeds
to @Entertainment were approximately $9.4 million. Original issue discount will
accrete from January 20, 1999 until on July 15, 2008, the date of maturity of
the Series C Senior Discount Notes. In addition, cash interest on the Series C
Senior Discount Notes will accrue from July 15, 2004 at a rate of 7.0% per year
on the principal amount at maturity, and will be payable semiannually in arrears
on July 15 and January 15 of each year beginning January 15, 2005. Before July
15, 2004 cash interest on the Series C Senior Discount Notes will not accrue.
The Series C Senior Discount Notes will mature on July 15, 2008.
Under the indenture governing the Series C Senior Discount Notes,
@Entertainment is subject to certain restrictions and covenants, including,
without limitation, covenants with respect to the following matters:
- limitation on additional indebtedness;
- limitation on restricted payments;
- limitation on issuance and sales of capital stock of restricted
subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation on guarantees of indebtedness by restricted subsidiaries;
- purchase of Series C Senior Discount Notes upon a change of control;
- limitation on sale of assets;
- limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- limitation on lines of business; and
- provision of financial statements and reports.
POLAND COMMUNICATIONS, INC. NOTES OFFERING
On October 31, 1996, Poland Communications, Inc. ("PCI"), @Entertainment's
major operating subsidiary, sold $130 million aggregate principal amount of
9 7/8% Series B Senior Notes to an initial purchaser pursuant to a purchase
agreement. In June 1997 PCI exchanged most of these outstanding notes issued in
October 1996 for an equal aggregate principal amount of publicly-registered
9 7/8% Senior Notes due 2008. The terms of the new notes were substantially the
same as the notes issued by PCI in October 1996.
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The old notes issued in October 1996 and the publically-registered notes
issued in the exchange offer in June 1997 have an interest rate of 9 7/8% and
November 1, 2003. Interest is paid on the old notes and the new notes on May 1
and November 1 of each year. Before November 1, 1999, PCI may redeem up to
approximately $42.9 million of the notes with some or all of the net proceeds
from one or more public equity offerings at a redemption price equal to 109.875%
of the principal amount of the public offering, plus any accrued and unpaid
interest until the redemption date. However, if PCI redeems its notes, at least
$87 million aggregate principal amount of the notes must remain outstanding
immediately after giving effect to such redemption.
Upon the occurrence of a change in control (as defined in the indenture
governing the notes issued by PCI in October 1996 and the new notes issued by
PCI in the exchange offer in June 1997), each holder of the notes will have the
right to require PCI to purchase such notes, in whole or in part, at a purchase
price in cash in an amount equal to 101% of the principal amount of such notes,
plus any accrued and unpaid interest to the date of purchase. PCI may be
required to use the net cash proceeds of certain asset sales to make an offer to
purchase all or a portion of the outstanding old notes and new notes at a price
of 100% of the principal amount of such notes, plus any accrued and unpaid
interest, to the date of redemption. PCI has pledged to State Street Bank, the
trustee for the old notes and the new notes, for the benefit of the holders of
such notes, intercompany notes issued by Poland Cablevision (Netherlands) B.V.
These intercompany notes equal a minimum aggregate principal amount (together
with cash and cash equivalents of PCI) equal to at least 110% of the outstanding
principal amount of the existing notes and the new exchange notes and will, in
the aggregate, provide cash collateral or bear interest and provide for
principal repayments, as the case may be, in amounts sufficient to pay interest
on the such notes.
Under the indenture governing notes and the new notes, PCI is subject to
certain covenants, including, without limitation, covenants with respect to the
following matters:
- limitation on additional indebtedness;
- limitation on restricted payments;
- limitation on issuance and sales of capital stock of subsidiaries;
- limitation on transactions with affiliates;
- limitation on liens;
- limitation on guarantees of indebtedness by subsidiaries;
- purchase of notes and exchange notes upon a change of control;
- limitation on sale of assets;
- limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
- limitation on investments in unrestricted subsidiaries;
- limitation on lines of business; and
- consolidations, mergers and sale of assets.
CREDIT AGREEMENTS WITH THE AMERBANK IN POLAND, S.A.
Polska Telewizja Kablowa Warszawa S.A., a subsidiary of @Entertainment, has
entered into two agreements with American Bank in Poland, S.A. AmerBank
established a zloty-denominated revolving loan facility of up to $897,000 for
this subsidiary, and gave a U.S. dollar-denominated $1.5 million loan to this
subsidiary. The principal outstanding on the revolving loan facility and the
loan were repaid in 1996. In addition, in August 1996, Poland Communications,
Inc. entered into a credit agreement establishing a revolving loan facility
allowing it to borrow up to a maximum principal amount of $6.5 million in
multiple
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disbursements on or before December 31, 1998. PCI repaid the balance of the 1996
loan facility with a portion of the proceeds of the notes offering which it
completed in October 1996. All amounts under the 1996 loan facility were fully
drawn in June 1998.
Amounts outstanding under the revolving loan facility bear interest at the
Warsaw Interbank Offering Rate plus 3.5%.
@Entertainment was required to pay an arrangement fee of approximately
$50,000 for the revolving loan facility was established in August 1996 and is
required to pay an annual charge of 0.25% of the undrawn funds under such
revolving loan facility. In addition, @Entertainment is required to pay interest
on any outstanding principal amount under the revolving loan facility
established in August 1996 at a rate equal to the three-month London Interbank
Offered Rate ("LIBOR") on the date of disbursement plus 3%. The outstanding
principal amount under the revolving loan facility established in August 1996
and the accrued interest on this loan facility is due in full on August 20,
1999. Acceleration of repayment of amounts outstanding under this loan facility
may be triggered by certain conditions of default, which include customary terms
associated with revolving loan facilities. In the event of a default,
@Entertainment is required to pay an additional penalty of 15% per year on the
outstanding principal amount under the loan facility.
Amounts outstanding under the revolving loan facility established in August
1996 are secured by:
- promissory notes from three subsidiaries of @Entertainment (Polska
Telewizja Kablowa Warszawa S.A., Polska Telewizja Kablowa Krakow S.A., and
Polska Telewizja Kablowa Lublin S.A.);
- pledges of up to all of the shares of Polska Telewizja Kablowa Warszawa
S.A. and Polska Telewizja Kablowa Krakow S.A., which are owned by Poland
Cablevision (Netherlands) B.V.; and
- all of the shares of Polska Telewizja Kablowa Lublin S.A., owned by
Poltelkab Sp. z o.o. (Poltelkab is another subisidary of @Entertainment).
CREDIT AGREEMENTS WITH BANK ROZWOJU EKSPORTU
One of @Entertainment's subsidiaries (Szczecinska Telewizja Kablowa Sp. z
o.o.) has entered into two agreements with Polski Bank Rozwoju S.A. In July
1998, Polski Bank Rozwoju S.A. was bought by Bank Rozwoju Eksportu S.A. These
agreements established a zloty-denominated loan facility in the amount of PLN
500,000 (approximately $140,000 based on an exchange rate of PLN 1.00 = $0.28,
on September 30, 1998) and a deutsche-mark denominated facility in the amount of
DM 3,948,615 (approximately $2,370,000 based on an exchange rate of DM 1.00 =
$0.60 on September 30, 1998). Each of these loan facilities are to be used for
the development of two cable television networks operated by Szczecinska
Telewizja Kablowa Sp. z o.o. These loan facilities are secured by a mortgage on
real estate owned by two housing cooperatives, their bank accounts and insurance
policies. The cooperatives' mortgage is secured by a pledge of Szczecinska
Telewizja Kablowa Sp. z o.o. shares, which are owned by Polska Telewizja Kablowa
Szczecin Sp. z o.o. (a subsidiary of @Entertainment). The loan facilities must
be repaid by December 27, 2002.
The zloty-denominated loan facility bears interest at the Warsaw Interbank
Offering Rate for 3 months deposits plus 3%. The deutsche-mark denominated loan
facility currently bears interest at the London Interbank Offering Rate for 1
month deposits plus 2.5%. The total amount payable with respect to the zloty
denominated loan facility at September 30, 1998 was PLN 261,000 (approximately
$73,100 based on an exchange rate of PLN 1.00 = $0.28 on September 30, 1998).
The total amount payable with respect to the deutsche-mark denominated loan
facility on September 30, 1998 was DM 3,554,000 (approximately $2,132,000 based
on an exchange rate of DM 1.00 = $0.60 on September 30, 1998).
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INTER-COMPANY INDEBTEDNESS
As of September 30, 1998, @Entertainment loaned approximately $8.2 million
to At Entertainment Limited (a subsidiary of @Entertainment) and approximately
$55.3 million to Wizja TV Sp. z o.o. (a subsidiary of @Entertainment). The loan
agreement between @Entertainment and At Entertainment Limited calls for the
borrower to pay 10% interest, payable quarterly. This agreement contains
standard events of default for related-party indebtedness. The loan agreement
between @Entertainment and Wizja TV Sp. z o.o. calls for the borrower to pay 10%
interest and, effective July 14, 1998, 12% interest payable on the principle
amount. This agreement also contains standard events of default for
related-party indebtedness.
Poland Communications, Inc. has entered into a series of grid notes under
which, as of September 30, 1998 it had loaned approximately $153.5 million to
Poland Cablevision (Netherlands) B.V., $9.6 million to Polska Telewizja Kablowa
Szczecin Sp. z o.o., and $12.7 million to Poltelkab Sp. z o.o. The notes between
Poland Communications, Inc. and Poland Cablevision (Netherlands) B.V. are
revolving credit facilities which call for the borrower to pay 10% interest,
payable monthly, on the outstanding principal amount and contain standard events
of default for related-party indebtedness. All of the grid notes between Poland
Communications, Inc. and Poland Cablevision (Netherlands) B.V. mature before
December 31, 1999. The grid notes between Poland Communications, Inc. and Polska
Telewizja Kablowa Szczecin Sp. z o.o., the grid note between Poland
Communications, Inc. and Poltelkab Sp. z o.o. are revolving credit facilities on
which 10% interest compounds monthly and which mature on June 30, 1999. The grid
notes between Poland Communications, Inc. and Poland Cablevision (Netherlands)
B.V. have been pledged for the benefit of holders of the notes issued by Poland
Communications, Inc. in October 1996 and the publically registered exchange
notes issued by Poland Communications, Inc. in June 1997.
Poland Cablevision (Netherlands) B.V., in turn, entered into a series of 10%
grid notes under which, as of September 30, 1998, Poland Cablevision
(Netherlands) B.V. had loaned approximately $124.7 million to Polska Telewizja
Kablowa S.A., Polska Telewizja Kablowa Warszawa S.A., Polska Telewizja Kablowa
Operator Sp. z o. o. and Polska Telewizja Kablowa Krakow S.A.. The grid notes
issued by Poland Cablevision (Netherlands) B.V. are revolving credit facilities
which call for the borrower to pay interest of 10% per annum, payable monthly,
on the outstanding principal amount and contain standard events of default for
related-party indebtedness. One of the grid notes issued by Poland Cablevision
(Netherlands) B.V. will become due on June 10, 1999, the other is due on demand
on June 30, 1999. The grid notes between Poland Cablevision (Netherlands) B.V.
and Polska Telewizja Kablowa Operator Sp. z o. o., Polska Telewizja Kablowa
Warszawa S.A. and Polska Telewizja Kablowa Krakow S.A.. all become due on June
30, 1999.
Poland Communications, Inc. has also entered into a loan agreement under
which it loaned $1 million to Telewizja Kablowa GOSAT Sp. z o.o. All amounts
under this loan agreement are due July 1, 2000.
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DESCRIPTION OF THE INDENTURE GOVERNING THE NEW NOTES
You can find the definitions of certain capitalized terms used in this
description under the subheading "Certain Definitions." In this description,
"notes" means both the outstanding notes of @Entertainment and the new notes we
will issue to you in the exchange offer. References to a "holder" or "holders"
mean you or all holders of the notes.
We will issue the new notes under an indenture, dated as of January 27,
1999, between us and Bankers Trust Company, as trustee (the "Trustee"). The
terms of the new notes include those stated in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the notes. We have filed a copy of the indenture as an exhibit to the
registration statement which includes this prospectus.
BRIEF DESCRIPTION OF THE NEW NOTES
The new notes:
- are senior unsecured obligations of our company.;
- rank equally in right of payment with all existing and future
unsubordinated debt of our company.;
- are senior in right of payment to any existing and future debt expressly
subordinated to the new notes (as of September 30, 1998, we had no
subordinated indebtedness); and
- the notes will effectively be subordinated to all indebtedness for money
borrowed by and trade payables of our subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
We will issue new notes with a maximum aggregate principal amount of
$256,800,000. The notes are issued at a discount to their aggregate principal
amount at maturity. We will issue the new notes in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples of $1,000.
The notes will mature on February 1, 2009.
Interest on the new notes will accrue at the rate of 14 1/2% per year and
will be payable twice a year in cash on February 1 and August 1, commencing on
August 1, 2004. We will make each interest payment to the holders of record of
the new notes at the close of business on the immediately preceding January 15
or July 15. Based on the issue price of the notes, the actual yield of an
investment unit (consisting of one note and four warrants) issued on January 27,
1999 is 17 1/2% calculated from January 27, 1999, due to the fact that the notes
were originally issued at a discount.
Interest on the new notes will accrue from February 1, 2004, or from the
most recent date to which interest has been paid. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
If a Registration Default (discussed under the section "The Exchange
Offer--Payment of Additional Interest Upon Registration Default") occurs--and
for as long as one exists--relating to the timing of this exchange offer, we
will be required to make additional interest payments.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
The Trustee maintains a corporate trust office in The City of New York.
Principal, premium and interest payments on the notes will be payable from this
office. At our option, we may pay interest by check mailed to the holder's
registered address.
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PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as paying agent and registrar for the notes.
We may change the paying agent or registrar without giving you prior notice.
TRANSFER AND EXCHANGE
You may transfer or exchange your notes in accordance with the indenture.
Any of your notes that you do not exchange in the exchange offer, together with
the new notes issued in connection with the exchange offer, will be treated as a
single class of securities under the indenture. There will continue to be
restrictions on the transfer of those notes not exchanged in the exchange offer.
REDEMPTION
On or after February 1, 2004, we may redeem all or a portion of the new
notes upon not less than 30 days nor more than 60 days' prior notice, at the
redemption prices (expressed as percentages of the principal amount at maturity)
set forth below, plus any unpaid interest, if redeemed during the twelve-month
period beginning on February 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2004............................................................................. 108.750%
2005............................................................................. 105.833%
2006............................................................................. 102.917%
2007 and thereafter.............................................................. 100.000%
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS
Prior to February 1, 2002, we may on one or more occasions redeem up to 35%
of the aggregate principal amount of notes originally issued with the net cash
proceeds of one or more Public Equity Offerings; provided that
a) at least 65% in aggregate principal amount of notes remain outstanding
immediately after the occurrence of such redemption; and
b) the redemption must occur within 30 days of the closing of such Public
Equity Offering.
The redemption price is 117.5% of the Accreted Value of the notes, plus any
accrued and unpaid interest to the date of redemption.
REPURCHASE AT THE OPTION OF HOLDERS
If a Change of Control occurs, you will have the right to require us to
repurchase all or any part of your notes (in integral multiples of $1,000)
pursuant to the Change of Control offer. In the Change of Control offer, we will
offer you a payment equal to 101% of the Accreted Value of the notes repurchased
plus any accrued and unpaid interest to the date of repurchase.
If an Asset Sale occurs, each holder of notes may be able to require us to
repurchase all or any part of that holder's notes at a purrchase price of 100%
of the aggregate principal amount o fthe notes plus any accrued and unpaid
interest to the date of purchase.
SELECTION AND NOTICE OF REDEMPTION
If less than all the notes are to be redeemed at any time, the Trustee will
select the particular notes to be redeemed by a method it deems fair and
appropriate.The Trustee will make this selection not more than
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60 days before the redemption date. A partial redemption will not reduce the
principal amount at maturity of any note to less than $1,000.
Notice of redemption will be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. If any note is to be redeemed in part only,
the notice of redemption will state the portion of the principal amount to be
redeemed. A new note in a principal amount equal to the unredeemed portion will
be issued in the name of the holder upon cancellation of the original note.
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON ADDITIONAL INDEBTEDNESS.
(a) We will not, and will not permit any Restricted Subsidiary, directly or
indirectly, to incur, contingently or otherwise, any Indebtedness, except for
Permitted Indebtedness; PROVIDED that we may incur Indebtedness if after giving
pro forma effect to such Indebtedness (including the application of the net
proceeds), the ratio of (x) Total Consolidated Indebtedness outstanding as of
the date of such incurrence of Indebtedness to (y) Annualized Pro Forma
Consolidated Operating Cash Flow would be greater than zero and less than or
equal to 6 to 1.
(b) We will not incur any Subordinated Indebtedness unless such Indebtedness
by its terms expressly prohibits the payment by us of any assets or securities
(including Common Stock) to the holders of such Subordinated Indebtedness prior
to the payment in full of the notes in the event of a bankruptcy or
reorganization.
LIMITATION ON RESTRICTED PAYMENTS.
(a) We will not, and will not permit any Restricted Subsidiary to:
(1) declare or pay any dividend or any other distribution on Capital
Stock of our company or any payment made to the direct or indirect holders
(in their capacities as such) of our Capital Stock (other than dividends or
distributions payable solely in our Capital Stock (other than Redeemable
Capital Stock) of our company;
(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of our company (other than any such Capital Stock owned by us
or a Restricted Subsidiary) or any Affiliate of our company (other than any
Restricted Subsidiary);
(3) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness of
our company (other than any Subordinated Indebtedness held by a Restricted
Subsidiary);
(4) make any Investment (other than a Permitted Investment) in any
Person (other than an Investment by us or a Restricted Subsidiary in either
(1) a Restricted Subsidiary or (2) a Person that becomes a Restricted
Subsidiary as a result of such Investment);
(5) create or assume any guarantee of Indebtedness of any Affiliate of
our company (other than guarantees of any Indebtedness of any Restricted
Subsidiary by us or any Restricted Subsidiary); or
(6) declare or pay any dividend or any other distribution on any Capital
Stock of any Restricted Subsidiary to any Person (other than (1) dividends
or distributions paid to us or a Restricted Subsidiary or (2) PRO RATA
dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders, provided that such dividends or distributions do
not in the aggregate exceed
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the minority stockholders' PRO RATA share of such Restricted Subsidiaries'
net income from the first day of the fiscal quarter beginning immediately
following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (1)
through (5) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (A) no Default or Event of Default shall have occurred and be
continuing, (B) we would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso to the
covenant "LIMITATION ON ADDITIONAL INDEBTEDNESS"; and (C) the aggregate amount
of all Restricted Payments declared or made after the Issue Date would not
exceed an amount equal to the sum of:
(A) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) the product of (I)
1.5 and (II) the cumulative Consolidated Interest Expense of our company
determined for the period commencing on the Issue Date and ending on the
last day of the latest fiscal quarter for which our consolidated financial
statements are available preceding the date of such Restricted Payment (or
if such difference shall be a negative number, minus 100% of such number),
PLUS (B) the aggregate Net Cash Proceeds received by us from the issue or
sale (other than to a Restricted Subsidiary) of our Capital Stock (other
than Redeemable Capital Stock) on or after the Issue Date, excluding any Net
Cash Proceeds that are, promptly following receipt, invested in accordance
with clause (ii), (iii) or (v) of clause (b) hereof and except to the extent
such Net Cash Proceeds are used to incur Indebtedness pursuant to clause
((i)) of the definition of Permitted Indebtedness, PLUS (C) the aggregate
Net Cash Proceeds received by us on or after the Issue Date from the
issuance or sale (other than to a Restricted Subsidiary) of debt securities
or our Redeemable Capital Stock that have been converted into or exchanged
for our Capital Stock (other than Redeemable Capital Stock) to the extent
such securities were originally sold for cash, together with the aggregate
net cash proceeds received by us (other than from a Restricted Subsidiary)
at the time of such conversion or exchange, PLUS (D) in the case of the
disposition or repayment of any Investment (other than through share leasing
arrangements) constituting a Restricted Payment made after the Issue Date
(other than in the case contemplated by clause (E) hereof) an amount equal
to the lesser of the return of capital with respect to such Investment and
the cost of such Investment, in either case, less the cost of the
disposition of such Investment, PLUS (E) in the case of Investments (other
than through share leasing arrangements) made in any Person other than a
Restricted Subsidiary, an amount equal to the lesser of the Fair Market
Value of such Investment and the total amount of such Investments
constituting Restricted Payments if and when such Person becomes a
Restricted Subsidiary less any amounts previously credited pursuant to
clause (D).
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
(b) So long as, with respect to clauses (2) through (9) below, no Default or
Event of Default has occurred and is continuing, the preceding provisions
concerning limitations on Restricted Payments will not prohibit:
(1) the payment of any dividend or other distribution within 60 days
after the date of declaration thereof if at such date of declaration such
payment complied with the provisions of the indenture;
(2) the purchase, redemption, retirement or other acquisition of any
shares of our Capital Stock in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, shares of our Capital Stock (other than Redeemable Capital
Stock);
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(3) the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness made by exchange for, or out of the
net cash proceeds of, a substantially concurrent issue or sale (other than
to a Restricted Subsidiary) of:
(A) our Capital Stock (other than Redeemable Capital Stock), or
(B) other Subordinated Indebtedness so long as:
(X) the principal amount of such new Indebtedness does not exceed
the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, defeased,
acquired or retired, PLUS the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to
the terms of the Subordinated Indebtedness being refinanced or the
amount of any premium reasonably determined by us as necessary to
accomplish such refinancing, plus, in either case, the amount of
expenses we incurred in connection with such refinancing,
(Y) such new Subordinated Indebtedness is subordinated to the
notes to the same extent as such Subordinated Indebtedness so
purchased, redeemed, defeased, acquired or retired, and
(Z) such new Subordinated Indebtedness has an Average Life longer
than the Average Life of the notes and a final Stated Maturity of
principal later than the Stated Maturity of principal of the notes;
(4) the extension by us and the Restricted Subsidiaries of trade credit
to Unrestricted Subsidiaries, represented by accounts receivable, extended
on usual and customary terms in the ordinary course of business;
(5) Investments (other than through share leasing arrangements) in any
Person promptly made with the proceeds of a substantially concurrent issue
or sale of our Capital Stock (other than Redeemable Capital Stock) ;
(6) payments made pursuant to the Shareholder Registration Rights
Agreement;
(7) the payment of reasonable and customary regular compensation and
fees to directors of our Company or any Restricted Subsidiary who are not
employees of our company or any Restricted Subsidiary;
(8) any "Restricted Payment" as defined in and permitted by the PCI
Indenture made by PCI or any Subsidiary thereof in accordance with the terms
of the PCI Indenture; and
(9) any other Restricted Payments in an aggregate amount not to exceed
$1.0 million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent
thereof) at any one time outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (1), (6), (7), (8) and (9) above
shall be included as Restricted Payments.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
(a) We will not and will not permit any Restricted Subsidiary to issue or
sell any shares of Capital Stock of a Restricted Subsidiary (other than to us or
a Restricted Subsidiary); PROVIDED, HOWEVER, that this covenant shall not
prohibit:
(1) the issuance and sale of all, but not less than all, of the issued
and outstanding Capital Stock of any Restricted Subsidiary in compliance
with the other provisions of the indenture,
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(2) issuances or sales of Common Stock of a Restricted Subsidiary if:
(x) the proceeds of such issuance or sale are applied in accordance
with the "LIMITATION ON SALE OF ASSETS" covenant, and
(y) immediately after giving effect thereto, we and our other
Restricted Subsidiaries own no less than 51% of the outstanding Voting
Stock of such Restricted Subsidiary,
(3) issuances or sales of Capital Stock of Restricted Subsidiaries that
are subsidiaries of PCI that are permitted by the terms of the PCI
indenture, or
(4) the ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
(b) we will not permit the direct or indirect ownership of our company or
any Restricted Subsidiary in the Capital Stock of any Management Company to fall
below the lesser of:
(1) the maximum ownership percentage permitted by applicable law, and
(2) 51% of the outstanding Capital Stock of such Management Company,
PROVIDED that any increase in such ownership of the Capital Stock of any
Management Company required by any change in applicable law shall not be
required to be completed prior to 365 days from the effective date of such
change in applicable law, PROVIDED FURTHER that we and the Restricted
Subsidiaries may sell all, but not less than all, of their Capital Stock of
any Management Company in accordance with the provisions of the "LIMITATION
ON SALE OF ASSETS" covenant.
LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) We will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of ours (other than us or a Majority Owned Restricted Subsidiary)
unless
(1) such transaction or series of related transactions is on terms that
are no less favorable to us or such Restricted Subsidiary, as the case may
be, than those that could have been obtained in an arm's-length transaction
with unrelated third parties who are not Affiliates,
(2) with respect to any transaction or series of related transactions
involving aggregate consideration equal to or greater than $10 million, we
shall have delivered an officers' certificate to the Trustees certifying
that such transaction or series of related transactions complies with clause
(i) above and such transaction or series of related transactions has been
approved by a majority of the Directors of our Board of Directors, or we
have obtained a written opinion from a nationally recognized investment
banking firm to the effect that such transaction or series of related
transactions is fair to us or such Restricted Subsidiary, as the case may
be, from a financial point of view (or if an investment banking firm is
generally not qualified to give such an opinion, by a nationally recognized
appraisal firm or accounting firm), and
(3) with respect to any transaction or series of related transactions
including aggregate consideration in excess of $20 million, we shall have
delivered an officers' certificate to the Trustees certifying that such
transaction or series of related transactions complies with clause (1) above
and such transaction or series of related transactions has been approved by
a majority of the Disinterested Directors of the Board of Directors
(assuming that at least two such directors exist), or in the event that at
least two members of our Board of Directors are not Disinterested Directors
with respect to any transaction or series of transactions included in this
clause (3), we shall obtain an opinion from a nationally recognized
investment banking firm (or if an investment banking firm is generally not
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qualified to give such an opinion, by a nationally recognized appraisal firm
or accounting firm) as described above; PROVIDED, HOWEVER, that this
provision will not restrict:
(A) any transaction by us or any Restricted Subsidiary with an
Affiliate directly related to the purchase, sale or distribution of
products in the ordinary course of business, including, without
limitation, transactions related to the purchase, sale or distribution of
programming, subscriber management services, transmission services and
services related to the publication of programming guides,
(B) us from paying reasonable and customary regular compensation and
fees to directors of ours or any Restricted Subsidiary who are not
employees of our company or any Restricted Subsidiary, including, without
limitation, any such fees which we have agreed to pay to any director
pursuant to an agreement in effect on the Issue Date and listed on a
schedule to the indenture,
(C) the payment of compensation (including stock options and other
incentive compensation) to officers and other employees the terms of
which are approved by the Board of Directors,
(D) any transactions pursuant to a Management Agreement,
(E) us or any Restricted Subsidiary from making any Restricted
Payment in compliance with the "LIMITATION ON RESTRICTED PAYMENTS"
covenant,
(F) (x) transactions pursuant to any Management Contract, Overhead
Agreement or Service Agreement that is entered into prior to the Issue
Date and is listed in an exhibit to the indenture; or (y) transactions
pursuant to any Organizational Contract, Overhead Agreement or Service
Agreement that is entered into after the Issue Date and has substantially
identical terms as, and is no less favorable to us or any Restricted
Subsidiary than, the Organizational Contracts, Overhead Agreements or
Service Agreements, as the case may be, listed in the exhibit to the
indenture, or
(G) amendments, modifications or alterations of Management
Agreements, Organizational Contracts, Overhead Agreements and Service
Agreements under (b) below.
(b) we will not, and will not permit any Restricted Subsidiary to, amend,
modify, or in any way alter the terms of any Management Agreement,
Organizational Contract, Overhead Agreement or Service Agreement in a manner
materially adverse to us other than:
(1) by adding new Restricted Subsidiaries to a Management Agreement,
(2) substituting one Restricted Subsidiary in place of another Restricted
Subsidiary under a Organizational Contract,
(3) amendments, modifications or alterations required by applicable law,
(4) amendments, modifications or alterations made to increase our control
over, or interest in, any Management Company, or
(5) amendments, modifications or alterations that are approved by a majority
of the Disinterested Directors of our Board of Directors as not materially
adverse to us.
LIMITATION ON LIENS.
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien of any kind,
except for Permitted Liens, on or with respect to any of its
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property or assets, whether owned at the date of the indentures or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless:
(x) in the case of any Lien securing Subordinated Indebtedness, the notes
are secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien, and
(y) in the case of any other Lien, the notes are equally and ratably
secured.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES.
(a) We will not permit any Restricted Subsidiary, directly or indirectly, to
guarantee, assume or in any other manner become liable with respect to any
Indebtedness of ours unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for the guarantee of payment of
the notes by such Restricted Subsidiary on a basis senior to any guarantee of
Subordinated Indebtedness or at least equally with any guarantee of Pari Passu
Indebtedness; PROVIDED that this paragraph (a) shall not be applicable to:
(1) any guarantee of any Restricted Subsidiary that existed at the time
such Person became a Restricted Subsidiary, or
(2) any guarantee of any Restricted Subsidiary of Senior Bank
Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the notes created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon:
(1) any sale, exchange or transfer, to any Person who is not an
Affiliate of our company, of all of our Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the indenture),
(2) the occurrence of any default or breach of any covenant or agreement
under any Indebtedness of ours arising as a result of the creation of such
guarantee, or
(3) the release by the holders of the Indebtedness of ours described in
the preceding paragraph of their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness, except by or as a result of payment under such
guarantee), at a time when:
(A) no other Indebtedness of ours has been guaranteed by such
Restricted Subsidiary, or
(B) the holders of all such other Indebtedness which is guaranteed by
such Restricted Subsidiary also release their guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness).
PURCHASE OF NOTES UPON A CHANGE OF CONTROL.
If a Change of Control occurs, each holder of notes will have the right to
require us to purchase all or a part of that holder's notes pursuant to the
Change of Control offer described in "Description of the New Notes--Repurchase
at the Option of Holders" above and in the following paragraph.
Within 30 days following any Change of Control, we will mail a notice to
each holder describing the terms of the Change of Control. This notice will
state the purchase price and the purchase date, which will be a business day no
earlier than 30 days nor later than 60 days from the date the notice is mailed,
unless otherwise required by applicable law.
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If a Change of Control offer is made, we cannot assure that we will have
sufficient funds to pay the purchase price for all of the notes that might be
delivered by holders seeking to accept the Change of Control offer. Our failure
to make or consummate the Change of Control offer or pay the Change of Control
purchase price when due would result in an Event of Default and would give the
Trustee and the holders of the notes the rights described under "Events of
Default."
One of the events which constitutes a Change of Control under the indenture
is the sale, lease, exchange or other transfer of "all or substantially all" of
our assets. Although there is a limited body of case law interpreting the phrase
"substantially all", there is no precise established definition of the phrase
under New York law. Accordingly, the ability of a holder of notes to require us
to repurchase notes as a result of a sale, lease, transfer or other disposition
of less than all of our assets is uncertain.
We will comply with the tender offer rules including Rule 14e-l under the
Exchange Act, and any other applicable securities laws and regulations in
connection with repurchase of notes as a result of a Change of Control.
LIMITATION ON SALE OF ASSETS.
(a) We will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, engage in any Asset Sale unless
(1) the consideration received by us or such Restricted Subsidiary for
such Asset Sale is not less than the Fair Market Value of the shares or
assets sold (as determined by our Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution), and
(2) the consideration received by us or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or
Cash Equivalents.
Notwithstanding the preceding sentence, we and our Restricted Subsidiaries
may consummate an Asset Sale without complying with clause (2) of the
immediately preceding sentence if at least 75% of the consideration for such
Asset Sale consists of any combination of cash, Cash Equivalents and those items
described in clause (b)(2) or (b)(3) below.
(b) If we or any Restricted Subsidiary engages in an Asset Sale, we may use
the Net Cash Proceeds thereof, within 12 months after the later of such Asset
Sale or the receipt of such Net Cash Proceeds,
(1) to permanently repay or prepay any then outstanding Senior Bank
Indebtedness of ours or a Restricted Subsidiary, any then outstanding
Indebtedness of a Restricted Subsidiary or any other then outstanding
unsubordinated Indebtedness of ours,
(2) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection
with a Permitted Investment made under clause (g), (h) or (i) of the
definition thereof), make capital expenditures (including lease payments for
one or more capital assets) or invest in other tangible assets of ours or
any Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/ Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of ours and our Restricted Subsidiaries
(or enter into a legally binding agreement to do so within six months of the
date on which such agreement is executed), or
(3) to invest in properties or assets that replace the properties and
assets that are the subject to such Asset Sale (or enter into a legally
binding agreement to do so within six months of the date on which such
agreement is executed).
If any such legally binding agreement to invest such Net Cash Proceeds is
terminated, then we may, within 90 days of such termination or within 12 months
of such Asset Sale, whichever is later, apply or invest such Net Cash Proceeds
as provided in clause (2) or (3) (without regard to the parenthetical
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contained in clauses (2) or (3)) above. The amount of such Net Cash Proceeds not
so used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15 million we
shall, within 30 business days, make an offer to purchase (an "Excess Proceeds
Offer") from all holders of the notes, on a PRO RATA basis (together with and
including any notes that may be outstanding pursuant to the Series C indenture),
in accordance with the procedures set forth below, the maximum Accreted Value of
notes that may be purchased with the Excess Proceeds less the amount of Excess
Proceeds, if any, required to be applied under the PCI indenture for the
repurchase of PCI notes and applied under the Old indenture or the Series C
indenture for the repurchase of the Old notes and Series C notes, respectively.
The offer price shall be payable in cash in an amount equal to 100% of the
Accreted Value of the notes, plus accrued and unpaid interest, if any (the
"Offered Price"), to the date such Excess Proceeds Offer is consummated (the
"Offer Date"). To the extent that the aggregate Accreted Value of notes tendered
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, we may use such additional Excess Proceeds for general corporate
purposes. If the Accreted Value of notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, notes to be purchased will be
selected on a pro rata basis (together with and including any Series C notes
that may be outstanding). Upon completion of such offer to purchase, the amount
of Excess Proceeds shall be reset to zero.
(d) If we become obligated to make an Offer pursuant to clause (c) above,
the notes shall be purchased by us, at the option of the holder thereof, in
whole or in part in integral multiples of $1,000 on a date that is not earlier
than 30 days and not later than 60 days from the date the notice is given to
holders, or such later date as may be necessary for us to comply with the
requirements under the Exchange Act, subject to proration in the event the
amount of Excess Proceeds is less than the aggregate Offered Price of all notes
tendered.
(e) We will comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, in connection with an Excess Proceeds Offer.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other distributions to
us or any Restricted Subsidiary on or in respect of our Capital Stock,
(b) pay any Indebtedness owed to us or any other Restricted Subsidiary,
(c) make loans or advances to us or any other Restricted Subsidiary, or
(d) transfer any of its properties or assets to us or any other Restricted
Subsidiary, except in all such cases for such encumbrances or restrictions
existing under or by reason of:
(1) any agreement or instrument in effect on the Issue Date and listed
on a schedule attached to the indenture,
(2) applicable law or regulation (including corporate governance
provisions required by applicable law and regulations of the National Bank
of Poland),
(3) customary non-assignment provisions of any lease governing a
leasehold interest of us or any Restricted Subsidiary,
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(4) any agreement or other instrument of a Person acquired by us or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
(5) any mortgage or other Lien on real property acquired or improved by
us or any Restricted Subsidiary after the Issue Date that prohibits
transfers of the type described in (d) above with respect to such real
property,
(6) with respect to a Restricted Subsidiary, an agreement that has been
entered into for the sale or disposition of all or substantially all of our
Capital Stock in, or substantially all the assets of, such Restricted
Subsidiary,
(7) the refinancing of Indebtedness incurred under the agreements listed
on a schedule attached to the indenture or described in clause (5) above, so
long as such encumbrances or restrictions are no less favorable in any
material respect to us or any Restricted Subsidiary than those contained in
the respective agreement as in effect on the date of the indenture,
(8) any such customary encumbrance or restriction contained in a
security document creating a Lien permitted under the indenture to the
extent relating to the property or asset subject to such Lien,
(9) any agreement or instrument governing or relating to Senior Bank
Indebtedness (an "Indebtedness Instrument") if such encumbrance or
restriction applies only (X) to amounts which at any point in time (other
than during such periods as are described in the following clause (Y)) (A)
exceed amounts due and payable (or which are to become due and payable
within 30 days) in respect of the notes or the indenture for interest,
premium and principal (after giving effect to any realization by us under
any applicable Currency Agreement), or (B) if paid, would result in an event
described in the following clause (Y) of this sentence, or (Y) during the
pendency of any event that causes, permits or, after notice or lapse of
time, would cause or permit the holder(s) of the Senior Bank Indebtedness
governed by the Indebtedness Instrument to declare any such Indebtedness to
be immediately due and payable or require cash collateralization or cash
cover for such Indebtedness for so long as such cash collateralization or
cash cover has not been provided, or (Z) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness and that do
not individually, or together with all such encumbrances or restrictions,
detract from the value of property or assets of us or any Restricted
Subsidiary in any manner material to us or any Restricted Subsidiary, and
(10) with respect to clause (d) above, any license agreement entered in
the ordinary course of business whereby we or any other Restricted
Subsidiary grant a license of programming or other intellectual property to
any other Person and such license agreement prohibits or encumbers the
transfer of the licensed property.
LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES.
We will not make, and will not permit any of its Restricted Subsidiaries to
make, any Investments in Unrestricted Subsidiaries (other than Permitted
Investments) if, at the time thereof, the amount of such Investment would exceed
the amount of Restricted Payments then permitted to be made pursuant to the
"LIMITATION ON RESTRICTED PAYMENTS" covenant. Any Investments in Unrestricted
Subsidiaries permitted to be made pursuant to this covenant:
(a) will be treated as the making of a Restricted Payment in calculating the
amount of Restricted Payments made by us or a Restricted Subsidiary (without
duplication under the provisions of clause (a) of paragraph (4) of the
"LIMITATION ON RESTRICTED PAYMENTS" covenant), and
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(b) may be made in cash or property (if made in property, the Fair Market
Value thereof as determined by our Board of Directors (whose determination shall
be conclusive and evidenced by a Board Resolution) shall be deemed to be the
amount of such Investment for the purpose of clause (a)).
LIMITATION ON LINES OF BUSINESS.
We will not and will not permit any Restricted Subsidiary to engage in any
business other than the Cable/Telecommunications Business, the
Entertainment/Programming Business or the DTH Business or any business or
activity reasonably related thereto, including the operation of a subscriber
management or service business.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) Whether or not subject to the reporting requirements of Section 13(a) or
15(d) of the Exchange Act, we will timely file with the Commission, to the
extent permitted, annual reports, quarterly reports and other documents required
to be filed with the Commission pursuant to such Section 13(a) or 15(d). We will
also provide the holders and the Trustee with these same reports and documents.
(b) We will disclose our current and accumulated earnings and profits, if
any, for each fiscal year in its annual report on Form 10-K so long as it is
required to file such report. Thereafter, we will provide such information to
any holder upon receipt of a written request from such holder.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We will not in a single transaction or a series of related transactions:
- consolidate with or merge with or into any other Person, or
- sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any
Person or Persons, and
- we will not permit any Restricted Subsidiary to enter into any such
transaction, or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially
all of the properties and assets of us and our Restricted Subsidiaries on
a consolidated basis to any Person or Persons, unless:
(a) either (1) we shall be the surviving corporation or (2) the Person (if
other than us) formed by such consolidation or into which we or we and our
Restricted Subsidiaries is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially all of
the properties and assets of our company or our company and our Restricted
Subsidiaries, as the case may be, (the "Surviving Entity") (x) shall be a
corporation organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and (y) shall
expressly assume, by an indenture supplemental to the indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, our obligations
for the due and punctual payment of the principal of (or premium, if any, on)
and interest on all the notes and the performance and observance of every
covenant of the indenture to be performed or observed;
(b) immediately before and after giving effect to such transaction or series
of transactions on a PRO FORMA basis (and treating any obligation of our Company
or any Restricted Subsidiary in connection with or as a result of such
transaction as having been incurred at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing;
(c) immediately after giving effect to such transaction or series of
transactions on a PRO FORMA basis (on the assumption that the transaction or
series of transactions occurred on the first day of the latest fiscal quarter
for which our consolidated financial statements are available prior to the
consummation of such
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transaction or series of transactions with the appropriate adjustments with
respect to the transaction or series of transactions being included in such PRO
FORMA calculation), the ratio of our Total Consolidated Indebtedness to
Annualized Pro Forma Consolidated Operating Cash Flow or the Surviving Entity if
we are not the continuing obligor under the indenture) would be less than or
equal to such ratio of our company immediately before such transaction;
(d) if any of the property or assets of our company or any of our Restricted
Subsidiaries would thereupon become subject to any Lien, the provisions of the
"LIMITATION ON LIENS" covenant are complied with; and
(e) we or the Surviving Entity shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or other
disposition and such supplemental indenture comply with the terms of the
indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of our company in accordance with the immediately
preceding paragraph in which we are not the continuing obligor under the
indenture, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of ours under the indenture, with the same
effect as if such successor had been named as us therein. When a successor
assumes all the obligations of its predecessor under the indenture and the
notes, the predecessor shall be released from those obligations; PROVIDED that
in the case of a transfer by lease, the predecessor shall not be released from
the payment of principal and interest on the notes.
EVENTS OF DEFAULT
Each of the following is an "Events of Default":
(a) default for 30 days in the payment of interest on any note when due
and payable;
(b) default in the payment of the principal of or premium, if any, on
any note at its Maturity;
(c) default in the performance, or breach, of the provisions described
in "Consolidation, Merger and Sale of Assets," the failure to make or
consummate a Change of Control offer in accordance with the provisions of
the "PURCHASE OF NOTES UPON A CHANGE OF CONTROL" covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the "LIMITATION ON SALE OF ASSETS" covenant;
(d) default in the performance, or breach, of any covenant or agreement
of ours contained in the indenture (other than a default in the performance,
or breach, of a covenant or agreement which is specifically dealt with
elsewhere in the indenture) and continuance of the default or breach for 30
days after written notice is given to us by the Trustee or to us and the
Trustee by the holders of at least 25% in aggregate principal amount at
maturity of the notes, as the case may be, then outstanding;
(e) (1) one or more defaults in the payment of principal of or premium,
if any, on Indebtedness of our company or any Significant Subsidiary
aggregating $15 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured or
waived or (2) Indebtedness of our company or any Significant Subsidiary
aggregating $15 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
(f) any holder or holders (or any Person acting on any such holder's
behalf) of any Indebtedness in excess of $15 million in the aggregate of our
company or any Significant Subsidiary shall, subsequent to the occurrence of
a default with respect to such Indebtedness, notify the Trustee of the
intended sale or disposition of any assets of our company or any Restricted
Subsidiary that have been pledged to or for the benefit of such Person to
secure such Indebtedness or shall commence
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proceedings, or take action to retain in satisfaction of any such
Indebtedness, or to collect on, seize, dispose of or apply, any such assets
of our company or any Restricted Subsidiary pursuant to the terms of any
agreement or instrument evidencing any such Indebtedness of our company or
any Restricted Subsidiary or in accordance with applicable law;
(g) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against us or any Significant Subsidiary
or their respective properties for the payment of money, either individually
or in an aggregate amount, in excess of $15 million and either (1) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (2) there shall have been a period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, was not in effect; and
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to us or any Significant Subsidiary.
If an Event of Default (other than an Event of Default arising from an event
of bankruptcy, insolvency or reorganization with respect to us or any
Significant Subsidiary) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the notes then
outstanding, by written notice to us (and to the Trustee if such notice is given
by the holders), may, and the Trustee upon the written request of such holders,
shall declare the principal of, premium, if any, and accrued interest on all of
the outstanding notes immediately due and payable, and upon any such declaration
all such amounts payable in respect of the notes shall become immediately due
and payable. If an Event of Default arising from an event of bankruptcy,
insolvency or reorganization with respect to us or any Significant Subsidiary
occurs and is continuing, then the principal of, premium, if any, and accrued
interest on all of the outstanding notes shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
either Trustee or any holder of notes.
At any time after a declaration of acceleration under the indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding notes by written notice to us and the Trustee, may rescind such
declaration and its consequences if
(a) We have paid or deposited with the Trustee a sum sufficient to pay:
(1) all overdue interest on all outstanding notes,
(2) all unpaid principal of and premium, if any, on any outstanding
notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by such notes,
(3) to the extent that payment of such interest is lawful, interest upon
overdue interest and overdue principal at the rate borne by such notes,
(4) all sums paid or advanced by the Trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and
(b) all Events of Default, other than the non-payment of amounts of
principal of, premium, if any, or interest on the notes that has become due
solely by such declaration of acceleration, have been cured or waived. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
The holders of at least a majority in principal amount of the notes may
waive any existing defaults under the indenture, except a default in the payment
of the principal of, premium, if any, or interest on any such note, or in
respect of a covenant or provision which under the indenture can not be modified
or amended without the consent of the holder of each note.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of notes, notice of the
Default or Event of Default within 90 days after the
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occurrence thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any notes, the Trustee
may withhold the notice to the holders of such notes if a committee of its trust
officers in good faith determines that withholding the notice is in the
interests of the holders of such notes.
We are required to furnish to the Trustee annual and quarterly statements as
to our performance of our obligations under the indenture and as to any default
in such performance. We are also required to notify the Trustee within five
business days of the occurrence of any Default.
DEFEASANCE OR COVENANT DEFEASANCE
We may, at our option and at any time, elect to have our obligations with
respect to the outstanding notes discharged ("defeasance"). Such defeasance
means that we will be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding notes and to have satisfied all our other
obligations under the notes and the indenture, except for
(a) the rights of holders to receive payments in respect of the principal of
(and premium, if any, on) and interest on the notes when such payments are due,
(b) our obligations to issue temporary notes, register the transfer or
exchange of any notes, replace mutilated, destroyed, lost or stolen notes,
maintain an office or agency for payments in respect of the notes and segregate
and hold such payments in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee, and
(d) the defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants described in the
indenture ("covenant defeasance"), and thereafter, any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the related notes.
In order to exercise either defeasance or covenant defeasance:
(a) we must irrevocably deposit or cause to be deposited with the Trustee,
in trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the notes, cash in U.S. dollars, or U.S. Government
Obligations (as defined in the indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, or a nationally recognized investment banking
firm, to pay and discharge the principal of, premium, if any, and interest on
the relevant outstanding notes on the Stated Maturity (or upon redemption, if
applicable) of such principal, premium, if any, or installment of interest;
(b) no Default or Event of Default with respect to the relevant notes will
have occurred and be continuing on the date of such deposit or, insofar as an
event of bankruptcy under clause (h) of "Events of Default" above is concerned,
at any time during the period ending on the 91st day after the date of such
deposit;
(c) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under any material agreement or instrument
(other than the indenture) to which we are a party or by which we are bound;
(d) in the case of defeasance, we will have delivered to the Trustee an
Opinion of Counsel in the U.S. stating that we have received from, or there has
been published by, the Internal Revenue Service a ruling, or since the effective
date of the Registration Statement, there has been a change in applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion shall confirm that, the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as
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a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred;
(e) in the case of covenant defeasance, we will have delivered to the
Trustee an Opinion of Counsel in the U.S. to the effect that the holders of the
notes outstanding will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred;
(f) in the case of defeasance or covenant defeasance, we will have delivered
to the Trustee an Opinion of Counsel in the U.S. to the effect that after the
91st day following the deposit or after the date such opinion is delivered, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) we will have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by us with the intent of preferring the holders of
the applicable notes over our other creditors with the intent of hindering,
delaying or defrauding our creditors; and
(h) we will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the notes as expressly
provided for in the indenture and the rights, powers, trusts, duties and
immunities of the Trustee) and the Trustee, at our request and expense, will
execute proper instruments acknowledging satisfaction and discharge of the
indenture when:
(a) either
(1) all the notes theretofore authenticated and delivered (other than
destroyed, lost or stolen notes which have been replaced or paid) have been
delivered to the Trustee for cancellation, or
(2) all notes not theretofore delivered to the Trustee for cancellation
(x) have become due and payable, (y) will become due and payable at their
Stated Maturity within one year or (z) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in our name, and at our
expense, and we have irrevocably deposited or caused to be deposited with
the Trustee, in trust, for such purpose an amount sufficient to pay and
discharge the entire Indebtedness on such notes not theretofore delivered to
the Trustee for cancellation, for principal of, premium, if any, and
interest on such notes to the date of such deposit (in the case of notes
which have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(b) we have paid or caused to be paid all sums payable under the indenture
by us; and
(c) we have delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that all conditions precedent provided in the indenture
relating to the satisfaction and discharge of the indenture have been complied
with.
AMENDMENTS AND WAIVERS
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(a) change the Stated Maturity of the principal of, or any installment of
interest on, any note, or reduce the Accreted Value or the rate of interest on
any note or any premium payable upon the
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redemption thereof, or change the coin or currency in which any note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(b) reduce the percentage in principal amount at maturity of outstanding
notes, the consent of whose holders is required for any waiver of compliance
with certain provisions of, or certain defaults and their consequences provided
for under, the indenture;
(c) modify any provisions described under "--Amendments and Waivers" or
"--Events of Default," except to increase the percentage of outstanding notes
required for such actions or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the holder of each
outstanding note; or
(d) amend, change or modify the redemption provisions of the indenture or
the notes or our obligation to make and consummate a Change of Control offer in
the event of a Change of Control or an Excess Proceeds offer in connection with
any Asset Sale or modify any of the provisions or definitions with respect
thereto.
The holders of a majority in aggregate principal amount at maturity of the
notes outstanding may waive compliance with certain restrictive covenants and
provisions of the indenture.
THE TRUSTEE
Except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the indenture. During
the existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it under the indenture and use the same degree of care and
skill in its exercise as a prudent Person would exercise under the circumstances
in the conduct of his/her own affairs.
The indenture and provisions of the Trust Indenture Act incorporated therein
contain limitations on the rights of the Trustee, should it become a creditor of
our company to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security or
otherwise. The Trustee is permitted to engage in other transactions, but if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.
GOVERNING LAW
The indenture and the notes will be governed by, and construed in accordance
with, the laws of the State of New York.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Please refer to the indenture for the full definition of such terms.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of the notes:
(1) if the Specified Date is one of the following dates (each a
"Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ----------------------------------------------------------------------- ----------
<S> <C>
Issue Date............................................................. $ 389.43
August 1, 1999......................................................... 428.75
February 1, 2000....................................................... 471.05
August 1, 2000......................................................... 517.53
February 1, 2001....................................................... 568.59
August 1, 2001......................................................... 624.69
February 1, 2002....................................................... 686.33
August 1, 2002......................................................... 754.05
February 1, 2003....................................................... 828.45
August 1, 2003......................................................... 910.19
February 1, 2004....................................................... $ 1,000.00
</TABLE>
(2) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180: and
(3) if the Specified Date is on or after February 1, 2004, $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; PROVIDED THAT, for
purposes of the "LIMITATION ON ADDITIONAL INDEBTEDNESS", covenant, such
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Affiliate" of any specified Person means:
(a) any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person, or
(b) any other Person that owns, directly or indirectly, 5% or more of such
specified Person's Voting Stock or any executive officer or director of any such
specified Person or other Person or, with respect to any natural Person, any
Person having a relationship with such Person by blood, marriage or adoption not
more remote than first cousin.
For the purposes of this definition, "control," when used with respect to
any specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the
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ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which our consolidated
financial statements are available multiplied by four. For purposes of
calculating "Consolidated Operating Cash Flow" for any fiscal quarter for
purposes of this definition,
(a) all our Restricted Subsidiaries on the date of the transaction giving
rise to the need to calculate "Annualized Pro Forma Consolidated Operating Cash
Flow" (the "Transaction Date") shall be deemed to have been Restricted
Subsidiaries at all times during such fiscal quarter, and
(b) any Unrestricted Subsidiary of ours on the Transaction Date shall be
deemed to have been an Unrestricted Subsidiary at all times during such fiscal
quarter.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated Operating Cash Flow" shall be calculated after giving
effect on a PRO FORMA basis for the applicable fiscal quarter to, without
duplication, any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of us or a Restricted Subsidiary (including any Person
who becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness)
occurring during the period commencing on the first day of such fiscal quarter
to and including the Transaction Date (the "Reference Period"), as if such Asset
Sale or Asset Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" means:
(a) any capital contribution (by means of transfers of cash or other
property to others or payments for property or services for the account or use
of others, or otherwise) by us or any Restricted Subsidiary in any other Person,
or any acquisition or purchase of Capital Stock of any other Person by us or any
Restricted Subsidiary, in either case pursuant to which such Person shall become
a Restricted Subsidiary or shall be merged with or into us or any Restricted
Subsidiary, or
(b) any acquisition by us or any Restricted Subsidiary of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
us or a Restricted Subsidiary in one transaction or a series of related
transactions, of:
(a) any Capital Stock of any Restricted Subsidiary,
(b) any material governmental license or other governmental authorization of
us or any Restricted Subsidiary pertaining to a Cable/Telecommunications
Business, a DTH Business or an Entertainment/ Programming Business,
(c) any assets of our company or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of our company and
our Restricted Subsidiaries or
(d) any other property or asset of our company or any Restricted Subsidiary
outside of the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not
include:
(a) any disposition of our properties and assets governed under
"Consolidation, Merger and Sale of Assets",
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(b) sales of property or equipment that have become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with our business or that
of a Restricted Subsidiary, as the case may be,
(c) for purposes of the covenant "LIMITATION ON SALE OF ASSETS," any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, either (1)
involving assets with a Fair Market Value not in excess of $500,000 (or, if
non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) or (2) as part
of a Capitalized Lease Obligation, and
(d) any transfer by us or a Restricted Subsidiary of property or equipment
to a Person who is not an Affiliate of our company in exchange for property or
equipment that has a fair market value at least equal to the fair market value
of the property or equipment so transferred; PROVIDED THAT, in the event of a
transfer described in this clause (d), we shall deliver to the Trustee an
Officer's Certificate certifying that such exchange complies with this clause
(d).
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing:
(a) the sum of the products of (1) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (2) the amount of each such principal payment by
(b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar U.S. federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Cable Television Newco" means any Person:
(a) of whom we or a Restricted Subsidiary owns the greater of 49% of the
outstanding Capital Stock or the maximum amount of outstanding Capital Stock
that we or such Restricted Subsidiary may own under applicable law, and
(b) that holds Capital Stock in a Management Company.
"Cable/Telecommunications Business" means any business operating a cable or
telephone or telecommunications or broadcasting system (other than an
Entertainment/Programming Business or a DTH Business), including, without
limitation, any business (other than an Entertainment/ Programming Business or a
DTH Business) conducted by us or any Restricted Subsidiary on the Issue Date and
any programming guide or telephone directory business.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
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"Cash Equivalents" means:
(a) any evidence of Indebtedness with a maturity of 180 days or less issued
or directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States of America is pledged in support thereof);
(b) certificates of deposit or acceptances with a maturity of 180 days or
less of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
of not less than $500,000,000;
(c) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of ours and is organized under the laws of
any state of the United States or the District of Columbia and rated at least
A-1 by S&P or at least P-l by Moody's; and
(d) any Capital Stock of any mutual funds at least 95% of the assets of
which are invested in the foregoing.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of our total outstanding Voting Stock;
(b) we consolidate with, or merge with or into another Person or conveys,
transfers, leases or otherwise dispose of all or substantially all of our assets
to any Person, or any Person consolidates with or merges with or into us, in any
such event pursuant to a transaction in which our outstanding Voting Stock is
converted into or exchanged for cash, securities or other property, other than
any such transaction where:
(1) our outstanding Voting Stock is not converted or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of our company) or is converted into or exchanged for (A)
Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (B) Voting Stock (other than Redeemable Capital
Stock) of the surviving or transferee corporation and cash, securities and
other property (other than Capital Stock of the Surviving Entity) in an
amount that could be paid by us as a Restricted Payment as described under
the "LIMITATION ON RESTRICTED PAYMENTS" covenant, and
(2) immediately after such transaction, no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the surviving or transferee corporation;
(c) during any consecutive two year period, individuals who at the beginning
of such period constituted our Board of Directors (together with any new
directors whose election to such Board of Directors, or whose nomination for
election by our stockholders, was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office; or
(d) we are liquidated or dissolved or a special resolution is passed by our
shareholders approving the plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "Consolidation,
Merger and Sales of Assets."
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"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock or ordinary shares.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for our U.S. corporation, local, foreign and other income taxes and
that of the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of:
(a) the interest expense of our company and its Restricted Subsidiaries for
such period, including, without limitation,
(1) amortization of original issue discount,
(2) the net cost of Interest Rate Agreements (including amortization of
discounts),
(3) the interest portion of any deferred payment obligation,
(4) accrued interest,
(5) the consolidated amount of any interest capitalized by us and the
Restricted Subsidiaries, PROVIDED that such amount will be limited for
purposes of this definition to the amount that would have been obtained if
such interest had been capitalized at the interest rate for the notes, and
(6) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
PLUS
(b) the interest component of Capitalized Lease Obligations of our company
and our Restricted Subsidiaries paid, accrued or scheduled to be paid or accrued
during such period, in each case as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of our company and all Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (in each case less all
fees and expenses relating thereto),
(b) any net after-tax gains or losses (in each case less all fees and
expenses relating thereto) attributable to asset dispositions other than in the
ordinary course of business,
(c) the portion of net income (or loss) of any Person (other than us or a
Restricted Subsidiary), including Unrestricted Subsidiaries, in which we or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to us or any Restricted
Subsidiary in cash dividends or distributions during such period,
(d) net income (or loss) of any Person combined with us or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination,
(e) except with respect to any encumbrance or restriction described in
clause (ii) of the "Limitation on Dividend and Other Payment Restrictions"
covenant, the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders, and
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(f) any non-cash items of ours and any Restricted Subsidiary (including
monetary corrections) increasing or decreasing Consolidated Net Income for such
period (other than items that will result in the receipt or payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of our company and our Restricted Subsidiaries for such
period increased by (in each case to the extent included in computing
Consolidated Net Income) the sum of:
(a) the Consolidated Income Tax Expense of our company and our Restricted
Subsidiaries accrued according to GAAP for such period (other than taxes
attributable to extraordinary, unusual or non-recurring gains or losses);
(b) Consolidated Interest Expense for such period;
(c) depreciation of our company and our Restricted Subsidiaries for such
period, and
(d) amortization of our company and our Restricted Subsidiaries for such
period, including, without limitation, amortization of capitalized debt issuance
costs for such period, all determined on a consolidated basis in accordance with
GAAP PROVIDED that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated Operating Cash Flow shall be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount equal to
(1) the amount of Consolidated Net Income attributable to such
Restricted Subsidiary multiplied by
(2) the quotient of
(A) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by
@Entertainment, Inc. or any of its Restricted Subsidiaries divided by
(B) the total number of shares of outstanding Common Stock of such
Restricted Subsidiary on the last day of such period.
"Cumulative Available Cash Flow" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of determination for which our
consolidated financial information is available or, if such cumulative
Consolidated Operating Cash Flow for such period is negative, the negative
amount by which cumulative Consolidated Operating Cash Flow is less than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
"Default" means any event that after notice or passage of time or both would
be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under the indenture, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"DTH Business" means the business of:
(a) developing, managing, operating or providing services relating to direct
to home satellite systems for the distribution of subscription programming
services directly to homes and cable systems in areas covered by the "footprint"
of the satellites utilized by us and our Restricted Subsidiaries, and activities
to
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accomplish the foregoing (other than the Cable/Telecommunications Business or
the Entertainment/ Programming Business), or
(b) evaluating, participating or pursuing any other activity or opportunity
that is primarily related to those identified above.
"Entertainment/Programming Business" means a business engaged primarily in
the management, ownership, operation, acquisition, development, production,
distribution or syndication of general entertainment, sports, movies, children's
or other programming or publishing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer, as determined by our Board of Directors and evidenced by a resolution
thereof.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the Issue Date.
"Guarantee", as applied to any obligation, means:
(a) a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner, of any part or all of such obligation, and
(b) an agreement, direct or indirect, contingent or otherwise, the practical
effect of which is to assure in any way the payment or performance (or payment
of damages in the event of non-performance) of all or any part of such
obligation, including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"Indebtedness" means, with respect to any Person, without duplication:
(a) all liabilities of such Person for borrowed money (including overdrafts)
or for the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements) incurred in the ordinary course of business (whether or not
evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities,
(b) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments,
(c) all indebtedness of such Person created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), but excluding trade accounts payable arising in the ordinary course
of business,
(d) all Capitalized Lease Obligations of such Person,
(e) all Indebtedness referred to in (but not excluded from) the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or with
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respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness (the amount of such obligation being
deemed to be the lesser of the value of such property or asset or the amount of
the obligation so secured),
(f) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person,
(g) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, and
(h) any liability of such Person under or in respect of Interest Rate
Agreements or Currency Agreements. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by our board of directors. For purposes of the
covenants "LIMITATION ON ADDITIONAL INDEBTEDNESS" and "LIMITATION ON RESTRICTED
PAYMENTS" and the definition of "EVENTS OF DEFAULT," in determining the
principal amount of any Indebtedness to be incurred by @Entertainment, Inc. or a
Restricted Subsidiary or which is outstanding at any date, (x) the principal
amount of any Indebtedness which provides that an amount less than the principal
amount at maturity thereof shall be due upon any declaration of acceleration
thereof shall be the accreted value thereof at the date of determination and (y)
effect shall be given to the impact of any Currency Agreement with respect to
such Indebtedness.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to such
Person (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock
(including ownership of Capital Stock through share leasing arrangements),
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by us in such Unrestricted Subsidiary at
such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date of original issuance of your notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
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"Majority Owned Restricted Subsidiary" means a Restricted Subsidiary (a) at
least 66.66% of the outstanding Capital Stock of which is beneficially owned
directly or indirectly by us or PCBV and one or more Wholly Owned Restricted
Subsidiaries and (b) no outstanding Capital Stock of which is owned, directly or
indirectly (except through us), by any shareholder or Affiliate of a shareholder
of our company.
"Management Agreement" means:
(a) any agreement between our company or a Restricted Subsidiary and a
Management Company pursuant to which the Management Company shall lease or
otherwise employ assets of our company or a Restricted Subsidiary to operate a
Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business, and
(b) any agreement or instrument (1) governing Indebtedness of a Management
Company to our company or a Restricted Subsidiary, or (2) governing corporate
procedures or control of a Management Company.
"Management Company" means any Person, a portion of whose Capital Stock is
held by us or a Restricted Subsidiary, that:
(a) holds or has applied for a license or permit to operate a
Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business in the Republic of Poland or elsewhere in
Continental Europe, and
(b) manages the operations of a Restricted Subsidiary pursuant to a
Management Agreement.
"Maturity" means, with respect to any note, the date on which any principal
of such note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(a) with respect to any Asset Sale, the proceeds thereof in the form of cash
or Cash Equivalents including payments in respect of deferred payment
obligations or escrowed funds, but only when received in the form of, or stock
or other assets when disposed for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to us or any
Restricted Subsidiary), net of--
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel, accountants, consultants and investment
banks) related to such Asset Sale,
(2) provisions for all taxes payable as a result of such Asset Sale,
(3) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such
Asset Sale,
(4) amounts required to be paid to any Person (other than us or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale, and
(5) appropriate amounts to be provided by us or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale and retained by
us or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all
as reflected in an Officers' Certificate delivered to the Trustee, and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock as referred to under the "LIMITATION ON RESTRICTED PAYMENTS" covenant and
the definition of Permitted Indebtedness, the proceeds of such capital
contribution, issuance or sale in the form of cash or Cash Equivalents,
including
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payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents (except
to the extent that such obligations are financed or sold with recourse to us or
any Restricted Subsidiary of our company), net of attorney's fees, accountant's
fees and brokerage, consultation, underwriting and other fees and expenses
actually incurred in connection with such capital contribution, issuance or sale
and net of taxes paid or payable as a result thereof.
"Organizational Contract" means any agreement to which we or any Restricted
Subsidiary is a party pursuant to which, among other things, fees are paid to us
or a Restricted Subsidiary in exchange for organizational, consulting or similar
services, including, without limitation, the agreements listed on a schedule to
the indenture under the subheading "Organizational Contracts."
"Overhead Agreement" means any agreement to which we or any Restricted
Subsidiary is a party pursuant to which, among other things, costs are allocated
among the parties thereto, including, without limitation, the agreements listed
on a schedule to the indenture under the subheading "Overhead Agreements."
"PCI" means Poland Communications, Inc., a New York corporation and a Wholly
Owned Subsidiary of @Entertainment, Inc.
"PCI Indenture" means the indenture dated as of October 31, 1996 between PCI
and State Street Bank and Trust Company, as trustee, as in effect on the Issue
Date.
"Permitted Holders" means, as of the date of determination:
(a) David T. Chase, Arnold L. Chase and Cheryl A. Chase,
(b) the family members, estates and heirs of David T. Chase Arnold L. Chase
and Cheryl A. Chase and any trust, partnership, corporation, limited liability
company or other investment vehicle principally for the benefit of any such
persons or their respective family members or heirs (including, without
limitation, Polish Investments Holding LP for so long as beneficial ownership
thereof is held by Persons meeting the requirements of clause (a) and (b) of
this definition),
(c) ECO Holdings III Limited Partnership ("ECO III") and any successor
thereto that is owned by the Persons who beneficially own, directly and
indirectly, ECO III on the Issuance Date,
(d) Advent International Corp., and
(e) any Person that is controlled by the Persons, individually or as a
group, described in clauses (a) through (d) above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the notes (or any guarantee thereof) and the
indenture;
(b) Indebtedness of our company or any Restricted Subsidiary outstanding
on the Issue Date and listed on a schedule to the indenture;
(c) Indebtedness of our company or any Restricted Subsidiary (including
PCI and any subsidiary of PCI that is a Restricted Subsidiary) to the extent
such Indebtedness constitutes "Permitted Indebtedness" as defined in the PCI
indenture or the Old indenture;
(d) (1) Indebtedness of any Restricted Subsidiary owed to and held by
us or a Restricted Subsidiary, and
(2) Indebtedness of our company owed to and held by any Restricted
Subsidiary that is Subordinated Indebtedness; PROVIDED that an incurrence
of Indebtedness shall be deemed to have occurred upon (x) any sale or
other disposition (excluding assignments as security to financial
institutions) of any Indebtedness of our company or Restricted Subsidiary
referred to in this clause (e) to a Person (other than @Entertainment,
Inc. or a Restricted Subsidiary) or (y) any
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sale or other disposition of Capital Stock of a Restricted Subsidiary
which holds Indebtedness of our company or another Restricted Subsidiary
such that such Restricted Subsidiary, in any such case, ceases to be a
Restricted Subsidiary;
(e) Obligations under any Interest Rate Agreement of our company or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of our
company or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and (y) is
otherwise permitted to be incurred under the "LIMITATION ON ADDITIONAL
INDEBTEDNESS" covenant), or (ii) Indebtedness for which a lender has
provided a commitment in an amount reasonably anticipated to be incurred by
us or a Restricted Subsidiary in the following 12 months after such Interest
Rate Agreement has been entered into, but only to the extent that the
notional principal amount of such Interest Rate Agreement does not exceed
the principal amount of the Indebtedness (or Indebtedness subject to
commitments) to which such Interest Rate Agreement relates;
(f) Indebtedness of our company or any Restricted Subsidiary under
Currency Agreements to the extent relating to (1) Indebtedness of our
company or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under the "LIMITATION ON ADDITIONAL INDEBTEDNESS"
covenant) or (2) obligations to purchase assets, properties or services
incurred in the ordinary course of business of our company or any Restricted
Subsidiary; provided that such Currency Agreements do not increase the
Indebtedness or other obligations of our company and our Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(g) Indebtedness of our company or any Restricted Subsidiary in respect
of performance bonds of our company or any Restricted Subsidiary or surety
bonds provided by us or any Restricted Subsidiary incurred in the ordinary
course of business in connection with the construction or operation of a
Cable/ Telecommunications Business, a DTH Business or an
Entertainment/Programming Business;
(h) Indebtedness of our company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of our company or of any Restricted Subsidiary
incurred or outstanding pursuant to clause (b) of this definition or the
proviso of the covenant "LIMITATION ON ADDITIONAL INDEBTEDNESS"; PROVIDED
that:
- Indebtedness of our company may not be replaced, renewed, refinanced
or extended to such extent under this clause (h) with Indebtedness of
any Restricted Subsidiary and
- any such replacement, renewal, refinancing or extension (x) shall not
result in a lower Average Life of such Indebtedness as compared with
the Indebtedness being replaced, renewed, refinanced or extended, (y)
shall not exceed the sum of the principal amount (or, if such
Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof, an amount no greater than such
lesser amount) of the Indebtedness being replaced, renewed, refinanced
or extended plus the amount of accrued interest thereon and the amount
of any reasonably determined prepayment premium necessary to
accomplish such replacement, renewal, refinancing or extension and
such reasonable fees and expenses incurred in connection therewith,
and (z) in the case of any replacement, renewal, refinancing or
extension by us of indebtedness that ranks equally with your existing
notes or Subordinated Indebtedness, such new Indebtedness is made
equal with with or subordinate to the existing notes, at least to the
same extent as the Indebtedness being replaced, renewed, refinanced or
extended;
(i) Indebtedness of our company having an aggregate principal amount not
to exceed, at any one time outstanding, two times (1) the Net Cash Proceeds
received by us on or after the Issue Date from the issuance and sale of its
Capital Stock (other than Redeemable Capital Stock) to a Person that is not
a Subsidiary, to the extent such Net Cash Proceeds have not been used
pursuant to
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clause (a)(3)(B), (b)(2), (b)(3) or (b)(5) of the "Limitation on Restricted
Payments" covenant to make a Restricted Payment and (2) 80% of the Fair
Market Value of property (other than cash or Cash Equivalents) received by
us on or after the Issue Date from a sale of its Capital Stock (other than
Redeemable Capital Stock) to a Person that is not a Subsidiary, the extent
such sale of Capital Stock has not been used pursuant to clause (b)(2),
(b)(3) or (b)(5) of the "Limitation on Restricted Payments" covenant to make
a Restricted Payment; PROVIDED, HOWEVER, that in determining the Fair Market
Value of property, if the estimated Fair Market Value of such property
exceeds $10.0 million, the Company will deliver to the Trustee a written
appraisal as to the fair market value of such property prepared by an
internationally recognized investment banking or public accounting firm (or,
if no such investment banking or public accounting firm is qualified to
prepare such an appraisal, by an internationally recognized appraisal firm)
and; PROVIDED FURTHER that such Indebtedness does not mature prior to the
Stated Maturity of the notes and has an Average Life longer than the notes;
(j) Subordinated Indebtedness of our company not to exceed $150 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) at
any one time outstanding; and
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of our company having an aggregate principal amount not
to exceed $125 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any time outstanding less the aggregate principal
amount of any outstanding Indebtedness incurred after the Issue Date under
clause (c) of this definition of Permitted Indebtedness.
"Permitted Investments" means:
(a) Cash Equivalents;
(b) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(c) loans and advances to directors or employees made in the ordinary
course of business;
(d) Interest Rate Agreements and Currency Agreements;
(e) bonds, notes, debentures or other securities received as a result of
Asset Sales permitted under the covenant "LIMITATION ON SALE OF ASSETS,"
PROVIDED that we or the Restricted Subsidiaries, as the case may be, have
received at least 75% of the aggregate consideration therefrom in cash or
Cash Equivalents;
(f) Investments made in the ordinary course of business as partial
payment for constructing a network relating principally to a
Cable/Telecommunications Business or for supplying equipment used or useful
in the Cable/Telecommunications Business or the DTH Business;
(g) Investments (other than through share leasing arrangements) in any
Person engaged in any business in which we or any Restricted Subsidiary are
engaged on the Issue Date not to exceed $90 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) outstanding at any time;
PROVIDED that immediately after giving effect to any Investment made under
this clause (g), we and our Restricted Subsidiaries shall own at least 25%
of the outstanding Capital Stock of the Person in which the Investment was
made;
(h) Investments (other than through share leasing arrangements) in any
Person engaged in any business in which we or any Restricted Subsidiary is
engaged on the Issue Date not to exceed $10 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) outstanding at any time;
(i) Investments (other than through share leasing programs) in the
Capital Stock of any Person to the extent the consideration therefor paid by
us or any Restricted Subsidiary consists of a lease or other right to use
the capacity of a cable television network of our company or such Restricted
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Subsidiary and so long as the capacity leased or used is used by such Person
solely to provide telephony or Internet access services; provided that our
Board of Directors shall have determined (as evidenced by a Board
Resolution) that any such capacity is in excess of the cable television
network capacity required to operate the Cable/Telecommunications Business
of our company or such Restricted Subsidiary in the area in which such cable
television network is located;
(j) Investments by any Restricted Subsidiary in our company; and
(k) to the extent not covered in clauses (a) through (j) above, any
"Permitted Investment" as defined in the PCI indenture made by PCI or any
subsidiary thereof in accordance with the terms of the PCI indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary granted
in favor of us or any Restricted Subsidiary;
(b) Liens securing the notes;
(c) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by us or any Restricted Subsidiary; PROVIDED that such Lien does not extend
to any property or assets of our company or any Restricted Subsidiary other
than the assets acquired in connection with the incurrence of such Acquired
Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, material men, repairmen or other like Liens arising in the
ordinary course of business of our company or any Restricted Subsidiary and
with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
our company or any Restricted Subsidiary incurred in the ordinary course of
business;
(g) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (h); PROVIDED that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI incurred
after the Issue Date under clause (c) of the definition of Permitted
Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of our company incurred pursuant to
clause (i) of the definition of Permitted Indebtedness in an amount having
an aggregate principal amount not to exceed, at any
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one time outstanding, 100% of the Net Cash Proceeds received by us after the
Issue Date from the issuance and sale of its Capital Stock;
(m) Liens in favor of Polish governmental fiscal authorities created
without the knowledge of and without fault on the part of our company;
(n) Liens existing on the Issue Date and listed on a schedule to the
indenture;
(o) Liens in favor of the Screen Actors Guild, the Writers Guild of
America, the Directors Guild of America or any other unions, guilds or
collective bargaining units under collective bargaining agreements, which
Liens are incurred in the ordinary course of business solely to secure the
payment of residuals and other collective bargaining obligations required to
be paid by us or any of our Restricted Subsidiaries under any such
collective bargaining agreement;
(p) Liens arising in connection with completion guarantees entered into
in the ordinary course of business and consistent with then current industry
practices, securing obligations (other than Indebtedness for borrowed money)
of our company or any of our Restricted Subsidiaries not yet due and
payable;
(q) Liens in favor of suppliers and/or producers of any programming that
are incurred in the ordinary course of business solely to secure the
purchase or license price of such programming and such directly related
rights or the rendering of services necessary for the production of such
programming; PROVIDED, HOWEVER, that no such Lien shall extend to or cover
any property or assets other than the programming or license and the rights
directly related thereto being so acquired or produced; and PROVIDED FURTHER
that any payment obligations secured by such Liens shall by their terms be
payable solely from the revenues that are derived directly from the
exhibition, syndication, exploitation, distribution or disposition of such
item of programming and/or such directly related rights;
(r) Liens on assets of PCI or any subsidiary of PCI securing the PCI
notes; and
(s) Liens on assets or Capital Stock of a Special Purpose Vehicle.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, S.A., Sp. z o.o.,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of Common Stock
(which is Qualified Capital Stock) of our company for cash pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of @Entertainment, Inc.).
"Purchase Money Obligation" means Indebtedness of our company or any
Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of our company or any Restricted Subsidiary or (b)
secured by a Lien on any assets of our company or any Restricted Subsidiary
where the lender's sole recourse is to the assets so encumbered, in either case
to the extent the purchase or construction prices for such assets are or should
be included in "addition to property, plan or equipment" in accordance with
GAAP.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
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"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; PROVIDED, HOWEVER, that Redeemable Capital Stock shall not include any
Common Stock the holder of which has a right to put to us upon certain
terminations of employment.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Senior Bank Indebtedness" means Indebtedness of our company or any
Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of us or any Restricted Subsidiary.
"Series C indenture" means the indenture dated as of January 20, 1999
between @Entertainment, Inc. and Bankers Trust Company, as trustee, as in effect
on the Issue Date.
"Series C notes" means our Series C Senior Discount Notes due 2008 issued
under the Series C indenture.
"Service Agreement" means any agreement to which we or any Restricted
Subsidiary are a party pursuant to which, among other things, we or a Restricted
Subsidiary provide various services, which may include administrative,
technical, managerial, financial, operational and marketing services, to the
other party or parties thereto, including, without limitation, the agreements
listed on a schedule to the indenture under the subheading "Service Agreements."
"Shareholder Registration Rights Agreement" means the Registration Rights
Agreement dated as of June 27, 1997 among PIHLP, ECO, Mr. Freedman, Steele LLC,
AESOP and CACMT (as such terms are defined herein) in the form existing on the
Issue Date.
"Significant Subsidiary" means, at any particular time, any Subsidiary that,
together with the subsidiaries of such Subsidiary:
(a) accounted for more than 5% of the consolidated revenues our company and
our Subsidiaries for their most recently completed fiscal year, or
(b) is or are the owner(s) of more than 5% of the consolidated assets of our
company and our Subsidiaries as at the end of such fiscal year, all as
calculated in accordance with GAAP and as shown on the consolidated financial
statements of our company and our Subsidiaries for such fiscal year.
"Special Purpose Vehicle" means a Person which is, or was, established:
(a) with separate legal identity and limited liability; and
(b) for the sole purpose of a single transaction, or series of related
transactions, and which has no assets and liabilities other than those directly
acquired or incurred in connection with such transaction(s).
"Stated Maturity" means, when used with respect to any note or any
installment of interest thereon, the date specified in such note as the fixed
date on which the principal of such note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of our company that is
expressly subordinated in right of payment to the notes.
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"Subsidiary" means:
(a) any Person a majority of the equity ownership or Voting Stock of which
is at the time owned, directly or indirectly, by us or by one or more other
Subsidiaries or by our company and one or more other Subsidiaries and
(b) Poltelkab, PTK Operator Sp. z o.o., Cable Television Newco and any other
Management Company.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of our company and our
Restricted Subsidiaries outstanding as of the date of determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means:
(a) any Subsidiary that at the time of determination shall be an
Unrestricted Subsidiary (as designated by our Board of Directors, as provided
below) and
(b) any subsidiary of an Unrestricted Subsidiary. Our Board of Directors,
subject to the foregoing, may designate any newly acquired or newly formed
Subsidiary (other than a Management Company) to be an Unrestricted Subsidiary so
long as:
(1) neither we nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary,
(2) no default with respect to any Indebtedness of such Subsidiary would
permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of our company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity,
(3) any Investment in such Subsidiary made as result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES" covenant,
(4) neither we nor any Restricted Subsidiary have a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or
oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of our company and
(5) neither we nor any Restricted Subsidiary have any obligation (A) to
subscribe for additional shares of Capital Stock or other equity interest in
such Subsidiary or (B) to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by our Board of Directors shall be evidenced
to the Trustee by filing a board resolution with the Trustee giving effect
to such designation. Our Board of Directors may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if immediately after giving effect to
such designation, there would be no Default or Event of Default under the
indentures and we could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "LIMITATION ON ADDITIONAL
INDEBTEDNESS" covenant.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
Dollars with the applicable foreign currency as quoted by the National Bank of
Poland at approximately noon (New York City time) on the date two business days
prior to such determination.
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a
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majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not, at the time, stock of any other class or
classes shall have, or might have, voting power by reason of the happening of
any contingency).
"Wholly Owned" means, with respect to any Restricted Subsidiary, such
Restricted Subsidiary if all the outstanding Capital Stock of such Restricted
Subsidiary (other than any directors' qualifying shares) is owned directly by
our company or PCBV and one or more Wholly Owned Restricted Subsidiaries.
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BOOK ENTRY; DELIVERY AND FORM
The certificates representing the notes which were issued in connection with
@Entertainment's January 1999 units offering were issued in fully registered
form without interest coupons. Except as described in the next paragraph, the
notes which were offered and sold to "qualified institutional buyers" in
reliance on Rule 144A under the Securities Act are currently represented by a
single, permanent global note in definitive, fully registered book-entry form,
which global note was registered in the name of a nominee of Depository Trust
Company ("DTC") and deposited on behalf of purchasers of such notes represented
thereby with a custodian for DTC for credit to the respective accounts of the
purchasers (or to such other accounts as they may direct) at DTC. New notes
which will be issued in exchange for the notes which were issued in connection
with @Entertainment's January 1999 units offering will be issued in the form of
one global exchange note and deposited with a custodian for DTC for credit to
the respective accounts of the purchasers (or such other accounts as they may
direct) at DTC.
Notes which were issued in connection with @Entertainment's January 1999
units offering and which are currently held by held by qualified institutional
buyers who elected to take physical delivery of their certificates instead of
holding their interest through a global note (and which are thus ineligible to
trade through DTC), were issued notes in registered form without interest
coupons. Subject to the conditions described in the next sentence, upon transfer
of such notes to another qualified institutional buyer, such notes will be
exchanged for an interest in a global note upon delivery of the appropriate
certifications to the trustee for the existing notes that were issued. However,
if the global notes representing the existing notes have previously been
exchanged in whole for certificated notes or unless the transferee (if such
transferee is a qualified institutional buyer) requests otherwise, such
transferred notes will be represented by certificates in registered form without
interest coupons.
Except as described in the next paragraph, the new notes initially will be
represented by one or more new permanent global certificates in definitive,
fully registered form. The global exchange notes will be deposited on their date
of issue with, or on behalf of, DTC and registered in the name of a nominee of
DTC.
THE GLOBAL EXCHANGE NOTE. @Entertainment expects that under the procedures
established by DTC: (a) upon the issuance of the new global exchange note and
the deposit of such new global exchange note with DTC, DTC or its custodian will
credit on its internal system to the accounts of persons who have accounts with
such depositary portions of the new global exchange note which correspond to the
portions of the principal amount of the new global exchange note equal to the
total amount owned by such persons and (b) ownership of the new global exchange
note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of persons other than entities or individuals who have accounts with
DTC) or through records maintained by entities or individuals who have accounts
with DTC. Such accounts initially will be designated by or on behalf of the
Exchange Agent and ownership of beneficial interests in the new global exchange
note(s) will be limited to persons who have accounts with and are therefore
"participants" in the DTC system or persons who hold interests through
participants. Qualified institutional buyers may hold their interests in the new
global exchange note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC or its nominee is the registered owner or holder of any
existing notes or new global exchange notes, DTC or such nominee will be
considered the sole owner or holder of the notes represented by the global note
or the new global exchange note for all purposes under the indenture governing
these. No beneficial owner of an interest in the global note or the new global
exchange note will be able to transfer such interest except in accordance with
the applicable procedures of DTC, the Euroclear System and Cedel Bank, societe
ANONYME, in addition to those provided for under the indenture governing these
notes.
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Payments of the principal of (or premium, if any, on) and interest on the
global note or the new global exchange note will be made to DTC or its nominee,
as the case may be, as the registered owner of the note. Neither @Entertainment,
the trustee or any paying agent under the indenture has any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the new global exchange note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
@Entertainment expects that DTC or its nominee, upon receipt of any payment
of the principal of (or premium, if any, on) and interest on the new global
exchange note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the new global exchange note(s) as shown on the records of DTC or its
nominee. @Entertainment also expects that payments by participants to owners of
beneficial interests in the new global exchange note held through such
Participants will be governed by standing instructions and customary practice as
is now the case with securities held for the accounts of customers registered in
the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated note for any reason, including to
sell notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the new global exchange note(s) in accordance with the normal procedures of
DTC and in accordance with the procedures set forth in the indenture.
DTC has advised @Entertainment that DTC will take any action permitted to be
taken by a holder of notes (including the presentation of notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the new global exchange note are credited and only
in respect of the aggregate principal amount of new global exchange note as to
which such participant or participants has or have given such direction.
However, if there is an event of default under the indenture governing the
notes, DTC will exchange the new global exchange note for certificated notes,
which it will distribute to its participants.
DTC has advised @Entertainment as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provision of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other
organizations.
- Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although DTC, the Euroclear System and Cedel Bank, societe ANONYME are
expected to follow the foregoing procedures in order to facilitate transfers of
interests in the new global exchange note among participants of DTC, the
Euroclear System and Cedel Bank, societe ANONYME, they are under no obligation
to follow such procedures, and such procedures may be discontinued at any time.
Neither @Entertainment nor the trustee nor any paying agent has any
responsibility for the performance by DTC, the Euroclear System or Cedel Bank,
societe ANONYME or the participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
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CERTIFICATED NOTES. Subject to certain conditions, any person having a
beneficial interest in the new global exchange note(s) may, upon request to the
trustee, exchange such beneficial interest for new notes in the form of
certificated notes. Upon any such issuance, the trustee is required to register
such certificated notes in the name of, and cause the same to be delivered to,
such person or persons (or any nominee thereof). In addition, interests in the
new global exchange note(s) will be exchangeable or transferable, as the case
may be, for certificated new notes, if (1) DTC notifies @Entertainment that it
is unwilling or unable to continue as depositary for such new global exchange
note(s), or DTC ceases to be a "Clearing Agency" registered under the Exchange
Act, and a successor depositary is not appointed by the Issuer within 90 days or
(2) an event of default has occurred and is continuing with respect to such new
global exchange note(s). Upon the occurrence of any of the events described in
the preceding sentence, the Issuer will cause the appropriate certificated notes
to be delivered. Certificated notes may only be transferred on the books and
records of the transfer agent.
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UNITED STATES TAX CONSIDERATIONS
For purposes of this summary, the term "holder" refers to you if you acquire
a beneficial ownership interest in the notes. This summary deals only with notes
held as capital assets and does not deal with special tax situations such as:
- dealers in securities or currencies or traders in securities that elect to
mark to market such securities;
- banks, financial institutions and life insurance companies;
- regulated investment companies;
- tax exempt organizations and individual retirement and other tax-deferred
accounts;
- persons holding notes as a hedge against currency risk;
- persons holding notes as part of a straddle, "synthetic security" or other
integrated financial transaction, including a "conversion transaction;" or
- United States holders (as defined below) whose functional currency is not
the U.S. dollar.
This summary is based on U.S. federal income tax law, including the United
States Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, rulings, administrative pronouncements and judicial decisions, all
as in effect on the date of this Prospectus. Subsequent developments in U.S.
federal income tax law, which may be applied retroactively, could have a
material effect on the U.S. federal income tax consequences of the exchange of
existing notes for new notes and of the ownership and disposition of the new
notes as set forth in this summary. BEFORE YOU EXCHANGE EXISTING NOTES FOR NEW
NOTES, YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT HOW U.S. FEDERAL INCOME TAX
LAW OR ANY OTHER LAWS, INCLUDING THE EFFECT OF ANY STATE OR LOCAL TAX LAWS OR
THE LAWS OF ANY JURISDICTION OTHER THAN THE UNITED STATES, WILL APPLY TO YOUR
PARTICULAR SITUATION.
EXCHANGE OF EXISTING NOTES FOR NEW NOTES
In the opinion of Baker & McKenzie, special U.S. federal income tax counsel
to @Entertainment:
- you will not recognize gain or loss on the exchange of an existing note
for a new note;
- your U.S. federal income tax attributes for the new note (including your
tax basis and the adjusted issue price (as described below) of the new
note) will be the same as your U.S. federal income tax attributes for the
existing note exchanged in the exchange offer.
- your holding period for a new note will include the holding period of the
existing note exchanged for it in the exchange offer.
UNITED STATES HOLDERS
If you are a United States holder (as defined below), the following summary
applies to you.
DEFINITION OF A UNITED STATES HOLDER. You are a "United States holder" of a
note if you are a United States person. You are a "United States person" if:
- you are a citizen or resident of the United States;
- you are a corporation or a partnership organized under the laws of the
United States or of any state (unless, in the case of a partnership,
future Treasury regulations otherwise provide);
- you are an estate, the income of which is subject to U.S. federal income
taxation regardless of the source of that income; or
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- you are a trust and (a) a United States court is able to exercise primary
supervision over the trust's administration and (b) one or more United
States persons has the authority to control all of the trust's substantial
decisions.
For these purposes, you are a "resident" of the United States if you are an
individual who:
- is lawfully admitted for permanent residence in the United States;
- is present in the United States for 183 days or more during a calendar
year; or
- (a) is present in the United States for 31 days or more during a calendar
year, (b) is present in the United States for an aggregate of 183 days or
more, on a weighted basis, over a 3-year period ending in such calendar
year, and (c) does not have a closer connection to a "tax home" that is
located outside the United States.
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT. Each note has been issued
with original issue discount ("Original Issue Discount") of $1,364.58, which is
an amount equal to the difference between the issue price of a note and the
stated redemption price at maturity of a note. The stated redemption price at
maturity of a note is $1,725.00, which is an amount equal to the sum of the
principal amount of the note and all periodic interest amounts payable under the
note. The issue price of a note is $360.42.
The issue price of a note is an allocable portion of the issue price
($389.42) of an investment unit (consisting of one existing note and 4 warrants)
that was issued by @Entertainment on January 27, 1999. This allocation of the
issue price will be binding on you, unless you disclose your inconsistent
allocation on your U.S. federal income tax return. The United States Internal
Revenue Service (the "Service") will not be bound by the allocation by
@Entertainment or by you. If the Service successfully challenged the allocation
of the issue price by @Entertainment or by you, the accrual of Original Issue
Discount and the calculation of gain or loss on a sale or other disposition of a
note would be affected by the resulting redetermination of the issue price of
the note.
You will be required to include in gross income, as ordinary interest
income, in each taxable year during which you own a note, a portion of the
Original Issue Discount calculated on a yield to maturity basis, regardless of
your method of accounting for tax purposes. You should be aware that because of
these Original Issue Discount rules, you generally will be required to include
increasingly greater portions of the Original Issue Discount in your gross
income over time before you receive the cash attributable to the Original Issue
Discount income.
You must include in your gross income the sum of the daily portions of the
Original Issue Discount for each day you own the note during the taxable year.
To determine the daily portion of the Original Issue Discount, you must select
accrual periods, subject to the following restrictions:
- accrual periods may be any length, but no longer than one year;
- accrual periods may vary in length over the term of the note; and
- each scheduled payment of principal or interest must occur on either the
final day of an accrual period or on the first day of an accrual period.
The daily portion is determined by allocating to each day during the
selected accrual period a ratable portion of the Original Issue Discount
determined for the period. The amount of the Original Issue Discount determined
for an accrual period equals the product of:
- the adjusted issue price (I.E., the issue price of the note, PLUS the
amount of Original Issue Discount accrued during all prior accrual
periods, MINUS the amount of any payment received under the note); and
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- the yield to maturity for the note (computed based upon the accrual period
selected and assuming the compounding of interest at the close of each
accrual period), properly adjusted for the length of the accrual period.
For example, if you select an accrual period of 6 months ending on August 1
and February 1 of each year, and given that the issue date of the existing note
was January 27, 1999, the yield to maturity of the note will be 18.4744% per
annum (assuming a 360 day year and semi-annual compounding). Under the above
accrual rules, the amount of Original Issue Discount to be taken into by you for
each accrual period during the term of the note is as follows:
<TABLE>
<CAPTION>
OID ACCRUED
FOR
PERIOD PER
PERIOD NOTE
- --------------------- --------------
<S> <C>
01/27/99--08/01/99 $ 34.1009
08/02/99--02/01/00 $ 36.4427
02/02/00--08/01/00 $ 39.8090
08/02/00--02/01/01 $ 43.4862
02/02/01--08/01/01 $ 47.5031
08/02/01--02/01/02 $ 51.8911
02/02/02--08/01/02 $ 56.6843
08/02/02--02/01/03 $ 61.9204
02/02/03--08/01/03 $ 67.6401
08/02/03--02/01/04 $ 73.8882
02/02/04--08/01/04 $ 80.7134
08/02/04--02/01/05 $ 81.4720
02/02/05--08/01/05 $ 82.3008
08/02/05--02/01/06 $ 83.2061
02/02/06--08/01/06 $ 84.1951
08/02/06--02/01/07 $ 85.2754
02/02/07--08/01/07 $ 86.4555
08/02/07--02/01/08 $ 87.7445
02/02/08--08/01/08 $ 89.1527
08/02/08--02/01/09 $ 90.6987
Total OID Accrued $ 1,364.5800
</TABLE>
The daily portion of Original Issue Discount for each day during an accrual
period is the amount of the Original Issue Discount for such period divided by
the number of days in the period (I.E., 180 days in the above example, except
for the first period which is 184 days).
Because the yield to maturity on the notes (of 18.4744% p.a.) is in excess
of the sum of the long-term applicable federal rate for January 1999 (I.E., the
month in which the notes were issued) plus five percentage points (or 10.14%
p.a.), the notes are classified as "applicable high yield discount obligations"
within the meaning of section 163(i) of the Code. Consequently, if you are a
corporation, you may treat the dividend equivalent portion of the Original Issue
Discount included in gross income for a period as a "dividend" for purposes of
the dividends received deduction provisions of sections 243, 246 and 246A of the
Code. The "dividend equivalent portion" for a period will be an amount equal to
the portion of the accrued Original Issue Discount that (a) is attributable to
the yield on a note in excess of 11.14% p.a. (I.E.,the sum of the long-term
applicable federal rate for January 1999 plus six percentage points) and (b)
would be treated as a dividend if it had been distributed by @Entertainment with
respect to stock in @Entertainment (I.E., an amount not in excess of the
available earnings and profits of @Entertainment for such period).
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Under the above rules, therefore, the potential dividend equivalent portion
of the Original Issue Discount to be taken into for each accrual period during
the term of a note is as follows:
<TABLE>
<CAPTION>
PERIOD
-----------
<S> <C>
01/27/99--08/01/99 $ 13.5382
08/02/99--02/01/00 $ 14.4679
02/02/00--02/01/00 $ 15.8043
08/02/00--02/01/01 $ 17.2642
02/02/01--08/01/01 $ 18.8589
08/02/01--02/01/02 $ 20.6009
02/02/02--08/01/02 $ 22.5039
08/02/02--02/01/03 $ 24.5826
02/02/03--08/01/03 $ 26.8534
08/02/03--02/01/04 $ 29.3339
02/02/04--08/01/04 $ 32.0435
08/02/04--02/01/05 $ 32.3447
02/02/05--08/01/05 $ 32.6737
08/02/05--02/01/06 $ 33.0331
02/02/06--08/01/06 $ 33.4257
08/02/06--02/01/07 $ 33.8546
02/02/07--08/01/07 $ 34.3231
08/02/07--02/01/08 $ 34.8349
02/02/08--08/01/08 $ 35.3939
08/02/08--02/01/09 $ 36.0071
Total Potential
Dividend Equivalent
Portion $ 541.7424
</TABLE>
@Entertainment will disclose its current and accumulated earnings and profits,
if any, for any fiscal year in its annual report on Form 10-K so long as it is
required to file such report. Thereafter, @Entertainment will provide such
information to you upon receipt of your written request.
If you have purchased or will purchase a note for a price that is different
than the adjusted issue price of the note on such date, then the timing of your
income inclusion with respect to that note may be subject to special rules
applicable to notes with acquisition premium or market discount. IF YOU HAVE
PURCHASED OR WILL PURCHASE A NOTE FOR A PRICE THAT IS DIFFERENT THAN THE THEN
ADJUSTED ISSUE PRICE, THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT
HOW THE U.S. FEDERAL INCOME TAX RULES APPLICABLE TO NOTES WITH ACQUISITION
PREMIUM OR MARKET DISCOUNT WILL AFFECT YOU.
The face of each note will set forth the following information:
- issue date,
- issue price,
- yield to maturity,
- amount of Original Issue Discount, and
- any other information required by Treasury regulations.
@Entertainment will furnish to the Service the amount of Original Issue
Discount, the issue date and any additional information required by Treasury
regulations. You must determine for yourself the amount of Original Issue
Discount income that you must report to the Service each year.
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Because the notes are classified as "applicable high yield discount
obligations," @Entertainment's deduction for U.S. federal income tax purposes of
the portion of the accrued Original Issue Discount under the notes attributable
to the yield in excess of 11.14% p.a. will be denied, while @Entertainment's
deduction for the remainder of the accrued Original Issue Discount under the
notes will be deferred until such amounts are paid. For a more complete
discussion of the U.S. federal income tax consequences to @Entertainment of the
notes, see "Risk Factors--Original Issue Discount Consequences."
PURCHASE, SALE AND REDEMPTION OF NOTES. Generally, your initial tax basis
in a note will be its U.S. dollar cost. However, as stated above, your tax basis
in a new note received in the exchange offer will be the same as your tax basis
in the existing note exchanged. Your initial tax basis in a note will increase
by the amount of accrued Original Issue Discount you include in income and will
decrease by payments you receive with respect to a note, including the
semiannual payments of stated interest commencing August 1, 2004 received by you
(if any) under a note.
You will recognize capital gain or loss when you sell, exchange or otherwise
dispose of your note, or @Entertainment redeems or retires your note (including
a redemption following an occurrence of a Change of Control), equal to the
difference between:
- the amount realized on the sale, exchange, redemption, retirement or other
disposition (less any amount attributable to accrued Original Issue
Discount, which will be taxable as such); and
- your tax basis in the note.
Your gain or loss will be long-term capital gain or loss if at the time of
the sale, payment or other disposition, you have held the note for more than one
year. Under current law, if you are a non-corporate taxpayer (including an
individual), your net long-term capital gain is generally taxed at a lower U.S.
federal income tax rate than is an item of ordinary income. The deductibility of
your capital losses, however, is subject to limitations.
If you have purchased or will purchase a note for a price that is different
than the adjusted issue price of the note on such date, then the character and
amount of gain or loss taken into account on a sale, exchange or other
disposition of that note may be subject to special rules applicable to notes
with acquisition premium or market discount. IF YOU HAVE PURCHASED OR WILL
PURCHASE A NOTE FOR A PRICE THAT IS DIFFERENT THAN THE THEN ADJUSTED ISSUE
PRICE, THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT HOW THE U.S.
FEDERAL INCOME TAX RULES APPLICABLE TO NOTES WITH ACQUISITION PREMIUM OR MARKET
DISCOUNT WILL AFFECT YOU.
PAYMENT UPON REGISTRATION DEFAULT. As more fully described under the
heading "The Exchange Offer--Payment of Additional Interest Upon Registration
Default," @Entertainment may be required to pay additional interest to holders
of existing notes under certain circumstances if the exchange offer registration
statement or shelf registration statement is not declared effective by a
specified date or if the exchange offer is not consummated by a specified date
(each a "Registration Default"). Although the issue is not free from doubt,
because @Entertainment believes that the occurrence of a Registration Default is
remote, @Entertainment intends to take the position that a holder of an existing
note is not required to report any additional interest as ordinary income for
U.S. federal income tax purposes until such time as a Registration Default
occurs. Upon the occurrence of such an event, therefore, a holder of an existing
note would be required to take into account the additional interest as it
accrues or is received in accordance with the holder's method of accounting for
tax purposes.
It is noted, however, that the Service may take a different position as to
the likelihood that a Registration Default will occur or that additional
interest will be required to be paid, in which case the timing and amount of
income taken into account with respect to the additional interest may be
different. Holders of existing notes should consult their own tax advisers as to
the tax considerations relating to the potential payment of additional interest
upon the occurrence of a Registration Default.
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NON-UNITED STATES HOLDERS
If you are not a United States holder (as defined above), the following
summary applies to you.
UNITED STATES WITHHOLDING TAX. Subject to the discussion below, U.S.
federal withholding tax will not apply to payments by @Entertainment or any
paying agent of @Entertainment (in its capacity as such) of principal of and
interest (including payments of Original Issue Discount) on your note in
accordance with the "portfolio interest" exception of the Code, provided in the
case of interest (including payments of Original Issue Discount) that:
- you, or a partnership you are a member of, do not actually or
constructively own 10 percent or more of the total combined voting power
of all classes of stock of @Entertainment entitled to vote;
- you are not a controlled foreign corporation for U.S. federal income tax
purposes with respect to which @Entertainment is a "related person" as
defined under the Code; and
- you provide a signed written statement, under penalties of perjury, that
can reliably be related to you, certifying that you are not a United
States person and providing your name and address to:
(a) @Entertainment or its agent;
(b) a securities clearing organization, bank (including, after December 31,
1999, certain regulated United States branches of a foreign bank or a
foreign insurance company) or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), if that institution:
- holds the note on your behalf,
- provides an intermediary certificate to @Entertainment or its agent
under penalties of perjury confirming that the institution (or a
Financial Institution between you and the institution) has received
your signed written statement, and
- furnishes a copy of your signed written statement to @Entertainment
or its agent; or
(c) after December 31, 1999, a specified withholding partnership or
qualified intermediary that provides a duly completed withholding
certificate to @Entertainment or its agent.
Your signed written statement will be generally effective only with respect
to interest payments made to you after you signed the statement in the calendar
year in which you sign it and the two (or, for statements provided after
December 31, 1999, the three) immediately following calendar years.
If you do not qualify for the "portfolio interest" exception described
above, the rate of the U.S. federal withholding tax (generally imposed at a rate
of 30%) may be reduced or eliminated with respect to payments of interest
(including payments of Original Issue Discount) on a note if you provide to
@Entertainment or its paying agent a duly completed Internal Revenue Service
Form 1001 or Form W-8BEN (or substitute form), establishing that a tax treaty
applies to reduce the rate of, or eliminate, the U.S. federal withholding tax.
UNITED STATES INCOME TAX. Except for the possible application of U.S.
federal withholding tax (see "United States Tax Considerations--Non-United
States Holders--United States Withholding Tax") and backup withholding tax (see
"United States Tax Considerations--Backup Withholding and Information
Reporting"), you will not have to pay U.S. federal income tax on payments of
principal of and interest (including accrued Original Issue Discount) on your
note, or on gains from the sale, redemption or other disposition of your note,
provided you (or the fiduciary, settler, or beneficiary of, or a person holding
a power over you, if you are an estate or trust; or any of your partners, if you
are a partnership):
- are not and have not been engaged in a trade or business in the United
States;
- do not have and have not had a permanent establishment in the United
States;
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- do not have and have not had a present or former connection with the
United States, including, without limitation, the status as a citizen or
former citizen or resident or former resident of the United States for
U.S. federal income tax purposes; and
- are not and have not been, for U.S. federal income tax purposes, (a) a
personal holding company, (b) a corporation that accumulates earnings to
avoid U.S. federal income tax, or (c) a person treated as making an
election that subjects your payments of principal of and interest
(including accrued Original Issue Discount) on your note subject to U.S.
federal income tax.
However, if you are an individual and are present in the United States for
183 days or more during the taxable year of the sale or other disposition of
your notes, any gain you realize on the sale or other disposition may be subject
to a 30% U.S. federal income tax if your gain is attributable to an office or
fixed place of business in the United States or you have a tax home in the
United States.
If you are engaged in a trade or business in the United States and interest
(including accrued Original Issue Discount), gain or any other income in respect
of your note is effectively connected with the conduct of your trade or
business, you may be subject to United states income tax on the interest, gain
or income even though it is exempt from the withholding tax discussed in the
preceding paragraphs (provided you furnish to @Entertainment or its paying agent
a duly completed Internal Revenue Service Form 4224 or Form W-8ECI (or
substitute form) or otherwise establish your exemption from withholding tax).
You will have to pay this income tax at the statutory rates provided for United
States persons after you deduct any deductible expenses allocable to your
effectively connected interest (including accrued Original Issue Discount), gain
or income. In addition, if you are a foreign corporation, you may be subject to
a branch profits tax equal to 30% of your effectively connected earnings and
profits for the taxable year, as adjusted for certain items, unless a lower rate
(which may be zero) applies to you under a United States income tax treaty with
your country of residence.
BACKUP WITHHOLDING AND INFORMATION REPORTING
GENERAL RULES. If you do not provide a correct taxpayer identification
number and other information, or do not comply with certain other requirements
or otherwise establish an exemption, @Entertainment, its paying agent, or a
broker, as the case may be, will be required to withhold from payments to you a
tax equal to 31% of each payment. This "backup" withholding tax applies to
certain payments of principal and interest (including payments of Original Issue
Discount) on a note and to the proceeds from the sale or disposition of a note
before maturity.
If you are a United States person, you can avoid the imposition of backup
withholding tax by reporting your taxpayer identification number to your broker
or paying agent on Internal Revenue Service Form W-9 (or substitute form) or by
otherwise establishing an exemption. If you are not a United States person, you
can avoid the imposition of backup withholding tax by providing a duly completed
Internal Revenue Service Form W-8 (or substitute form) to your broker or paying
agent or by otherwise establishing an exemption.
Treasury regulations generally effective for payments made on or after
January 1, 2000, modify certain of the certification requirements for exemption
from backup withholding. It is possible that @Entertainment and other paying
agents may request a new withholding exemption form from you in order to qualify
for continued exemption from backup withholding under the Treasury regulations
when they become effective.
If you provide the Service with the information it requires, you will
receive a refund or a credit against your U.S. federal income tax liability for
any amounts withheld from your payments under the backup withholding rules.
147
<PAGE>
@Entertainment, its paying agent, or a broker, as the case may be, will also
be required to report certain information relating to their payments of
principal and interest (including payments of Original Issue Discount) on notes
and of proceeds from the sale or disposition of notes before maturity.
EXCEPTIONS APPLICABLE TO NON-UNITED STATES PERSONS AND EXEMPT
RECIPIENTS. Temporary Treasury regulations, which are currently effective,
provide that backup withholding and information reporting will not apply to
payments of principal of and interest (including payments of Original Issue
Discount) on notes by @Entertainment or its paying agents to you if you certify
under penalties of perjury that you are not a United States person or otherwise
establish an exemption, provided neither @Entertainment nor its paying agents
has actual knowledge that you are a United States person or that the conditions
of any other exemption are not in fact satisfied.
If a foreign office of a custodian, nominee or other agent collects your
payment on your behalf, that custodian, nominee or other agent will not be
required to apply backup withholding to its payments to you. However, if such
custodian, nominee or other agent is a United States person, a controlled
foreign corporation for U.S. federal income tax purposes, or a foreign person
50% or more of whose gross income is from a United States trade or business for
a specified three-year period, that custodian, nominee or other agent will be
subject to certain information reporting requirements with respect to such
payment unless:
- the custodian, nominee or other agent has evidence in its records that you
are not a United States person and does not have actual knowledge that the
evidence is false;
- you are an exempt recipient, such as a bank, corporation or Financial
Institution; or
- you otherwise establish an exemption.
In addition, payments to you on a note by the United States office of a
custodian, nominee or other agent on your behalf will be subject to information
reporting and backup withholding, unless:
- you certify under penalties of perjury that you are not a United States
person and you provide your name and address, or
- you otherwise establish an exemption.
Final and temporary Treasury regulations, which are currently effective,
provide that backup withholding will not apply to payments of the proceeds of
your sale of a note if:
- you are not a United States person; and
- you sell your note to or through a foreign office of a broker.
Certain information reporting requirements will apply to payments of such
proceeds by foreign offices of a broker that is a United States person, a
controlled foreign corporation for U.S. federal income tax purposes or a foreign
person 50% or more of whose gross income is from a United States trade or
business for a specified three-year period, unless:
- you are an exempt recipient; or
- the broker has evidence in its records that you are not a United States
person and no actual knowledge that the evidence is false.
In addition, payments to you of the proceeds of a sale to or through the
United States office of a broker will be subject to information reporting and
backup withholding, unless:
- you certify under penalties of perjury that you are not a United States
person and provide your name and address; or
- you otherwise establish an exemption.
148
<PAGE>
Final Treasury regulations, which are effective January 1, 2000, provide
that backup withholding and information reporting will not apply to payments of
principal of and interest (including payments of Original Issue Discount) on
notes to you if you are not a United States person and you qualify for the
"portfolio interest" exception to U.S. federal withholding tax as described in
"United States Tax Considerations--Non-United States Holders--United States
Withholding Tax" above, regardless of the identity of the payor and regardless
of whether the payment is collected by a United States or foreign office of a
custodian, nominee or other agent acting on your behalf.
Final Treasury regulations, which are effective January 1, 2000, provide
that information reporting and backup withholding will generally apply to
payments to you, even if you are not a United States person, of the proceeds of
the sale of your note to or through a foreign office of a broker that is a "U.S.
payor" or a "U.S. middleman" (including (a) a person who is a United States
person, (b) a controlled foreign corporation for U.S. federal income tax
purposes, (c) a foreign partnership that is either controlled by United States
persons or engaged in a United States trade or business, or (d) a foreign person
50% or more of whose gross income is from a United States trade or business for
a specified three-year period), unless:
- you are an exempt recipient; or
- the broker has evidence in its records that you are not a United States
person and has no actual knowledge or reason to believe that the evidence
is unreliable.
149
<PAGE>
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties in similar
transactions, we believe that new notes issued in the exchange offer in exchange
for the existing notes may be offered for resale, resold and otherwise
transferred by you (other than if you are our "affiliate" within the meaning of
Rule 405 under the Securities Act of 1933) without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933.
However, this applies only if new notes are acquired in the ordinary course of
your business and you have not arranged with any person to participate in the
distribution of these new notes. We refer you to the "Morgan Stanley & Co. Inc."
SEC No-Action Letter (available June 5, 1991), "Exxon Capital Holdings
Corporation" SEC No-Action Letter (available May 13, 1988) and "Shearman &
Sterling" SEC No-Action Letter (available July 2, 1993) for support of this
belief.
Each broker-dealer that receives new notes for its own account must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. This prospectus, including any amendments or supplements to the
prospectus which may be issued from time to time, may be used by a broker-dealer
in connection with resales of new notes which were received in exchange for
existing notes where the existing notes were acquired as a result of
market-making activities or other trading activities. We have agreed that for a
period of 180 days after the exchange offer expires, we will make available a
prospectus which meets the requirements of the Securities Act of 1933 to any
broker-dealer for use in this type of resale.
We will not receive any proceeds from any sale of new notes by any
broker-dealer. New notes received by brokers-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any type of resale of new notes may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or from the purchasers of the new notes. Any broker-dealer that
resells new notes that were received by it for its own account in the exchange
offer and any broker or dealer that participates in a distribution of these new
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act of 1933 and any profit on any such resale of new notes and any commissions
or concessions received by these persons may be deemed to be underwriting
compensation under the Securities Act of 1933. The Letter of Transmittal states
that by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933.
We have agreed to pay all expenses incident to our performance of, or
compliance with our registration rights agreement with Merrill Lynch and
Deutsche Bank. In addition, we will indemnify holders of the existing notes
(including any broker-dealers) against certain liabilities, including certain
liabilities under the Securities Act of 1933.
150
<PAGE>
LEGAL MATTERS
The validity of the new notes will be passed upon for @Entertainment by
Baker & McKenzie, Washington, District of Columbia and New York, New York with
respect to matters of United States law. Certain matters of Polish law will be
passed upon for @Entertainment by Baker & McKenzie, Warsaw, Poland.
EXPERTS
The consolidated financial statements of @Entertainment as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997 have been included herein and in the registration statement in reliance
upon the report of KPMG Polska Sp. z o.o., independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
KPMG Polska Sp. z o.o. as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
involve risks and uncertainties. Words such as "believe," "expect," "intend,"
"plan," "anticipate," "likely," "will" and similar expressions are intended to
identify such forward-looking statements. Our actual results may differ
significantly from the results discussed in these forward-looking statements.
The risks, uncertainties and other factors that might cause such differences
include, but are not limited to:
- general economic conditions in Poland and in the pay television business
in Poland;
- changes in regulations we operate under;
- actions by competitors;
- uncertainties inherent in new business strategies, including our satellite
television business, new product launches and development plans, which we
have not used before.
- rapid technology changes;
- changes in the acquisition, development and/or financing of
telecommunications networks and services;
- the development and provision of programming for new television and
telecommunications technologies;
- the continued strength of competitors in the multichannel video
programming distribution industry and satellite services industry and the
growth of satellite delivered programming;
- future financial performance, including availability, terms and deployment
of capital;
- the ability of vendors to deliver required equipment, software and
services on schedule at the budgeted cost;
- our ability to attract qualified personnel;
- changes in, or failure or inability to comply with government regulations;
- changes in the nature of strategic relationships with joint venturers;
- competitor responses to our products and services;
- the overall market acceptance of those products and services, including
acceptance of the pricing of those products and services;
151
<PAGE>
- possible interference by satellites in adjacent orbital positions with the
satellites currently being used for our satellite television business; and
- acquisition opportunities.
TRADEMARKS/TRADENAMES USED IN THE PROSPECTUS
In this prospectus we refer to many trademarks and tradenames which are
owned by other people. These trademarks and tradenames include:
<TABLE>
<CAPTION>
TRADEMARK OR TRADENAME OWNER
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
BET on Jazz Black Entertainment Television, Inc.
Cartoon Network The Cartoon Network, Inc.
CNN International Cable News Network, Inc.
Fox Kids Twentieth Century Fox Film Corporation.
Hallmark Hallmark Entertainment Network, Inc.
QuesTV QTV Communications, LLC
National Geographic National Geographic Society
Romantica Zone Broadcasting (Romantica) Limited
Turner Classic Movies Turner Classic Movies, Inc.
Travel Landmark Travel Channel Limited
CryptoWorks-Registered Trademark- Koninklijke Philips Electronics N.V.
Twoj Styl WPTS Sp. z o.o. (in which the Company holds a 50 percent
interest)
HBO Time Warner Entertainment Company, L.P.
The Discovery Channel-Europe Discovery Communications, Inc.
Animal Planet Discovery Communications, Inc.
Canal+ Canal+ S.A.
Eurosport Societie Europenne De Teletransmissions Sportives S.A.
</TABLE>
152
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Interim Consolidated Financial Statements
Consolidated Balance Sheet.............................................................................. F-2
Consolidated Statements of Operations................................................................... F-4
Consolidated Statements of Cash Flows................................................................... F-5
Notes to Consolidated Financial Statements.............................................................. F-6
Audited Consolidated Financial Statements
Independent Auditors' Report............................................................................ F-13
Consolidated Balance Sheets............................................................................. F-14
Consolidated Statements of Operations................................................................... F-16
Consolidated Statements of Changes in Stockholders' Equity.............................................. F-17
Consolidated Statements of Cash Flows................................................................... F-18
Notes to Consolidated Financial Statements.............................................................. F-19
</TABLE>
F-1
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
(IN
THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 67,888
Accounts receivable, net of allowance for doubtful accounts of $1,657,000........................ 3,022
Programming and broadcast rights current......................................................... 7,017
Other current assets............................................................................. 9,035
-------------
Total current assets........................................................................... 86,962
-------------
Property, plant and equipment:
Cable television systems assets.................................................................. 160,619
D-DTH equipment.................................................................................. 33,452
Construction in progress......................................................................... 4,502
Vehicles......................................................................................... 3,350
Other............................................................................................ 13,262
-------------
215,185
Less accumulated depreciation.................................................................... (45,467)
Net property, plant and equipment.............................................................. 169,718
Inventories for construction....................................................................... 9,530
Intangibles, net................................................................................... 57,597
Notes receivable from affiliates................................................................... --
Investments in affiliated companies................................................................ 23,122
Other assets....................................................................................... 28,062
-------------
Total assets................................................................................... $ 374,991
-------------
-------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-2
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
(IN
THOUSANDS)
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................ $ 23,385
Accrued interest................................................................................. 5,527
Deferred revenue................................................................................. 3,261
Income taxes payable............................................................................. 2,442
Other current liabilities........................................................................ 43
-------------
Total current liabilities...................................................................... 34,658
-------------
Notes payable (note 7)............................................................................. 259,497
-------------
Total liabilities.............................................................................. 294,155
Minority interest.................................................................................. 29
Commitments and contingencies (note 10)
Stockholders' equity:
Preferred stock, $.01 par value; 20,002,500 shares authorized; no shares issued and --
outstanding....................................................................................
Common stock, $.01 par value; 70,000,000 shares authorized, 33,310,000 shares issued and 333
outstanding....................................................................................
Paid-in capital (note 7)......................................................................... 237,954
Cumulative translation adjustment................................................................ (3,654)
Accumulated deficit.............................................................................. (153,826)
-------------
Total stockholders' equity..................................................................... 80,807
-------------
Total liabilities and stockholders' equity..................................................... $ 374,991
-------------
-------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-3
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.................................................................................. $ 26,801 $ 38,877
Operating expenses:
Direct operating expenses............................................................... 8,929 43,072
Selling, general and administrative expenses............................................ 35,552 39,998
Depreciation and amortization........................................................... 10,946 17,786
Amortization of programming and broadcast rights........................................ -- 3,363
---------- ----------
Total operating expenses.................................................................. 55,427 104,219
---------- ----------
Operating loss.......................................................................... (28,626) (65,342)
Interest and investment income............................................................ 3,879 2,811
Interest expense.......................................................................... (9,880) (13,814)
Equity in profits of affiliated companies................................................. -- 1,632
Foreign exchange loss, net................................................................ (851) (399)
---------- ----------
Loss before income taxes and minority interest.......................................... (35,478) (75,112)
Income tax expense........................................................................ (358) (496)
Minority interest......................................................................... 2,256 (117)
---------- ----------
Net loss................................................................................ (33,580) (75,725)
Excess of consideration paid for preferred stock over carrying value...................... (33,806) --
---------- ----------
Net loss applicable to holders of common stock............................................ $ (67,386) $ (75,725)
---------- ----------
---------- ----------
Basic and diluted loss per common share................................................... $ (3.05) $ (2.27)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-4
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net loss................................................................................ $ (33,580) $ (75,725)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest..................................................................... (2,256) 117
Depreciation and amortization......................................................... 10,946 17,786
Accretion of discount on notes payable................................................ -- 3,252
Amortization of programming and broadcast rights...................................... -- 3,363
Equity in profits of affiliated companies............................................. -- (1,632)
Non-cash stock option compensation expense............................................ 18,483 --
Other................................................................................. 195 1,338
Changes in operating assets and liabilities:
Accounts receivable................................................................. (2,143) (7,280)
Other current assets................................................................ (10,277) 3,515
Programming and broadcast rights.................................................... -- (10,380)
Other assets........................................................................ -- (4,863)
Accounts payable.................................................................... 1,702 9,267
Income taxes payable................................................................ (930) 677
Accrued interest.................................................................... 3,281 3,352
Amounts due from affiliates......................................................... -- 691
Deferred revenue.................................................................... (102) 2,008
Other current liabilities........................................................... (1,147) (897)
---------- ----------
Net cash used in operating activities............................................. (15,828) (55,411)
Cash flows from investing activities:
Construction and purchase of property, plant and equipment.......................... (26,472) (67,871)
Prepayments to Philips.............................................................. -- (13,483)
Proceeds from sale of investment securities......................................... 25,115 --
Issuance of notes receivable from affiliates........................................ (4,288) --
Other investments................................................................... 1,388 --
Purchase of intangibles............................................................. (267) (40)
Purchase of subsidiaries, net of cash received...................................... (10,834) (26,637)
---------- ----------
Net cash used in investing activities............................................. (15,358) (108,031)
Cash flows from financing activities:
Net proceeds from issuance of stock................................................. 183,333 --
Purchase of preferred stock of subsidiary........................................... (60,000) --
Proceeds from issuance of notes and warrants........................................ -- 125,100
Proceeds from notes payable......................................................... -- 6,500
Costs to obtain loans............................................................... (1,306) (5,961)
Repayment of notes payable.......................................................... (750) --
Net cash provided by financing activities......................................... 121,277 125,639
---------- ----------
Net increase (decrease) in cash and cash equivalents.............................. 90,091 (37,803)
Cash and cash equivalents at beginning of period.......................................... 68,483 105,691
---------- ----------
Cash and cash equivalents at end of period................................................ $ 158,574 $ 67,888
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash paid for interest.............................................................. $ 6,653 $ 6,573
---------- ----------
---------- ----------
Cash paid for income taxes.......................................................... $ 1,589 $ 511
---------- ----------
---------- ----------
</TABLE>
F-5
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The information furnished by @ Entertainment, Inc. and subsidiaries ("@
Entertainment" or the "Company") has been prepared in accordance with United
States generally accepted accounting principles and the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The accompanying consolidated
balance sheets, statements of operations and statements of cash flows are
unaudited but in the opinion of management reflect all adjustments (consisting
only of items of a normal recurring nature) which are necessary for a fair
statement of the Company's consolidated results of operations and cash flows for
the interim periods and the Company's financial position as of September 30,
1998. The accompanying unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's 1997 Annual Report on Form 10-K filed
with the SEC (the "1997 Annual Report"). The interim financial results are not
necessarily indicative of the results of the full year.
2. RECLASSIFICATIONS
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statements to conform to the 1998 unaudited consolidated
financial statement presentation.
3. ADOPTION OF NEW ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income/(loss) generally encompasses
all changes in stockholders' equity (except those arising from transactions with
owners) and includes net income/(loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
The Company's comprehensive loss differs from net loss applicable to common
stockholders only by the amount of the foreign currency translation adjustment
charged to stockholders' equity for the period. Comprehensive loss for the
three-month periods ended September 30, 1997 and 1998 was approximately
$34,431,000 and $79,161,000, respectively.
4. ADOPTION OF NEW ACCOUNTING POLICY
Property, plant and equipment includes assets in the development and
operation of the Company's D-DTH systems and set-top boxes. Depreciation is
computed for financial reporting purposes using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
D-DTH system assets................................................ 5 years
Set-top boxes...................................................... 5 years
</TABLE>
5. FOREIGN CURRENCY TRANSLATION
Effective January 1, 1998, Poland was no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for its Polish subsidiaries for non-monetary items
in accordance with guidelines established within EITF Issue 92-4,
F-6
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
5. FOREIGN CURRENCY TRANSLATION (CONTINUED)
"Accounting for a Change in Functional Currency When an Economy Ceases to Be
Considered Highly Inflationary." That basis is computed by translating the
historical reporting currency amounts of nonmonetary items into the local
currency at current exchange rates.
6. LOSS PER SHARE
As noted in the 1997 Annual Report, the Company adopted the provision of
SFAS No. 128, "Earnings Per Share". The statement required that all prior period
earnings per share calculations including interim financial statements be
restated to conform with the provisions of this statement. The previously
reported 1997 loss per ordinary share has been restated to comply with the
provisions of this new standard. Basic and diluted loss per ordinary share is
based on the weighted average number of ordinary shares outstanding of
18,948,000 and 33,310,000 for the nine-month periods ended September 30, 1997
and 1998, respectively. The effect of potential common shares (stock options and
warrants outstanding) is antidilutive. Accordingly, dilutive loss per share does
not assume the exercise of stock options and warrants outstanding.
7. UNITS OFFERING
On July 14, 1998, the Company sold 252,000 units (collectively, the "Old
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 "Old notes") due 2008 and four warrants (each an "Old Warrant"), each
initially entitling the holder thereof to purchase 1.81 shares of common stock,
par value $0.01 per share (the "Common Stock") at an exercise price of $13.20
per share, subject to adjustment.
The Old notes were issued at a discount to their aggregate principal amount
at maturity and, together with the Old Warrants generated gross proceeds to the
Company of approximately $125,100,000 of which $117,485,000 has been allocated
to the initial accreted value of the Old notes and approximately $7,615,000 has
been allocated to the Old Warrants. The portion of the proceeds that is
allocable to the Old Warrants was accounted for as part of paid-in capital. The
allocation was made based on the relative fair values of the two securities at
the time of issuance. Net proceeds to the Company after deducting initial
purchasers' discount and offering expenses were approximately $120,000,000.
The Old notes are unsubordinated and unsecured obligations. Cash interest on
the Old notes will not accrue prior to July 15, 2003. Thereafter cash interest
will accrue at a rate of 14.5% per annum and will be payable semiannually in
arrears on January 15 and July 15 of each year, commencing January 15, 2004. The
Old notes will mature on July 15, 2008. At any time prior to July 15, 2001, the
Company may redeem up to a maximum of 25% of the originally issued aggregate
principal amount at maturity of the Old notes at a redemption price equal to
114.5% of the accreted value thereof at the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption with some or all of the net
cash proceeds of one or more public equity offerings; provided, however, that
not less than 75% of the originally issued aggregate principal amount at
maturity of the Old notes remains outstanding immediately after giving effect to
such redemption.
The Old Warrants initially entitle the holders thereof to purchase 1,824,514
shares of Common Stock, representing, in the aggregate, approximately 5% of the
outstanding Common Stock on a fully-diluted
F-7
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
7. UNITS OFFERING (CONTINUED)
basis immediately after giving effect to the sale of the Old Units. The Old
Warrants are exercisable at any time and will expire on July 15, 2008.
Pursuant to the indenture governing the Old notes (the "Old indenture"), the
Company is subject to certain restrictions and covenants, including, without
limitation, covenants with respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on restricted payments; (iii)
limitation on issuance and sales of capital stock of restricted subsidiaries;
(iv) limitation on transactions with affiliates; (v) limitation on liens; (vi)
limitation on guarantees of indebtedness by restricted subsidiaries; (vii)
purchase of Old 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) provision of
financial statements and reports. The Company is in compliance with these
covenants.
Costs associated with the Old notes offering of $5,961,000, including the
initial purchasers' discount were capitalized and will be amortized over the
term of the Old notes.
8. ACQUISITIONS
During February 1998, Poland Communications, Inc. ("PCI"), the Company's
subsidiary, acquired approximately 95% of Szczecinska Telewizja Kablowa Sp. z
o.o.'s ("SzTK") cable television system assets and subscriber lists for an
aggregate consideration of approximately $1,574,000. The acquisition was
accounted for using the purchase method with the purchase price allocated among
the assets and liabilities acquired based upon their fair values at the date of
acquisition and any excess to goodwill. The purchase price exceeded the fair
value of the net liabilities acquired by approximately $2,041,000. In
association with this acquisition, the Company assumed a $2,150,000 loan from
Polski Bank Rozwoju S.A. Interest is based on LIBOR for monthly DM deposits plus
2.5% and is due monthly. The loan is secured by a mortgage on real estate owned
by two housing cooperatives, their bank accounts and insurance policies. The
cooperatives' mortgage is secured by a pledge of SzTK shares owned by PTK
Szczecin Sp. z o.o. All advances under the loan must be repaid by December 27,
2002.
In February and March 1998, the Company acquired the remaining interest in
Ground Zero Media Sp. z o.o. from the other remaining stockholders for
approximately $9,389,000. The acquisition was accounted for under the purchase
method, whereby the purchase price was allocated to the underlying assets and
liabilities based upon their proportionate share of fair values at the date of
acquisition and any excess to goodwill. The purchase price exceeded the fair
value of the net liabilities acquired by approximately $9,945,000.
On April 6, 1998, a subsidiary of the Company, acquired certain cable
television assets of Tekaso Telewizja Kablowa for an aggregate consideration of
approximately $972,000. The acquisition was accounted for using the purchase
method with the purchase price allocated among the assets acquired based upon
their fair values at the date of acquisition and any excess to goodwill. The
purchase price did not materially exceed the fair value of the assets acquired.
On July 16, 1998, the Company purchased the remaining minority interest in
one subsidiary of the Company which was held by unaffiliated third parties for
an aggregate purchase price of approximately $10,628,000, of which approximately
$9,490,000 relates to non-compete agreements. The acquisition was
F-8
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
8. ACQUISITIONS (CONTINUED)
accounted for under the purchase method, whereby the purchase price, with the
exception of the amount paid relating to the non-compete agreements, was
allocated to the underlying assets and liabilities based upon their estimated
fair values and any excess to goodwill. The portion of the purchase price
relating to the non-compete agreements will be amortized over the five-year term
of the agreements. The acquisition is not expected to have a material effect on
the Company's results of operations in 1998.
On August 15, 1998, a subsidiary of the Company purchased the remaining
minority interest in another subsidiary of the Company which was held by
unaffiliated third parties for an aggregate purchase price of approximately
$5,372,000. The acquisition was accounted for using the purchase method with the
purchase price allocated among the assets acquired and liabilities assumed based
upon their fair values at the date of acquisition and any excess to goodwill.
The purchase price exceeded the fair value of the assets acquired by
approximately $1,104,000. The acquisition is not expected to have a material
effect on the Company's results of operations in 1998.
9. WORLD SHOPPING NETWORK INVESTMENT
Included in other non-current assets at December 31, 1997 was a prepayment
of approximately $1,200,000 toward the formation of a programming-related joint
venture with World Shopping Network Plc. Subsequent to December 31, 1997, the
Company decided not to complete the investment in the joint venture with World
Shopping Network. As a result, the prepayment was expensed in the first quarter
of 1998.
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 five years and
require that the license fees be paid either at a fixed amount payable at the
time of execution or based upon a guaranteed minimum number of subscribers
connected to the system each month. At September 30, 1998, the Company had an
aggregate minimum commitment in relation to these agreements of approximately
$174,494,000 over the next seven years, approximating $9,611,000 for the
remainder of 1998, $26,522,000 in 1999, $30,649,000 in 2000, $30,547,000 in
2001, $32,753,000 in 2002 and $44,412,000 in 2003 and thereafter.
Broadcast rights that have limited showings are amortized using an
accelerated method as programs are aired based on the estimated number of
showings. Capitalized costs relating to broadcast rights with unlimited showings
will be amortized on a straight-line basis over the contract period. The Company
incurred amortization charges related to capitalized broadcasting rights of
approximately $3,363,000 and $0 for the nine-month periods ended September 30,
1998 and 1997, respectively.
Subsequent to September 30, 1998, the Company entered into additional
long-term programming agreements for its D-DTH and cable system which require
that license fees be paid based upon a guaranteed minimum number of subscribers
connected to the Company's systems each month. The
F-9
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company has aggregate minimum commitments related to these additional agreements
of approximately $17,843,000 over the next six years, with $2,378,000 in 1999,
$3,909,000 in 2000, $3,469,000 in 2001, $3,637,000 in 2002 and $3,995,000 in
2003 and $455,000 in 2004.
CAPITAL COMMITMENTS
As of September 30, 1998, the Company had entered into agreements to
purchase capital assets including certain technical equipment associated with
establishing its D-DTH facilities, for approximately $728,000.
LITIGATION AND CLAIMS
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations. (See also note 12 Arbitration Relating to Telewizyjna Korporacja
Partycypacyjna)
11. STOCK OPTIONS
On January 26, 1998, certain employees were granted options to purchase
150,000 shares of common stock (subject to stockholder approval) at a price of
$12.2375 per share, vesting ratably over a three-year period. The exercise price
of such options exceeded the quoted market price for the Company's shares on the
date of grant.
12. 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 letter of intent called for the Company to invest approximately
$112,000,000 in cash and shareholder loans in TKP, and to sell substantially all
of the Company's D-DTH and programming assets to TKP for approximately
$42,000,000. The TKP joint venture was to be owned 40% by the Company, 40% by
Canal+ S.A., 10% by Agora S.A. and 10% by PolCom Invest S.A.
The letter of intent also contained a standstill provision whereby neither
the Company nor TKP could, for a period of 45 days after the execution of the
letter of intent, launch any digital pay television service. As a result, @
Entertainment postponed its planned launch of the Wizja TV programming package
and its D-DTH service, which was originally scheduled for April 18, 1998. The
establishment of the joint venture was subject to the execution of definitive
agreements, regulatory approvals and certain other closing conditions.
F-10
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
12. ARBITRATION RELATING TO TELEWIZYJNA KORPORACJA PARTYCYPACYJNA (CONTINUED)
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 submitted its answer and counterclaims against TKP and its
shareholders. 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.
The Company began broadcasting to Poland from its transmission facilities in
Maidstone, United Kingdom and retransmitting the Wizja TV programming package,
which currently consists of 19 channels of primarily Polish-language
programming, across its cable networks on June 5, 1998 and on a full-scale basis
on its D-DTH system in September 1998. The Company estimates that the delay of
its planned April 1998 Wizja TV launch resulted in approximately $7,200,000 of
additional out-of-pocket expenditures as of September 30, 1998, including a
$5,000,000 payment to Philips Business Electronics B.V. ("Philips"), the
supplier of the Company's satellite dishes, digital set top boxes and related
hardware (the "D-DTH Reception Systems") to compensate it for costs it incurred
as a result of the suspension of the production process for the D-DTH Reception
Systems.
The Company has entered into an agreement with East Services S.A. ("East
Services") under which it paid $1,000,000 for investment banking services and
will further be obligated to pay to East Services, contingent upon the
consummation of an acquisition, merger or combination between the Company and
Canal+ S.A. or one of its affiliates, $9,998,000 in exchange for a claim held by
an East Services affiliate against subsidiaries of TKP (which claim is itself
contingent upon such subsidiaries satisfying certain operational performance
criteria), and an additional amount equal to the higher of: (i) 2.5% of the
aggregate amount of the transactions or investments involved in such
acquisition, merger or combination, or (ii) $2,750,000. As the letter of intent
with TKP was terminated on June 1, 1998, the Company believes it has no current
obligation to East Services under the aforementioned agreement.
F-11
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
13. SUBSEQUENT EVENTS
Subsequent to September 30, 1998 the Company exchanged letters with two
major cable associations in Poland, representing approximately 2.6 million
subscribers (including the Company's cable subscribers), making the Wizja TV
programming package available for distribution within the cable networks to
other providers who are members of the associations.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
@Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles in the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
March 19, 1998
F-13
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 68,483 $ 105,691
Investment securities (note 4).......................................................... 25,115 --
Accounts receivable, net of allowances for doubtful accounts of $545,000 in 1996 and
$766,000 in 1997 (note 5)............................................................. 1,215 4,544
Other current assets (note 8)........................................................... 2,247 4,998
---------- ----------
Total current assets.................................................................. 97,060 115,233
---------- ----------
Property, plant and equipment:
Cable television system assets.......................................................... 99,700 134,469
Construction in progress................................................................ 410 6,276
Vehicles................................................................................ 1,199 2,047
Other................................................................................... 2,667 7,940
---------- ----------
103,976 150,732
Less accumulated depreciation......................................................... (19,143) (33,153)
---------- ----------
Net property, plant and equipment..................................................... 84,833 117,579
Inventories for construction.............................................................. 7,913 8,153
Intangibles, net (note 7)................................................................. 18,492 33,440
Notes receivable from affiliates (note 14)................................................ 2,491 691
Investments in affiliated companies (note 9).............................................. 748 21,800
Other assets (note 8)..................................................................... 6,000 10,200
---------- ----------
Total assets.......................................................................... $ 217,537 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses................................................... $ 6,281 $ 13,781
Accrued interest (note 12).............................................................. 2,175 2,175
Deferred revenue........................................................................ 1,102 1,257
Income taxes payable.................................................................... 4,472 1,765
Other current liabilities (note 11)..................................................... 2,175 940
---------- ----------
Total current liabilities............................................................. 16,205 19,918
---------- ----------
Notes payable (note 12)................................................................... 130,074 130,110
---------- ----------
Total liabilities..................................................................... 146,279 150,028
---------- ----------
Minority interest......................................................................... 5,255 4,713
Redeemable preferred stock (liquidation value $85,000,000. Authorized 8,500 shares; 8,500
issued and outstanding in 1996, none issued and outstanding in 1997) (note 1)........... 34,955 --
Commitments and contingencies (notes 17 and 18)
Stockholders' equity (note 1):
Preferred stock, $.01 par value. Authorized 20,002,500 shares; none issued and
outstanding........................................................................... -- --
Common stock, $.01 par value. Authorized 50,000,000 shares in 1996 and 70,000,000 shares
in 1997; issued and outstanding 18,948,000 shares in 1996 and 33,310,000 shares in
1997.................................................................................. 189 333
Paid-in capital......................................................................... 54,134 230,339
Cumulative translation adjustment....................................................... -- (218)
Accumulated deficit..................................................................... (23,275) (78,099)
---------- ----------
Total stockholders' equity............................................................ 31,048 152,355
---------- ----------
Total liabilities and stockholders' equity............................................ $ 217,537 $ 307,096
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cable television revenue...................................................... $ 18,557 $ 24,923 $ 38,138
Operating expenses:
Direct operating expenses................................................... 5,129 7,193 14,621
Selling, general and administrative expenses (notes 9 and 16)............... 4,684 9,289 49,893
Depreciation and amortization............................................... 5,199 9,788 16,294
---------- ---------- ----------
Total operating expenses................................................ 15,012 26,270 80,808
---------- ---------- ----------
Operating income/(loss)................................................. 3,545 (1,347) (42,670)
Interest and investment income................................................ 174 1,274 5,754
Interest expense (note 12).................................................... (4,373) (4,687) (13,902)
Equity in losses of affiliated companies...................................... -- -- (368)
Foreign currency loss......................................................... (17) (761) (1,027)
---------- ---------- ----------
Loss before income taxes, minority interest and extraordinary item........ (671) (5,521) (52,213)
Income tax (expense)/benefit (note 10)........................................ (600) (1,273) 975
Minority interest............................................................. (18) 1,890 (3,586)
---------- ---------- ----------
Loss before extraordinary item................................................ (1,289) (4,904) (54,824)
Extraordinary item--loss on early extinguishment of debt (note 12)............ -- (1,713) --
---------- ---------- ----------
Net loss.................................................................. (1,289) (6,617) (54,824)
Accretion of redeemable preferred stock (note 1).............................. -- (2,870) (2,436)
Preferred stock dividends (note 1)............................................ -- (1,738) --
Deficit/(excess) of consideration paid for preferred stock under/(over)
carrying amount (note 1).................................................... -- 3,549 (33,806)
---------- ---------- ----------
Net loss applicable to holders of common stock $ (1,289) $ (7,676) $ (91,066)
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted loss per common share:
Loss before extraordinary item.............................................. $ (0.10) $ (0.34) $ (3.68)
Extraordinary item.......................................................... -- (0.10) --
---------- ---------- ----------
Net loss (note 15).......................................................... $ (0.10) $ (0.44) $ (3.68)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
---------------------- ----------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
----------- --------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance January 1, 1995.......... 985 $ 10,311 11,037 $ 4,993 $ 1,544 $ -- $ (15,369)
Net loss..................... -- -- -- -- -- -- (1,289)
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1995........ 985 10,311 11,037 4,993 1,544 -- (16,658)
Net loss..................... -- -- -- -- -- -- (6,617)
Stock dividend............... 166 1,738 -- -- (1,738) -- --
Proceeds from issuance of
common and preferred stock
(note 1)................... -- -- 7,911 (4,992) 87,021 -- --
Cost of issuance (note 1).... -- -- -- -- (1,028) -- --
Allocation of proceeds to
preferred (note 1)......... -- -- -- -- (32,156) -- --
Preferred stock redemption
(note 1)................... (1,151) (12,049) -- -- 3,549 -- --
Accretion of redeemable
preferred stock (note 1)... -- -- -- -- (2,870) -- --
Reorganization (note 1)...... -- -- 18,929,052 188 (188) -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1996........ -- -- 18,948,000 189 54,134 -- (23,275)
Translation adjustment....... -- -- -- -- -- (218) --
Net loss..................... -- -- -- -- -- -- (54,824)
Net proceeds from initial
public offering (note 1)... -- -- 9,500,000 95 183,197 -- --
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. -- -- -- -- (33,806) -- --
Accretion of redeemable
preferred stock (note 1)... -- -- -- -- (2,436) -- --
Conversion of series B
redeemable preferred stock
(note 1)................... -- -- 4,862,000 49 11,148 -- --
Stock option compensation
expense (note 16).......... -- -- -- -- 18,102 -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1997........ -- $ -- 33,310,000 $ 333 $ 230,339 $ (218) $ (78,099)
----------- --------- ---------- ----------- --------- ----------- ------------
----------- --------- ---------- ----------- --------- ----------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance January 1, 1995.......... $ 1,479
Net loss..................... (1,289)
-----------
Balance December 31, 1995........ 190
Net loss..................... (6,617)
Stock dividend............... --
Proceeds from issuance of
common and preferred stock
(note 1)................... 82,029
Cost of issuance (note 1).... (1,028)
Allocation of proceeds to
preferred (note 1)......... (32,156)
Preferred stock redemption
(note 1)................... (8,500)
Accretion of redeemable
preferred stock (note 1)... (2,870)
Reorganization (note 1)...... --
-----------
Balance December 31, 1996........ 31,048
Translation adjustment....... (218)
Net loss..................... (54,824)
Net proceeds from initial
public offering (note 1)... 183,292
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. (33,806)
Accretion of redeemable
preferred stock (note 1)... (2,436)
Conversion of series B
redeemable preferred stock
(note 1)................... 11,197
Stock option compensation
expense (note 16).......... 18,102
-----------
Balance December 31, 1997........ $ 152,355
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (1,289) $ (6,617) $ (54,824)
Adjustments to reconcile net loss to net cash provided by/(used in) operating
activities:
Minority interest............................................................. 18 (1,890) 3,586
Depreciation and amortization................................................. 5,199 9,788 16,294
Amortization of notes payable discount and issue costs........................ -- 166 1,040
Non-cash portion of extraordinary item........................................ -- 1,566 --
Gain on sale of investment securities......................................... -- -- (358)
Non-cash stock option compensation expense.................................... -- -- 18,102
Interest expense added to notes payable to affiliates......................... 2,379 -- --
Equity in losses of affiliated companies...................................... -- -- 368
Changes in operating assets and liabilities:
Accounts receivable......................................................... (785) (796) (3,191)
Other current assets........................................................ 6 (1,862) (2,995)
Accounts payable and accrued expenses....................................... 1,003 3,186 7,846
Income taxes payable........................................................ 600 334 (2,707)
Accrued interest............................................................ -- 2,175 --
Deferred revenue............................................................ 152 (131) 155
Other current liabilities................................................... (3,444) 193 (2,089)
--------- --------- ---------
Net cash provided by/(used in) operating activities....................... 3,839 6,112 (18,773)
--------- --------- ---------
Cash flows from investing activities:
Purchases and construction of property, plant and equipment..................... (16,715) (26,581) (42,454)
Repayment of notes receivable from affiliates................................... -- -- 2,521
Issuance of notes receivable from affiliates.................................... -- (2,491) (721)
Purchase of investment securities............................................... (1,207) (25,940) --
Proceeds from maturity of investment securities................................. -- -- 25,473
Purchase of other assets........................................................ -- (6,000) (10,200)
Investments in affiliated companies............................................. -- (580) (21,420)
Purchase of subsidiaries, net of cash received.................................. (4,063) (13,269) (18,041)
--------- --------- ---------
Net cash used in investing activities..................................... (21,985) (74,861) (64,842)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock............................................. -- 81,001 183,292
Redemption of preferred stock................................................... -- (8,500) (60,000)
Costs to obtain loans........................................................... (1,036) (6,513) (1,749)
Proceeds from notes payable..................................................... 14,533 136,074 --
Repayment of notes payable...................................................... -- (27,893) (720)
Borrowings from/(Repayments to) affiliates...................................... 4,499 (39,280) --
--------- --------- ---------
Net cash provided by financing activities................................. 17,996 134,889 120,823
--------- --------- ---------
Net (decrease)/increase in cash and cash equivalents...................... (150) 66,140 37,208
Cash and cash equivalents at beginning of year.................................... 2,493 2,343 68,483
--------- --------- ---------
Cash and cash equivalents at end of year.......................................... $ 2,343 $ 68,483 $ 105,691
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Cash paid for interest.......................................................... $ 1,992 $ 2,338 $ 12,873
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes...................................................... $ -- $ 1,184 $ 1,732
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY
@Entertainment, Inc. ("@Entertainment") was established as a Delaware
corporation in May 1997. @Entertainment succeeded Poland Communications, Inc.
("PCI") as the group holding company to facilitate an initial public offering of
stock in the United States and internationally (the "IPO"). PCI was founded in
1990 by David T. Chase, a Polish-born investor.
@Entertainment, Inc. and its subsidiaries (the "Company") offers pay
television services to business and residential customers in Poland. Its
revenues are derived primarily from installation fees and monthly basic and
premium service fees for cable television services provided primarily to
residential, rather than business, customers. The Company intends to launch a
digital satellite direct-to-home ("D-DTH") broadcasting service throughout
Poland during the first half of 1998. In addition to developing and acquiring
programming for distribution on its cable television networks, the Company
intends to expand its programming by launching, simultaneously with its D-DTH
launch, a branded digital encrypted platform of Polish-language programming
under the brand name Wizja TV.
At December 31, 1997, @Entertainment wholly owns PCI, At Entertainment
Limited ("@EL") and Sereke Holding B.V. ("Sereke") which are United States,
United Kingdom and Netherlands corporations, respectively. PCI owns 92.3% of the
capital stock of Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands
corporation and first-tier subsidiary of PCI. @Entertainment, PCI and PCBV are
holding companies that directly or indirectly hold controlling interests in a
number of Polish cable television companies, collectively referred to as the
"PTK Companies". @EL and Sereke were established during 1997 to develop and
operate, in association with other subsidiaries, a D-DTH broadcasting service
and Polish-language programming under the brand name Wizja TV. As of December
31, 1997, substantially all of the assets and operating activities of the
Company were located in Poland and the United Kingdom.
The following is a description of the events leading up to the formation of
@Entertainment.
PCI had outstanding at December 31, 1995, 985 shares of preferred stock,
which was convertible into 812 shares of Class A common stock. PCI had the
option of redeeming the preferred stock in whole or in part from January 1, 1996
through December 31, 2002. However, as discussed below, the preferred stock was
exchanged for new series D preferred stock during March 1996.
During February 1996, PCI issued to certain stockholders an additional 2,437
shares of Class A common stock in accordance with the provisions of the
Shareholder Agreement dated June 27, 1991. The shares were issued at a nominal
value of $.01 each. Also during February 1996, PCI issued a stock dividend of
166 shares of series A preferred stock to the preferred stock stockholder.
During March 1996, PCI completed several transactions including restating
its certificate of incorporation, issuing new shares of stock, redeeming
preferred stock, and the repayment of affiliate debt. The restated certificate
of incorporation of PCI authorized a new class of $.01 par common stock, $1 par
series A preferred stock, $.01 par series B preferred stock, $.01 par series C
preferred stock, and $.01 par series D preferred stock. All shares of Class A
and Class B common stock previously issued and outstanding were exchanged for
new common stock. All issued and outstanding shares of preferred stock were
exchanged for new series D preferred stock, which was subsequently redeemed for
$8,500,000. Only common stock and series B preferred stock retained voting
rights and only holders of common stock were entitled to receive dividends. Each
series of preferred stock has redemption provisions; the series B preferred
stock was also convertible into common stock.
F-19
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY (CONTINUED)
During March 1996, PCI issued 4,662 shares of common stock, 4,000 shares of
series A preferred stock, and 2,500 shares of series B preferred stock to ECO
Holdings III Limited Partnership ("ECO") in exchange for $65,000,000; and 2,000
shares of series C preferred stock and 812 shares of common stock were issued to
Polish Investments Holding Limited Partnership ("PIHLP") in exchange for
$17,029,000.
The PCI series A, series B and series C preferred stock have a mandatory
redemption date of October 31, 2004. At the option of the Company, the PCI
series A, series B and series C preferred stock may be redeemed at any time in
whole or in part at a redemption price per share of $10,000. Prior to the
mandatory redemption of the PCI series B preferred stock, the holders of any
shares of PCI series B preferred stock had the option to convert their shares to
4,862 shares of PCI common stock. The preferred stock was recorded at its
mandatory redemption value on October 31, 2004, discounted at 12%, of
$32,156,000.
On June 22, 1997, all the holders of shares of PCI's common stock and
@Entertainment entered into a Contribution Agreement. Pursuant to the
Contribution Agreement, each holder of shares of PCI's common stock transferred
all shares of PCI common stock owned by it to @Entertainment. In addition, ECO
transferred all of the outstanding shares of PCI's series B preferred stock to
@Entertainment. All of these transfers (the "Share Exchange") were designed to
qualify as a tax-free exchange under section 351 of the Internal Revenue Code of
1986, as amended. Each holder of PCI's common stock received 1,000 shares of
common stock of @Entertainment in exchange for each share of PCI's common stock
transferred by it (the "Capital Adjustment"). ECO also received an equivalent
number of shares of @Entertainment's series B preferred stock in exchange for
its shares of PCI's series B preferred stock. @Entertainment's series B
preferred stock has identical rights and preferences to those of PCI's series B
preferred stock, except that the ratio for conversion of such shares into common
stock increased from 1:1.9448 to 1:1,944.80 in order to reflect the Capital
Adjustment. The 2,500 outstanding shares of @Entertainment's series B preferred
stock automatically converted into 4,862,000 shares of common stock of
@Entertainment upon the closing of the IPO. The formation of @Entertainment has
been accounted for at historical cost in a manner similar to pooling of interest
accounting.
On June 20, 1997, PIHLP transferred all of the outstanding shares of PCI's
series C preferred stock to an entity owned by certain of the beneficial owners
of PIHLP and members of their families (the "Chase Entity"). The Chase Entity,
ECO and @Entertainment entered into a Purchase Agreement dated June 22, 1997
(the "Purchase Agreement"). Among other matters, the Purchase Agreement
obligated @Entertainment to purchase all of the outstanding shares of PCI's
series A preferred stock and series C preferred stock for cash from ECO and the
Chase Entity, respectively, at the closing of the IPO. The aggregate purchase
price of $60,000,000 for PCI's series A preferred stock and series C preferred
stock equaled the aggregate redemption price of such shares as set forth in
PCI's certificate of incorporation. The purchase resulted in a loss applicable
to common stockholders of $33,806,000 representing the excess of the
consideration paid for the preferred stock over the carrying amount of those
shares as of the date of the Reorganization (as defined hereinafter). The
aforementioned purchase was funded with a portion of the net proceeds of the
IPO.
The Company periodically accreted, until the date of the purchases described
above, from paid-in capital an amount that would provide for the redemption
value of the PCI series A, B and C preferred shares at October 31, 2004. The
total amounts recorded for accretion for the years ended December 31, 1996 and
1997 were $2,870,000 and $2,436,000, respectively.
F-20
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY (CONTINUED)
In June 1997, @Entertainment acquired all of the outstanding stock of @EL, a
new corporation organized under the laws of England and Wales (the "@EL
Incorporation").
In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment by PCI (the "Assignment"). As part of
the Assignment and the Capital Adjustment, the employment agreements were
amended to provide that each option to purchase a share of PCI's common stock
was exchanged for an option to purchase 1,000 shares of @Entertainment's common
stock with a proportionate reduction in the per share exercise price.
The Share Exchange, Capital Adjustment, @EL Incorporation and the Assignment
are collectively referred to as the "Reorganization". As a result of the
Reorganization, @Entertainment owns 100% of the outstanding shares of common
stock and preferred stock of PCI and 100% of @EL.
On August 5, 1997, the Company consummated an initial public offering of
9,500,000 shares of common stock at a price of $21 per share. Net proceeds to
the Company were approximately $183,292,000 after deduction of the underwriting
discount and other expenses of the offering.
2. FINANCIAL POSITION AND BASIS OF ACCOUNTING
These consolidated financial statements have been prepared on a going
concern basis which contemplates the continuation and expansion of trading
activities as well as the realization of assets and liquidation of liabilities
in the ordinary course of business. Cable television operators typically
experience losses and negative cash flow in their initial years of operation due
to the large capital investment required for the construction or acquisition of
their cable networks and the administrative costs associated with commencing
operations. Consistent with this pattern, the Company has incurred substantial
operating losses since inception. The Company expects to experience substantial
operating losses and negative cash flows for at least the next two years in
association with the expansion of the D-DTH and programming businesses.
Additionally, the Company is currently and is expected to continue to be highly
leveraged. The ability of the Company to meet its debt service obligations will
depend on the future operating performance and financial results of the Company
as well as its ability to obtain additional financing to support the planned
expansion.
Management of the Company believes that significant opportunities exist for
pay television providers capable of delivering high quality, Polish-language
programming on a multi-channel basis. As such, the Company has focused its
financial and business efforts toward its position in the cable, D-DTH and
programming markets. The Company's business strategy is designed to increase its
market share and subscriber base and to maximize revenue per subscriber. To
accomplish its objectives and to capitalize on its competitive advantages, the
Company intends to (i) control content on its cable and D-DTH systems; (ii) grow
its distribution capabilities; (iii) control its own subscriber management with
advanced integrated management information systems; and (iv) establish Wizja TV
as the leading brand name in the Polish pay television industry. The Company is
dependent on obtaining new financing to achieve this business strategy and is
currently exploring methods of raising additional capital. If not successful,
the Company will be required to reduce the scope of its presently anticipated
expansion of operations, reduce capital and operating expenditures, including
invoking cancellation rights under certain agreements, and as a result the
business, results of operations and prospects of the Company could be adversely
affected. Management
F-21
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
2. FINANCIAL POSITION AND BASIS OF ACCOUNTING (CONTINUED)
believes that cash on hand and cash from operations will be sufficient to fund
its reduced plan for the next twelve months assuming the Company is not
successful in raising additional capital and, accordingly, consider it
appropriate to prepare the consolidated financial statements on a going concern
basis.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP").
The consolidated financial statements include the financial statements of
@Entertainment, Inc. and its wholly owned and majority owned subsidiaries. Also
consolidated is a 49% owned subsidiary for which the Company maintains control
of operating activities and has the ability to influence the appointment of
members to the Managing Board. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and other short-term investments
with original maturities of less than three months.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with U.S. GAAP. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of cable television services to
retail customers in Poland. Revenue from subscription fees is recognized on a
monthly basis as the service is provided. Installation fee revenue, for
connection to the Company's cable television systems, is recognized to the
extent of direct selling costs and the balance is deferred and amortized to
income over the estimated average period that new subscribers are expected to
remain connected to the systems.
In association with the launch of the Company's D-DTH broadcasting service
and branded digital encrypted platform of Polish-language programming under the
brand name Wizja TV during the first half of 1998, the Company intends to begin
distributing its own programming on both its D-DTH and cable television
networks. Such distribution of programming will provide two sources of revenue
for the Company: subscriber-based programming fees and advertising revenue. As
of December 31, 1997, no programming or advertising revenue related to the
D-DTH/Wizja TV launch has been earned or recognized.
F-22
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
U.S. TAXATION:
The Company and PCI are subject to U.S. federal income taxation on its
worldwide income. The PTK Companies and PCBV are foreign corporations, which
are not engaged in a trade or business within the U.S. or to derive income
from U.S. sources and accordingly, are not subject to U.S. income tax.
FOREIGN TAXATION:
The PTK Companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the PTK Companies
are exempt from import duties on certain in-kind capital contributions.
The PTK Companies' income tax is calculated in accordance with Polish
tax regulations. Due to differences between accounting practices under
Polish tax regulations and those required by U.S. GAAP, certain income and
expense items are recognized in different periods for financial reporting
purposes and income tax reporting purposes which may result in deferred
income tax assets and liabilities.
INVESTMENT SECURITIES
Investment securities outstanding at December 31, 1996, consist of
short-term investments with original maturities ranging from four to six months.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES", the Company
has classified all securities as held to maturity. Securities held to maturity
are limited to securities for which the Company has the positive intent and the
ability to hold to maturity. Held to maturity securities are carried at
amortized cost on the consolidated balance sheet.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes assets used in the development of the
D-DTH system. As of December 31, 1997, all of the Company's investment in D-DTH
television systems was recorded as construction in progress. Accordingly, such
investment will commence depreciation upon the expected substantial completion
of such systems during the first half of 1998.
Property, plant and equipment also includes assets used in the development
and operation of the various cable television systems. During the period of
construction, plant costs and a portion of design, development and related
overhead costs are capitalized as a component of the Company's investment in
F-23
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cable television systems. When material, the Company capitalizes interest costs
incurred during the period of construction in accordance with SFAS No. 34,
"CAPITALIZATION OF INTEREST COST". Interest is not capitalized for short-term
construction projects. During 1995, 1996 and 1997, no interest costs were
capitalized.
Cable subscriber related costs and the Company's general and administrative
expenses are charged to operations when incurred.
Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television system assets................................. 10 years
Vehicles....................................................... 5 years
5--10
Other property, plant and equipment............................ years
</TABLE>
INVENTORIES FOR CONSTRUCTION
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to work-in-progress in the various cable television systems.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally ten years.
INTANGIBLES
During 1997, the Company entered into contracts for the purchase of certain
exhibition or broadcast rights. Broadcast or exhibition rights consist
principally of rights to broadcast syndicated programs, sports and feature films
and are accounted for as a purchase of rights by the licensee. The asset and
liability for the rights acquired and obligations incurred under a license
agreement are reported by the Company, at the gross amount of the liability,
when the license period begins and certain specified conditions have been met,
in accordance with the guidelines established within SFAS No. 63, "FINANCIAL
REPORTING BY BROADCASTERS".
Broadcast rights that have limited showings will be generally amortized
using an accelerated method as programs are aired based on the estimated number
of showings. Capitalized costs relating to broadcast rights with unlimited
showings will be amortized on a straight-line basis over the contract period.
As the broadcast rights were purchased to correspond with the Company's
launch of its D-DTH and Wizja TV programming platform during the first half of
1998, all of the costs incurred as of year end, approximately $894,000, were
recorded as a prepayment within other current assets at December 31, 1997 and
such rights will become available for broadcast during 1998.
Through its subsidiaries, the Company has entered into lease agreements with
the Polish national telephone company ("TPSA"), for the use of underground
telephone conduits for cable wiring. Costs related to obtaining conduit and
franchise agreements with housing cooperatives and governmental
F-24
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
authorities are capitalized and amortized generally over a period of ten years.
In the event the Company does not proceed to develop cable systems within
designated cities, costs previously capitalized will be charged to expense.
Costs incurred to obtain financing have been deferred and amortized over the
life of the loan using the effective interest method.
INVESTMENTS IN AFFILIATED COMPANIES AND JOINT VENTURES RELATING TO THIRD
PARTY PROGRAMMING
In some instances, the Company purchases an equity interest in the
programming it distributes, typically by investing in the entity which produces
that particular programming for distribution in Poland, and by sharing the costs
and expenses incurred in the creation of the Polish-language version of that
particular programming. In these cases, the investment is accounted for under
the equity method in accordance with guidance established within Accounting
Principles Board ("APB") Opinion No. 18.
MINORITY INTEREST
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION", which gives companies the option to adopt the fair value based
method for expense recognition of employee stock options and other stock-based
awards or to account for such items using the intrinsic value method as outlined
under APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", with pro
forma disclosure of net loss and loss per share as if the fair value method had
been applied. The Company has elected to apply APB Opinion No. 25 and related
interpretations for stock options and other stock-based awards.
FOREIGN CURRENCIES
Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are remeasured at rates of exchange at consolidated balance sheet
date. Gains and losses on foreign currency transactions are included in the
consolidated statement of operations.
Translation of the financial statements of the Polish subsidiaries into U.S.
dollars has been performed in accordance with SFAS No. 52, "FOREIGN CURRENCY
TRANSLATION". This standard requires that entities operating in countries with
economies deemed to be highly inflationary translate all monetary assets and
liabilities into U.S. dollars at the exchange rate in effect at year end and
non-monetary assets and liabilities at historical or transaction date rates.
Revenues and expenses are translated at the average exchange rate over the
reporting period. For 1994, 1995 and 1996 inflation was 33.3%, 26.8% and 19.9%,
respectively, yielding a three-year cumulative inflation rate of 102.7%.
Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company will establish
a new functional currency basis for non-monetary items in accordance with
guidelines established within EITP Issue 92-4, "ACCOUNTING FOR A CHANGE IN
F-25
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUNCTIONAL CURRENCY WHEN AN ECONOMY CEASES TO BE CONSIDERED HIGHLY
INFLATIONARY." That basis is computed by translating the historical reporting
currency amounts of non-monetary items into the local currency at current
exchange rates.
BASIC AND DILUTED NET LOSS PER SHARE
The Company, effective for the year ended December 31, 1997, adopted SFAS
No. 128 "EARNINGS PER SHARE". Accordingly, 1995 and 1996 per share calculations
have been restated to conform with this statement. Pursuant to the provisions of
the statement, basic loss per share has been computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding during the period. The effect of potential common shares is
antidilutive, accordingly, dilutive loss per share is the same as basic loss per
share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS"
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets, for which it is practicable to estimate fair value.
The Company's financial instruments include cash and cash equivalents,
accounts receivable, notes receivable from affiliates, accounts payable and
accrued expenses, other current liabilities, and notes payable.
At December 31, 1997, the carrying value of cash and cash equivalents,
investment securities, accounts receivable, accounts payable and accrued
expenses, and other current liabilities on the accompanying consolidated balance
sheets approximates fair value due to the short maturity of these instruments.
At December 31, 1997, the fair value of the Company's notes payable balance
approximates $128,420,000, based on the last trading price of the notes payable
in 1997. It was not practicable to estimate the fair value of notes receivable
from affiliates due to the nature of these instruments, the circumstances
surrounding their issuance, and the absence of quoted market prices for similar
financial instruments.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of long-lived assets (mainly
property, plant and equipment, intangibles and certain other assets) by
determining whether the carrying value of the assets can be recovered over the
remaining lives through projected undiscounted future operating cash flows,
expected to be generated by such assets. If an impairment in value is estimated
to have occurred, the assets carrying value is reduced to its estimated fair
value. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved.
COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment can
be reasonably estimated.
F-26
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
All advertising costs of the Company are expensed as incurred.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements to conform to the 1997 consolidated financial statement
presentation.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", was issued in June 1997 and
establishes standards for the reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive income
encompasses all changes in stockholders' equity (except those arising from
transactions with owners) and includes net income, net unrealized capital gains
or losses on available for sale securities and foreign currency translation
adjustments. As this new standard only requires additional information in
financial statements, it will not affect the Company's financial position or
results of operations. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. The Company is
currently evaluating the presentation alternatives permitted by the statement.
SFAS No. 131, "DISCLOSURES ABOUT A SEGMENT OF AN ENTERPRISE AND RELATED
INFORMATION", was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes SFAS No. 14, "FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE," which requires reporting segment information
by industry and geographic area (industry approach). Under SFAS No. 131,
operating segments are defined as components of a company for which separate
financial information is available and used by management to allocate resources
and assess performance (management approach). This statement is effective for
year end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company does
not anticipate that this standard will significantly impact the composition of
its current operating segments, which are consistent with the management
approach.
4. INVESTMENT SECURITIES
At December 31, 1996, investment securities consisted of short-term
corporate bonds with original maturities ranging from four to six months. As of
December 31, 1996, the aggregate securities balance consisted of securities with
an amortized cost of $25,115,000, unrealized holding gains of $227,000, and a
fair value of $25,342,000. All such investment securities matured during 1997,
and as of December 31, 1997, certain amounts previously invested in investment
securities are invested in cash and cash equivalents.
F-27
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
5. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS AMOUNTS
BALANCE AT CHARGED TO WRITTEN BALANCE AT
JANUARY 1 EXPENSE OFF DECEMBER 31
------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1995
Allowance for Doubtful Accounts............................... $ 132 $ 385 $ 7 $ 510
1996
Allowance for Doubtful Accounts............................... $ 510 $ 358 $ 323 $ 545
1997
Allowance for Doubtful Accounts............................... $ 545 $ 494 $ 273 $ 766
</TABLE>
6. ACQUISITIONS
Effective January 1, 1997, the Company acquired the remaining 51% of a
subsidiary company for aggregate consideration of approximately $9,927,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess to goodwill. The purchase price
exceeded the fair value of the net assets acquired by approximately $5,556,000.
In May 1997, the Company acquired a 54.75% ownership interest in a cable
television company for aggregate consideration of approximately $10,925,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess as goodwill. The results of the
acquired company have been included with the Company's results since the date of
acquisition. The purchase price exceeded the fair value of the net assets
acquired by approximately $9,910,000. Included in minority interest at December
31, 1997 is approximately $450,000 relating to the acquisition of this
subsidiary.
Had these acquisitions occurred on January 1, 1996, the Company's pro-forma
consolidated results for the years ended December 31, 1996 and 1997, would have
been as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenue................................................................ $ 29,750 $ 40,550
Net loss............................................................... (7,614) (54,914)
Net loss applicable to common stockholders............................. (8,673) (91,156)
Net loss per share..................................................... $ (0.49) $ (3.68)
</TABLE>
Additionally, during 1997 the Company acquired certain cable television
system assets for aggregate consideration of approximately $3,200,000. The
acquisitions have been accounted for as fixed asset purchases with the purchase
price allocated among the fixed assets acquired based upon their fair values at
the dates of acquisition and any excess to goodwill. The purchase prices
exceeded the fair value of the assets acquired by approximately $548,000.
During 1996, the Company acquired substantially all of the cable television
system assets of twenty-six cable television companies for aggregate
consideration of approximately $15,600,000. The acquisitions
F-28
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
6. ACQUISITIONS (CONTINUED)
have been accounted for as purchases with the purchase price allocated among the
assets acquired and liabilities assumed based upon the fair values at the date
of acquisition and any excess as goodwill. The results of the acquired companies
have been included with the Company's results since their dates of acquisition.
The purchase prices exceeded the fair value of the net assets acquired by
approximately $5,800,000.
During December 1996, the Company entered into a purchase agreement for a
cable television system operating in the Opole area for approximately
$1,400,000, which is included in property, plant and equipment in the
accompanying consolidated balance sheet at December 31, 1996.
During 1995, the Company acquired four cable television companies for
aggregate consideration of approximately $4,075,000. The acquisitions have been
accounted for as purchases with the purchase price allocated among the assets
acquired and liabilities assumed based upon the fair values at the date of
acquisition and any excess as goodwill. The results of the acquired companies
have been included with the Company's results since January 1, 1995. The
purchase prices approximated the fair value of the net assets acquired.
7. INTANGIBLES
Intangible assets are carried at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Conduit and franchise agreements........................................ $ 5,391 $ 5,391
Goodwill................................................................ 6,730 22,744
Deferred financing costs................................................ 6,463 8,212
Other................................................................... 1,262 1,543
--------- ---------
19,846 37,890
Less accumulated amortization........................................... (1,354) (4,450)
--------- ---------
Net intangible assets................................................... $ 18,492 $ 33,440
--------- ---------
--------- ---------
</TABLE>
8. OTHER CURRENT AND NON-CURRENT ASSETS
Included in other current assets are $1,203,000 and $1,322,000 of VAT
receivables as of December 31, 1996 and 1997, respectively.
As described in Note 3, also included in other current assets is
approximately $894,000 related to certain broadcast rights purchased as of
December 31, 1997 but not yet available for exhibition.
Included in other non-current assets at December 31, 1997 is a prepayment of
$9,000,000 to Philips Business Electronics B.V. ("Philips") toward the supply of
certain critical components and services used in the Company's D-DTH satellite
transmission system ("Reception Systems"). See Note 18 for further details.
Also included in other non-current assets at December 31, 1997 is a
prepayment of approximately $1,200,000 toward the formation of a
programming-related joint venture with World Shopping Network
F-29
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
8. OTHER CURRENT AND NON-CURRENT ASSETS (CONTINUED)
Plc. Although the agreement has not yet been finalized, the Company's intent is
to invest in a new joint venture created to produce shopping television network
programming for distribution in Poland, and share the costs and expenses
incurred in the creation of the Polish-language version of that particular
programming. There can be no assurance that the agreement with World Shopping
Network will be finalized, in which case the $1,200,000 payment will be
expensed.
Included in other non-current assets at December 31, 1996 is a prepayment of
approximately $6,000,000 to the 51% shareholder of one of the PTK Companies
pursuant to an agreement for the purchase of his interest in the PTK Company.
This prepayment was subsequently offset against the purchase price upon the
transfer of all of his 51% interest in the PTK Company to the Company effective
January 1, 1997.
9. INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 20% of the common stock of
Fox Kids Poland Ltd, 50% of the common stock of Twoj Styl Sp. z o.o. ("Twoj
Styl"), 33% of the common stock of ProCable Sp. z o.o. and 45% of the common
stock of Ground Zero Media Sp. z o.o. ("GZM"), all of which are accounted for
using the equity method.
On September 25, 1997, the Company signed a share purchase agreement for a
50% interest in Twoj Styl. Twoj Styl publishes a Polish-language lifestyle
magazine. In addition, the Company agreed to provide additional future financing
to Twoj Styl, either debt or equity, of up to $7,700,000 to develop Polish-
language programming and ancillary services.
In December 1997, the Company entered into a joint venture with Saban
International N.V. ("SINV") for a 20% equity interest in Fox Kids Poland Ltd.
for the purpose of producing "Fox Kids" programming for distribution in Poland.
Under the terms of the agreement, the joint venture partners will share the
costs and expenses incurred in the creation of the Polish language version of
the programming.
The aggregate consideration paid for investments in affiliated companies
during 1997 was $21,420,000.
In April 1997, PCI reached an agreement in principle with GZM whereby PCI
assumed responsibility for selling all advertising to be aired on Atomic TV for
a period of one year commencing April 1997. Atomic TV is a Polish-language music
television channel owned by GZM, which began to be broadcast via satellite to
Poland on April 7, 1997. Under the terms of the agreement, PCI has the right to
receive all of the funds generated from advertising sales, and in exchange, PCI
pays GZM $4,950,000. During 1997, $3,700,000 was charged to selling, general and
administrative expenses with respect to this contract of which $450,000 is
accrued at December 31, 1997. The fees charged to the Company for these rights
are set at the level of fees that GZM would charge to unrelated parties.
Subsequent to year end, the Company acquired the remaining shares of GZM.
It was not practicable to estimate the market value of the investments in
affiliate companies due to the nature of these investments, the relatively short
existence of the investee companies, and the absence of quoted market prices for
the investee companies.
F-30
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES
Income tax benefit/(expense) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Year ended December 31, 1995:
U.S. Federal.................................................................... $ (587) $ -- $ (587)
State and local................................................................. (13) -- (13)
Foreign......................................................................... -- -- --
--------- --- ---------
$ (600) $ -- $ (600)
--------- --- ---------
--------- --- ---------
Year ended December 31, 1996:
U.S. Federal.................................................................... $ (714) $ -- $ (714)
State and local................................................................. (531) -- (531)
Foreign......................................................................... (28) -- (28)
--------- --- ---------
$ (1,273) $ -- $ (1,273)
--------- --- ---------
--------- --- ---------
Year ended December 31, 1997:
U.S. Federal.................................................................... $ 1,438 $ -- $ 1,438
State and local................................................................. -- -- --
Foreign......................................................................... (463) -- (463)
--------- --- ---------
$ 975 $ -- $ 975
--------- --- ---------
--------- --- ---------
</TABLE>
Sources of (loss)/income before income taxes and minority interest are
presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic loss................................................ $ (1,115) $ (2,602) $ (20,628)
Foreign income/(loss)........................................ 444 (4,632) (31,585)
--------- --------- ----------
$ (671) $ (7,234) $ (52,213)
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-31
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES (CONTINUED)
Income tax (expense)/benefit was $(600,000), $(1,273,000), and $975,000 for
the years ended December 31, 1995, 1996, and 1997, respectively, and differed
from the amounts computed by applying the U.S. federal income tax rate of 34
percent to pretax loss as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax benefit..................................................... $ 228 $ 2,460 $ 17,752
Non-deductible expenses............................................................. (69) (17) (101)
Change in valuation allowance....................................................... (667) (3,504) (15,424)
Adjustment to deferred tax asset for enacted changes in tax rates................... -- -- (789)
Foreign tax rate differences........................................................ (65) (184) (463)
Other............................................................................... (27) (28) --
--------- --------- ---------
$ (600) $ (1,273) $ 975
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred compensation....................................................................... $ 377 $ --
Foreign net operating loss carryforward..................................................... 2,015 6,471
Interest income............................................................................. 1,867 1,946
Service revenue............................................................................. 2,368 1,948
Accrued liabilities......................................................................... 1,935 2,964
Deferred costs.............................................................................. -- 2,001
Stock options............................................................................... -- 2,950
Unrealized foreign exchange losses.......................................................... -- 5,614
Other....................................................................................... 104 139
--------- ---------
Total gross deferred tax assets............................................................... 8,666 24,033
Less valuation allowance...................................................................... (8,609) (24,033)
--------- ---------
Net deferred tax assets....................................................................... $ 57 $ --
--------- ---------
--------- ---------
Deferred tax liabilities:
Prepaid expenses............................................................................ $ (57) $ --
--------- ---------
Total gross deferred liabilities............................................................ $ (57) $ --
--------- ---------
Net deferred tax liability.................................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The net increase in the valuation allowance for the years ended December 31,
1995, 1996 and 1997 was $667,000, $3,504,000, and $15,424,000, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
F-32
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES (CONTINUED)
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will not
realize the benefits of these deductible differences, net of the existing
valuation allowances at December 31, 1997.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1997 will be reported in the consolidated
statement of operations.
Foreign loss carryforwards can be offset against the PTK Companies' taxable
income and utilized at a rate of one-third per year in each of the three years
subsequent to the year of the loss. If there is no taxable income in a given
year during the carryforward period, the portion of the loss carryforward to be
utilized is permanently forfeited. For losses incurred in U.S. taxable years
prior to 1998, loss carryforwards can be applied against taxable income three
years retroactively and fifteen years into the future.
At December 31, 1997, the Company has foreign net operating loss
carryforwards of approximately $19,019,000 which will expire as follows:
<TABLE>
<CAPTION>
(IN
YEAR ENDING DECEMBER 31, THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 4,677
1999........................................................................... 4,030
2000 and thereafter............................................................ 10,312
-------------
$ 19,019
-------------
-------------
</TABLE>
11. OTHER CURRENT LIABILITIES
Included in other current liabilities at December 31, 1996 and 1997 is
approximately $726,000 and $577,000, respectively, related to accrued
programming fees.
During 1996, the Company had compensation agreements with certain employees
to defer a portion of their annual bonus and salary. The deferred compensation
liability associated with these agreements was approximately $922,000 as of
December 31, 1996, and the deferred compensation expense associated with these
agreements was $357,000 for the year ended December 31, 1996. The Company had no
such agreements in 1997.
F-33
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
PCI notes, net of discount............................................ $ 129,524 $ 129,578
American Bank in Poland S.A. ("AmerBank") revolving credit loan....... 550 --
$1,200,000 note payable to Polski Bank Rozwoju S.A. ("PBR")........... -- 32
$500,000 note payable to PBR.......................................... -- 500
---------- ----------
Total notes payable................................................... $ 130,074 $ 130,110
---------- ----------
---------- ----------
</TABLE>
PCI NOTES
On October 31, 1996, PCI sold $130,000,000 aggregate principal amount of
Senior notes ("PCI notes") to an initial purchaser pursuant to a purchase
agreement. The initial purchaser subsequently completed a private placement of
the PCI notes. In June, 1997 substantially all of the outstanding PCI notes were
exchanged for an equal aggregate principal amount of publicly-registered PCI
notes.
The PCI notes have an interest rate of 9 7/8% and a maturity date of
November 1, 2003. Interest is paid on the PCI notes on May 1 and November 1 of
each year. As of December 31, 1996 and 1997 the Company accrued interest expense
of $2,175,000 and $2,175,000, respectively. Prior to November 1, 1999, PCI may
redeem up to a maximum of 33% of the initially outstanding aggregate principal
amount of the PCI notes with some or all of the net proceeds of one or more
public equity offerings at a redemption price equal to 109.875% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption; provided that immediately after giving effect to such redemption, at
least $87,000,000 aggregate principal amount of the PCI notes remains
outstanding.
The PCI notes are net of unamortized discount of $476,000 and $422,000 at
December 31, 1996 and 1997, respectively. At December 31, 1997, the effective
interest rate was 11.44%.
PCI has pledged to State Street Bank and Trust Company, the trustee for the
PCI notes (for the benefit of the holders of the PCI notes) intercompany notes
issued by PCBV, of a minimum aggregate principal amount (together with cash and
cash equivalents of PCI), equal to at least 110% of the outstanding principal
amount of the PCI notes, and that, in the aggregate, provide cash collateral or
bear interest and provide for principal repayments, as the case may be, in
amounts sufficient to pay interest on the PCI notes. Notes payable from PCBV to
PCI were $107,891,000 and $134,509,000 at December 31, 1996 and 1997,
respectively.
Pursuant to the PCI indenture, PCI is subject to certain restrictions and
covenants, including, without limitation, covenants with respect to the
following matters: (i) limitation on additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances and sales of capital stock of
subsidiaries; (iv) limitation on transactions with affiliates; (v) limitation on
liens; (vi) limitation on guarantees of indebtedness by subsidiaries; (vii)
purchase of PCI notes upon a change of control; (viii) limitation on sale of
assets; (ix) limitation on dividends and other payment restrictions affecting
subsidiaries; (x) limitation
F-34
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. NOTES PAYABLE (CONTINUED)
on investments in unrestricted subsidiaries; (xi) limitation on lines of
business; and (xii) provision of financial statements and reports. As of
December 31, 1997, the Company was in compliance with such covenants.
Condensed parent only financial statements of @Entertainment, Inc. are
provided in Note 13 in compliance with the requirements of Rules 5-04 and 12-04
of the Securities and Exchange Commission's Regulation S-X.
PBR
A subsidiary of the Company which was acquired during 1997 entered into two
agreements with PBR for notes of approximately $500,000 and $1,200,000. Interest
is based on LIBOR plus 2.5% (8.31% in aggregate at December 31, 1997) and LIBOR
plus 4% (9.81% in aggregate at December 31, 1997), respectively, and is due
monthly. The loans are secured by the subsidiary's cable television networks up
to a value of approximately PLN 3.5 million (approximately $995,000 at December
31, 1997). All advances under the $500,000 loan must be repaid by December 10,
2000, and all advances under the $1,200,000 loan must be repaid by January 10,
1998. Subsequent to year end, the remaining balance of the $1,200,000 loan was
repaid.
AMERBANK
In October 1995, the Company entered into an agreement with AmerBank for a
Polish currency denominated revolving credit loan and a U.S. dollar denominated
promissory note, of which approximately $2,482,000 was outstanding at December
31, 1995. These loans were repaid in full during 1996.
In August 1996, the Company entered into a $6,500,000 revolving credit loan
agreement with AmerBank of which $550,000 was outstanding at December 31, 1996.
This balance was repaid during 1997. Funds are available under the credit
agreement through December 31, 1998 and interest is based on LIBOR plus 3%
(8.60% in aggregate at December 31, 1996) and is due quarterly. All advances
under the loan must be repaid by August 20, 1999.
OVERSEAS PRIVATE INVESTMENT CORPORATION
In January 1994, the Company signed a $13,500,000 financing agreement with
Overseas Private Investment Corporation ("OPIC") of which $8,600,000 was
outstanding at December 31, 1995. The loan was repaid in full during 1996.
Accordingly, the Company recorded an extraordinary loss of $1,713,000 related to
the early retirement of such debt. The extraordinary loss was comprised of a
$147,000 prepayment penalty and $1,566,000 relating to the write-off of deferred
financing costs. There was no tax effect of this transaction due to foreign
jurisdiction net operating loss carryforwards.
BANK OF BOSTON CONNECTICUT
During August 1995, the Company entered into a $10,000,000 loan agreement
with the Bank of Boston Connecticut, which was subsequently repaid in February
1996.
Interest expense relating to the aforementioned notes payable was
approximately $4,373,000, $4,687,000 and $13,902,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-35
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT
The following parent only condensed financial statements were prepared in
accordance with generally accepted accounting principles in the United States of
America in a manner consistent with the consolidated financial statements except
that all subsidiaries have been accounted for under the equity method. The
parent only condensed financial statements as of and for periods prior to the
Reorganization represent those of PCI.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
(IN THOUSANDS)
Operating costs and expenses:
Selling, general and administrative expenses........................................ $ 1,061 $ 14,662
---------- ----------
Operating loss...................................................................... (1,061) (14,662)
Interest and investment income........................................................ 1,076 2,489
Interest expense...................................................................... (2,612) --
Equity in losses of affiliated companies.............................................. (2,775) (42,651)
---------- ----------
Loss before income taxes............................................................ (5,372) (54,824)
Income tax expense.................................................................... (1,245) --
---------- ----------
Net loss............................................................................ (6,617) (54,824)
Accretion of redeemable preferred stock............................................... (2,870) (2,436)
Preferred stock dividends............................................................. (1,738) --
Deficit/(excess) of consideration paid for preferred stock under/(over) carrying
amount.............................................................................. 3,549 (33,806)
---------- ----------
Net loss applicable to holders of common stock........................................ $ (7,676) $ (91,066)
---------- ----------
---------- ----------
</TABLE>
F-36
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................. $ 55,044 $ 71,565
Investment securities..................................................................... 25,115 --
Accounts receivable, net.................................................................. 148 290
Other current assets...................................................................... 188 74
---------- ----------
Total current assets...................................................................... 80,495 71,929
Intangible assets, net.................................................................... 6,361 --
Other assets.............................................................................. 6,000 11,252
Net investment in restricted net assets of wholly-owned subsidiaries...................... 89,821 121,977
Net investment in unrestricted net assets of wholly-owned subsidiaries.................... 22,486 (51,822)
---------- ----------
Total assets.............................................................................. $ 205,163 $ 153,336
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses..................................................... $ 2,989 $ 981
Accrued interest.......................................................................... 2,175 --
Income taxes payable...................................................................... 4,472 --
Notes payable............................................................................. 129,524 --
---------- ----------
Total liabilities......................................................................... 139,160 981
Redeemable preferred stock (liquidation value $85,000,000; Authorized 8,500 shares. 8,500
issued and outstanding in 1996; none issued and outstanding in 1997).................... 34,955 --
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000 shares in 1996 and 70,000,000 shares
in 1997; issued and outstanding 18,948,000 shares in 1996 and 33,310,000 shares in
1997.................................................................................. 189 333
Paid-in capital......................................................................... 54,134 230,339
Cumulative translation adjustment....................................................... -- (218)
Accumulated deficit..................................................................... (23,275) (78,099)
---------- ----------
Total stockholders' equity................................................................ 31,048 152,355
---------- ----------
Total liabilities and stockholders' equity................................................ $ 205,163 $ 153,336
---------- ----------
---------- ----------
</TABLE>
F-37
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PRFERRED STOCK COMMON STOCK CUMULATIVE
---------------------- ----------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
----------- --------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1995........ 985 $ 10,311 11,037 $ 4,993 $ 1,544 $ -- $ (16,658)
Net loss..................... -- -- -- -- -- -- (6,617)
Stock dividend............... 166 1,738 -- -- (1,738) -- --
Proceeds from issuance of
common and preferred
stock...................... -- -- 7,911 (4,992) 87,021 -- --
Cost of issuance............. -- -- -- -- (1,028) -- --
Allocation of proceeds to
preferred.................. -- -- -- -- (32,156) -- --
Preferred stock redemption... (1,151) (12,049) -- -- 3,549 -- --
Accretion of redeemable
preferred stock............ -- -- -- -- (2,870) -- --
Reorganization (note 1)...... -- -- 18,929,052 188 (188) -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1996........ -- -- 18,948,000 189 54,134 -- (23,275)
Translation adjustment....... -- -- -- -- -- (218) --
Net loss..................... -- -- -- -- -- -- (54,824)
Net proceeds from public
offering (note 1).......... -- -- 9,500,000 95 183,197 -- --
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. -- -- -- -- (33,806) -- --
Accretion of redeemble
preferred stock (note 1)... -- -- -- -- (2,436) -- --
Conversion of series B
redeemable preferred stock
(note 1)................... -- -- 4,862,000 49 11,148 -- --
Stock option compensation
expense.................... -- -- -- -- 18,102 -- --
----------- --------- ---------- ----------- --------- ----------- ------------
Balance December 31, 1997.... -- $ -- 33,310,000 $ 333 $ 230,339 $ (218) $ (78,099)
----------- --------- ---------- ----------- --------- ----------- ------------
----------- --------- ---------- ----------- --------- ----------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance December 31, 1995........ $ 190
Net loss..................... (6,617)
Stock dividend............... --
Proceeds from issuance of
common and preferred
stock...................... 82,029
Cost of issuance............. (1,028)
Allocation of proceeds to
preferred.................. (32,156)
Preferred stock redemption... (8,500)
Accretion of redeemable
preferred stock............ (2,870)
Reorganization (note 1)...... --
-----------
Balance December 31, 1996........ 31,048
Translation adjustment....... (218)
Net loss..................... (54,824)
Net proceeds from public
offering (note 1).......... 183,292
Purchase of PCI series A and
C redeemable preferred
stock (note 1)............. (33,806)
Accretion of redeemble
preferred stock (note 1)... (2,436)
Conversion of series B
redeemable preferred stock
(note 1)................... 11,197
Stock option compensation
expense.................... 18,102
-----------
Balance December 31, 1997.... $ 152,355
-----------
-----------
</TABLE>
F-38
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
13. CONDENSED PARENT ONLY FINANCIAL INFORMATION OF @ENTERTAINMENT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss............................................................. $ (6,617) $ (54,824)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization of notes payable discount and issue costs........... 164 1,040
Equity in losses of affiliated companies......................... 12,862 42,651
Gain on sale of investment securities............................ -- (358)
Non-cash stock option compensation expense....................... -- 8,677
Changes in operating assets and liabilities:
Accounts receivable.............................................. (35) (142)
Other current assets............................................. (1,300) 114
Accounts payable and accrued expenses............................ 3,900 (2,008)
Income taxes payable............................................. 4,472 (4,472)
Other current liabilities........................................ (1,045) --
---------- ----------
Net cash provided by (used in) operating activities.......... 12,401 (9,322)
---------- ----------
Cash flows from investing acitivities:
Proceeds from maturity of investment securities...................... (25,115) 25,473
Investment in, and loans and advances to affiliated companies........ (122,337) (111,670)
Purchase of other assets............................................. (8,200) (11,252)
---------- ----------
Net cash used in investing activities........................ (155,652) (97,449)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of stock.............................. 81,001 183,292
Redemption of preferred stock.................................... (8,500) (60,000)
Costs to obtain loans............................................ (6,513) --
Proceeds from notes payable...................................... 136,074 --
Repayment of notes payable....................................... (10,000) --
---------- ----------
Net cash provided by financing activities.................... 192,062 123,292
---------- ----------
Net increase in cash and cash equivalents.................... 48,811 16,521
Cash and cash equivalents at beginning of year......................... 6,233 55,044
---------- ----------
Cash and cash equivalents at end of year............................... $ 55,044 $ 71,565
---------- ----------
---------- ----------
Supplemental cash flow information:....................................
Cash paid for interest........................................... $ 2,338 $ --
---------- ----------
---------- ----------
Cash paid for income taxes....................................... $ 1,184 $ --
---------- ----------
---------- ----------
</TABLE>
F-39
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
14. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into transactions
with affiliated parties. The principal related party transactions are described
below.
NOTES RECEIVABLE FROM AFFILIATES
The Company loaned $2,491,000 to Pro Cable Sp. z o.o., which is 33% owned by
PCI, in December 1996. Under terms of the demand note, interest accrued at 10%
per annum beginning January 1, 1997. The loan was repaid during 1997.
The Company signed an agreement to loan up to $750,000 to GZM to cover
certain operating and capital expenses. Under the terms of the loan, interest is
accrued at 10% per annum. The loan was due June 30, 1997, but under the terms of
the agreement, the Company has agreed not to seek current repayment of the
balance until GZM generates sufficient cash flow or liquidity to support such
repayment.
The Company incurred advertising costs associated with a separate agreement
with GZM. Refer to note 9 for further detail.
PROGRAMMING
An affiliate of the Company provides programming to PCI and its
subsidiaries. The Company incurred programming fees from this affiliate of
$186,000, $412,000 and $559,000 for the years ended December 31, 1995, 1996 and
1997, respectively.
15. PER SHARE INFORMATION
The Company has presented historical loss per common share information
assuming the common stock exchange of 1 to 1,000 shares outlined in Note 1
occurred on January 1, 1995.
The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Net loss attributable to common stockholders (in thousands)...................... $ (1,289) $ (7,676) $ (91,066)
--------- --------- ----------
--------- --------- ----------
Weighted average number of common shares outstanding (in thousands).............. 11,037 17,271 24,771
Nominal issuance (in thousands).................................................. 2,437 346 --
--------- --------- ----------
Basic weighted average number of common shares outstanding (in thousands)........ 13,474 17,617 24,771
--------- --------- ----------
--------- --------- ----------
Loss per share--basic and diluted................................................ $ (0.10) $ (0.44) $ (3.68)
--------- --------- ----------
--------- --------- ----------
</TABLE>
16. STOCK OPTION PLAN
On June 22, 1997, the Company adopted a stock option plan (the "1997 Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers, key employees and consultants of the Company. The 1997 Plan authorizes
grants of options to purchase up to 4,436,000 shares (of which
F-40
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
16. STOCK OPTION PLAN (CONTINUED)
2,000,000 remain subject to stockholders approval), subject to adjustment in
accordance with the 1997 Plan. At December 31, 1997, options for 2,574,000
shares had been granted (of which 138,000 remain subject to stockholders
approval) and 1,862,000 shares remained available for future grants (subject to
stockholders approval). Of this amount, 1,671,000 options became exercisable
upon the IPO but cannot be sold for a period of two years from July 30, 1997.
Subsequent to December 31, 1997, options for a further 1,150,000 shares had
been granted which are all also subject to stockholder approval.
The Company granted 1,671,000 stock options in January 1997 at a price
substantially below the IPO price of $21.00 per share. Such options vested in
full upon the completion of the IPO. In accordance with generally accepted
accounting principles, the Company recognized approximately $18,102,000 of
compensation expense included in selling, general, and administrative expenses
for these options in 1997 representing the difference between the exercise price
of the options and their fair market value of the shares on the date of grant.
All other stock options were granted with exercise prices at or below the fair
market value of the shares on the date of grant.
Future stock options are granted with an exercise price that must be at
least equal to the stock's fair market value at the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the maximum term of an incentive stock option must not exceed
five years. The term of all other options granted under the 1997 Plan may not
exceed ten years. Options become exercisable at such times as determined by the
Board of Directors and as set forth in the individual stock option agreements.
Generally, all stock options vest ratably over 2 to 5 years commencing one year
after the date of grant.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at December 31, 1995.............................................................. -- --
Granted................................................................................... 241,000 $ 1.99
----------
Balance at December 31, 1996 (none exercisable)........................................... 241,000 $ 1.99
Granted (138,000 subject to stockholders approval)........................................ 2,333,000 $ 6.63
----------
Balance at December 31, 1997 (1,719,000 exercisable)...................................... 2,574,000 $ 6.19
----------
----------
</TABLE>
No options were exercised or forfeited during 1996 or 1997. The exercise
prices range from $1.99 to $15.24 per share and the weighted average remaining
contractual life is 9.2 years.
The per share weighted-average fair value of stock options granted during
1997 was $9.65 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected volatility 39.0%,
expected dividend yield 0.0%, risk-free interest rate of 6.0%, and an expected
life of 4 years.
F-41
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
16. STOCK OPTION PLAN (CONTINUED)
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net loss--as reported.................................................................... $ (6,617) $ (54,824)
Net loss--pro forma...................................................................... $ (6,617) $ (56,607)
Basic and diluted net loss per share--as reported........................................ $ (0.44) $ (3.68)
Basic and diluted net loss per share--pro forma.......................................... $ (0.44) $ (3.75)
</TABLE>
17. LEASES
BUILDING LEASES
The Company leases several offices and warehouses within Poland under
cancelable operating leases. The Company has a noncancelable operating lease for
a building in Great Britain which houses the majority of its technical equipment
relating to the D-DTH network. The noncancelable lease expires in 2002, and
contains a renewal option for an additional five years. Future minimum lease
payments as of December 31, 1997 are $1,649,000 in 1998, $1,649,000 in 1999,
$1,649,000 in 2000, $1,649,000 in 2001 and $1,649,000 in 2002.
D-DTH TECHNICAL EQUIPMENT LEASE
The Company has an eight year agreement with British Telecommunications plc
("BT") for the lease and maintenance of certain satellite uplink equipment. The
agreement requires the payment of equal monthly installments of $50,000
approximating future minimum commitments of $600,000 in 1998, $600,000 in 1999,
$600,000 in 2000, $600,000 in 2001, $600,000 in 2002 and $1,800,000 in 2003 and
thereafter. Other than the BT uplink equipment, the Company owns all of the
required broadcasting equipment at its transmission facility in the United
Kingdom.
CONDUIT LEASES
The Company also leases space within various telephone duct systems from
TPSA under cancelable operating leases. The TPSA leases expire at various times,
and a substantial portion of the Company's contracts with TPSA permit
termination by TPSA without penalty at any time either immediately upon the
occurrence of certain conditions or upon provision of three to six months notice
without cause. Refer to Note 19 for further detail. All of the agreements
provide that TPSA is the manager of the telephone duct system and will lease
space within the ducts to the Company for installation of cable and equipment
for the cable television systems. The lease agreements provide for monthly lease
payments that are adjusted quarterly or annually, except for the Gdansk lease
agreement which provides for an annual adjustment after the sixth year and then
remains fixed through the tenth year of the lease.
F-42
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
17. LEASES (CONTINUED)
Minimum future lease commitments for the aforementioned conduit leases
relate to 1998 only, as all leases are cancelable in accordance with the
aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $466,000 for the year ending December 31, 1998.
TRANSPONDER LEASES
During 1997, the Company entered into certain operating leases pursuant to
which the Company is liable for charges associated with each of its three
transponders on the Astra satellites, which can amount to a maximum of
$6,750,000 per year for each transponder and up to $200 million for all three
transponders for the term of their leases. The future minimum lease payments
applicable to the transponders approximate $$6,791,000 in 1998, $7,940,000 in
1999, $7,940,000 in 2000, $7,940,000 in 2001, $7,940,000 in 2002 and $33,745,000
in 2003 and thereafter. The leases for the two transponders on the Astra 1F
satellite and the transponder on the Astra 1G satellite will expire in 2007.
Either party to the transactions may terminate any or all of the transponder
leases with 6 months notice if the Company has not targeted the Polish D-DTH
market prior to January 1, 1999. If all of the leases had been terminated at
December 31, 1997, the maximum aggregate charges under the leases would have
approximated $8,700,000. The Company's transponder leases provide that the
Company's rights are subject to termination in the event that the lessor's
franchise is withdrawn by the Luxembourg Government.
Total rental expense associated with the aforementioned operating leases for
the years ended December 31, 1995, 1996 and 1997 was $711,000, $892,000 and
$3,696,000, respectively.
18. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has concluded an agreement with Philips, whereby Philips would
supply Reception Systems, as well as retail, installation and support services
in connection with the launch of the Company's D-DTH business in Poland. Philips
will be the exclusive supplier to the Company of the first 500,000 D-DTH
Reception Systems and will not distribute any other digital integrated receiver
decoders under the Philips trademark in Poland until September 1, 1999 or any
earlier date on which the Company has secured 500,000 initial subscribers to its
D-DTH service in Poland. Philips has granted the Company an exclusive license of
its CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which will terminate when the Company has purchased 500,000 D-DTH
Reception Systems from Philips, unless terminated earlier in accordance with the
terms of the agreement or extended by mutual consent of Philips and the Company.
The aggregate cost of the agreement with Philips is estimated to approximate
$200,000,000 or up to $400 per Reception System for the first 500,000
subscribers. As of December 31, 1997, the Company had paid $9,000,000 to Philips
as a prepayment toward the purchase of the Reception Systems which has been
included in other assets. The Reception Systems will be capitalized and included
as part of property, plant and equipment and leased to subscribers under
operating lease arrangements.
BROADCAST/EXHIBITION RIGHT COMMITMENTS
The Company has entered into long-term contracts for the purchase of certain
exhibition or broadcast rights for its D-DTH and cable systems. The contracts
have terms which range from one to five years and require that the license fees
be paid based upon a fixed amount. The Company has an aggregate minimum
F-43
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
commitment of approximately $17,437,000 over the next 5 years, approximating
$6,590,000 in 1998, $2,580,000 in 1999, $4,185,000 in 2000, $2,488,000 in 2001
and $1,594,000 in 2002. For the year ended December 31, 1997, the Company
incurred no amortization expense relating to these broadcast/exhibition rights
pursuant to these agreements since all balances were recorded as other current
assets as of December 31, 1997. The Company did not incur any amortization
expense relating to broadcast/exhibition rights during 1995 or 1996.
Subsequent to December 31, 1997, the Company entered into additional
exhibition or broadcast rights under which the Company has a minimum commitment
of approximately $2,846,000 in 1998, $2,226,000 in 1999, $949,000 in 2000, and
$43,000 in 2001.
PROGRAMMING COMMITMENTS
The Company has entered into long-term programming agreements with a number
of third party content providers for its D-DTH and cable systems. The
programming agreements have terms which range from one to five years and require
that the license fees be paid either at a fixed amount payable at the time of
execution or based upon a guaranteed minimum number of subscribers connected to
the system each month. The Company has an aggregate minimum commitment of
approximately $74,327,000 over the next 5 years, approximating $9,303,000 in
1998, $11,591,000 in 1999, $15,349,000 in 2000, $17,910,000 in 2001 and
$20,174,000 in 2002. The Company is in the process of negotiating additional
long-term programming agreements with other third party content providers. For
the years ended December 31, 1995, 1996 and 1997, the Company incurred
programming fees of approximately $1,318,000, $1,758,000 and $1,895,000,
respectively, pursuant to these agreements.
Subsequent to December 31, 1997, the Company entered into additional
long-term programming agreements under which the Company has a minimum
commitment of approximately $792,000 in 1998, $1,659,000 in 1999, $2,171,000 in
2000, $2,409,000 in 2001 and $1,446,000 in 2002. The Company is in the process
of negotiating additional long-term programming agreements with other third
party content providers, which agreements if consummated, may require the
Company to pay additional guaranteed minimum payments and/or payments at the
time of execution. Management estimated any additional commitments resulting
from these negotiations will be approximately $1,609,000 in 1998, $3,112,000 in
1999, $3,816,000 in 2000, $2,300,000 in 2001, $1,116,000 in 2002, and $565,000
in 2003 and thereafter.
CUSTOMER SERVICE CENTER COMMITMENT
The Company intends to establish a centralized customer service center. The
call center function of the customer service center will be operational for
D-DTH customers in April 1998 and for the majority of cable customers by the end
of 1998. The billing center function of the Customer Service center will be
operational for D-DTH customers in May 1998 and for the majority of cable
customers by the end of 1998. Management estimates capital expenditures
associated with the establishment of the center will approximate $7,880,000. The
center will be located in a low-cost area of Poland and will consolidate the
functions of the Company's existing regional customer service centers, and the
Company believes the centralization of service functions in one location will
improve the general level of customer service available to subscribers.
F-44
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CAPITAL COMMITMENTS
As of December 31, 1997, the Company entered into commitments to purchase
capital assets of approximately $6,179,000 for 1998.
CONSULTING AGREEMENTS
Subsequent to December 31, 1997, the Company has entered into consulting
agreements with two of its directors pursuant to which the Company is committed
to pay a minimum of $960,000 in each of 1998 and 1999. During 1997, the Company
incurred no expenses relating to these agreements.
REGULATORY APPROVALS
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2,000,000 (approximately
$569,000 at the December 31, 1997 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed capital increases, the non-recognition of the capital
increases by the Polish courts means that the contribution could be treated as
income in the hands of the PTK Company. As a result, part or all of the
contribution could be subject to corporate income tax of 40%. The PTK Company
had enough tax net operating loss in 1995 to offset any additional taxable
income resulting from an unfavorable treatment. The Company has not recorded any
amounts related to this in the accompanying consolidated financial statements
due to the tax net operating loss and uncertainties involved.
LITIGATION AND CLAIMS
Two of the Company's cable television subsidiaries and four other unrelated
Polish cable operators and HBO Polska Sp. z o.o., have been made defendants in a
lawsuit instituted by Polska Korporacja Telewizyjna Sp. z o.o., a subsidiary of
Canal+. The primary defendant in the proceedings is HBO Polska Sp. z o.o. which
is accused of broadcasting the HBO television program in Poland without a
license from the Council as required by the Radio and Television Act of 1992, as
amended, and thereby undertaking an activity constituting an act of unfair
competition. The Company does not believe that the final disposition of the
lawsuit will have a material adverse effect on its consolidated financial
position or results of operations.
Several of the minority stockholders of PCBV have claimed that the behavior
of PCBV and its majority stockholder, PCI, have prejudiced them, and that PCI
has (through its direct and indirect ownership interests in a number of entities
that engage in certain aspects of the cable television business in Poland)
violated certain covenants against competition in the PCBV Stockholders'
agreement, and that under the circumstances, they can no longer be expected to
remain shareholders of PCBV. The PCBV Stockholders' Agreement includes certain
covenants against competition that limit the ability of each
F-45
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
shareholder to engage directly or indirectly in any aspect of the cable
television business in Poland for a period ending ten years after such
stockholder ceases to be a stockholder. PCI has direct or indirect ownership
interests in a number of entities that engage in certain aspects of the cable
television business in Poland. Under the Stockholders' Agreement, the minority
stockholders of PCBV have a claim against 7.7% of the profits and equity of such
entities. Under a supplemental agreement, PCI has agreed to share the future
profits of the competing cable companies on a pro rata basis. As at December 31,
1997, no amounts have been incurred.
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
D-DTH BUSINESS
The Company expects that its D-DTH business will incur substantial operating
losses for at least two years of operation while it is developed and expanded.
The magnitude and duration of the losses to be incurred on its D-DTH business
will depend on, among other factors, the ability of the Company's D-DTH service
to attract and retain subscribers, the total cost of providing affordable
reception equipment to subscribers, the Company's ability to develop and
maintain a successful programming platform for the Polish market and its ability
to control other costs which do not vary with the number of subscribers. The
Company may require additional external funding for its business development
plans if it continues to provide promotional incentives to subscribers with
respect to the cost of the D-DTH Reception Systems to subscribers other than the
500,000 initial subscribers. There can be no assurance that the roll-out of the
D-DTH business will proceed as planned, or that if achieved, the increase in the
number of subscribers will result in profitability or positive cash flow for the
Company in future years.
SUPPLIER AGREEMENT
Although the agreement with Philips to supply the Company's satellite
transmission system provides a means by which the Company could obtain a second
and third supplier for all or part of its future requirements for D-DTH
Reception Systems, the Company does not have any sources for obtaining
conditional access systems compatible with the integrated receiver decoders
other than Philips and future licensees of Philips. The failure of Philips to
deliver D-DTH Reception Systems on schedule, or at all, would delay or interrupt
the commencement of the Company's D-DTH business and thereby could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, failure by Philips' retail network to
provide the desired levels of service, quality and expertise (which are outside
the control of the Company) could have a material adverse impact on the
Company's operations and financial condition.
F-46
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
ASTRA SATELLITES
The Company's D-DTH business will depend on its ability to broadcast using
certain transponders. Satellites are subject to significant risks that may
prevent or impair proper commercial operations, including satellite defects,
destruction and damage. The Company has been designated a "non-pre-emptible
customer" under each of its relevant transponder leases. As a result, in the
event of satellite or transponder malfunction, the Company's use of its
transponders cannot be suspended or terminated by a broadcaster which has
pre-emption rights permitting it to gain access to additional transponders in
preference to certain other Astra customers. The Company, however, is not a
"protected customer" under its satellite transponder leases and, in the event of
a failure of one or more of its transponders, would not be able to pre-empt any
other transponder customer. Due to the high cost of insurance policies relating
to satellite operations, the Company does not insure against possible
interruption of access to its transponders. The operation of the Astra
satellites is outside the control of the Company and a disruption of
transmissions on those satellites could have a material adverse effect on the
Company, depending upon the duration of the disruption. The ability of the
Company to transmit its programming following termination of the Company's
leases of the transponders (and following the expiration of the expected useful
lives of the Astra satellites in approximately 2015) will depend upon the
ability of the Company to extend its existing leases and/or to obtain rights to
utilize additional transponders on future Astra or other satellites.
USE OF TPSA CONDUITS
The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television networks depends on,
among other things, the Company's continued ability to design and obtain access
to network routes, and to secure other construction resources, all at reasonable
costs and on satisfactory terms and conditions. Many of such factors are beyond
the control of the Company. In addition, at December 31, 1997, approximately 60%
of the Company's cable plant had been constructed utilizing pre-existing
conduits of TPSA. A substantial portion of the Company's contracts with TPSA for
the use of such conduits permits termination by TPSA without penalty at any time
either immediately upon the occurrence of certain conditions or upon provision
of three to six months' notice without cause.
LIMITED INSURANCE COVERAGE
While the Company carries general liability insurance on its properties,
like many other operators of cable television systems it does not insure the
underground portion of its cable televisions networks. Accordingly, any
catastrophe affecting a significant portion of the Company's cable television
networks could result in substantial uninsured losses and could have a material
adverse effect on the Company.
YEAR 2000
In January 1997, the Company developed a plan to deal with the Year 2000
problem to make its computer systems Year 2000 compliant. The plan provides for
the Year 2000 related efforts to be completed by the end of 1998. Largely as a
result of its high rate of growth over the past few years, the Company has
entered into an agreement to purchase a new system to replace its current
accounting computer system and an agreement to purchase specialized billing
software for the Company's new customer service and billing center. The Company
has no other significant computer systems. The total
F-47
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
19. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
cost of the purchases is estimated to be approximately $2,400,000. The Company
has obtained confirmations from the vendors of the systems indicating that such
systems are Year 2000 compliant.
CREDIT WORTHINESS
All of the Company's customers are located in Poland. As is typical in this
industry, no single customer accounted for more than five percent of the
Company's sales in 1996 or 1997. The Company estimates an allowance for doubtful
accounts based on the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
effect the Company's estimate of its bad debts.
20. FOURTH QUARTER RESULTS
During the fourth quarter of 1997 circumstances came to the attention of
management which led to the determination that certain receivable balances from
minority interests were not recoverable. The Company has recorded an adjustment
to minority interest of approximately $5,800,000 relating to this write-off, of
which approximately $3,300,000 related to prior years.
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The previously reported 1997 third quarter results failed to include the
adjustment recorded to stockholders' equity for the purchase of the PCI series A
and C redeemable preferred stock as an increase to the net loss applicable to
common stockholders. The quarterly data set forth below presents the 1997 third
quarter results as previously reported and as adjusted to correct for this
omission.
<TABLE>
<CAPTION>
1996 PERIOD ENDING
-----------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
----------- --------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cable television revenue................................ $ 24,923 $ 6,608 $ 6,090 $ 6,604 $ 5,621
Operating (loss) income................................. (1,347) (2,454) (1,459) 1,821 745
Minority interest....................................... 1,890 754 1,116 69 (49)
Income tax benefit/(expense)............................ (1,273) 178 2 (948) (505)
Net loss................................................ (6,617) (4,909) (1,119) 875 (1,464)
Accretion of redeemable preferred stock................. (2,870) (957) (956) (957) --
Preferred stock dividends............................... (1,738) (1,738) -- -- --
Deficit of consideration paid for preferred stock under
carrying value........................................ 3,549 3,549 -- -- --
Net loss applicable to common stockholders.............. $ (7,676) $ (4,055) $ (2,075) $ (82) $ (1,464)
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
Basic and diluted loss per common share................. $ (0.44) $ (0.21) $ (0.11) -- $ (0.12)
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
</TABLE>
F-48
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1997 PERIOD ENDING
----------------------------------------------------------------------
THIRD
THIRD QUARTER AS
TOTAL FOURTH QUARTER AS PREVIOUSLY SECOND FIRST
AS ADJUSTED QUARTER ADJUSTED REPORTED QUARTER QUARTER
----------- --------- ----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cable television revenue................................ $ 38,138 $ 11,337 $ 10,390 $ 10,390 $ 8,903 $ 7,508
Operating loss.......................................... (42,670) (14,044) (15,293) (15,293) (12,317) (1,016)
Minority interest....................................... (3,586) (5,842) (343) (343) 2,123 476
Income tax benefit/(expense)............................ 975 1,233 (246) (246) 259 (271)
Net loss................................................ (54,824) (21,244) (16,844) (16,844) (13,165) (3,571)
Accretion of redeemable preferred stock................. (2,436) (2,436) 2,028 2,028 (1,048) (980)
Excess of consideration paid for preferred stock over
carrying value........................................ (33,806) -- (33,806) -- -- --
Net loss applicable to common stockholders.............. $ (91,066) $ (23,680) $ (48,622) $ (14,816) $ (14,213) $ (4,551)
----------- --------- ----------- ----------- --------- ---------
----------- --------- ----------- ----------- --------- ---------
Basic and diluted loss per common share................. $ (3.68) $ (0.71) $ (1.75) $ (0.53) $ (0.75) $ (0.24)
----------- --------- ----------- ----------- --------- ---------
----------- --------- ----------- ----------- --------- ---------
</TABLE>
22. SUBSEQUENT EVENTS (UNAUDITED)
GROUND ZERO MEDIA SP. Z O.O. PURCHASE
In February and March 1998, the Company acquired the remaining interest in
GZM from the remaining stockholders for approximately $9,100,000. The
acquisition will be accounted for under the purchase method, whereby the
purchase price will be allocated to the underlying assets and liabilities based
upon their estimated fair values. The acquisition is not expected to have a
material effect on the Company's results of operations in 1998.
CABLE TELEVISION ACQUISITIONS
The Company entered into agreements subsequent to December 31, 1997 to
purchase during 1998 certain cable television system assets for approximately
$783,000, and 94.74% of a cable television company for approximately $770,000.
The acquisition of the fixed assets will be accounted for as fixed asset
purchases with the purchase price allocated among the fixed assets acquired
based upon their fair values at the dates of acquisition and any excess to
goodwill. The acquisition of the Company will be accounted for under the
purchase method, whereby the purchase price will be allocated to the underlying
assets and liabilities based upon their estimated fair values and any excess to
goodwill. The acquisitions are not expected to have a material effect on the
Company's results of operations in 1998.
"POLONIA" SOCCER CLUB PURCHASE
In February 1998, the Company purchased, for approximately $500,000 the
option to buy a 50% plus one share interest in "Polonia", a soccer club in
Poland. The purchase option will expire in February 1999. If the Company
exercises the option, the purchase price will approximate $4,400,000, and the
transaction will be accounted for as a purchase, with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess to goodwill.
F-49
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$256,800,000
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
@ENTERTAINMENT, INC.
14 1/2% SERIES B SENIOR NOTES DUE 2009
---------------------------
PROSPECTUS
---------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
EXCHANGE ONLY THE NOTES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
-------------------
FEBRUARY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify its directors, officers, employees and other agents in terms
sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended.
@Entertainment's Bylaws provide for the indemnification of directors and
executive officers to the fullest extent not prohibited by the Delaware General
Corporation Law and authorize the indemnification by @Entertainment of other
officers, employees and other agents as set forth in the Delaware General
Corporation Law. @Entertainment has entered into, or will enter into,
indemnification agreements with its directors and executive officers, in
addition to the indemnification provided for in @Entertainment's Bylaws. The
Purchase Agreement filed as Exhibit 1.1 to this registration statement provides
for indemnification by the initial purchasers of the @Entertainment and its
officers and directors for certain liabilities arising under the Securities Act
of 1933 or otherwise.
Officers and directors of @Entertainment will be covered by insurance which
(with certain exceptions and within certain limitations) indemnifies them
against losses and liabilities arising from any alleged "wrongful act" including
any alleged error or misstatement or misleading statement, or wrongful act or
omission or neglect or breach of duty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement dated as of January 22, 1999 between and among @Entertainment and Merrill
Lynch & Co., Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc.
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"), ECO Holdings Limited Partnership
("ECO"), Roger M. Freedman, Steele LLC, the AESOP Fund LP, the Cheryl Anne Chase Marital Trust (the
"CACMT") and @Entertainment, dated as at June 22, 1997. (Incorporated by reference to Exhibit 2.1 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
2.2 Purchase Agreement among ECO, @Entertainment, and L. Ciesla International, Inc., dated as at June 22,
1997. (Incorporated by reference to Exhibit 2.2 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)
3.1 Amended and Restated Certificate of Incorporation of @Entertainment dated as at June 22, 1997.
(Incorporated by reference to Exhibit 3.1 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)
3.2- Amended and Restated Bylaws of @Entertainment.
3.3- Certificate of Designations, Preferences and Rights of Series A 12% Cumulative Preference Shares and
Series B 12% Cumulative Preference Shares of @Entertainment, Inc. dated as of January 27, 1999.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.4 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele, LLC, the CACMT, the AESOP Fund, LP,
and the CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.3 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
3.5 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele LLC, the AESOP Fund, LP, and the
CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.4 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
3.6 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger Freedman, Steele LLC, the AESOP
Fund, LP, and the CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.5 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
4.1 Form of Note. (Contained in Indenture filed as Exhibit 4.3)
4.2 Form of Exchange Note. (Contained in Indenture filed as Exhibit 4.3)
4.3 Form of Indenture dated as of January 27, 1999 between @Entertainment and Bankers Trust Company relating
to @Entertainment's 14 1/2% Senior Discount Notes due 2009 and its 14 1/2% Series B Senior Discount
Notes due 2009.
4.4 Form of Registration Rights Agreement, dated as at January 27, 1999 among @Entertainment and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities and Deutsche
Bank Securities Inc.
5 Opinion of Baker & McKenzie with respect to the legality of the securities being registered.
8 Opinion of Baker & McKenzie with respect to certain tax matters.
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC, and the CACMT and David Chase, dated
as of June 22, 1997. (Incorporated by reference to Exhibit 9.1 of @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
9.2 Side Letter, dated as of June 22, 1997, regarding the Voting Agreement. (Incorporated by reference to
Exhibit 9.2 of @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.1 Registration Rights Agreement, dated as at July 14, 1998 among @Entertainment and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. (Incorporated by reference to
Exhibit 10.1 to @Entertainment's Registration Statement on Form S-4, Registration Number 333-60659)
10.2 Indenture dated as at July 14, 1998 between @Entertainment and Bankers Trust Company relating to
@Entertainment's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior Discount Notes
due 2008. (Incorporated by reference to Exhibit 4.11 to @Entertainment's Registration Statement on Form
S-4, Registration Number 333-60659)
10.3 Purchase Agreement dated as at July 8, 1998 between and among @Entertainment and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated and J.P. Morgan Securities Inc. (Incorporated by reference to Exhibit 1.1 to
@Entertainment's Registration Statement on Form S-4, Registration Number 333-60659)
10.4 Indenture dated as of January 20, 1999 between @Entertainment and Bankers Trust Company relating to
@Entertainment's Series C Senior Discount Notes due 2008.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Indenture dated as of October 31, 1996 between PCI and State Street Bank and Trust Company relating to
PCI's 9 7/8% Senior Notes due 2003 and to PCI's Series B 9 7/8% Senior Notes due 2003. (Incorporated by
reference to Exhibit 4.11 of PCI's Registration Statement on Form S-4, Registration No. 333-20307)
10.6 Form of Purchase Agreement, dated as at January 27, 1999 among @Entertainment and Morgan Grenfell
Private Equity Limited on behalf of Morgan Grenfell Development Capital Syndication Limited.
10.7- Form of Purchase Agreement, dated as at January 27, 1999 among @Entertainment and Arnold Chase, Cheryl
Chase, Rhoda Chase and The Darland Trust.
10.8- Form of Preference Registration Rights Agreement, dated as at January 27, 1999 between @Entertainment
and Morgan Grenfell Private Equity Limited on behalf of Morgan Grenfell Development Capital Syndication
Limited, Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
10.9- Form of Preference Warrant Registration Rights Agreement, dated as of January 27, 1999 between
@Entertainment and Morgan Grenfell Private Equity Limited on behalf of Morgan Grenfell Development
Capital Syndication Limited, Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
10.10 Form of Management Agreement among PCI and subsidiaries.
10.11 Form of Service Agreement among PCI and subsidiaries.
10.12 Corporate Overhead Allocation Agreement among PCI and subsidiaries. (Incorporated by reference to
Exhibit 10.4 of PCI's Registration Statement on Form S-4, Registration No.333-20307).
10.13 Amendment to Service Agreement. (Incorporated by reference to Exhibit 10.5 of PCI's Registration
Statement on Form S-4, Registration No. 333-20307).
10.14 Side Letter regarding Service Agreement. (Incorporated by reference to Exhibit 10.6 of PCI's
Registration Statement on Form S-4, Registration No. 333-20307).
10.15 Employment Agreement, dated as of January 1, 1997, between PCI and Robert E. Fowler, III, including
Stock Option Agreement. Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by
reference to Exhibit 10.7 of PCI's Registration Statement on Form S-4, Registration No. 333-20307).
10.16 Employment Agreement, dated as of February 7, 1997, between PCI and Przemyslaw A. Szmyt, as amended.
Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by reference to Exhibit 10.11
to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.17 Stock Option Agreement dated as of June 22, 1997 between @Entertainment and Przemyslaw A. Szmyt, as
amended March 31, 1998.
10.18 Addendum to Employment Agreement between @Entertainment and Przemyslaw A. Szmyt, dated as of January 1,
1998.
10.19 Stock Option Agreement dated as of January 26, 1998 between @Entertainment and Przemyslaw A. Szmyt as
amended.
10.20 Employment Agreement, dated April 7, 1997, between PCI and David Warner. Assigned to @Entertainment (See
Exhibit 10.32). (Incorporated by reference to Exhibit 10.14 of @Entertainment's Registration Statement
on Form S-1, Registration No. 333-29869)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.21 Form of Stock Option Agreement, dated as of June 23, 1997, between @Entertainment and David Warner, as
amended March 31, 1998.
10.22 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and David Warner.
10.23 Employment Agreement, dated January 1, 1998, between PCI and David Keefe. (Incorporated by reference to
Exhibit 10.17 of @Entertainment's Registration Statement on Form S-4, Registration No. 333-20307)
10.24 Stock Option Agreement dated as of January 1, 1998 between @Entertainment and David Keefe. (Incorporated
by reference to Exhibit 10.18 of @Entertainment's Registration Statement on Form S-4, Registration No.
333-20307)
10.25 Employment Agreement dated as of January 1, 1998, between PCI and Dorothy Hansberry. (Incorporated by
reference to Exhibit 10.19 of @Entertainment's Registration Statement on Form S-4, Registration No.
333-20307)
10.26 Form of Employment Agreement, dated as of June 8, 1998, between @Entertainment and Donald Miller-Jones.
10.27 Form of Stock Option Agreement dated as at June 8, 1998 between @Entertainment and Donald Miller-Jones.
10.28 Consultancy Agreement dated November 17, 1997, between @Entertainment and Samuel Chisholm and David
Chance. (Incorporated by reference to Exhibit 10.22 of @Entertainment's Registration Statement on Form
S-4, Registration No. 333-20307)
10.29 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and Samuel Chisholm.
10.30 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and David Chance.
10.31 Form of Consultancy Agreement dated as at January 23, 1998 between @Entertainment and Agnieszka Holland.
10.32- Stock Option Plan of @Entertainment, as amended.
10.33 Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.
10.34+ Agreement for Digital Transmission on the Astra System between Societe Europeene des Satellites S.A.
("SES") and PCI Programming, Inc. (Mozaic Entertainment, Inc. (formerly, PCI Programming, Inc.,
"Mozaic") (ASTRA 1F Satellite) dated as of March 26, 1997. (Incorporated by reference to Exhibit 10.19
to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.35+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA1F Satellite) dated
as at March 26, 1997. (Incorporated by reference to Exhibit 10.20 to @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
10.36+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA 1E Satellite) dated
as at March 27, 1997. (Incorporated by reference to Exhibit 10.21 to @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
10.37+ Commercial Cooperation Agreement between At Entertainment Limited and Philips Business Electronics B.V.
(Incorporated by reference to Exhibit 10.31 of @Entertainment's Registration Statement on Form S-4,
Registration No. 333-20307)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.38 Form of Assignment and Assumption Agreement related to employment contracts with certain of the
executive officers of @Entertainment.
10.39 Form of Assignment and Assumption Agreement related to stock option agreements with certain of the
executives of @Entertainment.
10.40 Advisory Services Agreement between @Entertainment and Handlowy Investments S.ar.l. dated as at July 29,
1997. (Incorporated by reference to Exhibit 10.25 to @Entertainment's Registration Statement on Form
S-1, Registration No. 333-29869)
10.41- Warrant Agreement dated as of January 27, 1999 by and between @Entertainment and Bankers Trust Company.
10.42- Warrant Agreement dated as of July 14, 1998 by and between @Entertainment Inc. and Bankers Trust Company
(Incorporated by reference by @Entertainment's Registration Statement on Form S-3, Registration No. 333-
10.43- Preference Warrant Agreement dated as of January 27, 1999 by and between @Entertainment, Inc. and
Bankers Trust Company.
11.1 Statement Regarding Calculation of Per Share Earnings.
21 List of subsidiaries of @Entertainment.
23.1 Consent of KPMG Polska Sp. z o.o. with respect to @Entertainment.
23.2 Consent of Baker & McKenzie with respect to the legality of the securities being registered (contained
in Exhibit 5).
23.3 Consent of Baker & McKenzie with respect to the certain tax matters (contained in Exhibit 8).
24 Power of Attorney (included on the signature page in Part II of this Registration Statement).
25 Statement of Eligibility of Bankers Trust Company; Form T-1.
27 Financial Data Schedule.
99.1 Letter of Transmittal relating to the Exchange Offer.
99.2 Letter To Brokers, Dealers, Commerial Banks, Trust Companies and Other Nominees relating to the Exchange
Offer.
99.3 Letter to Clients relating to the Exchange Offer.
99.4 Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ------------------------
- - To be filed by Amendment
+ Confidential treatment requested and granted. Confidential portions of
Exhibits 10.34, 10.35, 10.36 and 10.37 (noted by "+") have been omitted
pursuant to request for confidential treatment and filed separately with the
Commission.
(b) Financial Statement Schedules.
The following is included in Note 5 to Notes to Consolidated Financial
Statements (December 31, 1995, 1996 and 1997) contained in this Registration
Statement:
Schedule II-- Valuation and Qualifying Accounts
-- @Entertainment, Inc.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned issuer hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act'), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415 under the Securities Act
of 1933, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned issuer hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned issuer hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned issuer hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
(f) The undersigned issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee' table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the issuer pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed part of the
registration statement as of the time it was declared effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of London,
England on the 12th day of February, 1999.
@ENTERTAINMENT, INC.
BY: /S/ ROBERT E. FOWLER, III
-----------------------------------------
Robert E. Fowler, III
CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature to this
Registration Statement appears below hereby appoints Robert E. Fowler, III as
his attorney-in-fact to sign on his behalf, individually and in the capacities
stated below, and to file any and all amendments and post-effective amendments
to this registration statement, which amendment or amendments may make such
changes and additions as such attorney-in-fact may deem necessary or
appropriate.
In accordance with the requirements of the Securities Act of 1933, as
amended this registration statement has been signed by the following persons in
the capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT E. FOWLER, III Chief Executive Officer and
- ------------------------------ Director (Principal February 12, 1999
Robert E. Fowler, III Executive Officer)
Chief Financial Officer
/s/ DONALD MILLER-JONES (Principal Financial and
- ------------------------------ Principal Accounting February 12, 1999
Donald Miller-Jones Officer)
/s/ DAVID T. CHASE Director
- ------------------------------ February 12, 1999
David T. Chase
/s/ ARNOLD L. CHASE Director
- ------------------------------ February 12, 1999
Arnold L. Chase
/s/ DAVID CHANCE Director
- ------------------------------ February 12, 1999
David Chance
Director
- ------------------------------ February , 1999
Samuel Chisholm
Director
- ------------------------------ February , 1999
Agnieszka Holland
Director
- ------------------------------ February , 1999
Scott A. Lanphere
/s/ JERZY Z. SWIRSKI Diretor
- ------------------------------ February 12, 1999
Jerzy Z. Swirski
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement dated as of January 22, 1999 between and among @Entertainment and Merrill
Lynch & Co., Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc.
2.1 Contribution Agreement among Polish Investment Holdings, LP ("PIHLP"), ECO Holdings Limited Partnership
("ECO"), Roger M. Freedman, Steele LLC, the AESOP Fund LP, the Cheryl Anne Chase Marital Trust (the
"CACMT") and @Entertainment, dated as at June 22, 1997. (Incorporated by reference to Exhibit 2.1 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
2.2 Purchase Agreement among ECO, @Entertainment, and L. Ciesla International, Inc., dated as at June 22,
1997. (Incorporated by reference to Exhibit 2.2 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)
3.1 Amended and Restated Certificate of Incorporation of @Entertainment dated as at June 22, 1997.
(Incorporated by reference to Exhibit 3.1 of @Entertainment's Registration Statement on Form S-1,
Registration No. 333-29869)
3.2- Amended and Restated Bylaws of @Entertainment.
3.3- Certificate of Designations, Preferences and Rights of Series A 12% Cumulative Preference Shares and
Series B 12% Cumulative Preference Shares of @Entertainment, Inc. dated as of January 27, 1999.
3.4 Shareholders Agreement among ECO, PIHLP, Roger M. Freedman, Steele, LLC, the CACMT, the AESOP Fund, LP,
and the CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.3 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
3.5 Termination Agreement among PCI, PIHLP, ECO, Roger M. Freedman, Steele LLC, the AESOP Fund, LP, and the
CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.4 of @Entertainment's
Registration Statement on Form S-1, Registration No. 333-29869)
3.6 Registration Rights Agreement among @Entertainment, PIHLP, ECO, Roger Freedman, Steele LLC, the AESOP
Fund, LP, and the CACMT, dated as of June 22, 1997. (Incorporated by reference to Exhibit 3.5 of
@Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
4.1 Form of Note. (Contained in Indenture filed as Exhibit 4.3)
4.2 Form of Exchange Note. (Contained in Indenture filed as Exhibit 4.3)
4.3 Form of Indenture dated as of January 27, 1999 between @Entertainment and Bankers Trust Company relating
to @Entertainment's 14 1/2% Senior Discount Notes due 2009 and its 14 1/2% Series B Senior Discount
Notes due 2009.
4.4 Form of Registration Rights Agreement, dated as at January 27, 1999 among @Entertainment and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities and Deutsche
Bank Securities Inc.
5 Opinion of Baker & McKenzie with respect to the legality of the securities being registered.
8 Opinion of Baker & McKenzie with respect to certain tax matters.
9.1 Voting Agreement by and among PIHLP, Roger M. Freedman, Steele LLC, and the CACMT and David Chase, dated
as of June 22, 1997. (Incorporated by reference to Exhibit 9.1 of @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
9.2 Side Letter, dated as of June 22, 1997, regarding the Voting Agreement. (Incorporated by reference to
Exhibit 9.2 of @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.1 Registration Rights Agreement, dated as at July 14, 1998 among @Entertainment and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. (Incorporated by reference to
Exhibit 10.1 to @Entertainment's Registration Statement on Form S-4, Registration Number 333-60659)
10.2 Indenture dated as at July 14, 1998 between @Entertainment and Bankers Trust Company relating to
@Entertainment's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior Discount Notes
due 2008. (Incorporated by reference to Exhibit 4.11 to @Entertainment's Registration Statement on Form
S-4, Registration Number 333-60659)
10.3 Purchase Agreement dated as at July 8, 1998 between and among @Entertainment and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated and J.P. Morgan Securities Inc. (Incorporated by reference to Exhibit 1.1 to
@Entertainment's Registration Statement on Form S-4, Registration Number 333-60659)
10.4 Indenture dated as of January 20, 1999 between @Entertainment and Bankers Trust Company relating to
@Entertainment's Series C Senior Discount Notes due 2008.
10.5 Indenture dated as of October 31, 1996 between PCI and State Street Bank and Trust Company relating to
PCI's 9 7/8% Senior Notes due 2003 and to PCI's Series B 9 7/8% Senior Notes due 2003. (Incorporated by
reference to Exhibit 4.11 of PCI's Registration Statement on Form S-4, Registration No. 333-20307)
10.6 Form of Purchase Agreement, dated as at January 27, 1999 among @Entertainment and Morgan Grenfell
Private Equity Limited on behalf of Morgan Grenfell Development Capital Syndication Limited.
10.7- Form of Purchase Agreement, dated as at January 27, 1999 among @Entertainment and Arnold Chase, Cheryl
Chase, Rhoda Chase and The Darland Trust.
10.8- Form of Preference Registration Rights Agreement, dated as at January 27, 1999 between @Entertainment
and Morgan Grenfell Private Equity Limited on behalf of Morgan Grenfell Development Capital Syndication
Limited, Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
10.9- Form of Preference Warrant Registration Rights Agreement, dated as of January 27, 1999 between
@Entertainment and Morgan Grenfell Private Equity Limited on behalf of Morgan Grenfell Development
Capital Syndication Limited, Arnold Chase, Cheryl Chase, Rhoda Chase and The Darland Trust.
10.10 Form of Management Agreement among PCI and subsidiaries.
10.11 Form of Service Agreement among PCI and subsidiaries.
10.12 Corporate Overhead Allocation Agreement among PCI and subsidiaries. (Incorporated by reference to
Exhibit 10.4 of PCI's Registration Statement on Form S-4, Registration No.333-20307).
10.13 Amendment to Service Agreement. (Incorporated by reference to Exhibit 10.5 of PCI's Registration
Statement on Form S-4, Registration No. 333-20307).
10.14 Side Letter regarding Service Agreement. (Incorporated by reference to Exhibit 10.6 of PCI's
Registration Statement on Form S-4, Registration No. 333-20307).
10.15 Employment Agreement, dated as of January 1, 1997, between PCI and Robert E. Fowler, III, including
Stock Option Agreement. Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by
reference to Exhibit 10.7 of PCI's Registration Statement on Form S-4, Registration No. 333-20307).
</TABLE>
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<TABLE>
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10.16 Employment Agreement, dated as of February 7, 1997, between PCI and Przemyslaw A. Szmyt, as amended.
Assigned to @Entertainment (See Exhibits 10.32 and 10.33). (Incorporated by reference to Exhibit 10.11
to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
10.17 Stock Option Agreement dated as of June 22, 1997 between @Entertainment and Przemyslaw A. Szmyt, as
amended March 31, 1998.
10.18 Addendum to Employment Agreement between @Entertainment and Przemyslaw A. Szmyt, dated as of January 1,
1998.
10.19 Stock Option Agreement dated as of January 26, 1998 between @Entertainment and Przemyslaw A. Szmyt as
amended.
10.20 Employment Agreement, dated April 7, 1997, between PCI and David Warner. Assigned to @Entertainment (See
Exhibit 10.32). (Incorporated by reference to Exhibit 10.14 of @Entertainment's Registration Statement
on Form S-1, Registration No. 333-29869)
10.21 Form of Stock Option Agreement, dated as of June 23, 1997, between @Entertainment and David Warner, as
amended March 31, 1998.
10.22 Form of Stock Option Agreement dated as at January 26, 1998 between @Entertainment and David Warner.
10.23 Employment Agreement, dated January 1, 1998, between PCI and David Keefe. (Incorporated by reference to
Exhibit 10.17 of @Entertainment's Registration Statement on Form S-4, Registration No. 333-20307)
10.24 Stock Option Agreement dated as of January 1, 1998 between @Entertainment and David Keefe. (Incorporated
by reference to Exhibit 10.18 of @Entertainment's Registration Statement on Form S-4, Registration No.
333-20307)
10.25 Employment Agreement dated as of January 1, 1998, between PCI and Dorothy Hansberry. (Incorporated by
reference to Exhibit 10.19 of @Entertainment's Registration Statement on Form S-4, Registration No.
333-20307)
10.26 Form of Employment Agreement, dated as of June 8, 1998, between @Entertainment and Donald Miller-Jones.
10.27 Form of Stock Option Agreement dated as at June 8, 1998 between @Entertainment and Donald Miller-Jones.
10.28 Consultancy Agreement dated November 17, 1997, between @Entertainment and Samuel Chisholm and David
Chance. (Incorporated by reference to Exhibit 10.22 of @Entertainment's Registration Statement on Form
S-4, Registration No. 333-20307)
10.29 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and Samuel Chisholm.
10.30 Form of Stock Option Agreement dated as at January 1, 1998, between @Entertainment and David Chance.
10.31 Form of Consultancy Agreement dated as at January 23, 1998 between @Entertainment and Agnieszka Holland.
10.32- Stock Option Plan of @Entertainment, as amended.
10.33 Form of Agreement for Lease of Cable Conduits with Telekomunikacja Polska S.A.
10.34+ Agreement for Digital Transmission on the Astra System between Societe Europeene des Satellites S.A.
("SES") and PCI Programming, Inc. (Mozaic Entertainment, Inc. (formerly, PCI Programming, Inc.,
"Mozaic") (ASTRA 1F Satellite) dated as of March 26, 1997. (Incorporated by reference to Exhibit 10.19
to @Entertainment's Registration Statement on Form S-1, Registration No. 333-29869)
</TABLE>
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<TABLE>
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10.35+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA1F Satellite) dated
as at March 26, 1997. (Incorporated by reference to Exhibit 10.20 to @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
10.36+ Agreement for Digital Transmission on the Astra System between SES and Mozaic (ASTRA 1E Satellite) dated
as at March 27, 1997. (Incorporated by reference to Exhibit 10.21 to @Entertainment's Registration
Statement on Form S-1, Registration No. 333-29869)
10.37+ Commercial Cooperation Agreement between At Entertainment Limited and Philips Business Electronics B.V.
(Incorporated by reference to Exhibit 10.31 of @Entertainment's Registration Statement on Form S-4,
Registration No. 333-20307)
10.38 Form of Assignment and Assumption Agreement related to employment contracts with certain of the
executive officers of @Entertainment.
10.39 Form of Assignment and Assumption Agreement related to stock option agreements with certain of the
executives of @Entertainment.
10.40 Advisory Services Agreement between @Entertainment and Handlowy Investments S.ar.l. dated as at July 29,
1997. (Incorporated by reference to Exhibit 10.25 to @Entertainment's Registration Statement on Form
S-1, Registration No. 333-29869)
10.41- Warrant Agreement dated as of January 27, 1999 by and between @Entertainment and Bankers Trust Company.
10.42- Warrant Agreement dated as of July 14, 1998 by and between @Entertainment Inc. and Bankers Trust Company
(Incorporated by reference by @Entertainment's Registration Statement on Form S-3, Registration No. 333-
10.43- Preference Warrant Agreement dated as of January 27, 1999 by and between @Entertainment, Inc. and
Bankers Trust Company.
11.1 Statement Regarding Calculation of Per Share Earnings.
21 List of subsidiaries of @Entertainment.
23.1 Consent of KPMG Polska Sp. z o.o. with respect to @Entertainment.
23.2 Consent of Baker & McKenzie with respect to the legality of the securities being registered (contained
in Exhibit 5).
23.3 Consent of Baker & McKenzie with respect to the certain tax matters (contained in Exhibit 8).
24 Power of Attorney (included on the signature page in Part II of this Registration Statement).
25 Statement of Eligibility of Bankers Trust Company; Form T-1.
27 Financial Data Schedule.
99.1 Letter of Transmittal relating to the Exchange Offer.
99.2 Letter To Brokers, Dealers, Commerial Banks, Trust Companies and Other Nominees relating to the Exchange
Offer.
99.3 Letter to Clients relating to the Exchange Offer.
99.4 Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ------------------------
+ Confidential treatment requested and granted. Confidential portions of
Exhibits 10.28, 10.29, 10.30 and 10.31 (noted by "*") have been omitted
pursuant to request for confidential treatment and filed separately with the
Commission.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
EXHIBIT 1.1
EXECUTION COPY
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@ENTERTAINMENT, INC.
(a Delaware corporation)
256,800 Units Consisting of
14 1/2 Senior Discount Notes due 2009 and
1,027,200 Warrants to Purchase an Aggregate of
1,813,665 Shares of Common Stock
PURCHASE AGREEMENT
Dated: January 22, 1999
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<PAGE>
@ENTERTAINMENT, INC.
(a Delaware corporation)
256,800 Units Consisting of
14 1/2 Senior Discount Notes due 2009 and
1,027,200 Warrants to Purchase an Aggregate of
1,8133,665 Shares of Common Stock
PURCHASE AGREEMENT
January 22, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Deutsche Bank Securities Inc.
133 Houndsditch
London
EC3A 7DX
Ladies and Gentlemen:
@Entertainment, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Deutsche Bank Securities Inc. (collectively,
the "Initial Purchasers"), with respect to the issue and sale by the Company and
the purchase by the Initial Purchasers of 256,800 of the Company's units (the
"Units"), each Unit consisting of $1,000 aggregate principal amount at maturity
of the Company's 14 1/2% Senior Discount Notes due 2009 (the "Notes") and four
warrants (each a "Warrant" and collectively, the "Warrants" and, together with
the Units and the Notes, the "Securities"), each Warrant initially entitling the
holder thereof to purchase 1.7656 shares of common stock, par value $0.01 per
share (the "Common Stock"), of the Company. The Units, Notes and Warrants are
more fully described in Schedule C hereto. The Notes are to be issued pursuant
to an indenture to be dated on or about January 27, 1999 (the "Indenture")
between the Company and Bankers Trust Company, as trustee (the "Trustee") and
the Warrants are to be issued pursuant to a warrant agreement dated on or about
January 27, 1999 (the "Warrant Agreement"), between the Company and Bankers
Trust Company, as warrant agent (the "Warrant Agent") in substantially the form
attached hereto as Exhibit B. Securities issued in book-entry form will be
issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant
to a letter agreement, to
<PAGE>
be dated as of the Closing Time (as defined in Section 2(b)) (the "DTC
Agreement"), among the Company, the Trustee and DTC.
Concurrently with the sale of the Securities the Company has entered
into separate agreements for the sale of shares ("Preference Shares") and
warrants ("Preference Warrants" and, together with the Preference Shares, the
"Preference Securities") for aggregate gross proceeds of $50 million.
On January 20, 1999 the Company completed the sale of $36,001,321
principal amount at maturity of Series C Senior Discount Notes due 2008 (the
"Series C Notes"). The Series C Notes were issued at a discount to their
aggregate principal for gross proceeds to the Company of approximately $9.8
million.
The holders of Securities will be entitled to the benefits of a
Registration Rights Agreement, in substantially the form attached hereto as
Exhibit A with such changes as shall be agreed to by the parties hereto (the
"Registration Rights Agreement"), pursuant to which the Company will file a
registration statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") registering the Securities or the
Exchange Notes referred to in the Registration Rights Agreement under the
Securities Act of 1933, as amended (the "1933 Act").
The holders of Warrants will be entitled to the benefits of a Warrant
Registration Rights Agreement in substantially the form attached hereto as
Exhibit C, with such changes as shall be agreed to by the parties hereto (the
"Warrant Registration Rights Agreement") which provides for the registration of
the Warrants under the 1933 Act under certain circumstances set forth therein.
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchasers without being registered
under the 1933 Act, in reliance upon exemptions therefrom. Pursuant to the terms
of the Securities and the Indenture, investors that acquire Securities may only
resell or otherwise transfer such Securities if such Securities are hereafter
registered under the 1933 Act or if an exemption from the registration
requirements of the 1933 Act is available (including the exemption afforded by
Rule 144A ("Rule 144A") of the rules and regulations promulgated under the 1933
Act by the Commission).
The Company has prepared and delivered to each Initial Purchaser,
copies of a preliminary offering memorandum dated January 14, 1999 (the
"Preliminary Offering Memorandum") and has prepared and will deliver to each
Initial Purchaser on the date hereof or the next succeeding day, copies of a
final Offering Memorandum dated January 22, 1999
2
<PAGE>
(the "Final Offering Memorandum") for use by the Initial Purchasers in
connection with their solicitation of purchases of, or offering of, the
Securities. "Offering Memorandum" means with respect to any date or time
referred to in this Agreement, the most recent offering memorandum (whether
Preliminary Offering Memorandum or the Final Offering Memorandum and including
any amendment or supplement to either such document), including exhibits thereto
and any documents incorporated therein by reference, which has been prepared and
delivered by the Company to the Initial Purchasers in connection with their
solicitation of purchases of, or offering of, the Securities.
All references in this Agreement to financial statements and schedules
and other information which are "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules and other information,
if any, which are incorporated by reference in the Offering Memorandum.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to the Initial Purchasers as of the date hereof and as
of the Closing Time referred to in Section 2(b) hereof, and agrees with the
Initial Purchasers as follows:
(i) SIMILAR OFFERINGS. The Company and its Affiliates (as
defined in Section 1(a)(xxxv)) have not, directly or indirectly,
solicited any offer to buy or offered to sell, and will not, directly
or indirectly, solicit any offer to buy or offer to sell, in the United
States or to any United States citizen or resident, any security which
is or would be integrated with the sale of the Securities in a manner
that would require the Securities to be registered under the 1933 Act.
(ii) OFFERING MEMORANDUM. Neither of its date nor as of the
Closing Time the Final Offering Memorandum, including any amendment or
supplement thereto, includes or will include an untrue statement of a
material fact or omits or will omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that
this representation and warranty does not apply to statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by the Initial Purchasers expressly
for use in the Final Offering Memorandum, including any amendment or
supplement thereto.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Offering Memorandum are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of
Regulation S-X under the 1933 Act.
3
<PAGE>
(iv) FINANCIAL STATEMENTS. The financial statements, together
with the related schedules and notes, of the Company included in the
Offering Memorandum present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with United
States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Offering Memorandum present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Offering Memorandum present fairly the information
shown therein and have been compiled on a basis consistent with that of
the audited financial statements included in the Offering Memorandum.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise (a "Material Adverse
Effect"), whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by the Company or any
of its subsidiaries, other than transactions entered into in the
ordinary course of business, which are material with respect to the
Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under this Agreement, the Warrant Agreement,
the Registration Rights Agreement, the Warrant Registration Rights
Agreement, the Indenture, the Securities and the Preference Securities;
and the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vii) CORPORATE STANDING OF DESIGNATED SUBSIDIARIES. Each
subsidiary of the Company that (i) is a "significant subsidiary" (as
that term is defined in Regulation S-X under the 1933 Act) or (ii) that
holds any valid permits or licenses to operate the cable television
business in Poland or a digital direct-to-home business uplinking from
the United Kingdom is listed on Schedule C hereto (each subsidiary
listed on Schedule C
4
<PAGE>
hereto is hereinafter referred to as a "Designated Subsidiary" and,
collectively, the "Designated Subsidiaries"), and has been duly
organized and is validly existing as a corporation under the laws of
the jurisdiction of its incorporation, has corporate power and
corporate authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and is not
required to be qualified as a foreign corporation to transact business
or to own or lease property in any jurisdiction where it owns or leases
property or transacts business; except as otherwise disclosed in the
Offering Memorandum or in Schedule C, all of the issued and outstanding
capital stock of each Designated Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by
the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity, except for (i) in the case of any Polish limited liability
company, any statutory liability for taxes, (ii) the pledge of
3,583,457 shares of Polska Telewizja Kablowa Warszawa S.A. and of
2,514,291 shares of Polska Telewizja Kablowa Krakow S.A. held by Poland
Cablevision (Netherlands) B.V. ("PCBV") and 2,400 shares of Polska
Telewizja Kablowa Lublin S.A. held by Poltelkab Sp. z o.o. as security
for the loan of $6.5 million granted on August 28, 1996 by the American
Bank in Poland to Poland Communications, Inc. ("PCI"), and (iii) the
pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. z o.o.
("SzTK") for the security of certain obligations undertaken by PTK
Szczecin Sp. z o.o. ("PTK Szczecin") with respect to the sellers of
those shares (collectively, the "Share Pledges"); none of the
outstanding shares of capital stock of the Designated Subsidiaries was
issued in violation of any preemptive or similar rights arising by
operation of law, or under the statute or by-laws (or other similar
organizational documents) of any Designated Subsidiary or under any
agreement to which the Company or any Designated Subsidiary is a party.
The subsidiaries of the Company other than the Designated Subsidiaries,
considered in the aggregate as a single subsidiary, do not constitute a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X.
(viii) RESTRICTIONS ON PAYMENTS OF DIVIDENDS. There are no
restrictions (legal, contractual or otherwise) on the ability of the
Designated Subsidiaries to declare and pay dividends or make any
payment or transfer of property or assets to their shareholders other
than those referred to in the Offering Memorandum and except for (i)
restrictions relating to the Share Pledges, (ii) encumbrances on
certain assets of Telewizja Kablowa GOSAT Sp. z o.o. ("GOSAT")
consisting of the transfer of title to such assets as security for the
loan of $0.5 million granted on October 7, 1996 by Polski Bank Rozwoju
(which was bought by Bank Rozucju Eksportu S.A. in July of 1998) to
GOSAT, and (iii) the restrictions discussed in Schedule D to the
Indenture (collectively, the "Asset Encumbrances").
(ix) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company at September 30, 1998 was as set forth
under the caption "Capitalization" under the heading "Actual" in the
Offering Memorandum and, as of the date hereof,
5
<PAGE>
there has been no material change in the authorized, issued and
outstanding capital stock since the date of the Offering Memorandum
other than (i) issuances of shares of Common Stock upon the exercise of
options disclosed to be outstanding in the Offering Memorandum and (ii)
the authorization and issuance of the Series A Cumulative Preference
Shares, the Series B Cumulative Preference Shares, the Preference
Warrants and the Warrants as described in the Offering Memorandum. The
shares of issued and outstanding capital stock of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
(x) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(xi) AUTHORIZATION OF THE REGISTRATION RIGHTS AGREEMENT. The
Registration Rights Agreement has been duly authorized by the Company,
and, at the Closing Time, will have been duly executed and delivered by
the Company and, when executed and delivered by the Initial Purchasers,
will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms except as
(x) the enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, (y) the
enforceability thereof may be limited by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may
be limited by federal and state securities laws and public policy
considerations.
(xii) AUTHORIZATION OF THE INDENTURE. The Indenture has been
duly authorized by the Company and, at the Closing Time, will have been
duly executed and delivered by the Company and, when executed and
delivered by the Trustee, will constitute a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
waiver contained in Section 514 thereof may be unenforceable due to
interests of public policy.
(xiii) AUTHORIZATION OF THE NOTES. The Notes have been duly
authorized and, at the Closing Time, will have been duly executed by
the Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor
will constitute valid and binding obligations of the
6
<PAGE>
Company, enforceable against the Company in accordance with their
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and
will be in the form contemplated by, and entitled to the benefits of,
the Indenture and the Registration Rights Agreement.
(xiv) AUTHORIZATION OF THE WARRANT AGREEMENT. The Warrant
Agreement has been duly authorized by the Company and, at the Closing
Time, will have been duly executed and delivered by the Company and,
when duly executed and delivered by the Warrant Agent, will constitute
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as enforceability thereof
may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement
of creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(xv) AUTHORIZATION OF THE WARRANTS. The Warrants have been
duly authorized by the Company and, at the Closing Time, will have been
duly executed by the Company and, when executed and issued in the
manner provided for in the Warrant Agreement and delivered against
payment of the purchase price therefor as provided in this Agreement,
(A) will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law),
and (B) will be in the form contemplated by, and entitled to the
benefits of, the Warrant Agreement and the Warrant Registration Rights
Agreement.
(xvi) AUTHORIZATION OF THE WARRANT SHARES. The shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") have been duly authorized and reserved by the Company and,
when executed by the Company and countersigned by the Warrant Agent and
issued and delivered upon exercise of the Warrants in accordance with
the terms of the Warrants and the Warrant Agreement, will be validly
issued, fully paid and non-assessable and will not be subject to any
preemptive or similar rights.
(xvii) AUTHORIZATION OF THE WARRANT REGISTRATION RIGHTS
AGREEMENT. The Warrant Registration Rights Agreement has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and, when executed and delivered
by the Initial Purchasers, will constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms except as (x) the enforceability thereof may be limited
by bankruptcy, insolvency
7
<PAGE>
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditor's rights generally, (y) the
enforceability thereof may be limited by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may
be limited by federal and state securities laws and public policy
considerations.
(xviii) AUTHORIZATION OF PREFERENCE SECURITIES. The Preference
Securities have been duly authorized by the Company and will conform in
all respects to all statements relating thereto contained in the
Offering Memorandum and the descriptions thereof in the Offering
Memorandum conform in all material respects to the rights set forth in
the instruments defining same. At Closing Time the Preference Shares
will have been validly issued, fully paid and non assessable. The
Preference Warrants will have been duly authorized, and when executed
and issued in the manner provided for in the governing instruments and
delivered against payment of the purchase price will constitute valid,
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law).
(xix) DESCRIPTION OF THE REGISTRATION RIGHTS AGREEMENT,
WARRANT REGISTRATION RIGHTS AGREEMENT, THE UNITS, THE NOTES, THE
WARRANTS, THE COMMON STOCK, THE WARRANT AGREEMENT AND THE INDENTURE.
The Registration Rights Agreement, Warrant Registration Rights
Agreement, the Units, the Notes, the Warrants, the Common Stock, the
Warrant Agreement, the Indenture and the Preference Securities will
conform in all material respects to the respective statements relating
thereto contained in the Offering Memorandum and will be in
substantially the respective forms previously delivered to the Initial
Purchasers.
(xx) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company
nor any of its subsidiaries is (1) in violation of its charter or
statute, as applicable, or by-laws (or other similar organizational
documents), (2) in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which or any of them may be bound, or
to which any of the property or assets of the Company or any of its
subsidiaries is subject (collectively, "Agreements and Instruments"),
except as described in the Offering Memorandum and except for such
defaults that would not result in a Material Adverse Effect or (3) in
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having
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jurisdiction over the Company or any of its subsidiaries or any of
their assets or properties, except as described in the Offering
Memorandum; and the execution, delivery and performance of this
Agreement, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement, the Indenture, the
Securities and the Preference Securities and any other agreement or
instrument entered into or issued or to be entered into or issued by
the Company or any Designated Subsidiary in connection with the
transactions contemplated hereby or thereby or in the Offering
Memorandum and the consummation of the transactions contemplated herein
and in the Offering Memorandum (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Offering Memorandum under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not
and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, the
Agreements and Instruments except for such conflicts, breaches,
Repayment Events or defaults or liens, charges or encumbrances that,
singly or in the aggregate, would not result in a Material Adverse
Effect, nor will such action result in any violation of the provisions
of the charter or statute, as applicable, or by-laws (or other similar
organizational documents) of the Company or any of its subsidiaries or
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, assuming that the
Initial Purchasers comply with all of their obligations under Section 6
hereof. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company or any of its
subsidiaries.
(xxi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any of its subsidiaries' principal suppliers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xxii) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof,
which would be required to be disclosed in the Offering
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Memorandum (other than as disclosed therein) if it were a prospectus
filed as part of a registration statement on Form S-1 under the 1933
Act, or which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to adversely
affect the properties or assets of the Company or any of its
subsidiaries in a manner that is material and adverse to the Company
and its subsidiaries considered as one enterprise or the consummation
of the transactions contemplated by this Agreement, the Warrant
Agreement, the Registration Rights Agreement, the Warrant Registration
Rights Agreement, the Indenture or the Securities, or the performance
by the Company of its obligations hereunder or thereunder. The
aggregate of all pending legal or governmental proceedings to which the
Company or any subsidiary thereof is a party or of which any of their
respective property or assets is the subject which are not described in
the Offering Memorandum, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xxiii) POSSESSION OF INTELLECTUAL PROPERTY. Except as
disclosed in the Offering Memorandum, the Company and its subsidiaries
own or possess, or can acquire on reasonable terms, adequate patents,
patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now
operated by them. Except as disclosed in the Offering Memorandum,
neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xxiv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency (other than (A) under the 1933 Act and the rules and regulations
thereunder with respect to the Registration Rights Agreement, the
Warrant Registration Rights Agreement and the transactions contemplated
thereunder, (B) under the securities or "blue sky" laws of the various
states and (C) the Polish Anti-Monopoly Act) is necessary or required
(x) for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities
hereunder or the consummation of the transactions contemplated by this
Agreement, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement, the Offering Memorandum or
the Preference Securities or (y) to permit the Company to (1) effect
payments of principal of and premium and interest on the Notes and, if
issued, the Exchange Notes referred to in the Registration Rights
Agreement, or
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(2) perform its other obligations under the Indenture, the Warrant
Agreement, the Warrant Registration Rights Agreement, or the Preference
Securities.
(xxv) POSSESSION OF LICENSES AND PERMITS. Except as disclosed
in the Offering Memorandum, the Company and its subsidiaries possess
such permits, licenses, approvals, concessions, consents and other
authorizations (including, without limitation, all permits required for
the operation of the business of the Company and its subsidiaries by
the Republic of Poland and the United Kingdom) (collectively,
"Governmental Licenses") issued by the appropriate domestic or foreign
regulatory agencies or bodies, other governmental authorities or self
regulatory organizations necessary to conduct the business now operated
by them or any business currently proposed to be conducted by them as
described in the Offering Memorandum; the Company and its subsidiaries,
except as disclosed in the Offering Memorandum and except where the
failure to so comply would not, singly or in the aggregate, have a
Material Adverse Effect, are in compliance with the terms and
conditions of all such Governmental Licenses; all of the Governmental
Licenses are valid and in full force and effect, except as disclosed in
the Offering Memorandum and except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a Material Adverse Effect;
and except as disclosed in the Offering Memorandum, neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect. To the knowledge of the Company, except as described in
the Offering Memorandum, there exists no reason or cause that could
justify the variation, suspension, cancellation or termination of any
such Governmental Licenses held by the Company or any of its
subsidiaries with respect to the construction or operation of their
respective businesses, which variation, suspension, cancellation or
termination could reasonably be expected to have a Material Adverse
Effect.
(xxvi) NO ADDITIONAL DOCUMENTS. There are no contracts or
documents of a character that would be required to be described in the
Offering Memorandum, if it were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not
described as would be so required. All such contracts to which the
Company is party have been duly authorized, executed and delivered by
the Company and constitute valid and binding agreements of the Company.
(xxvii) MANAGEMENT AGREEMENTS. Each of the Management
Agreements (as such term is defined in the Indenture) to which any
subsidiary of the Company is a party has been duly authorized, executed
and delivered by each of the parties thereto and constitutes a valid
and binding agreement of each of the parties thereto.
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(xxviii) TITLE TO PROPERTY. The Company and its subsidiaries
own no real property, except as described in the Final Offering
Memorandum and except for approximately 3,200 square meters of real
property owned by a Designated Subsidiary, and have good title to all
other properties owned by them, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Offering Memorandum or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or
any of its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries
holds properties described in the Offering Memorandum, are in full
force and effect, and neither the Company nor any of its subsidiaries
has any notice of any claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or any subsidiary thereof to the
continued possession of the leased or subleased premises under any such
lease or sublease, except for such claims as could not reasonably be
expected to result in a Material Adverse Effect.
(xxix) TAX RETURNS. Except as disclosed in the Offering
Memorandum, the Company and its subsidiaries have filed all domestic
and foreign tax returns that are required to be filed or have duly
requested extensions thereof and have paid all taxes required to be
paid by any of them and any related assessments, fines or penalties,
except for any such tax, assessment, fine or penalty that is being
contested in good faith and by appropriate proceedings, and except for
such claims as could not result in a Material Adverse Effect; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iv) above in respect
of all domestic and foreign taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been
finally determined or remains open to examination by applicable taxing
authorities.
(xxx) ENVIRONMENTAL LAWS. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any domestic or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
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or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or Environmental Laws.
(xxxi) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxxii) INTERNAL CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences. The Company and its subsidiaries have not made, and,
to the knowledge of the Company, no employee or agent of the Company or
any subsidiary has made, any payment of the Company's funds or any
subsidiary's funds or received or retained any funds (A) in violation
of the Foreign Corrupt Practices Act, as amended, or (B) in violation
of any other applicable law, regulation or rule (except, in the case of
this clause (B), for such violations as could not reasonably be
expected to result in a Material Adverse Effect) or that would be
required to be disclosed in the Offering Memorandum if it were a
prospectus filed as part of a registration statement on Form S-1 under
the 1933 Act.
(xxxiii) TAXES ON SUBSIDIARY INDEBTEDNESS. Except as described
in the Offering Memorandum, as of the date hereof, no material income,
stamp or other taxes or levies, imposts, deductions, charges,
compulsory loans or withholdings whatsoever are or will be, under
applicable law in the Republic of Poland, imposed, assessed, levied or
collected by the Republic of Poland or any political subdivision or
taxing authority thereof or therein or on or in respect of principal,
interest, premiums, penalties or other
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amounts payable under any indebtedness of any of the Company's
subsidiaries held by the Company.
(xxxiv) INSURANCE. Except as otherwise disclosed in the
Offering Memorandum, the Company and each of its subsidiaries carry, or
are covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar businesses or similar industries in similar
locations.
(xxxv) RULE 144A ELIGIBILITY. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of
the same class as securities listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or quoted in a U.S. automated interdealer
quotation system.
(xxxvi) NO GENERAL SOLICITATION. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the Securities or Preference Securities, in any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(xxxvii) NO REGISTRATION REQUIRED. Subject to compliance by
the Initial Purchasers with the representations and warranties set
forth in Section 2 and the procedures set forth in Section 6 hereof, it
is not necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers and to each Subsequent Purchaser
in the manner contemplated by this Agreement, the Warrant Agreement and
the Offering Memorandum to register the Securities under the 1933 Act
or to qualify the Indenture under the Trust Indenture Act of 1939, as
amended (the "1939 Act").
(xxxviii) NO REGISTRATION OF PREFERENCE SECURITIES REQUIRED.
Subject to compliance by the purchasers with representations and
warranties contained in the governing instruments thereto, it is not
necessary in connection with the offer, sale and delivery of the
Preference Securities to register the Preference Securities under the
1933 Act.
(xxxix) REPORTING COMPANY. The Company is subject to, and has
complied with all applicable reporting requirements of Section 13 or
Section 15(d) of the 1934 Act.
(b) OFFICERS' CERTIFICATES. Any certificate titled "Officers'
Certificate" or the "Secretary's Certificate" signed by any officer of the
Company or any of its subsidiaries which
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is delivered to Initial Purchasers or to counsel for Initial Purchasers shall be
deemed a representation and warranty by the Company to the Initial Purchasers as
to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO THE INITIAL PURCHASERS; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Initial Purchasers and the Initial Purchasers
agree to purchase from the Company, at the price set forth in Schedule B, the
aggregate number of Units set forth in Schedule A opposite its name.
(b) PAYMENT. Payment of the purchase price ($96,752,957) for, and
delivery of certificates for, the Securities shall be made at the office of
Baker & McKenzie, 815 Connecticut Avenue, N.W., Washington D.C., or at such
other place as shall be agreed upon by the Initial Purchasers and the Company,
at 9:00 A.M. on the third business day after the date hereof (January 27, 1999)
(unless postponed in accordance with the provisions of Section 11), or such
other time not later than ten business days after such date as shall be agreed
upon by the Initial Purchasers and the Company (such time and date of payment
and delivery being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
each Initial Purchaser for the account of such Initial Purchaser of certificates
for the Securities to be purchased by it.
(c) QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Company that it is
a "qualified institutional buyer" within the meaning of Rule 144A under the 1933
Act (a "Qualified Institutional Buyer") and an "accredited investor" within the
meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").
(d) DENOMINATIONS; REGISTRATION. Certificates for the Securities shall
be in such denominations and registered in such names as the Initial Purchasers
may request in writing at least one full business day before the Closing Time.
The certificates representing the Units, Notes and Warrants shall be registered
in the name of Cede & Co. pursuant to the DTC Agreement and shall be made
available for examination and packaging by each Initial Purchaser in The City of
New York not later than 10:00 A.M. on the last business day prior to the Closing
Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with the
Initial Purchasers as follows:
(a) OFFERING MEMORANDUM. The Company, as promptly as possible, will
furnish to the Initial Purchasers, without charge, such number of copies of the
Final Offering
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Memorandum and any amendments and supplements thereto and documents incorporated
by reference therein as the Initial Purchasers may reasonably request. The
Company will use the Offering Memorandum only in connection with offering of the
Notes and Warrants being offered as Units and not for any other purpose.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries which (i) make
any statement in the Final Offering Memorandum (as amended or supplemented)
false or misleading or (ii) are not disclosed in the Final Offering Memorandum
(as amended or supplemented). In such event or if during such time any event
shall occur as a result of which it is necessary, in the reasonable opinion of
any of the Company, its counsel, the Initial Purchasers or counsel for the
Initial Purchasers, to amend or supplement the Final Offering Memorandum in
order that the Final Offering Memorandum not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances then
existing, the Company will forthwith amend or supplement the Final Offering
Memorandum by preparing and furnishing to each Initial Purchaser an amendment or
amendments of, or a supplement or supplements to, the Final Offering Memorandum
(in form and substance satisfactory in the reasonable opinion of counsel for the
Initial Purchasers) so that, as so amended or supplemented, the Final Offering
Memorandum will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a Subsequent
Purchaser, not misleading.
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers, which consent shall not be unreasonably
withheld. Neither the consent of the Initial Purchasers, nor the Initial
Purchasers' delivery of any such amendment or supplement, shall constitute a
waiver of any of the conditions set forth in Section 5 hereof.
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Company will
use its best efforts, in cooperation with the Initial Purchasers, to qualify the
Securities for offering and sale under the applicable securities laws of such
jurisdictions as the Initial Purchasers may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
PROVIDED, HOWEVER, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities
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in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(e) DTC AND PORTAL. The Company will cooperate with the Initial
Purchasers and use its best efforts (i) to permit the Securities to be eligible
for clearance and settlement through the facilities of DTC and (ii) include
quotation of the Securities on PORTAL.
(f) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds".
(g) RESTRICTION ON SALE OF SECURITIES. During a period of 180 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of, any
other debt securities of the Company or securities of the Company that are
convertible into, or exchangeable for, the Securities or such other debt
securities, other than the Exchange Notes referred to in the Registration Rights
Agreement.
(h) NOTIFICATION OF CURRENT ACCUMULATED EARNINGS & PROFITS. The Company
will disclose its current and accumulated earnings and profits, if any, for each
fiscal year in its annual report on Form 10-K so long as it is required to file
such report. Thereafter, the Company will provide such information to any holder
of Securities, upon receipt of a written request from such holder.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document incorporated
therein by reference) and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Initial Purchasers of this Agreement,
the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement, the Indenture and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Initial Purchasers, including any charges
of DTC in connection therewith, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(d) hereof
and any filing for review of the offering with the National Association of
Securities Dealers (the "NASD"), including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchasers in connection therewith
and in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey, (vi) the fees and expenses of the
Trustees and paying agents, including the fees and disbursements of counsel for
the Trustees in
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connection with the Indenture and the Securities, (vii) any fees payable in
connection with the rating of the Securities and (viii) any fees payable to the
NASD and any fees and expenses payable in connection with the initial and
continued designation of the Securities as PORTAL securities under the PORTAL
Market Rules pursuant to NASD Rule 5322.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Initial Purchasers in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
its out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers incurred through the date of termination.
SECTION 5. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) OPINIONS OF COUNSEL FOR THE COMPANY. (i) At the Closing Time, the
Initial Purchasers shall have received two favorable opinions, each dated as of
the Closing Time, of Baker & McKenzie, counsel for the Company, each in form and
substance satisfactory to counsel for the Initial Purchasers, one to the effect
as set forth in Exhibit D hereto and one to the effect set forth in Exhibit E
hereto and each to such further effect as counsel to the Initial Purchasers may
reasonably request.
(ii) At the Closing Time, the Initial Purchasers shall have received
the favorable opinion, dated as of the Closing Time, of Baker & McKenzie,
Amsterdam, special Dutch counsel to the Company, in form and substance
satisfactory to counsel to the Initial Purchasers, to the effect set forth in
Exhibit F hereto and to such other effect as counsel to the Initial Purchasers
may reasonably request.
(iii) At the Closing Time, the Initial Purchasers shall have received
the favorable opinion, dated as of the Closing Time, of Ashurst Morris Crisp,
special English counsel to the Company, in form and substance satisfactory to
counsel to the Initial Purchasers, to the effect set forth in Exhibit G hereto
and to such other effect as counsel to the Initial Purchasers may reasonably
request.
(b) OPINION OF UNITED STATES COUNSEL FOR THE INITIAL PURCHASERS. At the
Closing Time, the Initial Purchasers shall have received the favorable opinion,
dated as of the Closing Time, of Shearman & Sterling, counsel for the Initial
Purchasers, with respect to certain of the matters set forth in Exhibit D hereto
and to such other effect as the Initial Purchasers and such counsel may
reasonably agree.
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(c) OPINION OF POLISH COUNSEL FOR THE INITIAL PURCHASERS. At the
Closing Time, the Initial Purchasers shall have received the favorable opinion,
dated as of the Closing Time, of Salans Hertzfeld & Heilbronn Sp. z o.o.,
special Polish counsel to the Initial Purchasers, in form satisfactory to the
Initial Purchasers with respect to certain of the matters set forth in
paragraphs (i) through (vii), inclusive, of Exhibit E hereto.
(d) OFFICERS' CERTIFICATE. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Initial Purchasers shall have received a certificate of the chief executive
officer of the Company and of the chief financial or chief accounting officer of
the Company, dated as of the Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(e) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from KPMG Polska Sp. z
o.o. a letter dated such date, in form and substance satisfactory to the Initial
Purchasers, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum.
(f) BRING-DOWN COMFORT LETTER. At the Closing Time, the Initial
Purchasers shall have received from KPMG Polska Sp. z o.o. a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as it may
require for the purpose of enabling it to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy of any
of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Initial Purchasers and
counsel for the Initial Purchasers.
19
<PAGE>
(i) EXECUTION OF AGREEMENTS. At the Closing Time, the Warrant
Agreement, the Registration Rights Agreement, the Warrant Registration Rights
Agreement and the Indenture, each in form and substance reasonably satisfactory
to the Initial Purchasers, shall have been duly executed and delivered and shall
be in full force and effect.
(j) CONSUMMATION OF SALE OF PREFERENCE SECURITIES. The sale of
Preference Securities shall have been consummated on or before the Closing Time
stipulated in Section 2 of this Agreement.
(k) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchasers by notice to the Company
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party except as provided in Section
4 and except that Sections 1, 7, 8 and 9 shall survive any such termination and
remain in full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) OFFER AND SALE PROCEDURES. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS.
Offers and sales of the Securities shall only be made to persons whom
the offeror or seller reasonably believes to be qualified institutional
buyers (as defined in Rule 144A under the 1933 Act). Each Initial
Purchaser agrees that it will not offer, sell or deliver any of the
Securities in any jurisdiction except under circumstances that will
result in compliance with the applicable laws thereof, and that it will
take at its own expense whatever action is required to permit its
purchase and resale of the Securities in such jurisdictions.
(ii) NO GENERAL SOLICITATION. No general solicitation or
general advertising (within the meaning of Rule 502(c) under the 1933
Act) will be used in the United States in connection with the offering
or sale of the Securities.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for
one or more third parties, each third party shall, in the judgment of
the applicable Initial Purchaser, be a Qualified Institutional Buyer.
20
<PAGE>
(iv) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial Purchaser
will take reasonable steps to inform, and cause each of its U.S.
Affiliates to take reasonable steps to inform, persons acquiring
Securities from such Initial Purchaser or affiliate, as the case may
be, in the United States that the Securities (A) have not been and will
not be registered under the 1933 Act, (B) are being sold to them
without registration under the 1933 Act in reliance on Rule 144A or in
accordance with another exemption from registration under the 1933 Act,
as the case may be, and (C) may not be offered, sold or otherwise
transferred prior to (x) the date which is two years (or such shorter
period of time as permitted by Rule 144(k) under the 1933 Act or any
successor provision thereunder) after the later of the date of original
issue of the Securities and (y) such later date, if any, as may be
required under applicable laws except (1) to the Company or any of its
subsidiaries, (2) inside the United States in accordance with (x) Rule
144A to a person whom the seller reasonably believes is a Qualified
Institutional Buyer that is purchasing such Securities for its own
account or for the account of a Qualified Institutional Buyer to whom
notice is given that the offer, sale or transfer is being made in
reliance on Rule 144A or (y) pursuant to another available exemption
from registration under the 1933 Act, or (3) pursuant to an effective
registration statement.
(v) RESTRICTIONS ON TRANSFER. The transfer restrictions and
the other provisions set forth in the Offering Memorandum under the
heading "Notice to Investors", including the legend required thereby,
shall apply to the Securities except as otherwise agreed by the Company
and the Initial Purchasers. Following the sale of the Securities by the
Initial Purchasers to Subsequent Purchasers pursuant to the terms
hereof, the Initial Purchasers shall not be liable or responsible to
the Company for any losses, damages or liabilities suffered or incurred
by the Company, including any losses, damages or liabilities under the
1933 Act, arising from or relating to any resale or transfer of any
Security.
(b) COVENANTS OF THE COMPANY. The Company covenants with each Initial
Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original
distribution of the Securities, the Company agrees that, prior to any
offer or resale of the Securities by the Initial Purchasers, the
Initial Purchasers and counsel for the Initial Purchasers shall have
the right to make reasonable inquiries into the business of the Company
and its subsidiaries. The Company also agrees to provide answers to
each prospective Subsequent Purchaser of Securities who so requests
concerning the Company and its subsidiaries (to the extent that such
information is available or can be acquired and made available to
prospective Subsequent Purchasers without unreasonable effort or
expense and to the extent the provision thereof is not prohibited by
applicable law) and the terms and conditions of the offering of the
Securities, as provided in the Offering Memorandum.
21
<PAGE>
(ii) INTEGRATION. The Company agrees that it will not and will
cause its Affiliates not to solicit any offer to buy or make any offer
or sale of, or otherwise negotiate in respect of, securities of the
Company of any class if, as a result of the doctrine of "integration"
referred to in Rule 502 under the 1933 Act, such offer or sale would
render invalid (for the purpose of (i) the sale of the Securities by
the Company to the Initial Purchasers, (ii) the resale of the
Securities by the Initial Purchasers to Subsequent Purchasers or (iii)
the resale of the Securities by such Subsequent Purchasers to others)
the exemption from the registration requirements of the 1933 Act
provided by Section 4(2) thereof or by Rule 144A or otherwise.
(iii) RULE 144A INFORMATION. The Company agrees that, in order
to render the Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Securities remain outstanding, it
will make available, upon request, to any holder of Securities or
prospective purchasers of Securities the information specified in Rule
144A(d)(4), unless the Company furnishes information to the Commission
pursuant to Section 13 or 15(d) of the 1934 Act (such information,
whether made available to holders or prospective purchasers or
furnished to the Commission, is herein referred to as "Additional
Information").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of two
years after the original issuance of the Securities, the Company will
not, and will cause its Affiliates not to, purchase or agree to
purchase or otherwise acquire any Securities which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the
1933 Act), whether as beneficial owner or otherwise (except as agent
acting as a securities broker on behalf of and for the account of
customers in the ordinary course of business in unsolicited broker's
transactions) unless, immediately upon any such purchase, the Company
or any Affiliate shall submit such Securities to the Trustees for
cancellation.
(c) RESALE PURSUANT TO RULE 144A. Each Initial Purchaser
understands that the Securities have not been and will not be registered under
the 1933 Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except pursuant to an exemption from
the registration requirements of the 1933 Act. Each Initial Purchaser severally
represents and agrees, that, except as permitted by Section 6(a) above, it has
offered and sold Securities and will offer and sell Securities as part of their
distribution at any time only in accordance with Rule 144A under the 1933 Act or
another applicable exemption from the registration provisions of the 1933 Act.
Each Initial Purchaser severally agrees that, at or prior to confirmation of a
sale of Securities (other than a sale of Securities pursuant to Rule 144A) it
will have sent to each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Securities from it or
through it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under
the United States Securities Act of 1933 (the "Securities
Act")
22
<PAGE>
and may not be offered or sold within the United States or to
or for the account or benefit of U.S. persons as part of their
distribution at any time except in accordance with Rule 144A
under the Securities Act or another exemption from the
registration requirements of the Securities Act."
(d) OFFERS AND SALES IN POLAND AND THE NETHERLANDS. Each Initial
Purchaser has advised the Company and hereby represents and warrants to and
agrees with the Company that it will not offer or sell the Securities in Poland
except in accordance with Polish foreign exchange regulations under
circumstances which do not constitute a public offering or distribution of
securities under Polish laws and regulations. Each Initial Purchaser further
agrees they will not offer or sell the Securities in The Netherlands except
under circumstances which do not constitute a public offering or distribution
(AANBOD BUITEN BESLOTEN KRING) of securities under the laws and regulations of
The Netherlands.
(e) OFFERS AND SALES IN THE UNITED KINGDOM. Each Initial Purchaser
hereby represents, warrants and agrees that (i) it has not offered or sold and
prior to the expiration of the period six months after the date of issue of the
Securities will not offer to sell by means of any document any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on, and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
(f) REPRESENTATION AND WARRANTY OF THE INITIAL PURCHASERS. Each Initial
Purchaser represents and agrees that it has not entered and will not enter into
any contractual arrangements with respect to the distribution of the Securities,
except with its affiliates or with the prior written consent of the Company.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE INITIAL PURCHASERS. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
23
<PAGE>
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Final
Offering Memorandum (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 7(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser expressly for use in the Offering Memorandum (or any amendment
thereto), and PROVIDED FURTHER that the foregoing indemnity with respect to any
untrue statement contained in or omission from the Preliminary Offering
Memorandum shall not inure to the benefit of the Initial Purchasers (or any
party controlling the Initial Purchasers) if the person asserting such loss,
liability, claim, damage or expense purchased the Securities which are the
subject thereof directly from the Initial Purchasers and if the Company shall
sustain the burden of proving that such person did not receive a copy of the
Final Offering Memorandum and the untrue statement contained in or omission from
such Preliminary Offering Memorandum was corrected in such Final Offering
Memorandum subject to the Company complying with its obligations under Sections
3(a), 3(b) and 3(c) of this Agreement.
(b) INDEMNIFICATION OF THE COMPANY, DIRECTORS AND OFFICERS. Each
Initial Purchaser agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue
24
<PAGE>
statements or omissions, or alleged untrue statements or omissions, made in the
Offering Memorandum in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchasers expressly for use in the
Offering Memorandum.
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. CONTRIBUTION. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying
25
<PAGE>
party shall contribute to the aggregate amount of such losses, liabilities,
claims, damages and expenses incurred by such indemnified party, as incurred,
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
hand from the offering of the Securities pursuant to this Agreement or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Initial Purchasers on the other hand in connection with
the statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
Subsequent Purchasers were offered to the Subsequent Purchasers exceeds the
amount of any damages which such Initial Purchaser has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
26
<PAGE>
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any Initial
Purchaser or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Initial Purchasers.
SECTION 10. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Initial Purchasers may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, the
Republic of Poland or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, or in Polish taxation affecting the
Company or any subsidiary thereof or the transactions contemplated by the
Offering Memorandum, or currency exchange rates for the U.S. dollar into the
Polish Zloty or exchange controls applicable to the U.S. dollar or the Polish
Zloty, in each case the effect of which is such as to make it, in the judgment
of the Initial Purchasers, impracticable to market the Securities or to enforce
contracts for the sale of the Securities, or (iii) if trading in any securities
of the Company has been suspended or materially limited by the Commission, or if
trading generally on the American Stock Exchange, the New York Stock Exchange or
in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by Polish, United States Federal or New York authorities.
27
<PAGE>
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and PROVIDED FURTHER that Sections
1, 7, 8 and 9 shall survive such termination and remain in full force and
effect.
SECTION 11. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If one of
the Initial Purchasers shall fail at the Closing Time to purchase the Securities
which it is obligated to purchase under this Agreement (the "Defaulted
Securities"), the non-defaulting Initial Purchaser shall have the right, within
24 hours thereafter, to make arrangements for itself, or any other Initial
Purchasers, to purchase all, but not less than all, of the Defaulted Securities
in such amounts as may be agreed upon and upon the terms herein set forth; if,
however, the non-defaulting Initial Purchaser shall not have completed such
arrangements within such 24-hour period, then this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the non-defaulting Initial Purchaser or the Company
shall have the right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the Offering Memorandum or
in any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 11.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed, sent
by courier or express delivery company or transmitted by any standard form of
telecommunication. Notices to the Initial Purchasers shall be directed to the
Initial Purchasers at Merrill Lynch & Co., North Tower, World Financial Center,
New York, New York 10281-1209 attention of Lisa Craig; and at Deutsche Bank
Legal Dept., 31 West 52nd Street, New York, NY 10019-6160 attention of Pamela
Kendall, Esq.; notices to the Company shall be directed to it at One Commercial
Plaza, Hartford, Connecticut 06103-3585, attention of Robert E. Fowler, III.
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling
28
<PAGE>
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from the Initial Purchasers shall be deemed to be a successor by
reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
@ENTERTAINMENT, INC.
By
/s/
-----------------------------------------
Title:
By
/s/
-----------------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/
----------------------------------------
Authorized Signatory
DEUTSCHE BANK SECURITIES INC.
By /s/
----------------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Units
------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................... 179,760
Deutsche Bank Securities Inc................................... 77,040
--------
Total.......................................................... 256,800
--------
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
@ENTERTAINMENT, INC.
256,800 Units, each Unit consisting of one $1,000 aggregate principal
amount at maturity of 14 1/2% Senior Discount Notes due 2009 and four Warrants,
each Warrant initially entitling the holder thereof to purchase 1.7656 shares of
Common Stock.
1. The initial offering price of the Units shall be $389.42 per Unit,
plus accreted amortization of original issue discount on the Notes, if any, from
January 27, 1999.
2. The purchase price to be paid by the Initial Purchasers for the
Units shall be $376.6764 per Unit, plus accreted amortization of original issue
discount on the Notes, if any, from January 27, 1999.
3. The interest rate on the Notes shall be 14 1/2% per annum; interest
will be payable semiannually in arrears on February 1 and August 1, commencing
August 1, 2004.
Cash interest will not accrue prior to February 1, 2004.
4. The Notes will mature on February 1, 2009 and will be issued in
denominations of $1,000 aggregate principal amount at maturity or integral
multiples thereof.
5. The redemption price supplied on page 150 of the Offering Memorandum
(and correspondingly in the Indenture) with respect to redemptions of Notes from
the proceeds of Public Equity Offerings shall be 117 1/2% of the Accreted Value
thereof, plus accrued and unpaid interest, if any, to the redemption date.
6. The redemption prices supplied on page 150 of the Offering
Memorandum (and correspondingly in the Indenture) relating to the Notes shall
be:
<TABLE>
<CAPTION>
Redemption
Year Price
--- ----------
<S> <C>
February 1, 2004 108.750%
February 1, 2005 105.833
February 1, 2006 102.917
February 1, 2007 and thereafter 100.000
</TABLE>
Sch B-1
<PAGE>
SCHEDULE C
LIST OF DESIGNATED SUBSIDIARIES
<TABLE>
<S> <C>
1. ETV Sp. z o.o.
2. Telewizja Kablowa GOSAT Sp. z o.o.
3. Ground Zero Media Sp. z o.o.
4. Otwocka Telewizja Kablowa Sp. z o.o.
5. Polska Telewizja Kablowa S.A.
6. Polska Telewizja Kablowa Krakow S.A.
7. Polska Telewizja Kablowa Lublin S.A.
8. Polska Telewizja Kablowa Operator Sp. z o.o.
9. Polska Telewizja Kablowa Szczecin Sp. z o.o.
10. Polska Telewizja Kablowa Warszawa S.A.
11. Poltelkab Sp. z o.o.
12. ProCable Sp. z.o.o.
13. Szczecinska Telewizja Kablowa Sp. z o.o.
14. TV Kabel Sp. z o.o.
15. At Entertainment Limited
16. Poland Communications, Inc.
17. Poland Cablevision (Netherlands) B.V.
18. Sereke Holding B.V.
19. Wizja TV Sp. z o.o.
20. WPTS Sp. z o.o.
21. @Entertainment Programming, Inc.
</TABLE>
Sch C-1
<PAGE>
Exhibit A
FORM OF REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
A-1
<PAGE>
Exhibit B
FORM OF WARRANT AGREEMENT
[Separately Attached]
B-1
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Exhibit C
FORM OF WARRANT REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
C-1
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Exhibit D
FORM OF UNITED STATES LAW OPINION OF COMPANY'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware;
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement, the Indenture and the Securities;
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect;
(iv) Each Designated Subsidiary incorporated in a jurisdiction
in the United States (collectively, the "U.S. Designated Subsidiaries") of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation; and all of
the issued shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Offering Memorandum under the caption
"Capitalization" under the heading "--atual" (except for subsequent issuances,
if any, pursuant to employee benefit plans referred to in the Offering
Memorandum or pursuant to the exercise of convertible securities or options
referred to in the Offering Memorandum); the shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding shares of capital
stock of the Company was issued in violation of any preemptive or other similar
rights of any security holder of the Company;
(vi) The Preference Securities have been duly authorized and
conform in all material respects to all statements relating thereto contained in
the Offering Memorandum, and the descriptions thereof in the Offering Memorandum
conform in all material respects to the rights set forth in the instruments
defining same. The Preference Shares are validly issued, fully paid and
non-assessable. The Preference Warrants, when executed by the Company and
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duly issued and delivered in accordance with the instruments governing the
Preference Securities, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law). No holder of Preference Securities will be
subject to personal liability by reason of being such a holder.
(vii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company;
(viii) The Warrant Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the Warrant Agent) constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law);
(ix) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and (assuming due
authorization, execution and delivery thereof by the Initial Purchasers)
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as (x) the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, (y) the enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may be
limited by federal and state securities laws and public policy considerations;
(x) The Warrant Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and (assuming due
authorization, execution and delivery thereof by the Initial Purchasers)
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as (x) the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, (y) the enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may be
limited by federal and state securities laws and public policy considerations;
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(xi) The Indenture has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and the waiver contained in Section 514 thereof may be unenforceable due to
interests of public policy;
(xii) The Notes are in the form contemplated by the Indenture,
have been duly authorized by the Company and, assuming that the Notes have been
duly executed by the Company and authenticated by the Trustee in the manner
described in its certificate delivered to you today (which fact such counsel
need not determine by an inspection of the Notes), the Notes have been duly
issued and delivered by the Company and constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law), and will be entitled to the benefits of the
Indenture;
(xiii) The Warrants are in the form contemplated by the
Warrant Agreement, have been duly authorized by the Company and, when executed
by the Company and authenticated by the Warrant Agent in the manner provided in
the Warrant Agreement and issued and delivered against payment of the purchase
price therefor, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law) and will be entitled to the benefits of the
Warrant Agreement and the Warrant Registration Rights Agreement;
(xiv) The Warrant Shares have been duly authorized and
reserved by the Company and, when executed by the Company and countersigned by
the Warrant Agent and issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants and the Warrant Agreement, will be
validly issued, fully paid and non-assessable and will not be subject to any
preemptive or similar rights;
(xv) The Registration Rights Agreement, the Warrant
Registration Rights Agreement, the Securities, the Common Stock, the Warrant
Agreement, the Indenture and the
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Preference Securities conform in all material respects to the descriptions
thereof contained in the Offering Memorandum;
(xvi) Except as described in the Offering Memorandum, there is
not pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary thereof is
subject, before or brought by any court or governmental agency or body, which
might reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of (1) the transactions contemplated in
the Purchase Agreement, the Warrant Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture, the
Securities or the Preference Securities or the performance by the Company of its
obligations thereunder or (2) the transactions contemplated by the Offering
Memorandum;
(xvii) The information in the Offering Memorandum under
"Compensation Plans", "Certain Relationships and Related Transactions",
"Description of Indebtedness", "Description of the Units", "Description of the
Notes", "Description of the Warrants", "Description of Capital Stock", "United
States Income Tax Considerations" and "Plan of Distribution", to the extent that
it constitutes matters of law, summaries of legal matters or legal proceedings,
or legal conclusions, has been reviewed by them and is correct in all material
respects;
(xviii) All descriptions in the Offering Memorandum of
contracts, licenses and other documents to which the Company or any of its
subsidiaries is a party are accurate in all material respects; to the best of
their knowledge, there are no franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments that would be required to be
described in the Offering Memorandum, if the Offering Memorandum were a
prospectus filed as part of a registration statement on Form S-1 under the 1933
Act, that are not described or referred to in the Offering Memorandum other than
those described or referred to therein or incorporated by reference thereto, and
the descriptions thereof or references thereto are correct in all material
respects;
(xix) Neither the Company nor any of its U.S. Designated
Subsidiaries is in violation of its certificate of incorporation or by-laws (or
other similar organizational documents) nor is the Company or any of its
subsidiaries in violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except for such violations as
are specifically identified as such and described in the Offering Memorandum, or
for such violations as would not have a Material Adverse Effect, and no default
by the Company or any of its subsidiaries exists in the due performance or
observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
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agreement or instrument that is described or referred to in the Offering
Memorandum, except such defaults as are specifically identified as such and
described in the Offering Memorandum and except for such defaults that would not
result in a Material Adverse Effect;
(xx) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be required under
the applicable securities laws of the various jurisdictions in which the Notes,
the Warrants and the Units will be offered or sold, as to which they need
express no opinion) is required in connection with the due authorization,
execution and delivery of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement or the
Indenture, for the offering, issuance, sale or delivery of the Units to the
Initial Purchasers or the resale thereof by the Initial Purchasers in accordance
with the Purchase Agreement;
(xxi) It is not necessary in connection with the offer, sale
and delivery of the Notes, the Warrants and the Units to the Initial Purchasers
and to each Subsequent Purchaser in the manner contemplated by the Purchase
Agreement and the Offering Memorandum to register the Units under the 1933 Act
or to qualify the Indenture under the Trust Indenture Act;
(xxii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and in the
Offering Memorandum (including the use of the proceeds from the sale of the
Units as described in the Offering Memorandum under the caption "Use Of
Proceeds") and compliance by the Company with its obligations under the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture, the
Securities and the Preference Securities will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any subsidiary thereof or any of their respective
properties, assets or operations, that is identified to such counsel by the
Company;
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(xxiii) The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
1940 Act;
(xxiv) There are no restrictions (legal, contractual or
otherwise) on the ability of the U.S. Designated Subsidiaries to declare and pay
dividends or make any payment or transfer of property or assets to their
shareholders other than those referred to in the Offering Memorandum; and
(xxv) The form of certificate used to evidence the Securities
and Preference Securities complies in all material respects with all applicable
statutory requirements and with any applicable requirements of the charter and
by-laws of the Company.
Such counsel may state that they have not verified, and are
not passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (vi), (xv), (xvii) and (xviii) above
insofar as such statements concern legal matters) and that they have
participated in conferences with the Company, representatives of the Initial
Purchasers and their counsel and the independent public accountants for the
Company at which the Offering Memorandum was prepared and the contents thereof
and related matters were discussed. In the course of these conferences and
discussions, no facts have come to their attention that would lead them to
believe that the Offering Memorandum or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein, as to which such counsel need make no
statement), at the time the Offering Memorandum was issued, at the time any such
amended or supplemented Offering Memorandum was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of Dutch law, upon the opinion of Baker &
McKenzie, special Netherlands counsel to Poland Cablevision (Netherlands) B.V.
(which opinion shall be delivered to the Initial Purchasers at the Closing Time
pursuant to the provisions of Section 5(a)(ii)) of the Purchase Agreement, (B)
as to matters involving the application of English law, upon the opinion of
Ashurst Morris Crisp, special English counsel to the Company (which opinion
shall be delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of Section 5(a)(iii)) of the Purchase Agreement, (C) as to matters
involving the application of Polish law, upon the opinion of Baker & McKenzie Sp
z.o.o., special Polish counsel to the Company (which opinion shall be delivered
to the Initial Purchasers at the Closing Time pursuant to the provisions of
Section 5(a)(i)) of the Purchase Agreement and (D) as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document
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relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
D-7
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Exhibit E
FORM OF POLISH LAW OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) Each Polish Designated Subsidiary has been duly
incorporated and is validly existing as a corporation under the laws of the
Republic of Poland, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is not required to be qualified as a foreign corporation to
transact business in any jurisdiction in which it owns or leases property or
conducts business; all of the issued and outstanding capital stock of each
Polish Designated Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to the best of their knowledge and
information, except as otherwise disclosed in the Offering Memorandum, is owned
by the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except in the
case of any Polish limited liability company, any statutory liability for taxes
and for the Share Pledges;
(ii) Except as described in the Offering Memorandum, there is
not pending or, to the best of their knowledge, threatened, any action, suit,
proceeding, inquiry or investigation, to which the Company or any subsidiary is
a party, or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of (1) the transactions contemplated in the
Purchase Agreement, the Warrant Agreement, the Registration Rights Agreement,
the Warrant Registration Rights Agreement, the Indenture or the Securities or
the performance by the Company of its obligations thereunder or (2) the
transactions contemplated by the Offering Memorandum;
(iii) The Company and its Polish Designated Subsidiaries have
good and marketable title to all real property owned by them, in each case free
and clear of all liens, encumbrances and defects, except the Asset Encumbrances,
such as are described in the Offering Memorandum or such as do not result in a
Material Adverse Effect; and any real property and buildings held under lease by
the Company and its Polish Designated Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as do not result in a
Material Adverse Effect;
(iv) The information in the Offering Memorandum under "Risk
Factors Regulation of the Polish Cable Television Industry", "Risk Factors -
Polish Regulation of the DTH Market", "Risk Factors - Limitations on Foreign
Ownership of Multi-Channel Pay Television Operators and Broadcasters", the first
four paragraphs of "Risk Factors - Regulation of Competition", the first,
second, third and fifth paragraph of "Risk Factors - Political and Economic
Risks; Enforcement of Foreign Judgments", "Business -Property", "Business -
Legal
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Proceedings", "Regulation", and "Certain Relationships and Related
Transactions", to the extent that it constitutes matters of law, summaries of
legal matters, the charter and bylaws (or similar organizational documents) of
any subsidiaries of the Company or legal proceedings, or legal conclusions, has
been reviewed by them and is correct in all material respects;
(v) All descriptions in the Offering Memorandum of contracts
and other documents to which the Company or any of its subsidiaries is a party
are accurate in all material respects; to the best of their knowledge, there are
no franchises, contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments that would be required to be described in the Offering
Memorandum, if the Offering Memorandum were a prospectus filed as part of a
registration statement on Form S-1 under the 1933 Act, that are not described or
referred to in the Offering Memorandum other than those described or referred to
therein or incorporated by reference thereto, and the descriptions thereof or
references thereto are correct in all material respects;
(vi) None of the Polish Designated Subsidiaries is in
violation of its charter or by-laws (or other similar organizational documents)
nor is the Company or any of its subsidiaries in violation of any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their assets
or properties, except for such violations as are specifically identified as such
and described in the Offering Memorandum and except for such violations that
would not result in a Material Effect and no default by the Company or any of
its subsidiaries exists in the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is described
or referred to in the Offering Memorandum, except such defaults as are
specifically identified and described in the Offering Memorandum and except for
such defaults that would not result in a Material Adverse Effect;
(vii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the DTC Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Indenture and the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the use of the proceeds from
the sale of the Securities as described in the Offering Memorandum under the
caption "Use Of Proceeds") and compliance by the Company with its obligations
under the Purchase Agreement, the Warrant Agreement, the DTC Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement, the
Indenture and the Securities will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument,
known to them, to which the Company or any subsidiary thereof is a party or by
which it or any of them
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may be bound, or to which any of the property or assets of the Company or any
subsidiary thereof is subject (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a Material Adverse Effect)
nor will such action result in any violation of the provisions of the charter or
by-laws (or other similar organizational documents) of any Polish subsidiary of
the Company, or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary thereof or
any of their respective properties, assets or operations that is identified to
them by the Company;
(viii) Except as described in the Offering Memorandum, each of
the Polish Designated Subsidiaries owns or possesses or has obtained all
material governmental licenses, certificates, permits, concessions, consents,
orders, approvals and other authorizations necessary to hold all concessions,
leases and permits or own its properties, including, without limitation, all
licenses and permits relating to intellectual property, and to carry on its
business as presently conducted and as contemplated in the Offering Memorandum,
and, to the best of their knowledge after due inquiry, none of the Designated
Subsidiaries has received any notice relating to the revocation or modification
of any such concession, license, certificate, permit, consent, order, approval
or other authorizations;
(ix) Each of the Management Agreements (as such term is
defined in the Indenture) has been duly authorized, executed and delivered by
the parties thereto and constitutes a valid and binding agreement of each of the
parties thereto, enforceable against each of the parties thereto in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law);
(x) There are no restrictions (legal, contractual or
otherwise) on the ability of the Polish Designated Subsidiaries to declare and
pay dividends or make any payment or transfer of property or assets to their
shareholder other than those described in the Offering Memorandum and except for
the Share Pledges and the Asset Encumbrances; and such descriptions, if any,
fairly summarize such restrictions; and
(xi) No authorization, approval, consent or order of any court
or governmental authority or agency (other than such as may be required under
the applicable securities laws of the various jurisdictions in which the Units
will be offered or sold, as to which they need express no opinion) is required
in connection with the due authorization, execution and delivery of the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement or the Indenture or for the offering, issuance,
sale or delivery of the Units to the Initial Purchasers or the resale by the
Initial Purchasers in accordance with the Purchase Agreement.
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Such counsel may state that they have not verified, and are
not passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except for their opinions under paragraphs (iv), (v) and (x) above insofar as
such statements concern legal matters) and that they have participated in
conferences with the Company, representatives of the Initial Purchasers and
their counsel and the independent public accountants for the Company at which
the Offering Memorandum was prepared and the contents thereof and related
matters were discussed. In the course of these conferences and discussions, no
facts have come to their attention that would lead them to believe that the
Offering Memorandum (except for financial statements and schedules and other
financial data included or incorporated by reference therein as to which they
need make no statement), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Offering Memorandum or
any amendment or supplement thereto (except for financial statements and
schedules and other financial data included or incorporated by reference
therein, as to which such counsel need make no statement), at the time the
Offering Memorandum was issued, at the time any such amended or supplemented
Offering Memorandum was issued or at the Closing Time, included or includes an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of Netherlands law, upon the opinion of Baker
& McKenzie, special Netherlands counsel to the Company (which opinion shall be
delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of section 5(a)(ii)) of the Purchase Agreement, (B) as to matters
involving the application of English law, upon the opinion of Ashurst Morris
Crisp, special English counsel to the Company (which opinion shall be delivered
to the Initial Purchasers at the Closing Time pursuant to the provisions of
Section 5(a)(iii) of the Purchase Agreement and (C) as to matters involving the
application of the law of the State of New York, the General Corporation Law of
the State of Delaware and the federal law of the United States, upon the opinion
of Baker & McKenzie, United States counsel to the Company (which opinion shall
be delivered to the Initial Purchasers at the Closing Time pursuant to the
provisions of Section 5(a)(i) of the Purchase Agreement as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
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Exhibit F
FORM OF OPINION OF COMPANY'S DUTCH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) Poland Cablevision ("PCBV") has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
Netherlands, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and is duly registered with the local Dutch trade register. Under Dutch law,
PCBV is not required to be qualified as a foreign corporation to transact
business in the Netherlands. All of the issued and outstanding capital stock of
PCBV, consisting of 200,000 shares, has been duly authorized and validly issued,
is fully paid and non-assessable. @ Entertainment owns 189,600 out of such
200,000 shares (92.3%) free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity;
(ii) There are no restrictions (legal, contractual or
otherwise) on the ability of PCBV to declare and pay dividends or make any
payment or transfer of property or assets to its shareholders other than those
described in the Offering Memorandum and such descriptions, if any, fairly
summarize such restrictions;
(iii) Except as described in the Offering Memorandum there is
not pending or, to the best of their knowledge, threatened any action, suit,
proceeding, inquiry or investigation, to which PCBV is a party, or to which the
property of PCBV is subject, before or brought by any Dutch court or
governmental agency or body, which might be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of (1)
this Agreement or the performance by the Company of its obligations hereunder
(if any) or (2) the transactions contemplated by the Offering Memorandum;
(iv) All descriptions in the Offering Memorandum of contracts
and other documents to which PCBV is a party are accurate in all material
respects; to the best of their knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments that
would be required to be described in the Offering Memorandum if it were a
prospectus filed as part of a registration statement on Form S-1 under the 1933
Act that are not described or referred to in the Offering Memorandum other than
those described or referred to therein, and the descriptions thereof and
references thereto are correct in all material respects;
(v) PCBV is not in violation of its statutes or by-laws (or
other similar organizational documents) nor, to the best of their knowledge, is
PCBV in violation of any applicable Dutch law, statute, rule, regulation,
judgment, order, writ or decree of any Dutch government, government
instrumentality or court having jurisdiction over PCBV or any of its assets or
properties, except as described in the Offering Memorandum, and no default by
PCBV exists
F-1
<PAGE>
in the due performance or observance of any obligation, agreement, covenant or
condition contained in any contract, license, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is described or
referred to in the Offering Memorandum, except as described in the Offering
Memorandum and except for such defaults that would not result in a Material
Adverse Effect;
(vi) Except as otherwise disclosed in the Offering Memorandum,
PCBV owns or possesses or has obtained all material licenses, certificates,
permits, concessions, consents, orders, approvals and other governmental
authorizations necessary to hold all its concessions, leases and permits or own
its properties, including, without limitation, all licenses and permits relating
to intellectual property, and to carry on its business as presently conducted
and as contemplated in the Offering Memorandum, and PCBV has not received any
notice relating to the revocation or modification of any such concession,
license, certificate, permit, consent, order, approval or other authorizations;
(vii) No authorization, approval, consent or order of any
Dutch court or Dutch governmental authority or agency (other than such as may be
required under the applicable securities laws of the various jurisdictions in
which the Units will be offered or sold, as to which they need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement or the
Indenture or for the offering, issuance, sale or delivery of the Units to the
Initial Purchasers; and
(viii) The information in the Offering Memorandum under the
seventh paragraph of "Risk Factors - Political and Economic Risks; Enforcement
of Foreign Judgments", to the extent that it constitutes matters of law,
summaries of legal matters, or legal conclusions, has been reviewed by them and
is correct in all material respects.
F-2
<PAGE>
Exhibit G
FORM OF OPINION OF COMPANY'S ENGLISH COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(a)(iii)
(i) At Entertainment Limited ("AEL") has been duly
incorporated and is validly existing as a limited liability company under the
laws of England and Wales, has corporate power and authority to own and lease
its properties and to conduct its business as described in the Offering
Memorandum and is not required to obtain further authorization to transact
business or to own or lease property in England and Wales; all of the issued and
outstanding shares of AEL have been duly authorized, validly issued and are
fully paid up. Their searches at Companies House in respect of AEL did not
reveal any security interest, mortgage, pledge, lien, encumbrance, claim or
equity affecting the issued shares of AEL;
(ii) They have not been instructed by the Company, AEL or any
subsidiary nor have any notice from our searches of the registry of the High
Court of England and Wales of any action, suit, proceeding, inquiry or
investigation, to which the Company or any subsidiary is a party, or to which
the property of AEL is subject, before or brought by any court or governmental
agency or body, which might be expected to result in a Material Adverse Effect
on AEL;
(iii) They have no notice that any real property has been
acquired by AEL whether by purchase or lease other than Maidstone Studios,
Vinters Park, Kent and lease of premises in Conduit Street, London;
(iv) The information in the Offering Memorandum under "Risk
Factors Dependence on Philips as Principal Supplier", "Risk Factors - Dependence
on Satellites", "Risk Factors - Availability of Programming and Dependence on
Third Party Programmers; Program Development Risk" (other than the specification
of any financial commitments of the Company), "Risk Factors - United Kingdom
Regulation of D-DTH Business", "Risk Factors - European Union Regulation of
D-DTH Business", "Risk Factors - Regulation of Competition" (insofar as it does
not relate to Poland), the sixth paragraph of "Risk Factors - Political and
Economic Risks; Enforcement of Foreign Judgments", "Regulation - United
Kingdom", and "Regulation - European Union", to the extent that it constitutes
matters of law, summaries of legal matters, or legal proceedings, or legal
conclusions, has been reviewed by them and is correct in all material respects;
(v) All summaries in the Offering Memorandum of the satellite
television services license issued by the Independent Television Commission (the
"ITC License") for the channels known as Atomic TV, Wizja 1, Wizja Sport, Wizja
Pogoda and Twoja Wizja Na Zywo and of the contracts for transponders on Astra 1E
and 1F satellites, the Commercial Cooperation Agreement with Phillips or
agreements set out at Schedule 1 to which AEL is a party are accurate summaries
of the matters summarized; they have no notice that there are any franchises,
contracts,
G-1
<PAGE>
licenses, indentures, mortgages, loan agreements, notes, leases or other
instruments relating to AEL that are not described or referred to in the
Offering Memorandum, and the descriptions thereof and references thereto are
correct in all material respects;
(vi) AEL is not in violation of its Memorandum and Articles of
Association and, they have no notice that AEL is in violation of any applicable
English law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court having jurisdiction over AEL in
England or any of its assets or properties in England, except as described in
the Offering Memorandum, they have no notice that any default by AEL exists in
the due performance or observance of any obligation, agreement, covenant or
condition of AEL contained in any contract, license, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is described or
referred to in those sections of the Offering Memorandum referred to in
paragraph (iv) above or on the Schedule 1 attached to the opinion;
(vii) The execution, delivery and performance of the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement and the Indenture and the consummation of the
transactions contemplated therein and in the Offering Memorandum (including the
use of proceeds from the sale of the Securities and described in the Offering
Memorandum under the caption "Use of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement the
Securities and the Indenture, will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any lien, charge or
encumbrance under English law upon any property or assets of AEL pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument, notified to them, to which AEL is a
party or by which it may be bound, or to which any of the property or assets of
AEL is subject, nor will such action result in any violation of the provisions
of the Memorandum and Articles of Association of AEL, or any applicable English
law, statute, rule, regulation, judgment, order, writ or decree, of any
government, government instrumentality or court having jurisdiction in England
over AEL or any of its respective properties, assets or operations in England;
(viii) AEL owns or possesses or has obtained all material
governmental licenses, certificates, permits, concessions, consents, orders,
approvals and other authorizations in England, as disclosed in the Offering
Memorandum, necessary to hold all concessions, leases and permits or own its
properties, including, without limitation, all broadcasting licenses and permits
relating to intellectual property, and to carry on its business as presently
conducted and as contemplated in the Offering Memorandum, and they have no
notice that AEL has received any notice relating to the revocation or
modification of any such concession, license, certificate, permit, consent,
order, approval or other authorizations;
(ix) Other than as described in the Offering Memorandum, there
are no restrictions (legal, contractual or otherwise) on the ability of AEL to
declare and pay dividends in
G-2
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accordance with applicable English company law, and other than as imposed by law
on English companies generally, there are no restrictions (legal, contractual or
otherwise) on the ability of AEL to make any payment or transfer of property or
assets to its shareholder; and
(x) No authorization, approval, consent or order of any court
or governmental authority or agency in England which regulates the operations of
AEL is required in connection with the due authorization, execution and delivery
of the Purchase Agreement, the Warrant Agreement, the Registration Rights
Agreement, the Warrant Registration Rights Agreement and the Indenture, or for
the offering, issuance, sale or delivery of the Units to the Initial Purchasers.
They need give no opinion as to whether the due authorization, execution and
delivery by the Company of the Purchase Agreement, the Warrant Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement and the
Indenture or the offering, issuance, sale or delivery of the Units to the
Initial Purchasers complies with applicable securities laws in England and Wales
or any other jurisdiction.
G-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PURCHASE AGREEMENT.................................................................................................1
SECTION 1. REPRESENTATIONS AND WARRANTIES........................................................3
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY.........................................3
(i) SIMILAR OFFERINGS..........................................................3
(ii) OFFERING MEMORANDUM........................................................3
(iii) INDEPENDENT ACCOUNTANTS....................................................4
(iv) FINANCIAL STATEMENTS.......................................................4
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS.....................................4
(vi) GOOD STANDING OF THE COMPANY...............................................4
(vii) CORPORATE STANDING OF DESIGNATED SUBSIDIARIES..............................5
(viii) RESTRICTIONS ON PAYMENTS OF DIVIDENDS......................................5
(ix) CAPITALIZATION.............................................................6
(x) AUTHORIZATION OF AGREEMENT.................................................6
(xi) AUTHORIZATION OF THE REGISTRATION RIGHTS AGREEMENT.........................6
(xii) AUTHORIZATION OF THE INDENTURE.............................................6
(xiii) AUTHORIZATION OF THE NOTES.................................................7
(xiv) AUTHORIZATION OF THE WARRANT AGREEMENT.....................................7
(xv) AUTHORIZATION OF THE WARRANTS..............................................7
(xvi) AUTHORIZATION OF THE WARRANT SHARES........................................7
(xvii) AUTHORIZATION OF THE WARRANT REGISTRATION RIGHTS AGREEMENT.................8
(xviii) AUTHORIZATION OF PREFERENCE SECURITIES.....................................8
(xix) DESCRIPTION OF THE REGISTRATION RIGHTS AGREEMENT, WARRANT
REGISTRATION RIGHTS AGREEMENT, THE UNITS, THE NOTES, THE
WARRANTS, THE COMMON STOCK, THE WARRANT AGREEMENT AND THE
INDENTURE..................................................................8
(xx) ABSENCE OF DEFAULTS AND CONFLICTS..........................................8
(xxi) ABSENCE OF LABOR DISPUTE...................................................9
(xxii) ABSENCE OF PROCEEDINGS....................................................10
(xxiii) POSSESSION OF INTELLECTUAL PROPERTY.......................................10
(xxiv) ABSENCE OF FURTHER REQUIREMENTS...........................................10
(xxv) POSSESSION OF LICENSES AND PERMITS........................................11
(xxvi) NO ADDITIONAL DOCUMENTS...................................................11
(xxvii) MANAGEMENT AGREEMENTS.....................................................12
(xxviii) TITLE TO PROPERTY.........................................................12
(xxix) TAX RETURNS...............................................................12
(xxx) ENVIRONMENTAL LAWS........................................................12
(xxxi) INVESTMENT COMPANY ACT....................................................13
(xxxii) INTERNAL CONTROLS.........................................................13
(xxxiii) TAXES ON SUBSIDIARY INDEBTEDNESS..........................................14
(xxxiv) INSURANCE.................................................................14
</TABLE>
G-i
<PAGE>
<TABLE>
<S> <C>
(xxxv) RULE 144A ELIGIBILITY.....................................................14
(xxxvi) NO GENERAL SOLICITATION...................................................14
(xxxvii) NO REGISTRATION REQUIRED..................................................14
(xxxviii) NO REGISTRATION OF PREFERENCE SECURITIES REQUIRED.........................14
(xxxix) REPORTING COMPANY.........................................................15
(b) OFFICERS' CERTIFICATES...............................................................15
SECTION 2. SALE AND DELIVERY TO THE INITIAL PURCHASERS; CLOSING.................................15
(a) SECURITIES...........................................................................15
(b) PAYMENT..............................................................................15
(c) QUALIFIED INSTITUTIONAL BUYER........................................................15
(d) DENOMINATIONS; REGISTRATION..........................................................15
SECTION 3. COVENANTS OF THE COMPANY.............................................................16
(a) OFFERING MEMORANDUM..................................................................16
(b) NOTICE AND EFFECT OF MATERIAL EVENTS.................................................16
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS.....................................16
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE.......................................16
(e) DTC AND PORTAL.......................................................................17
(f) USE OF PROCEEDS......................................................................17
(g) RESTRICTION ON SALE OF SECURITIES....................................................17
(h) NOTIFICATION OF CURRENT ACCUMULATED EARNINGS & PROFITS...............................17
SECTION 4. PAYMENT OF EXPENSES..................................................................17
(a) EXPENSES.............................................................................17
(b) TERMINATION OF AGREEMENT.............................................................18
SECTION 5. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS....................................18
(a) OPINIONS OF COUNSEL FOR THE COMPANY..................................................18
(b) OPINION OF UNITED STATES COUNSEL FOR THE INITIAL PURCHASERS..........................18
(c) OPINION OF POLISH COUNSEL FOR THE INITIAL PURCHASERS.................................18
(d) OFFICERS' CERTIFICATE................................................................19
(e) ACCOUNTANTS' COMFORT LETTER..........................................................19
(f) BRING-DOWN COMFORT LETTER............................................................19
(g) PORTAL...............................................................................19
(h) ADDITIONAL DOCUMENTS.................................................................19
(i) EXECUTION OF AGREEMENTS..............................................................20
(j) CONSUMMATION OF SALE OF PREFERENCE SECURITIES........................................20
(k) TERMINATION OF AGREEMENT.............................................................20
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES......................................20
(a) OFFER AND SALE PROCEDURES............................................................20
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS...................20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(ii) NO GENERAL SOLICITATION...................................................20
(iii) PURCHASES BY NON-BANK FIDUCIARIES.........................................20
(iv) SUBSEQUENT PURCHASER NOTIFICATION.........................................21
(v) RESTRICTIONS ON TRANSFER..................................................21
(b) COVENANTS OF THE COMPANY.............................................................21
(i) DUE DILIGENCE.............................................................21
(ii) INTEGRATION...............................................................22
(iii) RULE 144A INFORMATION.....................................................22
(iv) RESTRICTION ON REPURCHASES................................................22
(c) RESALE PURSUANT TO RULE 144A..............................................22
(d) OFFERS AND SALES IN POLAND AND THE NETHERLANDS.......................................23
(e) OFFERS AND SALES IN THE UNITED KINGDOM...............................................23
(f) REPRESENTATION AND WARRANTY OF THE INITIAL PURCHASERS................................23
SECTION 7. INDEMNIFICATION......................................................................23
(a) INDEMNIFICATION OF THE INITIAL PURCHASERS............................................23
(b) INDEMNIFICATION OF THE COMPANY, DIRECTORS AND OFFICERS...............................24
(c) ACTIONS AGAINST PARTIES; NOTIFICATION................................................25
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE...................................25
SECTION 8. CONTRIBUTION.........................................................................25
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.......................27
SECTION 10. TERMINATION OF AGREEMENT.............................................................27
(a) TERMINATION; GENERAL.................................................................27
(b) LIABILITIES..........................................................................28
SECTION 11. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS............................................28
SECTION 12. NOTICES...................................................................28
SECTION 13. PARTIES...................................................................28
SECTION 14. GOVERNING LAW AND TIME....................................................29
SECTION 15. EFFECT OF HEADINGS........................................................29
SECTION 16. COUNTERPARTS..............................................................29
</TABLE>
G-iii
<PAGE>
EXHIBIT 4.3
INDENTURE dated as of January 27, 1999, between @ENTERTAINMENT, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company" or the "Issuer"), having its principal office at
One Commercial Plaza, 24th Floor, Hartford, Connecticut, and BANKERS TRUST
COMPANY, a New York state banking corporation, Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 14
1/2% Senior Discount Notes due 2009 (herein called the "Initial Securities"),
and 14 1/2% Exchange Senior Discount Notes due 2009 (the "Exchange Securities"
and, together with the Initial Securities, the "Securities"), of substantially
the tenor and amount hereinafter set forth, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
<PAGE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted on the Issue Date; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Accreted Value" as of any date (the "Specified Date") means, with
respect to each $1,000 principal amount at maturity of the Securities.
(i) if the Specified Date is one of the following dates (each a
"Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Semi-Annual
Accrual Date Accreted Value
<S> <C>
ISSUE DATE (JANUARY
27, 1999)................... $ 389.43
AUGUST 1, 1999.............. 428.75
FEBRUARY 1, 2000............ 471.05
AUGUST 1, 2000.............. 517.53
---------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
FEBRUARY 1, 2001............ 568.59
AUGUST 1, 2001.............. 624.69
FEBRUARY 1, 2002............ 686.33
AUGUST 1, 2002.............. 754.05
FEBRUARY 1, 2003............ 828.45
AUGUST 1, 2003.............. 910.19
FEBRUARY 1, 2004............ $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the sum of (a) the Accreted Value for the Semi-Annual
Accrual Date immediately preceding the Specified Date and (b) an amount
equal to the product of (x) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the
immediately preceding Semi-Annual Accrual Date and (y) a fraction the
numerator of which is the number of days actually elapsed from the
immediately preceding SemiAnnual Accrual Date to the Specified Date and
the denominator of which is 180; and
(iii) if the Specified Date is on or after February 1, 2004,
$1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person becomes a Restricted Subsidiary or (b) assumed
in connection with the acquisition of assets from such Person, in each case,
other than Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary or such acquisition; PROVIDED that,
for purposes of Section 1010, such Indebtedness shall be deemed to be incurred
on the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Advent" means Advent International Corporation, a Delaware
corporation.
"Affiliate" means, with respect to any specified Person, (a)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (b) any other
Person that owns, directly or indirectly, 5% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or
3
<PAGE>
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Members" has the meaning specified in Section 306.
"Annualized Pro Forma Consolidated Operating Cash Flow" means
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (a) all Restricted Subsidiaries
of the Company on the date of the transaction giving rise to the need to
calculate "Annualized Pro Forma Consolidated Operating Cash Flow" (the
"Transaction Date") shall be deemed to have been Restricted Subsidiaries at all
times during such fiscal quarter and (b) any Unrestricted Subsidiary of the
Company on the Transaction Date shall be deemed to have been an Unrestricted
Subsidiary at all times during such fiscal quarter. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
Operating Cash Flow" shall be calculated after giving effect on a PRO FORMA
basis for the applicable fiscal quarter to, without duplication, any Asset Sales
or Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of the Company or a
Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness) occurring during the period commencing on the
first day of such fiscal quarter to and including the Transaction Date (the
"Reference Period"), as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period.
"Asset Acquisition" means (a) any capital contribution (by
means of transfers of cash or other property to others or payments for property
or services for the account or use of others, or otherwise) by the Company or
any Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (b) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for security
purposes) or other disposition (that is not for security purposes) to any Person
other than the Company or a Restricted Subsidiary in one transaction or a series
of related transactions, of (a) any Capital Stock of any Restricted
4
<PAGE>
Subsidiary, (b) any material governmental license or other governmental
authorization of the Company or any Restricted Subsidiary pertaining to a
Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business, (c) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company and its Restricted Subsidiaries or (d) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include (a) any disposition of properties and assets of
the Company that is governed under Article VIII, (b) sales of property or
equipment that have become worn out, obsolete or damaged or otherwise unsuitable
for use in connection with the business of the Company or the Restricted
Subsidiary, as the case may be, (c) for purposes of Section 1017, any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, either (i)
involving assets with a Fair Market Value not in excess of $500,000 (or, if
non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) or (ii) as part
of a Capitalized Lease Obligation, and (d) any transfer by the Company or a
Restricted Subsidiary of property or equipment to a Person who is not an
Affiliate of the Company in exchange for property or equipment that has a fair
market value at least equal to the fair market value of the property or
equipment so transferred; PROVIDED that, in the event of a transfer described in
this clause (d), the Company shall deliver to the Trustee an Officer's
Certificate certifying that such exchange complies with this clause (d).
"Average Life" means, as of the date of determination with
respect to any Indebtedness, the quotient obtained by dividing (a) the sum of
the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as
amended, or any similar United States federal or state law, or any similar law
of any other jurisdiction, relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors
5
<PAGE>
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or the city in which the Corporate Trust Office is located are authorized
or obligated by law or executive order to close.
"Cable Television Newco" means any Person (i) of whom the
Company or a Restricted Subsidiary owns the greater of 49% of the outstanding
Capital Stock or the maximum amount of the outstanding Capital Stock the Company
or such Restricted Subsidiary may own under applicable law and (ii) that holds
Capital Stock in a Management Company.
"Cable/Telecommunications Business" means any business
operating a cable or telephone or telecommunications or broadcasting system
(other than an Entertainment/Programming Business or a DTH Business), including,
without limitation, any business (other than an Entertainment/Programming
Business or a DTH Business) conducted by the Company or any Restricted
Subsidiary on the Issue Date and any programming guide or telephone directory
business.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations, rights in or
other equivalents (however designated) of such Person's capital stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Stock, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of this Indenture.
"Capitalized Lease Obligation" of any Person means any
obligation of such Person and its subsidiaries on a consolidated basis under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as
a capital lease obligation under GAAP, and, for the purpose of this Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or
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acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System, in each case having combined
capital and surplus and undivided profits of not less than $500,000,000; (c)
commercial paper with a maturity of 180 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and rated at least A-1 by
S&P or at least P-l by Moody's; and (d) any Capital Stock of any mutual funds at
least 95% of the assets of which are invested in the foregoing.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and l3d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the Company; (b) the Company consolidates with, or merges with or into
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the Surviving Entity) in an
amount that could be paid by the Company as a Restricted Payment as described
under Section 1011 and (ii) immediately after such transaction, no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the surviving or transferee corporation; (c) during
any consecutive two year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by a vote of 662/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any
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reason to constitute a majority of the Board of Directors of the Company then in
office; or (d) the Company is liquidated or dissolved or a special resolution is
passed by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with Article VIII.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such Person's common stock or
ordinary shares, whether outstanding at the Issue Date, and includes, without
limitation, all series and classes of such common stock or ordinary shares.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the provision for United States corporation, local, foreign and other
income taxes of the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of original issue discount, (ii) the net cost of Interest Rate
Agreements (including amortization of discounts), (iii) the interest portion of
any deferred payment obligation, (iv) accrued interest, (v) the consolidated
amount of any interest capitalized by the Company and the Restricted
Subsidiaries, PROVIDED that such amount will be limited for purposes of this
definition to the amount that would have been obtained if such interest had been
capitalized at the interest rate for the Securities and (vi) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
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bankers' acceptance financing, PLUS (b) the interest component of Capitalized
Lease Obligations of the Company and its Restricted Subsidiaries paid, accrued
or scheduled to be paid or accrued during such period, in each case as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (in
each case less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (in each case less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of
business, (c) the portion of net income (or loss) of any Person (other than the
Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in
which the Company or any Restricted Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash dividends or distributions
during such period, (d) net income (or loss) of any Person combined with the
Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) except with
respect to any encumbrance or restriction described in clause (ii) of Section
1018, the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and (f) any
non-cash items of the Company and any Restricted Subsidiary (including monetary
corrections) increasing or decreasing Consolidated Net Income for such period
(other than items that will result in the receipt or payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by (in each case to the extent included
in computing Consolidated Net Income) the sum of (a) the Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries accrued according to GAAP
for such period (other than taxes attributable to extraordinary, unusual or
non-recurring gains or losses); (b) Consolidated Interest Expense for such
period; (c) depreciation of the Company and its Restricted Subsidiaries for such
period and (d) amortization of the Company and its Restricted Subsidiaries for
such period, including, without limitation, amortization of capitalized debt
issuance costs for such period, all determined on a consolidated basis in
accordance with GAAP PROVIDED that, if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, Consolidated Operating Cash Flow shall be reduced
(to the extent not otherwise reduced in accordance with GAAP)
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by an amount equal to (i) the amount of Consolidated Net Income attributable to
such Restricted Subsidiary multiplied by (ii) the quotient of (1) the number of
shares of outstanding Common Stock of such Restricted Subsidiary not owned on
the last day of such period by the Company or any of its Restricted Subsidiaries
divided by (2) the total number of shares of outstanding Common Stock of such
Restricted Subsidiary on the last day of such period.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at Four Albany Street, New York, New York 10006, except
that with respect to presentation of Securities for payment or for registration
of transfer or exchange, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"Cumulative Available Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered into
by a Person that is designed to protect such Person against fluctuations in
currency values.
"Default" means any event that after notice or passage of time
or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of Directors
is required to deliver a resolution of the Board of Directors under this
Indenture, a member of the Board of Directors who does not
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have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
"DTH Business" means the business of (i) developing, managing,
operating or providing services relating to direct to home satellite systems for
the distribution of subscription programming services directly to homes and
cable systems in areas covered by the "footprint" of the satellites utilized by
the Company and its Restricted Subsidiaries, and activities to accomplish the
foregoing (other than the Cable/Telecommunications Business or the
Entertainment/Programming Business) or (ii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified above.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"Entertainment/Programming Business" means a business engaged
primarily in the management, ownership, operation, acquisition, development,
production, distribution or syndication of general entertainment, sports,
movies, children's or other programming or publishing.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first
recital of this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Rights Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer, as determined by the Board of Directors of the
Company and evidenced by a resolution thereof.
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"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in effect in the United States on the
Issue Date.
"Global Security" has the meaning provided in Section 201.
"guarantee" means, as applied to any obligation, (a) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (b) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Incur" or "incur" means, with respect to any Indebtedness, to
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur such Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money (including
overdrafts) or for the deferred purchase price of property or services,
excluding any trade payables and other accrued current liabilities (including
outstanding disbursements) incurred in the ordinary course of business (whether
or not evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
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event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of Sections 1010 and 1011 and the
definition of "Events of Default", in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning provided in the recitals
to this Indenture.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements or arrangements
(including, without limitation,
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interest rate swaps, caps, floors, collars and similar agreements) designed to
protect against or manage exposure to fluctuations in interest rates in respect
of Indebtedness.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
such Person (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock
(including ownership of Capital Stock through share leasing arrangements),
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means January 27, 1999.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Majority Owned Restricted Subsidiary" means a Restricted
Subsidiary (a) at least 66.66% of the outstanding Capital Stock of which is
beneficially owned directly or indirectly by the Company or PCBV and one or more
Wholly Owned Restricted Subsidiaries and (b) no outstanding Capital Stock of
which is owned, directly or indirectly (except through the Company), by any
shareholder or Affiliate of a shareholder of the Company.
"Management Agreement" means (a) any agreement between the
Company or a Restricted Subsidiary and a Management Company pursuant to which
the Management Company shall lease or otherwise employ assets of the Company or
a Restricted Subsidiary to operate a Cable/Telecommunications Business, a DTH
Business or an Entertainment/Programming Business and (b) any agreement or
instrument (i) governing Indebtedness of a Management Company to the Company or
a Restricted Subsidiary or (ii) governing corporate procedures or control of a
Management Company.
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"Management Company" means any Person, a portion of whose
Capital Stock is held by the Company or a Restricted Subsidiary, that (i) holds
or has applied for a license or permit to operate a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business in the
Republic of Poland or elsewhere in Continental Europe and (ii) manages the
operations of a Restricted Subsidiary pursuant to a Management Agreement.
"Maturity" means, with respect to any Security, the date on
which any principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds thereof in the form of cash or Cash Equivalents including payments
in respect of deferred payment obligations or escrowed funds, but only when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants, consultants and investment banks) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock as referred to under Section 1011 and the definition of "Permitted
Indebtedness", the proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses
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<PAGE>
actually incurred in connection with such capital contribution, issuance or sale
and net of taxes paid or payable as a result thereof.
"Officers Certificate" means a certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Old Indenture" means the Indenture dated as of July 14, 1998
between the Issuer and Bankers Trust Company, as trustee, as in effect on the
Issue Date.
"Old Notes" means the Issuer's 14 1/2% Senior Discount Notes
due 2008 issued under the Old Indenture.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be acceptable to the Trustee.
"Organizational Contract" means any agreement to which the
Company or any Restricted Subsidiary is a party pursuant to which, among other
things, fees are paid to the Company or a Restricted Subsidiary in exchange for
organizational, consulting or similar services, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Organizational Contracts."
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
PROVIDED that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
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(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands the Securities are valid obligations
of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount at maturity of Outstanding Securities have given any request,
demand, authorization, direction, consent, notice or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgees right so to act with
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Overhead Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
costs are allocated among the parties thereto, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Overhead Agreements".
"Pari Passu Indebtedness" means Indebtedness of the Company
that is PARI PASSU in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Securities on behalf of the Company. The initial
paying agent shall be the Trustee.
"PCBV" means Poland Cablevision (Netherlands) B.V., a
Netherlands corporation.
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"PCI" means Poland Communications, Inc., a New York
corporation and a Wholly Owned Subsidiary of the Company.
"PCI Indenture" means the Indenture dated as of October 31,
1996 between PCI and State Street Bank and Trust Company, as trustee, as in
effect on the Issue Date.
"Permitted Holders" means, as of the date of determination,
(a) David T. Chase, Arnold L. Chase and Cheryl A. Chase (b) the family members,
estates and heirs of David T. Chase, Arnold L. Chase and Cheryl A. Chase and any
trust, partnership, corporation, limited liability company or other investment
vehicle principally for the benefit of any such persons or their respective
family members or heirs (including, without limitation, Polish Investments
Holding LP for so long as beneficial ownership thereof is held by Persons
meeting the requirements of clause (a) and (b) of this definition), (c) ECO and
any successor thereto that is owned by the Persons who beneficially own,
directly and indirectly, ECO on the Issue Date; (d) Advent International Corp.
and (e) any Person that is controlled by the Persons, individually or as a
group, described in clauses (a) through (d) above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Securities (or any guarantee
thereof) and this Indenture;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on Schedule B to this
Indenture;
(c) Indebtedness of the Company or any Restricted Subsidiary
(including PCI and any subsidiary of PCI that is a Restricted
Subsidiary) to the extent such Indebtedness constitutes "Permitted
Indebtedness" as defined in the PCI Indenture or the Old Indenture;
(d) (i) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or a Restricted Subsidiary and (ii) Indebtedness of
the Company owed to and held by any Restricted Subsidiary that is
Subordinated Indebtedness; PROVIDED that an incurrence of Indebtedness
shall be deemed to have occurred upon (x) any sale or other disposition
(excluding assignments as security to financial institutions) of any
Indebtedness of the Company or Restricted Subsidiary referred to in
this clause (e) to a Person (other than the Company or a Restricted
Subsidiary) or (y) any sale or other disposition of Capital Stock of a
Restricted Subsidiary which holds Indebtedness of the
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Company or another Restricted Subsidiary such that such Restricted
Subsidiary, in any such case, ceases to be a Restricted Subsidiary;
(e) Obligations under any Interest Rate Agreement of the
Company or any Restricted Subsidiary to the extent relating to (i)
Indebtedness of the Company or such Restricted Subsidiary, as the case
may be (which Indebtedness (x) bears interest at fluctuating interest
rates and (y) is otherwise permitted to be incurred under Section
1010), or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be incurred by the
Company or a Restricted Subsidiary in the following 12 months after
such Interest Rate Agreement has been entered into, but only to the
extent that the notional principal amount of such Interest Rate
Agreement does not exceed the principal amount of the Indebtedness (or
Indebtedness subject to commitments) to which such Interest Rate
Agreement relates;
(f) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (i) Indebtedness of
the Company or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under Section 1010) or (ii) obligations to
purchase assets, properties or services incurred in the ordinary course
of business of the Company or any Restricted Subsidiary; PROVIDED that
such Currency Agreements do not increase the Indebtedness or other
obligations of the Company and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness of the Company or any Restricted Subsidiary
in respect of performance bonds of the Company or any Restricted
Subsidiary or surety bonds provided by the Company or any Restricted
Subsidiary incurred in the ordinary course of business in connection
with the construction or operation of a Cable/ Telecommunications
Business, a DTH Business or an Entertainment/Programming Business;
(h) Indebtedness of the Company or any Restricted Subsidiary
to the extent it represents a replacement, renewal, refinancing or
extension of outstanding Indebtedness of the Company or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (b) of
this definition or the proviso of Section 1010; PROVIDED that (i)
Indebtedness of the Company may not be replaced, renewed, refinanced or
extended to such extent under this clause (i) with Indebtedness of any
Restricted Subsidiary and (ii) any such replacement, renewal,
refinancing or extension (x) shall not result in a lower Average Life
of such Indebtedness as compared with the
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Indebtedness being replaced, renewed, refinanced or extended, (y) shall
not exceed the sum of the principal amount (or, if such Indebtedness
provides for a lesser amount to be due and payable upon a declaration
of acceleration thereof, an amount no greater than such lesser amount)
of the Indebtedness being replaced, renewed, refinanced or extended
plus the amount of accrued interest thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish such
replacement, renewal, refinancing or extension and such reasonable fees
and expenses incurred in connection therewith, and (z) in the case of
any replacement, renewal, refinancing or extension by the Company of
Pari Passu Indebtedness or Subordinated Indebtedness, such new
Indebtedness is made PARI PASSU with or subordinate to the Securities,
at least to the same extent as the Indebtedness being replaced,
renewed, refinanced or extended;
(i) Indebtedness of the Company having an aggregate principal
amount not to exceed, at any one time outstanding, two times (i) the
Net Cash Proceeds received by the Company on or after the Issue Date
from the issuance and sale of its Capital Stock (other than Redeemable
Capital Stock) to a Person that is not a Subsidiary, to the extent such
Net Cash Proceeds have not been used pursuant to clause (a)(3)(B),
(b)(ii), (b)(iii) or (b)(v) of Section 1011 to make a Restricted
Payment and (ii) 80% of the Fair Market Value of property (other than
cash or Cash Equivalents) received by the Company on or after the Issue
Date from a sale of its Capital Stock (other than Redeemable Capital
Stock) to a Person that is not a Subsidiary, the extent such sale of
Capital Stock has not been used pursuant to clause (b)(ii), (b)(iii) or
(b)(v) of Section 1011 to make a Restricted Payment; PROVIDED, HOWEVER,
that in determining the Fair Market Value of property, if the estimated
Fair Market Value of such property exceeds $10.0 million, the Company
will deliver to the Trustee a written appraisal as to the fair market
value of such property prepared by an internationally recognized
investment banking or public accounting firm (or, if no such investment
banking or public accounting firm is qualified to prepare such an
appraisal, by an internationally recognized appraisal firm) and
PROVIDED FURTHER that such Indebtedness does not mature prior to the
Stated Maturity of the Securities and has an Average Life longer than
the Securities;
(j) Subordinated Indebtedness of the Company not to exceed
$150 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any one time outstanding; and
(k) in addition to the items referred to in clauses (a)
through (j) above, Indebtedness of the Company having an aggregate
principal amount not to exceed $125 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) at
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any time outstanding less the aggregate principal amount of any
outstanding Indebtedness incurred after the Issue Date under clause (c)
of this definition of Permitted Indebtedness.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans and advances to directors or employees made in the ordinary
course of business; (d) Interest Rate Agreements and Currency Agreements; (e)
bonds, notes, debentures or other securities received as a result of Asset Sales
permitted under Section 1017, PROVIDED that the Company or the Restricted
Subsidiaries, as the case may be, have received at least 75% of the aggregate
consideration therefrom in cash or Cash Equivalents; (f) Investments made in the
ordinary course of business as partial payment for constructing a network
relating principally to a Cable/Telecommunications Business or for supplying
equipment used or useful in the Cable/Telecommunications Business or the DTH
Business; (g) Investments (other than through share leasing arrangements) in any
Person engaged in any business in which the Company or any Restricted Subsidiary
is engaged on the Issue Date not to exceed $90 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) outstanding at any time;
PROVIDED that immediately after giving effect to any Investment made under this
clause (g), the Company and its Restricted Subsidiaries shall own at least 25%
of the outstanding Capital Stock of the Person in which the Investment was made;
(h) Investments (other than through share leasing arrangements) in any Person
engaged in any business in which the Company or any Restricted Subsidiary is
engaged on the Issue Date not to exceed $10 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) outstanding at any time; (i)
Investments (other than through share leasing programs) in the Capital Stock of
any Person to the extent the consideration therefor paid by the Company or any
Restricted Subsidiary consists of a lease or other right to use the capacity of
a cable television network of the Company or such Restricted Subsidiary and so
long as the capacity leased or used is used by such Person solely to provide
telephony or Internet access services; PROVIDED that the Board of Directors
shall have determined (as evidenced by a Board Resolution) that any such
capacity is in excess of the cable television network capacity required to
operate the Cable/Telecommunications Business of the Company or such Restricted
Subsidiary in the area in which such cable television network is located; (j)
investments by any Restricted Subsidiary in the Issuer; and (k) to the extent
not covered in clauses (a) through (j) above, any "Permitted Investment" as
defined in the PCI Indenture made by PCI or any subsidiary thereof in accordance
with the terms of the PCI Indenture.
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"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted
Subsidiary granted in favor of the Company or any Restricted
Subsidiary;
(b) Liens securing the Securities;
(c) Liens securing Acquired Indebtedness created prior to (and
not in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; PROVIDED that
such Lien does not extend to any property or assets of the Company or
any Restricted Subsidiary other than the assets acquired in connection
with the incurrence of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens
arising in the ordinary course of business of the Company or any
Restricted Subsidiary and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with
the business of the Company or any Restricted Subsidiary incurred in
the ordinary course of business;
(g) Liens arising by reason of any judgment, decree or order
of any court so long as such Lien is adequately bonded and any
appropriate legal proceedings that may have been initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security;
(i) any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (h);
PROVIDED that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the
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Lien so extended, renewed or replaced and shall not extend to any
additional property or assets;
(j) any interest or title of a lessor under any Capitalized
Lease Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI
incurred after the Issue Date under clause (c) of the definition of
Permitted Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of the Company incurred
pursuant to clause (i) of the definition of Permitted Indebtedness in
an amount having an aggregate principal amount not to exceed, at any
one time outstanding, 100% of the Net Cash Proceeds received by the
Company after the Issue Date from the issuance and sale of its Capital
Stock;
(m) Liens in favor of Polish governmental fiscal authorities
created without the knowledge of and without fault on the part of the
Company;
(n) Liens existing on the Issue Date and listed on Schedule C
to this Indenture;
(o) Liens in favor of the Screen Actors Guild, the Writers
Guild of America, the Directors Guild of America or any other unions,
guilds or collective bargaining units under collective bargaining
agreements, which Liens are incurred in the ordinary course of business
solely to secure the payment of residuals and other collective
bargaining obligations required to be paid by the Company or any of its
Restricted Subsidiaries under any such collective bargaining agreement;
(p) Liens arising in connection with completion guarantees
entered into in the ordinary course of business and consistent with
then current industry practices, securing obligations (other than
Indebtedness for borrowed money) of the Company or any of its
Restricted Subsidiaries not yet due and payable;
(q) Liens in favor of suppliers and/or producers of any
programming that are incurred in the ordinary course of business solely
to secure the purchase or license price of such programming and such
directly related rights or the rendering of services necessary for the
production of such programming; PROVIDED, HOWEVER, that no such Lien
shall extend to or cover any property or assets other than the
programming or
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license and the rights directly related thereto being so acquired or
produced; and PROVIDED FURTHER that any payment obligations secured by
such Liens shall by their terms be payable solely from the revenues
that are derived directly from the exhibition, syndication,
exploitation, distribution or disposition of such item of programming
and/or such directly related rights;
(r) Liens on assets of PCI or any subsidiary of PCI securing
the PCI Notes; and
(s) Liens on assets or Capital Stock of a Special Purpose
Vehicle.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, S.A., SP.
Z O.O., trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Physical Note" has the meaning specified in Section 201.
"Poltelkab" means Poltelkab Sp. z o.o., a Polish limited
liability company.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of
Common Stock (which is Qualified Capital Stock) of the Company for cash pursuant
to a registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligation" means Indebtedness of the Company
or any Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any
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assets of the Company or any Restricted Subsidiary or (b) secured by a Lien on
any assets of the Company or any Restricted Subsidiary where the lender's sole
recourse is to the assets so encumbered, in either case to the extent the
purchase or construction prices for such assets are or should be included in
"addition to property, plan or equipment" in accordance with GAAP.
"Qualified Capital Stock" of any person means any and all
Capital Stock of such person other than Redeemable Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A.
"Redeemable Capital Stock" means any class or series of
Capital Stock that, either by its terms, by the terms of any security into which
it is convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; PROVIDED, HOWEVER, that Redeemable Capital Stock shall
not include any Common Stock the holder of which has a right to put to the
Company upon certain terminations of employment.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Initial Purchasers named therein, dated as
of January 27, 1999, relating to the Securities and the Company's 14 1/2% Senior
Discount Notes due 2009, a copy of which has been filed with the Trustee.
"Registration Statement" means the Registration Statement as
defined in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
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"Responsible Officer", when used with respect to the Trustee,
means any officer in its corporate trust department or similar group, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Payment" has the meaning provided in Section 1011.
"Restricted Subsidiary" means a Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of
The McGraw-Hill, Inc. and its successors.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Bank Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of the Company or any Restricted Subsidiary.
"Series C Indenture" meant the Indenture dated as of January
20, 1999 between the Issuer and Bankers Trust Company, as trustee, as in effect
on the Issue Date.
"Series C Notes" means the Issuer's Series C Discount Notes
due 2008 issued under the Series C Indenture.
"Service Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
the Company or a Restricted Subsidiary provides various services, which may
include administrative, technical, managerial, financial, operational and
marketing services, to the other party or parties thereto, including, without
limitation, the agreements listed on Schedule A to this Indenture under the
subheading "Service Agreements."
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"Shareholder Registration Rights Agreement" means the
Registration Rights Agreement dated as of June 27, 1997 among PIHLP, ECO, Mr.
Freedman, Steele LLC, AESOP and CACMT (as such terms are defined in the
Company's Offering Memorandum dated January 22, 1999) in the form existing on
the Issue Date.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any particular time, any
Subsidiary that, together with the subsidiaries of such Subsidiary, (a)
accounted for more than 5% of the consolidated revenues of the Company and its
Subsidiaries for their most recently completed fiscal year or (b) is or are the
owner(s) of more than 5% of the consolidated assets of the Company and its
Subsidiaries as at the end of such fiscal year, all as calculated in accordance
with GAAP and as shown on the consolidated financial statements of the Company
and its Subsidiaries for such fiscal year.
"Special Purpose Vehicle" means a Person which is, or was,
established: (i) with separate legal identity and limited liability; and (ii)
for the sole purpose of a single transaction, or series of related transactions,
and which has no assets and liabilities other than those directly acquired or
incurred in connection with such transaction(s).
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable, and, when used with respect to any
other Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
that is expressly subordinated in right of payment to the Securities.
"Subsidiary" means (a) any Person a majority of the equity
ownership or Voting Stock of which is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries or by the Company and one or
more other Subsidiaries and (b) Poltelkab, PTK Operator Sp. z o.o., Cable
Television Newco and any other Management Company.
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"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and its Restricted Subsidiaries outstanding as of the date of
determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (b) any subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company, subject to
the foregoing, may designate any newly acquired or newly formed Subsidiary
(other than a Management Company) to be an Unrestricted Subsidiary so long as
(i) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with respect to
any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1019, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing a board resolution with the Trustee giving effect to such designation.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under this Indenture
and the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 1010.
"U.S. Dollar" means United States currency.
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"U.S. Dollar Equivalent" means with respect to any monetary
amount in a currency other than U.S. Dollars, at any time for the determination
thereof, the amount of U.S. Dollars obtained by converting such foreign currency
involved in such computation into U.S. Dollars at the spot rate for the purchase
of U.S. Dollars with the applicable foreign currency as quoted by the National
Bank of Poland at approximately noon (New York City time) on the date two
business days prior to such determination.
"U.S. Government Obligations" has the meaning provided in
Section 1304.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Restricted
Subsidiary, such Restricted Subsidiary if all the outstanding Capital Stock of
such Restricted Subsidiary (other than any directors' qualifying shares) is
owned directly by the Company or PCBV and one or more Wholly Owned Restricted
Subsidiaries.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
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(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
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SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount at maturity and serial numbers of
Securities held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the
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requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; PROVIDED that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Manager, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such
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notice with respect to other Holders. Any notice mailed to a Holder in the
manner herein prescribed shall be conclusively deemed to have been received by
such Holder, whether or not such Holder actually receives such notice. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Security Registrar and their successors hereunder and the Holders any
benefit or any legal or equitable right, remedy or claim under this Indenture.
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SECTION 111. GOVERNING LAW.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. Upon issuance of
the Exchange Securities or the effectiveness of a Shelf Registration Statement,
this Indenture shall be subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions; and, if and to the extent that any
provision of this Indenture limits, qualifies or conflicts with any other
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act,
such required provision shall control.
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or Maturity; PROVIDED that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
The Initial Securities shall be known as the "14 1/2% Senior
Discount Notes due 2009" and the Exchange Securities shall be known as the "14
1/2% Exchange Senior Discount Notes due 2009". The Securities and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A. The Securities may have such
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appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, notations,
numbers or other marks of identification and such legends or endorsements placed
thereon as the Company may deem appropriate (and as are not prohibited by the
terms of this Indenture) or as may be required or appropriate to comply with any
law or with any rules made pursuant thereto or with any rules of any securities
exchange on which such Securities may be listed, or to conform to general usage,
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of such Securities. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
the Securities. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture. Each of the Company and the Trustee,
by its execution and delivery of this Indenture, expressly agrees to the terms
and provisions of the Securities applicable to it and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A
shall be issued initially in the form of a single permanent global Security in
registered form, substantially in the form set forth in Exhibit A (the "Global
Security"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount at maturity of the Global Security may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Securities issued pursuant to Section 306 or Section 307 in
exchange for interests in the Global Security shall be in the form of permanent
certificated Securities in registered form in substantially the form set forth
in Exhibit A (the "PHYSICAL SECURITIES").
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for an
Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, each Global Security
and each Physical Security shall bear the following legend set forth below (the
"Private Placement Legend") on the face thereof.
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE
144A")), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER
THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 (IF AVAILABLE), OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR
OTHER TRANSFERS OF THIS
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SECURITY UNDER (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
Each Global Security, whether or not an Initial Security,
shall also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF
DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
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ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount at maturity of Securities which
may be authenticated and delivered under this Indenture is limited to up to
$256,800,000, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 304, 305, 306, 801, 906, 1016, 1017 or 1108.
The Initial Securities shall be known and designated as the
"14 1/2% Senior Discount Notes due 2009" of the Company. The Exchange Securities
shall be known and designated as the "14 1/2% Exchange Senior Discount Notes due
2009" of the Company. The Stated Maturity of the Initial Securities and the
Exchange Securities shall be February 1, 2009 and, except as otherwise set forth
herein, they shall bear cash interest at the rate of 14 1/2% per annum from
February 1, 2004, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable on August 1, 2004 and
semi-annually thereafter on February 1 and August 1 in each year and at said
Stated Maturity, until the principal thereof is paid or duly provided for.
Except in the case of a Registration Default (as defined in the form of
Securities), the principal of the Securities shall not accrue cash interest
until February 1, 2004, except in the case of a default in payment of the amount
due at Maturity, in which case the amount due on the Securities shall bear cash
interest at a rate of 17 1/2% per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
default to the date the payment of such amount has been made or duly provided
for. Interest on any overdue principal amount shall be payable on demand. The
Securities are issued at a discount to their aggregate principal amount at
maturity and will generate gross proceeds to the Company of $100,003,056.
Original issue discount will accrete from the Issue Date (January 27, 1999)
until February 1, 2004. Based on the issue price thereof, the yield on the
Securities is 17 1/2% (computed on a semiannual bond equivalent basis)
calculated from January 27, 1999.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
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The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 principal amount at maturity
and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
any of its Chairman, its President or a Vice President, the Chief Executive
Officer or the Chief Financial Officer, under its corporate seal reproduced
thereon. The signature of any of these officers on the Securities may be manual
or facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person
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resulting from such consolidation, or surviving such merger, or into which the
Company shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article
Eight, any of the Securities authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Securities as specified in such request for the purpose
of such exchange. If Securities shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
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SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.
The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount at maturity, upon surrender of the Securities to be exchanged
at such office or agency. Whenever any Securities are so surrendered for
exchange (including an exchange of Initial Securities for Exchange Securities),
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive PROVIDED
that no exchange of Initial Securities for Exchange Securities shall occur until
an Exchange Offer Registration Statement shall have been declared effective by
the Commission and that the Initial Securities to be exchanged for the Exchange
Securities shall be cancelled by the Trustee.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and
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the Security Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 801, 906, 1016, 1017
or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Security initially shall (i) be registered in
the name of the Depositary for such Global Securities or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under any Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a beneficial owner
of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees and, in part, in the circumstances
described in paragraph (d) hereof. Interests of beneficial owners in a Global
Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. Beneficial
owners may obtain Physical Securities (which shall bear the Private Placement
Legend if required by
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Section 202) in exchange for their beneficial interests in a Global Security
upon request in accordance with the Depositary's and the Security Registrar's
procedures at any time. In addition, Physical Securities shall be transferred to
all beneficial owners in exchange for their beneficial interests in the Global
Security if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Security or the Depositary
ceases to be a "Clearing Agency" registered under the Exchange Act and a
successor depositary is not appointed by the Company within 90 days or (ii) an
Event of Default has occurred and Holders of more than 25% in aggregate
principal amount of the Securities at the time outstanding represented by the
Global Securities advise the Trustee through the Depositary in writing that the
continuation of a book-entry system through the Depositary with respect to the
Global Securities is no longer required.
(c) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interest in the Global Security
to beneficial owners, upon receipt of written instructions from the Depositary,
the Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount at maturity of the Global Security in an amount
equal to the principal amount at maturity of the beneficial interest in the
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Physical Securities of like
tenor and amount.
(d) In connection with the transfer of the entire Global
Security to beneficial owners pursuant to paragraph (b) of this Section, the
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the Global Security an equal aggregate principal
amount at maturity of Physical Securities of authorized denominations.
(e) Any Physical Security delivered in exchange for an
interest in the Global Security pursuant to paragraph (b) or (c) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph (e) of
Section 307, bear the legend regarding transfer restrictions applicable to the
Physical Security set forth in Section 202.
(f) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(g) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to
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Section 306(b), the Security Registrar shall reflect on its books and records a
decrease in the principal amount at maturity of the relevant Global Security
equal to the principal amount at maturity of such Physical Securities and the
Company shall execute and the Trustee shall authenticate and deliver one or more
Physical Securities having an equal aggregate principal amount at maturity.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
Unless and until (i) an Initial Security is sold pursuant to
an effective Registration Statement, or (ii) an Initial Security is exchanged
for an Exchange Security in the Exchange Offer pursuant to an effective
Registration Statement, in each case, pursuant to the Registration Rights
Agreement, the following provisions shall apply:
(a) GENERAL. The provisions of this Section 307 shall apply to
all transfers involving any Physical Security and any beneficial
interest in any Global Security.
(b) CERTAIN DEFINITIONS. As used in this Section 307 only,
"delivery" of a certificate by a transferee or transferor means the
delivery to the Security Registrar by such transferee or transferor of
the applicable certificate duly completed; "holding" includes both
possession of a Physical Security and ownership of a beneficial
interest in a Global Security, as the context requires; "transferring"
a Global Security means transferring that portion of the principal
amount of the transferor's beneficial interest therein that the
transferor has notified the Security Registrar that it has agreed to
transfer; and "transferring" a Physical Security means transferring
that portion of the principal amount thereof that the transferor has
notified the Security Registrar that it has agreed to transfer.
As used in this Indenture,"Rule 144A Certificate" means a
certificate substantially in the form set forth in Section 313 and
"Non-Registration Opinion and Supporting Evidence" means a written
opinion of counsel reasonably acceptable to the Company to the effect
that, and such other certification or information as the Company may
reasonably require to confirm that, the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(c) [Intentionally Omitted]
(d) DEEMED DELIVERY OF A RULE 144A CERTIFICATE IN CERTAIN
CIRCUMSTANCES. A Rule 144A Certificate, if not actually delivered, will
be deemed delivered if (A) (i)
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the transferor advises the Company and the Trustee in writing that the
relevant offer and sale were made in accordance with the provisions of
Rule 144A (or, in the case of a transfer of a Physical Security, the
transferor checks the box provided on the Physical Security to that
effect) and (ii) the transferee advises the Company and the Trustee in
writing that (x) it and, if applicable, each account for which it is
acting in connection with the relevant transfer, is a qualified
institutional buyer within the meaning of Rule 144A, (y) it is aware
that the transfer of Securities to it is being made in reliance on the
exemption from the provisions of Section 5 of the Securities Act
provided by Rule 144A, and (z) prior to the proposed date of transfer
it has been given the opportunity to obtain from the Company the
information referred to in Rule 144A(d)(4), and has either declined
such opportunity or has received such information (or, in the case of a
transfer of a Physical Security, the transferee signs the certification
provided on the Physical Security to that effect); or (B) the
transferor holds the Global Security and is transferring to a
transferee that will take delivery in the form of the Global Security.
(e) PROCEDURES AND REQUIREMENTS. If the proposed transferor
holds:
(A) a Physical Security which is surrendered to the
Security Registrar, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate
and the proposed transferee requests delivery in the
form of a Physical Security, then the Security
Registrar shall (x) register such transfer in the
name of such transferee and record the date thereof
in its books and records, (y) cancel such surrendered
Physical Security and (z) deliver a new Physical
Security to such transferee duly registered in the
name of such transferee in principal amount equal to
the principal amount being transferred of such
surrendered Physical Security; or
(ii) delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the
proposed transferee receive a beneficial interest in
the Global Security, then the Security Registrar
shall (x) cancel such surrendered Physical Security,
(y) record an increase in the principal amount of the
Global Security equal to the principal amount being
transferred of such surrendered
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Physical Security and (z) notify the Depositary in
accordance with the procedures of the Depositary that
it approves of such transfer.
In any of the cases described in this Section
307(e)(A), the Security Registrar shall deliver to the
transferor a new Physical Security in principal amount equal
to the principal amount not being transferred of such
surrendered Physical Security, as applicable.
(B) the Global Security, and the proposed transferee
or transferor, as applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate
and the proposed transferee requests delivery in the
form of a Physical Security, then the Security
Registrar shall (w) register such transfer in the
name of such transferee and record the date thereof
in its books and records, (x) record a decrease in
the principal amount of the Global Security in an
amount equal to the beneficial interest therein being
transferred, (y) deliver a new Physical Security to
such transferee duly registered in the name of such
transferee in principal amount equal to the amount of
such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that
it approves of such transfer; or
(ii) delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the
proposed transferee receive a beneficial interest in
the Global Security, then the transfer shall be
effected in accordance with the procedures of the
Depositary therefor.
(f) EXECUTION, AUTHENTICATION AND DELIVERY OF PHYSICAL
SECURITIES. In any case in which the Security Registrar is required to
deliver a Physical Security to a transferee or transferor, the Company
shall execute, and the Trustee shall authenticate and make available
for delivery, such Physical Security.
(g) CERTAIN ADDITIONAL TERMS APPLICABLE TO PHYSICAL
SECURITIES. Any transferee entitled to receive a Physical Security may
request that the principal amount thereof be evidenced by one or more
Physical Securities in any authorized
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denomination or denominations and the Security Registrar shall comply
with such request if all other transfer restrictions are satisfied.
(h) TRANSFERS NOT COVERED BY SECTION 307(E). The Security
Registrar shall effect and record, upon receipt of a written request
from the Company so to do, a transfer not otherwise permitted by
Section 307(e), such recording to be done in accordance with the
otherwise applicable provisions of Section 307(e), upon the furnishing
by the proposed transferor or transferee of a Non-Registration Opinion
and Supporting Evidence.
(i) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture
and in the Private Placement Legend and agrees that it will transfer
such Security only as provided in this Indenture. The Security
Registrar shall not register a transfer of any Security unless such
transfer complies with the restrictions with respect thereto set forth
in this Indenture. The Security Registrar shall not be required to
determine (but may rely upon a determination made by the Company) the
sufficiency of any such certifications, legal opinions or other
information.
(j) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Security Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar
shall deliver only Securities that bear the Private Placement Legend
unless (i) the requested transfer is at least two years after the
original issue date of the Initial Security (with respect to any
Physical Security), (ii) there is delivered to the Security Registrar
an Opinion of Counsel in form reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act or (iii) such Securities are
exchanged for Exchange Securities pursuant to an Exchange Offer.
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN
SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the
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Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount at maturity, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; PROVIDED, HOWEVER, that each installment of interest may at the
Company's option be paid by (i) mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 310,
to the address of such Person as it appears in the Security Register at the
close of business on the Regular Record Date for such interest payment or (ii)
transfer to an account located in the United States maintained by the payee.
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Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
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Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 309) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. CANCELLATION.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
SECTION 312. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
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SECTION 313. FORM OF RULE 144A CERTIFICATE.
Upon any transfer of the Securities pursuant to Rule 144A, the
purchaser of such Securities shall deliver to the Trustee a certificate in the
form of Exhibit B hereto.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities expressly provided for herein or pursuant hereto and the
rights, powers, trusts, duties and immunities of the Trustee) and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 308) and (ii) Securities for whose
payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
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and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire Indebtedness on
such Securities not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest
on such Securities to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or
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involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on any Security
when it becomes due and payable and continuance of such default for a
period of 30 days;
(2) default in the payment of the principal of or premium, if
any, on any Security at its Maturity;
(3) default in the performance, or breach, of the provisions
described in Article Eight of this Indenture, the failure to make or
consummate a Change of Control Offer in accordance with the provisions
of Section 1016 or the failure to make or consummate an Excess Proceeds
Offer in accordance with the provisions of Section 1017;
(4) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a
default in the performance, or breach, of a covenant or warranty which
is specifically dealt with elsewhere in this Indenture) and continuance
of such default or breach for a period of 30 days after written notice
shall have been given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in principal amount of
the then Outstanding Securities, as the case may be;
(5) (i) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Significant
Subsidiary aggregating $15 million or more, when the same becomes due
and payable at the stated maturity thereof, and such default or
defaults shall have continued after any applicable grace period and
shall not have been cured or waived or (ii) Indebtedness of the Company
or any Significant Subsidiary aggregating $15 million or more shall
have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly
scheduled required prepayment) prior to the stated maturity thereof;
(6) any holder or holders (or any Person acting on any such
holder's behalf) of any Indebtedness in excess of $15 million in the
aggregate of the Company or any Significant Subsidiary shall,
subsequent to the occurrence of a default with respect to such
Indebtedness, notify the Trustee of the intended sale or disposition of
any assets of the Company or any Restricted Subsidiary that have been
pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take action to retain in
satisfaction of any such Indebtedness, or to collect on, seize,
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dispose of or apply, any such assets of the Company or any Restricted
Subsidiary pursuant to the terms of any agreement or instrument
evidencing any such Indebtedness of the Company or any Restricted
Subsidiary or in accordance with applicable law;
(7) one or more final judgments, orders or decrees of any
court or regulatory agency shall be rendered against the Company or any
Significant Subsidiary or their respective properties for the payment
of money, either individually or in an aggregate amount, in excess of
$15 million and either (i) an enforcement proceeding shall have been
commenced by any creditor upon such judgment or order or (ii) there
shall have been a period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect;
(8) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Significant Subsidiary under the
Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days; and
(9) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION
AND ANNULMENT.
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If an Event of Default (other than an Event of Default
specified in Section 501(8) or 501(9)) shall occur and be continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Securities then Outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee upon the
written request of such Holders, shall declare the principal of, premium, if
any, and accrued interest on all of the Outstanding Securities immediately due
and payable, and upon any such declaration all such amounts payable in respect
of the Securities shall become immediately due and payable. If an Event of
Default specified in Section 501(8) or 501(9) occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the Outstanding
Securities shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of either the Trustee or any Holder.
At any time after a declaration of acceleration hereunder, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding
Securities,
(B) all unpaid principal of and premium, if any, on
any Outstanding Securities that have become due otherwise than
by such declaration of acceleration, and interest thereon at
the rate borne by such Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal
at the rate borne by such Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of, premium, if any, or interest on Securities
that have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
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No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
and take such other actions, including participating as a member of any
official creditors committee appointed in the matter as it may deem
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
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SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons
entitled thereto.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
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(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment, as provided herein and in such Security of
the principal of (and premium, if any) and (subject to Section 309) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions
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hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in principal amount at
maturity of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, PROVIDED
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
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SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount at maturity of the Outstanding Securities may, on behalf of the Holders
of all the Securities, waive any past defaults hereunder, except a default
(1) in the payment of the principal of, premium, if any, or
interest on any such Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default or Event of
Default hereunder, the Trustee shall transmit in the manner and to the extent
provided in TIA Section 313(c), notice of such Default hereunder known to the
Trustee, unless such Default
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shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of
a Default in the payment of the principal of, premium, if any, or interest on
any Security, the Trustee shall be protected in withholding such notice if a
committee of its trust officers in good faith determines that the withholding of
such notice is in the interest of the Holders; and PROVIDED FURTHER that in the
case of any Default of the character specified in Section 501(4) no such notice
to Holders shall be given until at least 30 days after the occurrence thereof.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other evidence in respect thereof is herein specifically
prescribed) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) shall
be entitled to receive and may require and, in the absence of bad faith
on its part, conclusively rely upon an Officers Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee security or indemnity
reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction;
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(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(9) the Trustee shall not be deemed to have knowledge of any
default, breach or Event of Default or other matter upon the occurrence
of which it may be required to take action hereunder unless one of its
Responsible Officers has actual knowledge thereof.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk or liability is not reasonably
assured to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility on Form T-1 supplied to
the Company will be true and accurate,
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subject to the qualifications set forth therein. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 604. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of investigating or defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
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The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; PROVIDED, HOWEVER, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of
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resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly
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situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities. In case at that time any of the Securities shall not have been
authenticated, any
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successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases
such certificates shall have the full force and effect which this Indenture
provides for the certificate of authentication of the Trustee shall have;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets
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substantially as an entirety to any other Person or Persons, and the Company
will not permit any Restricted Subsidiary to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis to any
Person or Persons, unless:
(1) either (i) the Company shall be the surviving corporation
or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company or the Company and its
Restricted Subsidiaries is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially
all of the properties and assets of the Company or the Company and its
Restricted Subsidiaries, as the case may be, (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the
laws of the United States of America, any state thereof or the District
of Columbia and (y) shall expressly assume, by an indenture
supplemental to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, the Company's obligations for the
due and punctual payment of the principal of (or premium, if any, on)
and interest on all the Securities and the performance and observance
of every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately before and after giving effect to such
transaction or series of transactions on a PRO FORMA basis (and
treating any obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or
series of transactions on a PRO FORMA basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
latest fiscal quarter for which consolidated financial statements of
the Company are available prior to the consummation of such transaction
or series of transactions with the appropriate adjustments with respect
to the transaction or series of transactions being included in such PRO
FORMA calculation), the ratio of Total Consolidated Indebtedness to
Annualized Pro Forma Consolidated Operating Cash Flow of the Company
(or the Surviving Entity if the Company is not the continuing obligor
under this Indenture) would be less than or equal to such ratio of the
Company immediately before such transaction;
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(4) if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 1014 are complied with; and
(5) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition and such supplemental indenture
comply with the terms of this Indenture.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein. When a successor assumes all the
obligations of its predecessor under this Indenture and the Securities, the
predecessor shall be released from those obligations; PROVIDED that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal and interest on the Securities.
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1014 without equally and ratably securing the Securities, the Company, prior to
or simultaneously with such consolidation, merger, conveyance, lease or
transfer, will as to such property or assets, secure the Securities Outstanding
(together with, if the Company shall so determine any other Indebtedness of the
Company now existing or hereinafter created which is not subordinate in right of
payment to the Securities) equally and ratably with (or prior to) the
Indebtedness which upon such consolidation, merger, conveyance, lease or
transfer is to become secured as to such property or assets by such Lien, or
will cause such Securities to be so secured; PROVIDED that, for the purpose of
providing such equal and ratable security, the principal amount of the
Securities shall mean that amount which would at the time of making such
effective provision be due and payable pursuant to Section 502 upon a
declaration of acceleration of the Maturity thereof, and the extent of such
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equal and ratable security shall be adjusted, to the extent permitted by law, as
and when said amount changes over time as provided in Section 502.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; PROVIDED that such action shall
not adversely affect the interests of the Holders in any material
respect; or
(6) to secure the Securities pursuant to the requirements of
Section 1014 or otherwise; or
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(7) to qualify, or maintain the qualification of, this
Indenture under the TIA.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Securities, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the Accreted Value
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any
Security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment
after the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date), or
(2) reduce the percentage in principal amount at maturity of
the Outstanding Securities, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
(3) modify any of the provisions of this Section, Section 1021
or Article Five, except to increase the percentage of Outstanding
Securities required for such actions or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security, or
(4) amend, change or modify the redemption provisions of this
Indenture or the Securities or the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate an Excess Proceeds Offer with respect to
any Asset Sale or modify any of the provisions or definitions with
respect thereto.
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It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
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SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Failure to provide such
notice shall not affect the validity of such amendment.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of Bankers Trust Company at Four Albany
Street, New York, New York 10006 shall be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner
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relieve the Company of its obligation to maintain an office or agency in The
City of New York for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and any change in the
location of any such other office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN
TRUST.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 10:00 a.m. (New York City time) on each
due date of the principal of (or premium, if any) or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
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The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal, premium or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of
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the Company or any Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the property of the
Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. INSURANCE.
The Company will at all times keep all of its and its
Subsidiaries properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year and within 45 days after the end of each
fiscal quarter (other than the last fiscal quarter of a year), a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1008(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or
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any Subsidiary gives any notice or takes any other action with respect to a
claimed default (other than with respect to Indebtedness in the principal amount
of less than $5,000,000), the Company shall deliver to the Trustee by registered
or certified mail or by telegram, telex or facsimile transmission an officers
certificate specifying such event, notice or other action within five Business
Days of its occurrence.
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
file with the Commission (if permitted by Commission practice and applicable law
and regulations) the annual reports, quarterly reports and other documents which
are required to be filed with the Commission pursuant to such Section 13(a) or
15(d) or any successor provision thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
required by such Section 13(a) or 15(d) of the Exchange Act regardless of
whether the Company is required to file such documents. The Company shall also
in any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the Commission (i) transmit (or cause to
be transmitted) by mail to all holders of Securities, as their names and
addresses appear in the applicable Security Register, without cost to such
holders, and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the
Commission pursuant to the preceding sentence, or, if such filing is not so
permitted, information and data of a similar nature, and (b) if, notwithstanding
the preceding sentence, filing such documents by the Company with the Commission
is not permitted by Commission practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any holder of
Securities.
(b) The Company will disclose the current and accumulated
earnings and profits, if any, for any fiscal year in its annual report on form
10K so long as it is required to file such reports. Thereafter, the Company will
provide such information separately to the Holders who so request by written
notice to the Company.
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS.
(a) The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to incur, contingently or otherwise, any
Indebtedness, except for Permitted Indebtedness; PROVIDED that the Company will
be permitted to incur Indebtedness if after giving pro forma effect to such
incurrence (including the application of the net proceeds therefrom), the ratio
of (x) Total Consolidated Indebtedness outstanding as of the date of such
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incurrence to (y) Annualized Pro Forma Consolidated Operating Cash Flow would be
greater than zero and less than or equal to 6 to 1.
(b) The Company will not incur any Subordinated Indebtedness
unless such Indebtedness by its terms expressly prohibits the payment by the
Company of any assets or securities (including Common Stock) to the holders of
such Subordinated Indebtedness prior to the payment in full of the Securities in
the event of a bankruptcy or reorganization.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not take, and will not permit any
Restricted Subsidiary to, directly or indirectly, take any of the following
actions:
(i) declare or pay any dividend or any other distribution on
Capital Stock of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the
Company (other than dividends or distributions payable solely in
Capital Stock (other than Redeemable Capital Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock
owned by the Company or a Restricted Subsidiary) or any Affiliate of
the Company (other than any Restricted Subsidiary);
(iii) make any principal payment on, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness of the Company (other than any Subordinated
Indebtedness held by a Restricted Subsidiary);
(iv) make any Investment (other than a Permitted Investment)
in any Person (other than an Investment by the Company or a Restricted
Subsidiary in either (1) a Restricted Subsidiary or the Company or (2)
a Person that becomes a Restricted Subsidiary as a result of such
Investment);
(v) create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than guarantees of any Indebtedness of
any Restricted Subsidiary by the Company or any Restricted Subsidiary);
or
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(vi) declare or pay any dividend or any other distribution on
any Capital Stock of any Restricted Subsidiary to any Person (other
than (1) dividends or distributions paid to the Company or a Restricted
Subsidiary or (2) PRO RATA dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders, provided that
such dividends or distributions do not in the aggregate exceed the
minority stockholders' PRO RATA share of such Restricted Subsidiaries'
net income from the first day of the fiscal quarter beginning
immediately following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso of Section
1010; and (3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date would not exceed an amount equal to the sum of:
(A) the difference between (x) the Cumulative Available Cash
Flow determined at the time of such Restricted Payment and (y) the
product of (I) 1.5 and (II) the cumulative Consolidated Interest
Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the latest fiscal quarter for
which consolidated financial statements of the Company are available
preceding the date of such Restricted Payment (or if such difference
shall be a negative number, minus 100% of such number), PLUS (B) the
aggregate Net Cash Proceeds received by the Company from the issue or
sale (other than to a Restricted Subsidiary) of Capital Stock of the
Company (other than Redeemable Capital Stock) on or after the Issue
Date, excluding any Net Cash Proceeds that are, promptly following
receipt, invested in accordance with clause (ii), (iii) or (v) of
clause (b) hereof and except to the extent such Net Cash Proceeds are
used to incur Indebtedness pursuant to clause (i) of the definition of
Permitted Indebtedness, PLUS (C) the aggregate Net Cash Proceeds
received by the Company on or after the Issue Date from the issuance or
sale (other than to a Restricted Subsidiary) of debt securities or
Redeemable Capital Stock of the Company that have been converted into
or exchanged for Capital Stock (other than Redeemable Capital Stock) of
the Company to the extent such securities were originally sold for
cash, together with the aggregate net cash proceeds received by the
Company (other than from a Restricted Subsidiary) at the time of such
conversion or exchange, plus (D) in the case of the disposition or
repayment of any Investment (other than through share leasing
arrangements) constituting a Restricted Payment made after the Issue
Date (other than in the case contemplated by clause (E) hereof) an
amount
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equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the
cost of the disposition of such Investment, plus (E) in the case of
Investments (other than through share leasing arrangements) made in any
Person other than a Restricted Subsidiary, an amount equal to the
lesser of the Fair Market Value of such Investment and the total amount
of such Investments constituting Restricted Payments if and when such
Person becomes a Restricted Subsidiary less any amounts previously
credited pursuant to clause (D).
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
(b) The provisions of this covenant shall not prohibit, so
long as, with respect to clauses (ii) through (ix) below, no Default or Event of
Default shall have occurred and be continuing (i) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof if at
such date of declaration such payment complied with the provisions of this
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, shares of Capital Stock of the Company (other than
Redeemable Capital Stock); (iii) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue or
sale (other than to a Restricted Subsidiary) of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company or (2) other Subordinated Indebtedness
so long as (A) the principal amount of such new Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) of the Subordinated Indebtedness being so purchased,
redeemed, defeased, acquired or retired, PLUS the lesser of the amount of any
premium required to be paid in connection with such refinancing pursuant to the
terms of the Subordinated Indebtedness being refinanced or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
refinancing, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Indebtedness is subordinated to the Securities to the same extent as such
Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired
and (C) such new Subordinated Indebtedness has an Average Life longer than the
Average Life of the Securities and a final Stated Maturity of principal later
than the Stated Maturity of principal of the Securities; (iv) the extension by
the Company and the Restricted Subsidiaries of trade credit to Unrestricted
Subsidiaries, represented by accounts receivable, extended on
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usual and customary terms in the ordinary course of business; (v) Investments
(other than through share leasing arrangements) in any Person promptly made with
the proceeds of a substantially concurrent issue or sale of Capital Stock (other
than Redeemable Capital Stock) of the Company; (vi) payments made pursuant to
the Shareholder Registration Rights Agreement; (vii) the payment of reasonable
and customary regular compensation and fees to directors of the Company or any
Restricted Subsidiary who are not employees of the Company or any Restricted
Subsidiary; (viii) any "Restricted Payment" as defined in and permitted by the
PCI Indenture made by PCI or any Subsidiary thereof in accordance with the terms
of the PCI Indenture and (ix) any other Restricted Payments in an aggregate
amount not to exceed $1.0 million (or, if non-U.S. Dollar denominated, the U.S.
Dollar Equivalent thereof) at any one time outstanding.
In determining the amount of Restricted Payments permissible
under this covenant, amounts expended pursuant to clauses (i), (vi), (vii),
(viii) and (ix) above shall be included as Restricted Payments.
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES.
(a) The Company will not and will not permit any Restricted
Subsidiary to issue or sell any shares of Capital Stock of a Restricted
Subsidiary (other than to the Company or a Restricted Subsidiary); PROVIDED,
HOWEVER, that this covenant shall not prohibit (i) the issuance and sale of all,
but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary in compliance with the other provisions of this Indenture,
(ii) issuances or sales of Common Stock of a Restricted Subsidiary if (x) the
proceeds of such issuance or sale are applied in accordance with Section 1017
and (y) immediately after giving effect thereto, the Company and its other
Restricted Subsidiaries own no less than 51% of the outstanding Voting Stock of
such Restricted Subsidiary, (iii) issuances or sales of Capital Stock of
Restricted Subsidiaries that are subsidiaries of PCI that are permitted by the
terms of the PCI Indenture or (iv) the ownership by directors of directors'
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
(b) The Company will not permit the direct or indirect
ownership of the Company or any Restricted Subsidiary in the Capital Stock of
any Management Company to fall below the lesser of (i) the maximum ownership
percentage permitted by applicable law and (ii) 51% of the outstanding Capital
Stock of such Management Company, PROVIDED that any increase in such ownership
of the Capital Stock of any Management Company required by any change in
applicable law shall not be required to be completed prior to 365 days from the
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effective date of such change in applicable law, PROVIDED FURTHER that the
Company and the Restricted Subsidiaries may sell all, but not less than all, of
their Capital Stock of any Management Company in accordance with the provisions
of Section 1017.
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with, or
for the benefit of, any Affiliate of the Company (other than the Company or a
Restricted Subsidiary and after the Old Notes are no longer outstanding, a
Majority Owned Restricted Subsidiary) unless (i) such transaction or series of
related transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with unrelated third parties who are not
Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $10
million, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Directors of the Board of
Directors, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view (or if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20 million, the Company shall have delivered an officers'
certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above and such transaction or series of
related transactions has been approved by a majority of the Disinterested
Directors of the Board of Directors (assuming that at least two such Directors
exist), or in the event that at least two members of the Board of Directors are
not Disinterested Directors with respect to any transaction or series of
transactions included in this clause (iii), the Company shall obtain an opinion
from a nationally recognized investment banking firm (or if an investment
banking firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) as described above; PROVIDED,
HOWEVER, that this provision will not restrict (1) any transaction by the
Company or any Restricted Subsidiary with an Affiliate directly related to the
purchase, sale or distribution of products in the ordinary course of business,
including, without limitation, transactions related to the purchase, sale or
distribution of programming, subscriber management services, transmission
services and
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services related to the publication of programming guides, (2) the Company from
paying reasonable and customary regular compensation and fees to directors of
the Company or any Restricted Subsidiary who are not employees of the Company or
any Restricted Subsidiary, including, without limitation, any such fees which
the Company has agreed to pay to any director pursuant to an agreement in effect
on the Issue Date and listed on Schedule A to this Indenture, (3) the payment of
compensation (including stock options and other incentive compensation) to
officers and other employees the terms of which are approved by the Board of
Directors, (4) any transactions pursuant to a Management Agreement, (5) the
Company or any Restricted Subsidiary from making any Restricted Payment in
compliance with Section 1011, (6) (x) transactions pursuant to any Management
Contract, Overhead Agreement or Service Agreement that is entered into prior to
the Issue Date and is listed in Schedule A to this Indenture; or (y)
transactions pursuant to any Organizational Contract, Overhead Agreement or
Service Agreement that is entered into after the Issue Date and has
substantially identical terms as, and is no less favorable to the Company or any
Restricted Subsidiary than, the Organizational Contracts, Overhead Agreements or
Service Agreements, as the case may be, listed in Schedule A to this Indenture,
or (7) amendments, modifications or alterations of Management Agreements,
Organizational Contracts, Overhead Agreements and Service Agreements under (b)
below.
(b) The Company will not, and will not permit any Restricted
Subsidiary to, amend, modify, or in any way alter the terms of any Management
Agreement, Organizational Contract, Overhead Agreement or Service Agreement in a
manner materially adverse to the Company other than (i) by adding new Restricted
Subsidiaries to a Management Agreement, (ii) substituting one Restricted
Subsidiary in place of another Restricted Subsidiary under a Organizational
Contract, (iii) amendments, modifications or alterations required by applicable
law, (iv) amendments, modifications or alterations made to increase the
Company's control over, or interest in, any Management Company or (v)
amendments, modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of the Company as not
materially adverse to the Company.
SECTION 1014. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind, except for Permitted Liens, on or with respect to any of
its property or assets, whether owned at the date of this Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (x) in the case of
any Lien securing Subordinated Indebtedness, the Securities are secured by a
Lien on such
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property, assets or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Securities are equally and ratably secured.
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS BY SUBSIDIARIES.
(a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Securities by such Restricted
Subsidiary on a basis senior to any guarantee of Subordinated Indebtedness or at
least PARI PASSU with any guarantee of Pari Passu Indebtedness; PROVIDED that
this paragraph (a) shall not be applicable to (i) any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary or (ii) any guarantee of any Restricted Subsidiary of Senior Bank
Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the
Securities created pursuant to the provisions described in the foregoing
paragraph (a) shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person who is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by this
Indenture) (ii) the occurrence of any default or breach of any covenant or
agreement under any Indebtedness of the Company arising as a result of the
creation of such guarantee or (iii) the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness). In the event that clause (ii) of this paragraph (b) shall apply
immediately after the creation of such guarantee under paragraph (a) above, then
such guarantee need not be created.
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SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF
CONTROL.
If a Change of Control shall occur at any time, then each
holder of Securities shall have the right to require that the Company purchase
such holder's Securities, in whole or in part in integral multiples of $1,000
principal amount at maturity, at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of the Accreted Value of the
Securities plus accrued and unpaid interest, if any, to the date of purchase
(the "Change of Control Purchase Date"), pursuant to the offer described below
(the "Change of Control Offer") and the other procedures set forth in this
Indenture.
Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Securities by first-class mail, postage prepaid, at
the address of such holder appearing in the Security Register, stating, among
other things, (a) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed, or such later date as is necessary to comply with requirements
under the Exchange Act; (b) that any Security not tendered will continue to
accrue interest or accrete original issue discount, as applicable; (c) that,
unless the Company defaults in the payment of the purchase price, any Securities
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and (d) certain other
procedures that a holder of Securities must follow to accept a Change of Control
Offer or to withdraw such acceptance.
The Company will comply with the applicable tender offer
rules, including Rule l4e-l under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer.
The Company will not enter into any agreement that would
prohibit the Company from making a Change of Control Offer to purchase the
Securities or, if such Change of Control Offer is made, to pay for the
Securities tendered for purchase.
SECTION 1017. LIMITATION ON SALE OF ASSETS.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the Fair Market Value of the shares or assets sold
(as determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution) and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of
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such Asset Sale consists of at least 75% cash or Cash Equivalents.
Notwithstanding the preceding sentence, the Company and its Restricted
Subsidiaries may consummate an Asset Sale without complying with clause (ii) of
the immediately preceding sentence if at least 75% of the consideration for such
Asset Sale consists of any combination of cash, Cash Equivalents and those items
described in clause (b)(ii) or (b)(iii) below.
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale, the Company may use the Net Cash Proceeds thereof, within 12 months
after the later of such Asset Sale or the receipt of such Net Cash Proceeds, (i)
to permanently repay or prepay any then outstanding Senior Bank Indebtedness of
the Company or a Restricted Subsidiary, any then outstanding Indebtedness of a
Restricted Subsidiary or any other then outstanding unsubordinated Indebtedness
of the Company, (ii) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection with
a Permitted Investment made under clause (g), (h) or (i) of the definition
thereof), make capital expenditures (including lease payments for one or more
capital assets) or invest in other tangible assets of the Company or any
Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of the Company and its Restricted
Subsidiaries (or enter into a legally binding agreement to do so within six
months of the date on which such agreement is executed) or (iii) to invest in
properties or assets that replace the properties and assets that are the subject
to such Asset Sale (or enter into a legally binding agreement to do so within
six months of the date on which such agreement is executed). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (ii) or (iii) (without regard to the parenthetical contained
in clauses (ii) or (iii)) above. The amount of such Net Cash Proceeds not so
used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15
million the Company shall, within 30 business days, make an offer to purchase
(an "Excess Proceeds Offer") from all holders of Securities, on a PRO RATA basis
(together with and including any Series C Notes that may be outstanding pursuant
to the Series C Indenture), in accordance with the procedures set forth below,
the maximum Accreted Value of Securities that may be purchased with the Excess
Proceeds less the amount of Excess Proceeds, if any, required to be applied
under the PCI Indenture for the repurchase of PCI Notes and applied under the
Old Indenture and the Series C Indenture for the repurchase of the Old Notes and
Series C Notes, respectively. The offer price shall be payable in cash in an
amount equal to 100% of the Accreted Value of the Securities plus accrued and
unpaid interest, if any (the "Offered
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Price"), to the date such Excess Proceeds Offer is consummated (the "Offer
Date"). To the extent that the aggregate Accreted Value of Securities tendered
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, the Company may use such additional Excess Proceeds for general
corporate purposes. If the Accreted Value of Securities validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Securities to be
purchased will be selected on a PRO RATA basis (together with and including the
Series C Notes that may be outstanding pursuant to the Series C Indenture). Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset to zero.
(d) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Securities shall be purchased by the Company, at the
option of the holder thereof, in whole or in part in integral multiples of
$1,000 on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event the amount of Excess Proceeds is less
than the aggregate Offered Price of all Securities tendered.
(e) The Company will comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer.
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions to the Company or any Restricted Subsidiary on
or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (c) make loans or advances to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to the Company or any other Restricted Subsidiary, except in all such cases for
such encumbrances or restrictions existing under or by reason of (i) any
agreement or instrument in effect on the Issue Date and listed on Schedule D
attached to this Indenture, (ii) applicable law or regulation (including
corporate governance provisions required by applicable law and regulations of
the National Bank of Poland), (iii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation
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thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, (v) any mortgage or other Lien on real
property acquired or improved by the Company or any Restricted Subsidiary after
the Issue Date that prohibits transfers of the type described in (d) above with
respect to such real property, (vi) with respect to a Restricted Subsidiary, an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Company's Capital Stock in, or substantially all the
assets of, such Restricted Subsidiary, (vii) the refinancing of Indebtedness
incurred under the agreements listed on Schedule B attached to this Indenture or
described in clause (v) above, so long as such encumbrances or restrictions are
no less favorable in any material respect to the Company or any Restricted
Subsidiary than those contained in the respective agreement as in effect on the
date of this Indenture, (viii) any such customary encumbrance or restriction
contained in a security document creating a Lien permitted under this Indenture
to the extent relating to the property or asset subject to such Lien, (ix) any
agreement or instrument governing or relating to Senior Bank Indebtedness (an
"Indebtedness Instrument") if such encumbrance or restriction applies only (X)
to amounts which at any point in time (other than during such periods as are
described in the following clause (Y)) (1) exceed amounts due and payable (or
which are to become due and payable within 30 days) in respect of the Securities
or this Indenture for interest, premium and principal (after giving effect to
any realization by the Company under any applicable Currency Agreement), or (2)
if paid, would result in an event described in the following clause (Y) of this
sentence, or (Y) during the pendency of any event that causes, permits or, after
notice or lapse of time, would cause or permit the holder(s) of the Senior Bank
Indebtedness governed by the Indebtedness Instrument to declare any such
Indebtedness to be immediately due and payable or require cash collateralization
or cash cover for such Indebtedness for so long as such cash collateralization
or cash cover has not been provided, or (Z) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness and that do not
individually, or together with all such encumbrances or restrictions, detract
from the value of property or assets of the Company or any Restricted Subsidiary
in any manner material to the Company or any Restricted Subsidiary and (x) with
respect to clause (d) above, any license agreement entered in the ordinary
course of business whereby the Company or any other Restricted Subsidiary grants
a license of programming or other intellectual property to any other Person and
such license agreement prohibits or encumbers the transfer of the licensed
property.
SECTION 1019. LIMITATION ON INVESTMENTS IN UNRESTRICTED
SUBSIDIARIES.
The Company will not make, and will not permit any of its
Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries
(other than Permitted Investments) if, at the time thereof, the amount of such
Investment would exceed the amount
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of Restricted Payments then permitted to be made pursuant to Section 1011. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (a) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Restricted Subsidiary (without duplication under the provisions of clause (a) of
paragraph (iv) of Section 1011 and (b) may be made in cash or property (if made
in property, the Fair Market Value thereof as determined by the Board of
Directors of the Company (whose determination shall be conclusive and evidenced
by a Board Resolution) shall be deemed to be the amount of such Investment for
the purpose of clause (a)).
SECTION 1020. LIMITATION ON LINES OF BUSINESS.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, engage in any business other than the
Cable/Telecommunications Business, the Entertainment/Programming Business or the
DTH Business or any business or activity reasonably related thereto, including
the operation of a subscriber management or service business.
SECTION 1021. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1007 through 1020,
inclusive, if before or after the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
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(a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 2004 on not
less than 30 or more than 60 days' prior notice at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below,
together with accrued interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on February 1 of the years indicated
below (subject to the right of holders of record on relevant record dates to
receive interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2004..................................... 108.750%
2005..................................... 105.833
2006..................................... 102.917
2007 AND THEREAFTER...................... 100.000
</TABLE>
(b) At any time or from time to time prior to February 1, 2002
the Company may redeem up to a maximum of 35% of the initially outstanding
aggregate principal amount at maturity of the Securities with some or all of the
net cash proceeds of one or more Public Equity Offerings at a redemption price
equal to 117.5% of the Accreted Value thereof on the redemption date, plus
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant interest payment dates); PROVIDED that immediately after giving effect
to such redemption, at least 65% of the originally issued aggregate principal
amount at maturity of the Securities remains outstanding. Any such redemption
shall be effected upon not less than 30 nor more than 60 days' notice given
within 30 days after the consummation of a Public Equity Offering.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
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SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee in writing of such
Redemption Date and of the principal amount of Securities to be redeemed and
shall deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE
REDEEMED.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee by such method as the Trustee shall
deem fair and appropriate; PROVIDED, HOWEVER, that no partial redemption shall
reduce the portion of the principal amount of a Security not redeemed to less
than $1,000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed at its registered address.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
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(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest,
if any, to the Redemption
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Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR
COVENANT DEFEASANCE.
The Company may, at its option and at any time, with respect
to the Securities, elect to have either Section 1302 or Section 1303 be applied
to all Outstanding Securities upon compliance with the conditions set forth
below in this Article Thirteen.
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SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1304 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due, (B) the Company's obligations with
respect to such Securities under Sections 304, 305, 308, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801 (3) and in Sections 1007
through 1020 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(4), but, except as
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specified above, the remainder of this Indenture and such Securities shall be
unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT
DEFEASANCE.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably deposit or cause to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in United States Dollars, (B)
U.S. Government Obligations, or (C) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, or a nationally
recognized investment banking firm, to pay and discharge (i) the
principal of, premium, if any, and interest on the relevant Outstanding
Securities on the Stated Maturity (or upon redemption, if applicable)
of such principal, premium, if any, or installment of interest and (ii)
any mandatory redemption or analogous payments applicable to the
Outstanding Securities on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such
Securities; PROVIDED that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities. For this
purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt, PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation
or the specific
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payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are
concerned, at any time during the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the
Company is a party or by which it is bound.
(4) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States stating that (x) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or (y) since
the effective date of the Registration Statement there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred.
(5) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the Holders of the Outstanding Securities
will not recognize income, gain or loss for federal income tax purposes
as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(6) The Company shall have delivered to the Trustee an Opinion
of Counsel in the United States to the effect that after the 91st day
following the deposit or after the date such opinion is delivered, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of
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preferring the Holders of the Securities over the other creditors of
the Company with the intent of hindering, delaying or defrauding
creditors of the Company.
(8) The Company shall have delivered to the Trustee an
Officers Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS
TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding s.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
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SECTION 1306. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; PROVIDED, HOWEVER, that if the Company makes any payment of
principal of (or premium, if any) or interest on any following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
to receive such payment from the money held by the Trustee or Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and, in the case of the Company, attested, all as of the day
and year first above written.
@ENTERTAINMENT, INC.
[SEAL] By
----------------------------
Title:
By
----------------------------
Title:
BANKERS TRUST COMPANY
[SEAL] By
----------------------------
Title:
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<PAGE>
Note: In these Schedules to this Indenture, defined terms have the same meaning
as in the Offering Memorandum.
SCHEDULE A
EXISTING MANAGEMENT CONTRACTS,
OVERHEAD AGREEMENTS AND SERVICE AGREEMENTS
<TABLE>
<CAPTION>
DATE SERVICE AGREEMENTS
<S> <C>
04/01/96 Service Agreement among Poltelkab, WCCI and PCBV.
08/31/95 Service Agreement among ETV, PCBV and WCCI.
07/07/95 Service Agreement among PTK-Lublin, WCCI and PCBV.
07/01/95 Service Agreement among Elektrim TV Sp. Z o.o., WCCI and PCBV.
05/26/95 Service Agreement among PTK-Inzynier (predecessor to
PTK-Szczecin), WCCI and PCBV.
01/01/94 Service Agreement among PTK, S.A., WCCI and PCBV.
01/01/94 Service Agreement among PTK-Katowice, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Krakow, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Warsaw, WCCI and PCBV.
01/11/95 Service Agreement among Telkat, WCCI and PCBV.
11/01/95 Service Agreement among WCCI and PCBV.
DATE MANAGEMENT AGREEMENTS
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. Z o.o.
01/11/95 Management Agreement between WCCI and Telkat.
</TABLE>
101
<PAGE>
<TABLE>
<S> <C>
01/01/95 Management Agreement between WCCI and PTK-Warsaw.
01/01/95 Management Agreement between WCCI and PTK, S.A.
01/01/95 Management Agreement between WCCI and PTK-Krakow.
01/01/94 Management Agreement between WCCI and PTK-Katowice.
DATE CORPORATE OVERHEAD ALLOCATION AGREEMENTS
As of
01/01/96 Corporate Overhead Allocation Agreement dated as of January 1,
1996, among PTK, S.A., PTK-Warsaw, PTK-Ryntronik, PTK-Krakow,
PTK-Inzynier, PTK-Lublin, ETV, Telkat, WCCI and PCBV.
As of
04/01/96 Letter Agreement Between WCCI, PCBV and Poltelkab adding
Poltelkab as a party to the Corporate Overhead Allocation
Agreement.
</TABLE>
102
<PAGE>
SCHEDULE B
INDEBTEDNESS OUTSTANDING ON THE ISSUE DATE
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
EXCLUSIVE OF
BORROWER LENDER ACCRUED INTEREST AMOUNT OF LOAN
<S> <C> <C> <C>
Poland Communications, AmerBank-Bank $6,500,000.00 $6,500,000.00
Inc. Amerykanski w
Polsce S.A.
Szczecinska Telewizja Bank Rozwoju DM 3,204,900.00 DM 3,948,615.17
Kablowa Sp. Z o.o. Eksportu S.A.
Telewizja Kablowa Polski Bank $333,334.00 $500,000.00
Gosat Sp. Z o.o. Eksportu S.A.
</TABLE>
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc., the Indenture dated as of October 31, 1996
between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc. The Indenture dated as of January 20, 1999 between Bankers
Trust Company, as Trustee, and @ Entertainment, Inc. The Indenture dated as of
January 27, 1999 between Bankers Trust Company, as Trustee, and @Entertainment,
Inc.
103
<PAGE>
SCHEDULE C
LIENS EXISTING ON THE ISSUE DATE
PLEDGES OF CAPITAL STOCK
1. 2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to
a Lien existing on this date, are pledged in favor of AmerBank.
2. 2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to Amerbank.
3. 3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of Amerbank.
4. Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. Z o.o. for
the security of certain obligations undertaken by PTK Szczecin Sp. Z
o.o.
5. Lien on certain cable television fixed assets of Telewizja Kablowa
Gosat Sp. Z o.o. and pledge on insurance policies for such assets in
favor of Polski Bank Rozwoju S.A.
104
<PAGE>
SCHEDULE D
AGREEMENTS NOT RESTRICTED UNDER SECTION 1018
A) LIMITATIONS ON ABILITY TO PAY DIVIDENDS OR MAKE DISTRIBUTIONS ON
CAPITAL STOCK.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to pay dividends or make distributions on its capital
stock is limited by its Restated Certificate of Incorporation.
PTK-Operator's ability to pay dividends or make distributions on its
capital stock is limited by the convertible debt of PTK-Operator.
The Statutes, Notarial Deeds or Articles of Association of each of the
Polish Subsidiaries require shareholder vote to pay dividends or make
distribution on capital stock.
B) LIMITATIONS ON THE PAYMENT OF INDEBTEDNESS OWED TO THE COMPANY OR ANY
SUBSIDIARY.
The Indenture dates as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The statutes of PTK-Operator limit the payment on indebtedness owed to
the Company or any Subsidiary.
105
<PAGE>
PCI's ability to make payments on indebtedness is limited by its
Restated Certificate of Incorporation.
PCBV and PCI have subordinated their right to receive payments on their
loans to PTK Warsaw, PTK-Krakow, and PTK-Lublin in favor of AmerBank.
C) LIMITATIONS ON THE ABILITY OF A COMPANY TO MAKE INVESTMENTS IN THE
COMPANY OR ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to make investments in any Subsidiary is limited by its
Restated Certificate of Incorporation.
The Statutes, Notarial Deeds or articles of association of each of the
Polish Subsidiaries require shareholder vote to make certain
investments in the Company or any Subsidiary.
The PCBV Shareholders agreement limits the ability to make investments
in the Company or any Subsidiary.
d) LIMITATIONS ON TRANSFERRING PROPERTY OR ANY ASSETS TO THE COMPANY OR
ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
106
<PAGE>
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to transfer property or assets to any Subsidiaries is
limited by the Company's Restated Certificate of Incorporation.
Certain Polish statutes restrict the transfer of property or any assets
to the Company or any Subsidiary or the conversion of convertible debt.
The PCBV shareholders agreement limits the ability to transfer property
or any assets to the Company or any Subsidiary.
2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to
a Lien existing on this date, are pledged in favor of AmerBank.
2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to AmerBank.
3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of AmerBank.
Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. z o.o. for
the security of certain obligations undertaken by PTK Szczecin
Sp.z o.o.
Lien on certain cable television fixed assets of Telewizja Kablowa
Gosat Sp. z o.o. and assignment of insurance policies for such assets
in favor of Polski Bank Rozwoju S.A.
107
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.1 $200,000,000
@ENTERTAINMENT, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to CEDE & CO., or its registered assigns,
the principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000), on February 1,
2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<CAPTION>
Issue Date: January 27, 1999
<S> <C>
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
A-1
<PAGE>
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: @ENTERTAINMENT, INC.
By:
-------------------------
Title:
By:
-------------------------
Title:
A-3
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------
Authorized Signatory
A-4
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on
February 1, 2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. Thereafter the Company promises to
pay cash interest on the principal amount of this Note on each Interest Payment
Date, as set forth below, at the rate of 14 1/2% per annum (subject to
adjustment as provided below).
Cash Interest will be payable semiannually (to the holders of
record of the Notes (or any predecessor Notes) at the close of business on the
January 15 and July 15 immediately preceding the Interest Payment Date) on each
Interest Payment Date, commencing August 1, 2004. Except in the case of a
Registration Default (as defined herein), the principal of this Note shall not
accrue cash interest until February 1, 2004, except in the case of a default in
payment of the amount due at Maturity, in which case the amount due on this Note
shall bear cash interest at a rate of 17 1/2% per annum (to the extent that the
payment of such interest shall be legally enforceable), which shall accrue from
the date of such default to the date the payment of such amount has been made or
duly provided for. Interest on any overdue principal amount shall be payable on
demand.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th calendar day following the date of original issuance of the Notes,
(ii) the Exchange Offer Registration Statement is not declared effective on or
prior to the 130th calendar day after the date of original issuance of the
Notes, (iii) the Exchange Offer (as such term is defined in the Registration
Rights Agreement) is not consummated on or prior to the 160th calendar day after
the date of original issuance of the Notes or, as the case may be, a Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) with respect to the Notes is not declared effective on or prior to
the 160th day after the date of original issuance of the Notes or (iv) the
Exchange Offer Registration Statement or the Shelf
A-5
<PAGE>
Registration Statement is declared effective but thereafter ceases to be
effective or usable within the applicable period as provided in the Registration
Rights Agreement except pursuant to Section 2(d)(ii) of the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will be required to pay additional
interest in cash on each Interest Payment Date in an amount equal to one-half of
one percent (0.5%) per annum of the applicable Accreted Value, with respect to
the first 90- day period following such Registration Default. The amount of such
additional interest will increase by an additional one-half of one percent
(0.5%) per annum for each subsequent 90- day period until such Registration
Default has been cured, up to a maximum of one and one-half percent (1.5%) per
annum. Such additional interest shall cease to accrue when such Registration
Default has been cured. Upon (x) the filing of the Exchange Offer Registration
Statement after the 70-day period described in clause (i) above, (y) the
effectiveness of the Exchange Offer Registration Statement after the 130-day
period described in clause (ii) above or the period during which it ceases to be
effective or usable as described in clause (iv) above or (z) the consummation of
the Exchange Offer after the 160-day period or the effectiveness of a Shelf
Registration Statement after the 160-day period, as the case may be, described
in clause (iii) above or after the period during which such Shelf Registration
Statement ceases to be effective or usable as described in clause (iv) above,
and provided that none of the conditions set forth in clauses (i), (ii), (iii)
and (iv) above continues to exist, a Registration Default will be deemed to be
cured.
Cash interest on this Note will accrue from the most recent
date to which cash interest has been paid on this Note or the Note surrendered
in exchange herefor or, if no cash interest has been paid, from February 1,
2004; PROVIDED that, if there is no existing default in the payment of cash
interest and if this Note is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
cash interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
A-6
<PAGE>
2. METHOD OF PAYMENT
The Company will pay cash interest (except defaulted interest)
on the principal amount of the Notes on each February 1 and August 1, commencing
August 1, 2004 to the persons who are Holders (as reflected in the Note Register
at the close of business on the January 15 and July 15 immediately preceding the
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer or registration of exchange after such record date;
PROVIDED that, with respect to the payment of principal, the Company will make
payment to the Holder that surrenders this Note to any Paying Agent on or after
February 1, 2009.
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Note Register). If a payment date is a date other than a Business Day at a place
of payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND NOTE REGISTRAR.
Initially, the Trustee will act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Note Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
January 27, 1999 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
A-7
<PAGE>
The Notes are senior unsecured obligations of the Company
ranking pari passu in right of payment with all other existing and future
unsubordinated obligations of the Company and senior in right of payment to any
existing and future obligations of the Company expressly subordinated in right
of payment to the Notes. The Indenture limits the aggregate principal amount at
maturity of the Notes to $256,800,000.
5. OPTIONAL REDEMPTION AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY
OFFERING.
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 2004 on not less than 30
or more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, together with
accrued interest, if any, to the redemption date, if redeemed during the
twelve-month period beginning on February 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2004.................................................. 108.750%
2005.................................................. 105.833
2006.................................................. 102.917
2007 AND THEREAFTER................................... 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% of the initially outstanding aggregate
principal amount at maturity of the Notes with some or all of the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
117.5% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates); PROVIDED that immediately after giving effect to such
redemption, at least 65% of the originally issued aggregate principal amount at
maturity of the Notes remains outstanding. Any such redemption shall be effected
upon not less than 30 nor more than 60 days' notice given within 30 days after
the consummation of a Public Equity Offering.
A-8
<PAGE>
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1,000 principal amount at maturity may be redeemed in
part in integral multiples of $1,000 principal amount at maturity. On and after
the Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) Upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Company purchase such holder's
Notes, in whole or in part in integral multiples of $1,000 principal amount at
maturity, at a purchase price in cash of 101% of the Accreted Value thereof on
the redemption date, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on relevant record dates to
receive interest due on relevant interest payment dates), and (b) upon the
occurrence of an Asset Sale, the Company may be obligated to make an offer to
purchase all or a portion of the outstanding Notes with a portion of the Net
Cash Proceeds of such Asset Sale at a redemption price of 100% of the Accreted
Value thereof on the redemption date plus accrued and unpaid interest, if any,
to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Note Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Note Registrar need
not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
A-9
<PAGE>
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all
purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount at maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity or inconsistency and
make any change that does not materially adversely affect the rights of any
Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
A-10
<PAGE>
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount at maturity of the Notes then outstanding, by written notice to the
Company (and to the Trustee, if such notice is given by the Holders) may declare
all the Notes to be immediately due and payable and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes and
all such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
A-11
<PAGE>
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
A-12
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.2 $56,800,000
@ENTERTAINMENT, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to CEDE & CO., or its registered assigns,
the principal sum of FIFTY SIX MILLION AND EIGHT HUNDRED MILLION DOLLARS
($56,800,000), on February 1, 2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C>
Issue Date: January 27, 1999
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
A-13
<PAGE>
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.]
A-14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: @ENTERTAINMENT, INC.
By:
-----------------------
Title:
By:
----------------------
Title:
A-15
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
-------------------------
Authorized Signatory
A-16
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on February 1,
2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. Thereafter the Company promises to
pay cash interest on the principal amount of this Note on each Interest Payment
Date, as set forth below, at the rate of 14 1/2% per annum (subject to
adjustment as provided below).
Cash Interest will be payable semiannually (to the holders of
record of the Notes (or any predecessor Notes) at the close of business on the
January 15 and July 15 immediately preceding the Interest Payment Date) on each
Interest Payment Date, commencing August 1, 2004. Except in the case of a
Registration Default (as defined herein), the principal of this Note shall not
accrue cash interest until February 1, 2004, except in the case of a default in
payment of the amount due at Maturity, in which case the amount due on this Note
shall bear interest at a rate of 17 1/2% per annum (to the extent that the
payment of such interest shall be legally enforceable), which shall accrue from
the date of such default to the date the payment of such amount has been made or
duly provided for. Interest on any overdue principal amount shall be payable on
demand.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th calendar day following the date of original issuance of the Notes,
(ii) the Exchange Offer Registration Statement is not declared effective on or
prior to the 130th calendar day after the date of original issuance of the
Notes, (iii) the Exchange Offer (as such term is defined in the Registration
Rights Agreement) is not consummated on or prior to the 160th calendar day after
the date of original issuance of the Notes or, as the case may be, a Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) with respect to the Notes is not declared effective on or prior to
the 160th day after the date of original issuance of the Notes or (iv) the
Exchange Offer Registration Statement or the Shelf
A-17
<PAGE>
Registration Statement is declared effective but thereafter ceases to be
effective or usable within the applicable period as provided in the Registration
Rights Agreement except pursuant to Section 2(d)(ii) of the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will be required to pay additional
interest in cash on each Interest Payment Date in an amount equal to one-half of
one percent (0.5%) per annum of the applicable Accreted Value, with respect to
the first 90- day period following such Registration Default. The amount of such
additional interest will increase by an additional one-half of one percent
(0.5%) per annum for each subsequent 90- day period until such Registration
Default has been cured, up to a maximum of one and one-half percent (1.5%) per
annum. Such additional interest shall cease to accrue when such Registration
Default has been cured. Upon (x) the filing of the Exchange Offer Registration
Statement after the 70-day period described in clause (i) above, (y) the
effectiveness of the Exchange Offer Registration Statement after the 130-day
period described in clause (ii) above or the period during which it ceases to be
effective or usable as described in clause (iv) above or (z) the consummation of
the Exchange Offer after the 160-day period or the effectiveness of a Shelf
Registration Statement after the 160-day period, as the case may be, described
in clause (iii) above or after the period during which such Shelf Registration
Statement ceases to be effective or usable as described in clause (iv) above,
and provided that none of the conditions set forth in clauses (i), (ii), (iii)
and (iv) above continues to exist, a Registration Default will be deemed to be
cured.
Cash interest on this Note will accrue from the most recent
date to which cash interest has been paid on this Note or the Note surrendered
in exchange herefor or, if no cash interest has been paid, from February 1,
2004; PROVIDED that, if there is no existing default in the payment of cash
interest and if this Note is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
cash interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
A-18
<PAGE>
2. METHOD OF PAYMENT
The Company will pay interest (except defaulted interest) on
the principal amount of the Notes on each February 1 and August 1, commencing
August 1, 2004, to the persons who are Holders (as reflected in the Note
Register at the close of business on the January 15 and July 15 immediately
preceding the Interest Payment Date), in each case, even if the Note is canceled
on registration of transfer or registration of exchange after such record date;
PROVIDED that, with respect to the payment of principal, the Company will make
payment to the Holder that surrenders this Note to any Paying Agent on or after
February 1, 2009.
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Note Register). If a payment date is a date other than a Business Day at a place
of payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND NOTE REGISTRAR.
Initially, the Trustee will act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Note Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
January 27, 1999 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
A-19
<PAGE>
The Notes are senior unsecured obligations of the Company
ranking pari passu in right of payment with all other existing and future
unsubordinated obligations of the Company and senior in right of payment to any
existing and future obligations of the Company expressly subordinated in right
of payment to the Notes. The Indenture limits the aggregate principal amount at
maturity of the Notes to $256,800,000.
5. OPTIONAL REDEMPTION AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY
OFFERING.
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 2004 on not less than 30
or more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, together with
accrued interest, if any, to the redemption date, if redeemed during the
twelve-month period beginning on February 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2004............................................. 108.750%
2005............................................. 105.833
2006............................................. 102.917
2007 AND THEREAFTER.............................. 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% of the initially outstanding aggregate
principal amount at maturity of the Notes with some or all of the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
117.5% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates); PROVIDED that immediately after giving effect to such
redemption, at least 65% of the originally issued aggregate principal amount at
maturity of the Notes remains outstanding. Any such redemption shall be effected
upon not less than 30 nor more than 60 days' notice given within 30 days after
the consummation of a Public Equity Offering.
A-20
<PAGE>
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1,000 principal amount at maturity may be redeemed in
part in integral multiples of $1,000 principal amount at maturity. On and after
the Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) Upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Company purchase such holder's
Notes, in whole or in part in integral multiples of $1,000 principal amount at
maturity, at a purchase price in cash of 101% of the Accreted Value thereof on
the redemption date, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on relevant record dates to
receive interest due on relevant interest payment dates), and (b) upon the
occurrence of an Asset Sale, the Company may be obligated to make an offer to
purchase all or a portion of the outstanding Notes with a portion of the Net
Cash Proceeds of such Asset Sale at a redemption price of 100% of the Accreted
Value thereof on the redemption date plus accrued and unpaid interest, if any,
to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Note Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Note Registrar need
not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
A-21
<PAGE>
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all
purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount at maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity or inconsistency and
make any change that does not materially adversely affect the rights of any
Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
A-22
<PAGE>
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount at maturity of the Notes then outstanding, by written notice to the
Company (and to the Trustee, if such notice is given by the Holders) may declare
all the Notes to be immediately due and payable and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes and
all such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
A-23
<PAGE>
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
A-24
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- --------------------------------------------------------------------------------
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or __________________, the undersigned confirms that without utilizing
any general solicitation or general advertising that:
[CHECK ONE]
/ /(a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
OR
/ /(b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
A-25
<PAGE>
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date:
------------------------------- -----------------------------------------
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the within-
mentioned instrument in every particular,
without alteration or any change
whatsoever.
Signature Guarantee:
--------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
-------------------------- -----------------------------
NOTICE: To be executed by an
executive officer
A-26
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1016 or Section 1017 of the Indenture, state the
amount (in original principal amount) below:
$
---------------------.
Date:
------------------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
--------------------------------
A-27
<PAGE>
EXHIBIT B
FORM OF RULE 144A CERTIFICATE
To: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust Trustee Administration
Re: @Entertainment, Inc. (the "COMPANY")
14 1/2% SENIOR DISCOUNT NOTES DUE 2009 (THE "NOTEs")
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate
principal amount of Notes, we confirm that such sale has been effected pursuant
to and in accordance with Rule 144A ("RULE 144A") under the Securities Act of
1933, as amended (the "SECURITIES ACT"). We are aware that the transfer of Notes
to us is being made in reliance on the exemption from the provisions of Section
5 of the Securities Act provided by Rule 144A. Prior to the date of this
Certificate we have been given the opportunity to obtain from the Company the
information referred to in Rule 144A(d)(4), and have either declined such
opportunity or have received such information.
You and the Company are entitled to rely upon this Certificate
and are irrevocably authorized to produce this Certificate or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
-----------------------------
Name:
Title:
Address:
A-28
<PAGE>
Date of this Certificate: __________ __, ____
A-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
INDENTURE
Dated as of January 27, 1999
---------------------
$256,800,000 aggregate principal amount at maturity
14 1/2% Senior Discount Notes due 2009
and
14 1/2% Exchange Senior Discount Notes due 2009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
@ENTERTAINMENT, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
ss. 310(a)(1) ........................................ 607
(a)(2) ........................................ 607
(b) ........................................ 608
ss. 312(c) ........................................ 701
ss. 314(a) ........................................ 703
(a)(4) ........................................ 1008(a)
(c)(1) ........................................ 102
(c)(2) ........................................ 102
(e) ........................................ 102
ss. 315(b) ........................................ 601
ss. 316(a)(last
sentence) ........................................ 101 ("Outstanding")
(a)(1)(A) ........................................ 502, 512
(a)(1)(B) ........................................ 513
(b) ........................................ 508
(c) ........................................ 104(d)
ss. 317(a)(1) ........................................ 503
(a)(2) ........................................ 504
(b) ........................................ 1003
ss. 318(a) ........................................ 111
</TABLE>
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES................................................................... 1
RECITALS OF THE COMPANY................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS............................................ 1
Accreted Value....................................................... 2
Acquired Indebtedness................................................ 3
Act ................................................................. 3
Advent .............................................................. 3
Affiliate............................................................ 3
Annualized Pro Forma Consolidated Operating Cash Flow................ 3
Asset Acquisition.................................................... 4
Asset Sale........................................................... 4
Average Life......................................................... 5
Bankruptcy Law....................................................... 5
Board of Directors................................................... 5
Board Resolution..................................................... 5
Business Day......................................................... 5
Cable Television Newco............................................... 5
Cable/Telecommunications Business.................................... 5
Capital Stock........................................................ 6
Capitalized Lease Obligation......................................... 6
Cash Equivalents..................................................... 6
Change of Control.................................................... 6
Commission........................................................... 7
Common Stock......................................................... 7
Company ............................................................. 7
Company Request or Company Order..................................... 8
Consolidated Income Tax Expense...................................... 8
</TABLE>
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Interest Expense........................................ 8
Consolidated Net Income.............................................. 8
Consolidated Operating Cash Flow..................................... 9
Corporate Trust Office............................................... 9
Corporation.......................................................... 9
Cumulative Available Cash Flow....................................... 9
Currency Agreement................................................... 10
Default ............................................................. 10
Defaulted Interest................................................... 10
Depositary........................................................... 10
Disinterested Director............................................... 10
DTH Business......................................................... 10
ECO ................................................................. 10
Entertainment/Programming Business................................... 10
Event of Default..................................................... 10
Exchange Act......................................................... 10
Exchange Offer....................................................... 10
Exchange Offer Registration Statement................................ 11
Exchange Securities.................................................. 11
Fair Market Value.................................................... 11
Federal Bankruptcy Code.............................................. 11
Generally Accepted Accounting Principles............................. 11
GAAP ................................................................ 11
Global Security...................................................... 11
guarantee............................................................ 11
Holder .............................................................. 11
Incur or incur....................................................... 11
Indebtedness......................................................... 12
Indenture............................................................ 13
Initial Securities................................................... 13
Interest Payment Date................................................ 13
Interest Rate Agreements............................................. 13
Investment........................................................... 13
Issue Date........................................................... 13
Lien ... ............................................................ 13
Majority Owned Restricted Subsidiary................................. 13
Management Agreement................................................. 14
Management Company................................................... 14
Maturity ............................................................ 14
Moody's ............................................................. 14
Net Cash Proceeds.................................................... 14
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Officers Certificate................................................. 15
Opinion of Counsel................................................... 15
Organizational Contract.............................................. 15
Outstanding.......................................................... 15
Overhead Agreement................................................... 16
Pari Passu Indebtedness.............................................. 16
Paying Agent......................................................... 16
PCBV................................................................. 16
PCI.................................................................. 17
PCI Indenture........................................................ 17
Permitted Holders.................................................... 17
Permitted Indebtedness............................................... 17
Permitted Investments................................................ 20
Permitted Liens...................................................... 20
Person............................................................... 23
Physical Note........................................................ 23
Poltelkab............................................................ 23
Predecessor Security................................................. 23
Preferred Stock...................................................... 23
Public Equity Offering............................................... 23
Purchase Money Obligation............................................ 23
Qualified Capital Stock.............................................. 23
Qualified Institutional Buyer or QIB................................. 23
Redeemable Capital Stock............................................. 24
Redemption Date...................................................... 24
Redemption Price..................................................... 24
Registration Rights Agreement........................................ 24
Registration Statement............................................... 24
Regular Record Date.................................................. 24
Responsible Officer.................................................. 24
Restricted Payment................................................... 24
Restricted Subsidiary................................................ 24
Rule 144A............................................................ 24
S&P.................................................................. 25
Securities........................................................... 25
Security Register and Security Registrar............................. 25
Senior Bank Indebtedness............................................. 25
Service Agreement.................................................... 25
Shareholder Registration Rights Agreement............................ 25
Shelf Registration Statement......................................... 25
Significant Subsidiary............................................... 25
</TABLE>
<PAGE>
iv
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Special Purpose Vehicle.............................................. 25
Special Record Date.................................................. 26
Stated Maturity...................................................... 26
Subordinated Indebtedness............................................ 26
Subsidiary........................................................... 26
Total Consolidated Indebtedness...................................... 26
Trust Indenture Act.................................................. 26
Trustee ............................................................ 26
Unrestricted Subsidiary.............................................. 26
U.S. Dollar.......................................................... 27
U.S. Dollar Equivalent............................................... 27
U.S. Government Obligations.......................................... 27
Vice President....................................................... 27
Voting Stock......................................................... 27
Wholly Owned......................................................... 27
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS................... 28
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE................. 28
SECTION 104. ACTS OF HOLDERS........................................ 29
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY..................... 30
SECTION 106. NOTICE TO HOLDERS; WAIVER.............................. 31
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS............... 31
SECTION 108. SUCCESSORS AND ASSIGNS................................. 31
SECTION 109. SEPARABILITY CLAUSE.................................... 31
SECTION 110. BENEFITS OF INDENTURE.................................. 32
SECTION 111. GOVERNING LAW.......................................... 32
SECTION 112. LEGAL HOLIDAYS......................................... 32
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY........................................ 32
SECTION 202. RESTRICTIVE LEGENDS.................................... 33
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS........................................ 35
SECTION 302. DENOMINATIONS.......................................... 36
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING......... 36
SECTION 304. TEMPORARY SECURITIES................................... 38
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.... 38
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES............ 39
SECTION 307. SPECIAL TRANSFER PROVISIONS............................ 41
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES....... 44
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED......... 45
SECTION 310. PERSONS DEEMED OWNERS.................................. 47
SECTION 311. CANCELLATION........................................... 47
SECTION 312. COMPUTATION OF INTEREST................................ 47
SECTION 313. FORM OF RULE 144A CERTIFICATE.......................... 48
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE................ 48
SECTION 402. APPLICATION OF TRUST MONEY............................. 49
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT...................................... 49
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..... 51
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE............................................ 52
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM....................... 53
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES............................................ 54
SECTION 506. APPLICATION OF MONEY COLLECTED......................... 54
SECTION 507. LIMITATION ON SUITS.................................... 55
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.................................. 56
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES..................... 56
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE......................... 56
SECTION 511. DELAY OR OMISSION NOT WAIVER........................... 56
SECTION 512. CONTROL BY HOLDERS..................................... 57
SECTION 513. WAIVER OF PAST DEFAULTS................................ 57
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS....................... 57
</TABLE>
<PAGE>
vi
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS..................................... 58
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.............................. 58
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES......................................... 60
SECTION 604. MAY HOLD SECURITIES.................................... 60
SECTION 605. MONEY HELD IN TRUST.................................... 60
SECTION 606. COMPENSATION AND REIMBURSEMENT......................... 60
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY................ 61
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...... 61
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR................. 63
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS........................................... 63
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS........... 64
SECTION 702. REPORTS BY TRUSTEE..................................... 64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS... 64
SECTION 802. SUCCESSOR SUBSTITUTED.................................. 66
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS............. 66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..... 67
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS........ 67
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES................... 68
</TABLE>
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vii
<TABLE>
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<S> <C> <C>
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES...................... 69
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.................... 69
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES..... 69
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES...................... 69
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST... 70
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY....................... 70
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST....... 70
SECTION 1004. CORPORATE EXISTENCE................................... 72
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS..................... 72
SECTION 1006. MAINTENANCE OF PROPERTIES............................. 72
SECTION 1007. INSURANCE............................................. 73
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT................... 73
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS......... 73
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS................. 74
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS..................... 74
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES........................... 77
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES............ 78
SECTION 1014. LIMITATION ON LIENS................................... 79
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
BY SUBSIDIARIES...................................... 80
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL....... 80
SECTION 1017. LIMITATION ON SALE OF ASSETS.......................... 81
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.................... 83
SECTION 1019. LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES 84
SECTION 1020. LIMITATION ON LINES OF BUSINESS....................... 84
SECTION 1021. WAIVER OF CERTAIN COVENANTS........................... 84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION................................... 85
SECTION 1102. APPLICABILITY OF ARTICLE.............................. 85
</TABLE>
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viii
<TABLE>
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<S> <C> <C>
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE................. 86
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED..... 86
SECTION 1105. NOTICE OF REDEMPTION.................................. 86
SECTION 1106. DEPOSIT OF REDEMPTION PRICE........................... 87
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE................. 87
SECTION 1108. SECURITIES REDEEMED IN PART........................... 88
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE........................................... 88
SECTION 1302. DEFEASANCE AND DISCHARGE.............................. 89
SECTION 1303. COVENANT DEFEASANCE................................... 89
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE....... 90
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS........ 92
SECTION 1306. REINSTATEMENT......................................... 92
TESTIMONIUM............................................................... 93
SIGNATURES AND SEALS...................................................... 93
</TABLE>
SCHEDULE A - Existing Management Contracts, Overhead Agreements and Service
Agreements
SCHEDULE B - Indebtedness Outstanding on the Issue Date
SCHEDULE C - Liens Existing on the Issue Date
SCHEDULE D - Agreements Not Restricted Under Section 1018
<PAGE>
ix
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered upon Termination of Restricted
Period
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as
of January 27, 1999 is made and entered into among @ENTERTAINMENT, INC. (the
"Company"), a Delaware corporation, and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("Merrill Lynch") and Deutsche Bank Securities Inc. ("Deutsche Bank
Securities") (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement
dated January 22, 1999 between the Company and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 256,800 of the Company's Units, each Unit consisting of $1,000
aggregate principal amount at maturity of the Company's 14 1/2% Senior Discount
Notes due 2009 (the "Notes") and four Warrants, each Warrant entitling the
holder thereof to purchase 1.7656 shares of common stock, par value $0.01 per
share of the Company. In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Company has agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"COMPANY" shall have the meaning set forth in the preamble and
also includes the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; PROVIDED, HOWEVER, that such
depositary must have an address in the Borough of Manhattan in the City
of New York.
<PAGE>
2
"EXCHANGE NOTES" shall mean 14 1/2% Series B Senior Notes due
2009 of the Company, issued under the Indenture, containing terms
identical to the Notes (except that (a) the Accreted Value of the
Exchange Notes shall be the Accreted Value of the Notes on the date of
the consummation of the Exchange Offer and the issuance of the Exchange
Notes (b) the transfer restrictions thereon pertaining to United States
securities laws shall be eliminated and (c) certain provisions relating
to an increase in the stated rate of interest thereon shall be
eliminated), to be offered to Holders of Registrable Notes in exchange
for Notes pursuant to the Exchange Offer.
"EXCHANGE OFFER" shall mean the exchange offer by the Company
of Exchange Notes for Registrable Notes pursuant to Section 2(a)
hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"HOLDERS" shall mean the Initial Purchasers, for so long as
they own any Registrable Notes, and each of their successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Notes under the Indenture.
"INDENTURE" shall mean the Indenture relating to the Notes
dated as of January 27, 1999 between the Company and Bankers Trust
Company as trustee (the "TRUSTEE"), as the same may be amended from
time to time in accordance with the terms thereof.
"INITIAL PURCHASERS" shall have the meaning set forth in the
preamble.
"ISSUE DATE" means January 27, 1999.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount at maturity of Registrable Notes
outstanding; PROVIDED that whenever the consent or approval of Holders
of a specified percentage of Registrable Notes is required hereunder,
Registrable Notes held by the Company or any of its affiliates (as such
term is defined in Rule 405 under the 1933 Act) shall be disregarded in
determining whether such consent or approval was given by the Holders
of such required percentage or amount.
<PAGE>
3
"NOTES" shall have the meaning set forth in the Preamble.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth
in Section 3(f).
"PERSON" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Notes covered by a
Shelf Registration Statement, and by all other amendments and
supplements to a prospectus, including post-effective amendments, and
in each case including all material incorporated by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
preamble.
"REGISTRABLE NOTES" shall mean the Notes; PROVIDED, HOWEVER,
that any Notes shall cease to be Registrable Notes when (i) a
Registration Statement with respect to such Notes shall have been
declared effective under the 1933 Act and such Notes shall have been
disposed of pursuant to such Registration Statement, (ii) such Notes
shall have been sold to the public pursuant to Rule 144(k) (or any
similar provision then in force, but not Rule 144A) under the 1933 Act,
(iii) such Notes shall have ceased to be outstanding or (iv) such Notes
have been exchanged for Exchange Notes upon consummation of the
Exchange Offer.
"REGISTRATION EXPENSES" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. ("NASD") registration
and filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws and compliance with
the rules of the NASD (including reasonable fees and disbursements of
United States and local counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange Notes or
Registrable Notes), (iii) all expenses of the Company in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, (v) all fees and expenses
incurred in connection with the listing, if any, of any of the
Registrable Notes on any securities exchange or exchanges,
<PAGE>
4
(vi) the fees and disbursements of counsel for the Company and of the
independent public accountants of the Company, including the expenses
of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, (vii) the fees and expenses of the
Trustees, and any escrow agent or custodian, and (viii) in the case of
any Underwritten Offering, any fees and disbursements of the
underwriters customarily required to be paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts
retained by the Company in connection with any Registration Statement,
but excluding (except as otherwise provided herein) fees of United
States, United Kingdom, Polish and other counsel to the underwriters or
the Holders and underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable Notes
by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company which covers any of the Exchange Notes or Registrable
Notes pursuant to the provisions of this Agreement, and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated
by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected
pursuant to Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a shelf registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to
such registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"UNDERWRITTEN OFFERING" shall mean an underwritten offering of
a minimum of US$15 million aggregate principal amount at maturity of
Notes.
2. REGISTRATION UNDER THE 1933 ACT. (a) EXCHANGE OFFER
REGISTRATION. To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
(A) to file within 70 days after the Issue Date an Exchange Offer Registration
Statement covering the offer by the Company to the Holders to exchange all of
the Registrable Notes for Exchange Notes, (B) to cause such Exchange Offer
Registration Statement to be declared effective by the SEC within 130 days after
the Issue Date,
<PAGE>
5
(C) to cause such Registration Statement to remain effective until the closing
of the Exchange Offer and (D) to consummate the Exchange Offer within 160 days
following the Issue Date. The Exchange Notes will be issued under the Indenture.
As soon as practicable, but in no event more than one week, after the
effectiveness of the Exchange Offer Registration Statement, the Company shall
commence the Exchange Offer, it being the objective of such Exchange Offer to
enable each Holder (other than Participating Broker-Dealers) eligible and
electing to exchange Registrable Notes for Exchange Notes (assuming that such
Holder (i) is not an affiliate of the Company within the meaning of Rule 405
under the 1933 Act, (ii) acquires the Exchange Notes in the ordinary course of
such Holder's business and (iii) has no arrangements or understandings with any
Person to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) use the services of the Depositary for the Exchange
Offer with respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at
any time prior to 5:00 P.M. New York City time, on the last business
day on which the Exchange Offer shall remain open, by sending to the
institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such
Notes exchanged; and
(v) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
<PAGE>
6
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange Registrable Notes duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter
of transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in principal
amount at maturity to the principal amount at maturity of the
Registrable Notes of such Holder so accepted for exchange.
Original issue discount will accrete, if prior to February 1,
2004, and cash interest will accrue, if on or after February 1, 2004, on each
Exchange Note exchanged for a Registrable Note, in either case from the last
date on which original issue discount accreted or cash interest was paid, as the
case may be, on the Notes surrendered in exchange therefor. If no cash interest
has been paid on the Notes, such interest will accrue from February 1, 2004. The
Exchange Offer shall not be subject to any conditions, other than (i) that the
Exchange Offer, or the making of any exchange by a Holder, does not violate
applicable law or any applicable interpretation of the Staff of the SEC, and
(ii) the due tendering of Registrable Notes in accordance with the Exchange
Offer. Each Holder of Registrable Notes (other than Participating
Broker-Dealers) who wishes to exchange such Registrable Notes for Exchange Notes
in the Exchange Offer shall represent that (i) it is not an affiliate (as
defined in Rule 405 under the 1933 Act) of the Company, (ii) any Exchange Notes
to be received by it will be acquired in the ordinary course of business and
(iii) at the time of the commencement of the Exchange Offer it has no
arrangement with any Person to participate in the distribution (within the
meaning of the 1933 Act) of the Exchange Notes and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or another
appropriate form under the 1933 Act available. To the extent permitted by law,
the Company shall inform the Initial Purchasers of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall
have the right to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
(b) SHELF REGISTRATION. In the event that (i) any changes in
law or the applicable interpretations of the Staff of the SEC do not permit the
Company to effect the Exchange Offer; (ii) for any reason the Exchange Offer is
not consummated within 160 days following the Issue Date; (iii) any Holder of
Notes notifies the Company prior to the
<PAGE>
7
effectiveness of the Exchange Offer Registration Statement that (A) due to a
change in law or SEC policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or SEC policy it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus is not appropriate or available for such resales
by such Holder, (C) it is a broker-dealer and owns Registrable Notes acquired
directly from the Company or an affiliate of the Company or (D) the Majority
Holders of Notes that are Registrable Notes may not resell the Exchange Notes
acquired by them in the Exchange Offer to the public without restriction under
the 1933 Act and without restriction under applicable blue sky or state
securities laws, the Company shall, at its cost,
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the
Registrable Notes by the Holders from time to time in accordance with
the methods of distribution elected by the Majority Holders of Notes
that are Registrable Notes and set forth in such Shelf Registration
Statement, and use its best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC within 160 days after the
Issue Date. In the event that the Company is required to file a Shelf
Registration Statement upon the request of any Holder (other than the
Initial Purchasers) not eligible to participate in the Exchange Offer
pursuant to clause (iii) above or upon the request of any Initial
Purchaser pursuant to clause (iii)(C) above, the Company shall file and
have declared effective by the SEC both an Exchange Offer Registration
Statement pursuant to Section 2(a) with respect to all Registrable
Notes and a Shelf Registration Statement (which may be a combined
Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Notes held by such
Holder or the Initial Purchasers after completion of the Exchange
Offer;
(B) subject to clause d(ii) below, use its best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the Prospectus forming part thereof to be usable by Holders
for a period of two years from the date the Shelf Registration
Statement is declared effective by the SEC (or one year from the date
the Shelf Registration Statement is declared effective if such Shelf
Registration Statement is filed upon the request of the Initial
Purchasers pursuant to clause (iii)(C) above) or such shorter period
which will terminate when all of the Registrable Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement; and
(C) notwithstanding any other provisions hereof, use its best
efforts to ensure that (x) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto comply in all material respects with the 1933 Act
and the rules and regulations thereunder, (y) any Shelf
<PAGE>
8
Registration Statement and any amendment thereto do not, upon
effectiveness, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (z) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to
such Prospectus (as amended or supplemented from time to time), do not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of
the circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or
amend the Shelf Registration Statement if reasonably requested by the Majority
Holders of Notes that are Registrable Notes with respect to information relating
to the Holders and otherwise as required by Section 3(b) below, to use all
reasonable efforts to cause any such amendment to become effective and such
Shelf Registration to become usable as soon as thereafter practicable and to
furnish to the Holders of Registrable Notes copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) EXPENSES. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or the
Initial Purchasers for the reasonable fees and disbursements of one United
States firm or counsel, one United Kingdom firm or counsel and one Polish firm
or counsel designated in writing by the Majority Holders of the Notes to act as
counsel for the Holders of the Registrable Notes in connection therewith. Each
Holder shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.
(d) EFFECTIVE REGISTRATION STATEMENT. (i) The Company will be
deemed not to have used its best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if it voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Notes covered thereby not
being able to exchange or offer and sell such Registrable Notes during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(k) hereof, if applicable.
(ii) The Company may suspend the availability of the Shelf
Registration Statement and the use of the Prospectus for a period not to exceed
an aggregate of 60 days in
<PAGE>
9
any four month period or four periods not to exceed an aggregate of 120 days in
any 12 month period if such suspension is effected in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, the filing of
public reports with the SEC and during the pendency of material corporate
developments, so long as the Company promptly complies with the requirements of
Section 3(k) hereof (including compliance with the obligation to prepare a
supplement or amendment to a Registration Statement and related Prospectus if
necessary) promptly after the termination of such suspension.
(iii) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; PROVIDED, HOWEVER, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) INCREASE IN INTEREST RATE. In the event that (i) the
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 70th calendar day after the Issue Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 130th calendar day after
the Issue Date, (iii) the Exchange Offer is not consummated on or prior to the
160th calendar day after the Issue Date or, as the case may be, a Shelf
Registration Statement with respect to the Registrable Notes is not declared
effective on or prior to the 160th day after the Issue Date or (iv) the Exchange
Offer Registration Statement or the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable within the applicable
period as provided in this Agreement except pursuant to Section 2(d)(ii) (each
such event referred to in clauses (i) through (iv) above, a "Registration
Default"), the Company shall be required to pay additional interest in cash on
each Interest Payment Date in an amount equal to one-half of one percent (0.5%)
per annum of the Accreted Value of the Notes, with respect to the first 90-day
period following such Registration Default. The amount of such additional
interest will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until such Registration Default has been
cured, up to a maximum of one and one-half percent (1.5%) per annum. Such
additional interest shall cease to accrue when such Registration Default has
been cured. Upon (x) the filing of the Exchange Offer Registration Statement
after the 70-day period described in clause (i) above, (y) the effectiveness of
the Exchange Offer Registration Statement after the 130-day period described in
clause (ii) above or the period during which it ceases to be effective or usable
as described in clause (iv) above or (z) the consummation of the Exchange Offer
after the 160-day
<PAGE>
10
period or the effectiveness of a Shelf Registration Statement after the 160-day
period, as the case may be, described in clause (iii) above or after the period
during which such Shelf Registration Statement ceases to be effective or usable
as described in clause (iv) above, and provided that none of the conditions set
forth in clauses (i), (ii), (iii) and (iv) above continues to exist, a
Registration Default will be deemed to be cured.
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its obligations under Section
2(a) and Section 2(b) hereof may result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2(a) and Section 2(b) hereof.
3. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement,
within the time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company,
(ii) shall, in the case of a Shelf Registration, be available for the
sale of the Registrable Notes by the selling Holders thereof and (iii)
shall comply as to form in all material respects with the non-financial
statement requirements of the applicable form and (except with respect
to the Exchange Offer Registration Statement) include or incorporate by
reference all financial statements required by the SEC to be filed
therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the 1933 Act; and
comply with the provisions of the 1933 Act with respect to the
disposition of all Notes covered by each Registration Statement during
the applicable period in accordance with the intended method or methods
of distribution by the selling Holders thereof;
<PAGE>
11
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Notes, at least five days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Notes is
being filed and advising such Holders that the distribution of
Registrable Notes will be made in accordance with the method elected by
the Majority Holders of Notes that are Registrable Notes; and (ii)
furnish to each Holder of Registrable Notes, to counsel for the Initial
Purchasers, to counsel for the Holders and to each underwriter of an
Underwritten Offering of Registrable Notes, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus,
and any amendment or supplement thereto and such other documents as
such Holder or underwriter may reasonably request, including financial
statements and schedules and, if the Holder so requests, all exhibits
(including those incorporated by reference) in order to facilitate the
public sale or other disposition of the Registrable Notes; and (iii)
subject to the last paragraph of this Section 3, hereby consent to the
use of the Prospectus or any amendment or supplement thereto by each of
the selling Holders of Registrable Notes in connection with the
offering and sale of the Registrable Notes covered by the Prospectus or
any amendment or supplement thereto;
(d) use its best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Notes covered
by a Registration Statement and each underwriter of an Underwritten
Offering of Registrable Notes shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with the Holders in connection with any filings required to
be made with the NASD, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in each such jurisdiction of such
Registrable Notes owned by such Holder; PROVIDED, HOWEVER, that the
Company shall not be required to (i) qualify as a foreign corporation
or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d) or (ii) take
any action which would subject it to general service of process or
taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and U.S. counsel for the Initial Purchasers promptly
and, if requested by such Holder or counsel, confirm such advice in
writing promptly (i) when a Registration Statement has become effective
and when any post-effective amendments and supplements thereto become
effective, (ii) of any request by the SEC or any state securities
authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation
<PAGE>
12
of any proceedings for that purpose, (iv) if, between the effective
date of a Registration Statement and the closing of any sale of
Registrable Notes covered thereby, the representations and warranties
of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to such
offering cease to be true and correct in all material respects, (v) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Notes for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (vi) of the suspension of the availability of the Shelf
Registration Statement and the use of the Prospectus pursuant to
Section 2(d)(ii) hereof or of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement
is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which requires the making of any changes in such Registration Statement
or Prospectus in order to make the statements therein not misleading
and (vii) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as
such broker-dealer may reasonably request, (iii) include in the
Exchange Offer Registration Statement a statement that any
broker-dealer which holds Registrable Notes acquired for its own
account as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer"), and who receives Exchange
Notes for Registrable Notes pursuant to the Exchange Offer, may be a
statutory underwriter and must deliver a Prospectus meeting the
requirements of the 1933 Act in connection with any resale of such
Exchange Notes, (iv) subject to the last paragraph of this Section 3,
hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement
thereto, by any broker-dealer in connection with the sale or transfer
of the Exchange Notes covered by the Prospectus or any amendment or
supplement thereto, and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange
<PAGE>
13
Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Registrable
Notes, it represents that the Registrable Notes to be
exchanged for Exchange Notes were acquired by it as a result
of market-making activities or other trading activities and
acknowledges that it will deliver a Prospectus meeting the
requirements of the 1933 Act in connection with any resale of
such Exchange Notes pursuant to the Exchange Offer; however,
by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act.";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a
Prospectus in connection with the exchange of Registrable Notes, the
broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to cause
to be delivered at the request of an entity representing the
Participating Broker-Dealers (which entity shall be one of the Initial
Purchasers, unless it elects not to act as such representative) only
one, if any, "cold comfort" letter with respect to the Prospectus in
the form existing on the last date for which exchanges are accepted
pursuant to the Exchange Offer and with respect to each subsequent
amendment or supplement, if any, effected during the period specified
in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to
maintain the effectiveness of the Exchange Offer Registration Statement
for a period of 180 days following the closing of the Exchange Offer or
such shorter period which will terminate when the Participating
Broker-Dealers have completed all resales subject to applicable
prospectus-delivery requirements; and
(D) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement
as would otherwise be contemplated by Section 3(b) hereof, or take any
other action as a result of this Section 3(f), for a period exceeding
180 days after the last date for which exchanges are accepted pursuant
to the Exchange Offer (as such period may be extended by the Company)
and Participating Broker-Dealers shall not be authorized by the Company
to, and shall not, deliver such Prospectus after such period in
connection with resales contemplated by this Section 3;
<PAGE>
14
(g) in the case of an Exchange Offer or a Shelf Registration,
furnish U.S. counsel for the Initial Purchasers copies of any request
by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for
additional information;
(h) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement as
soon as practicable and provide prompt notice to each Holder of the
withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each
Holder of Registrable Notes, without charge, at least one conformed
copy of each Registration Statement and any post-effective amendment
thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Notes to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold and not bearing any restrictive legends pertaining to U.S.
securities laws; and cause such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if
any, may reasonably request at least two business days prior to the
closing of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence
of any event or the discovery of any facts, each as contemplated by
Section 3(e)(vi) hereof, use its best efforts to prepare a supplement
or post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes, such Prospectus will not contain
at the time of such delivery any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The Company agrees to notify each Holder to suspend use of
the Prospectus as promptly as practicable after the occurrence of such
an event, and each Holder hereby agrees to suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus
to correct such misstatement or omission. At such time as such public
disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement
of a material fact or to include any omitted material fact, the Company
agrees promptly to notify each Holder of such determination and to
furnish each Holder such numbers of copies of the Prospectus, as
amended or supplemented, as such Holder may reasonably request;
<PAGE>
15
(l) obtain CUSIP numbers for all Exchange Notes, or
Registrable Notes, as the case may be, not later than the effective
date of a Registration Statement, and provide the Trustee with printed
certificates for the Exchange Notes or the Registrable Notes, as the
case may be, in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case
may be, (ii) cooperate with the Trustees and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and (iii) execute,
and use its best efforts to cause the Trustees to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the
Majority Holders of Registrable Notes, if applicable) in order to
expedite or facilitate the disposition of such Registrable Notes and in
such connection whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the
Holders of such Registrable Notes and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in similar underwritten offerings as
may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the Holders of a majority
in principal amount at maturity of the Registrable Notes being
sold) addressed to each selling Holder and the underwriters,
if any, covering the matters customarily covered in opinions
requested in sales of securities or underwritten offerings and
such other matters as may be reasonably requested by such
Holders and underwriters;
(iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public
accountants addressed to the underwriters, if any, and will
use reasonable best efforts to have such letter addressed to
the selling Holders of Registrable Notes, such letters to be
in customary form and covering matters of the type customarily
covered in "cold
<PAGE>
16
comfort" letters to underwriters in connection with similar
underwritten offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such agent for the selling Holders
for the purpose of soliciting purchases of Registrable Notes,
which agreement shall be in form, substance and scope
customary for similar offerings;
(v) if an underwriting agreement is entered into in
the case of an Underwritten Offering, cause the same to set
forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures
set forth in Section 5 hereof with respect to the underwriters
and all other parties to be indemnified pursuant to said
Section; and
(vi) deliver such documents and certificates as may
be reasonably requested and as are customarily delivered in
similar offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto)
and (ii) each closing under any underwriting or similar agreement as
and to the extent required thereunder. In the case of any Underwritten
Offering, the Company shall provide written notice to the Holders of
all Registrable Notes of such Underwritten Offering at least 30 days
prior to the filing of a prospectus supplement for such Underwritten
Offering. Such notice shall (x) offer each such Holder the right to
participate in such Underwritten Offering, (y) specify a date, which
shall be no earlier than 10 days following the date of such notice, by
which such Holder must inform the Company of its intent to participate
in such Underwritten Offering and (z) include the instructions such
Holder must follow in order to participate in such Underwritten
Offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes
and any underwriters participating in any disposition pursuant to a
Shelf Registration Statement and any U.S. counsel or accountant
retained by such Holders or underwriters, all financial and other
records, pertinent corporate documents and properties of the Company
reasonably requested by any such persons, and cause the respective
officers, directors, employees, and any other agents of the Company to
supply all information reasonably requested by any such representative,
underwriter, special counsel or accountant in connection with a
Registration Statement; PROVIDED that any such records, documents,
properties and such information that is designated in writing by the
Company, in good faith, as confidential
<PAGE>
17
at the time of delivery of such records, documents, properties or
information shall be kept confidential by any such representative,
underwriter, special counsel or accountant and shall be used only in
connection with such Registration Statement, unless such information
has become available (not in violation of this agreement) to the public
generally or through a third party without an accompanying obligation
of confidentiality, and except that such representative, underwriter,
special counsel or accountant shall have no liability, and shall not be
in breach of this provision, if disclosure of such confidential
information is made in connection with a court proceeding or required
by law, and the Company shall be entitled to request that such
representative, underwriter, special counsel or accountant sign a
confidentiality agreement to the foregoing effect;
(p) (i) a reasonable time prior to the filing of any Exchange
Offer Registration Statement, any Prospectus forming a part thereof,
any amendment to an Exchange Offer Registration Statement or amendment
or supplement to a Prospectus, provide a copy of such document to the
Initial Purchasers, and make such changes in any such document prior to
the filing thereof as the Initial Purchasers or their U.S. counsel may
reasonably request; (ii) in the case of a Shelf Registration, a
reasonable time prior to filing any Shelf Registration Statement, any
Prospectus forming a part thereof, any amendment to such Shelf
Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Holders of Registrable Notes, to
the Initial Purchasers, to U.S. counsel on behalf of the Holders and to
the underwriter or underwriters of an Underwritten Offering of
Registrable Notes, if any, and make such changes in any such document
prior to the filing thereof as the Holders of Registrable Notes, the
Initial Purchasers on behalf of such Holders, the Initial Purchasers'
counsel and any underwriter may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such
document as shall be reasonably requested by the Holders of Registrable
Notes, the Initial Purchasers on behalf of such Holders or any
underwriter and shall not at any time make any filing of any such
document of which such Holders, the Initial Purchasers on behalf of
such Holders, the Initial Purchasers' U.S. counsel or any underwriter
shall not have previously been advised and furnished a copy or to which
such Holders, the Initial Purchasers on behalf of such Holders, the
Initial Purchasers' counsel or any underwriter shall reasonably object;
(q) in the case of a Shelf Registration, use its best efforts
to cause all Registrable Notes to be listed on any securities exchange
on which similar debt securities issued by the Company are then listed
if requested by the Majority Holders of such class of Registrable Notes
or by the underwriter or underwriters of an Underwritten Offering of
such Registrable Notes, if any;
<PAGE>
18
(r) in the case of a Shelf Registration, use its best efforts
to cause the Registrable Notes to be rated with the appropriate rating
agencies, if so requested by the Majority Holders of any class of
Registrable Notes or by the underwriter or underwriters of an
Underwritten Offering of Registrable Notes, if any, unless the
Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering at least 12 months which shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
and
(t) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter and its U.S. counsel.
In the case of a Shelf Registration Statement, the Company may
(as a condition to such Holder's participation in the Shelf Registration)
require each Holder of Registrable Notes to furnish to the Company such
information regarding such Holder and the proposed distribution by such Holder
of such Registrable Notes as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Notes current at the time of receipt of such notice.
If the Company shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension provided that the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Shelf Registration Statement and shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date when the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions.
<PAGE>
19
4. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an Underwritten Offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such class of
Registrable Notes included in such offering and shall be reasonably acceptable
to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall
indemnify and hold harmless the Initial Purchasers, each Holder, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the respective directors,
officers, employees, agents and each Person, if any, who controls any of such
parties within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Exchange Notes or Registrable Notes were registered under the 1933 Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; PROVIDED
that (subject to Section 5(d) below) any such settlement is effected
with the written consent of the Company; and
<PAGE>
20
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of United States and Polish
counsel chosen by any indemnified party), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened in connection with, or any claim whatsoever
based upon, any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is
not paid under subparagraph (i) or (ii) of this Section 5(a);
PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent (A) arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in or omitted from a
preliminary Prospectus or registration statement and corrected or cured in a
subsequent Prospectus or registration statement or any amendment or supplement
thereto, (ii) made in reliance upon and in conformity with information furnished
to the Company by the Initial Purchasers, any Holder, including Participating
Broker-Dealers, or any underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto), or (B) resulting from the use of the Prospectus during a
period when the use of the Prospectus has been suspended in accordance with
Section 2(d)(ii) or Section 3(e)(vi) hereof, PROVIDED, in each case, that
Holders received prior notice of such suspension;
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Initial Purchasers, each
underwriter who participates in an offering of Registrable Notes and the other
selling Holders and each of their respective directors and officers (including
each officer of the Company who signed the Registration Statement) and each
Person, if any, who controls the Company, the Initial Purchasers, any
underwriter or any other selling Holder within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with information furnished to the Company by such Holder,
as the case may be, expressly for use in the Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
<PAGE>
21
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel, in addition to any local counsel, separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 hereof
(whether or not the indemnified parties are actual or potential parties
thereof), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party;
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel for which they are entitled to indemnification hereunder,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 5(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party for such reasonable fees
and expenses of counsel in accordance with such request prior to the date of
such settlement;
(e) If the indemnification provided for in any of the
indemnity provisions set forth in this Section 5 is for any reason unavailable
to or insufficient to hold harmless an indemnified party in respect of any
losses, liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, the Initial Purchasers on
another hand, and the Holders on another hand, from the offering of the Exchange
Notes or Registrable Notes included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, the
Initial Purchasers on another hand, and the Holders on another hand, in
connection with the statements or omissions
<PAGE>
22
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand, the Initial Purchasers on another hand, and the Holders
on another hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Initial Purchasers or the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Initial Purchasers and the Holders of
the Registrable Notes agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by another
method of allocation which does not take account of the equitable considerations
referred to above in Section 5. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 5 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by an
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 5, each Person, if any, who controls an Initial Purchaser or a
Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such Initial Purchaser or
Holder, and each director of the Company, each officer of the Company who signed
the Registration Statement, and each Person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The parties hereto
agree that any underwriting discount or commission or reimbursement of fees paid
to the Initial Purchasers pursuant to the Purchase Agreement shall not be deemed
to be a benefit received by the Initial Purchasers in connection with the
offering of the Exchange Notes or Registrable Notes included in such offering.
6. MISCELLANEOUS. (a) RULE 144 AND RULE 144A. For so long as
the Company is subject to the reporting requirements of Section 13 or 15 of the
1934 Act, the Company covenants that it will file or furnish the reports
required to be filed or furnished by it under the 1933 Act and Section 13(a) or
15(d) of the 1934 Act and the rules and regulations adopted by the SEC
thereunder, that if it ceases to be so required to file or furnish such reports,
it will upon the request of any Holder of Registrable Notes (i) make publicly
available such information as is necessary to permit sales pursuant to Rule 144
under the 1933 Act, (ii) deliver such information to a prospective purchaser as
is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it
will take such further action as any Holder of Registrable
<PAGE>
23
Notes may reasonably request, and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Notes without registration
under the 1933 Act within the limitation of the exemptions provided by (x) Rule
144 under the 1933 Act, as such Rule may be amended from time to time, (y) Rule
144A under the 1993 Act, as such Rule may be amended from time to time, or (z)
any similar rules or regulations hereafter adopted by the SEC.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered
into and the Company on or after the date of this Agreement will not enter into
any agreement which is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount at maturity of the
outstanding Registrable Notes affected by such amendment, modification,
supplement, waiver or departure; PROVIDED, HOWEVER, that no amendment,
modification, supplement or waiver or consent to any departure from the
provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Notes unless consented to in writing by such Holder.
(d) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any air courier (i) if to a Holder, at
the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 6(d), which
address initially is, with respect to the Initial Purchasers, the address set
forth in the Purchase Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; at the
time received, if mailed or sent by air courier; when answered back, if telexed;
and when receipt is acknowledged, by recipient's telecopy operator, if
telecopied.
<PAGE>
24
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustees,
at the addresses specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) THIRD PARTY BENEFICIARY. The Initial Purchasers shall be
third party beneficiaries to the agreements made hereunder between the Company,
on the one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder. Other than the foregoing sentence, nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchasers, the Holders, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the Company and their
respective successors and the controlling persons and directors, officers,
employees, and agents referred to in Section 5 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole benefit of
the Initial Purchasers, the Holders and the Company and the other persons
referenced by the preceding sentence and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation.
(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE>
25
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
@ENTERTAINMENT, INC.
By:
----------------------------
By:
----------------------------
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------
Name:
Title:
DEUTSCHE BANK SECURITIES
DEUTSCHE BANK SECURITIES INC.
By:
--------------------------
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Registration Rights Agreement
Dated as of January 27, 1999
among
@Entertainment, Inc.
and
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
and
Deutsche Bank Securities
Deutsche Bank Securities Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 5
[Baker & McKenzie Letterhead]
February 12, 1999
@Entertainment, Inc.
One Commercial Plaza
Hartford, Connecticut 06103-3585
Ladies and Gentlemen:
We have acted as counsel to @Entertainment, Inc., a Delaware corporation
(the "Company"), in connection with its filing of a registration statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of $256.8 million
aggregate principal amount at maturity of Series B 14 1/2% Senior Discount Notes
due 2009 ("Exchange Notes") to be issued under an Indenture, dated as of January
27, 1999 (the "Indenture"), between the Company and Bankers Trust Company, as
Trustee.
We have examined the originals, or photostatic or certified copies, of such
records of the Company, certificates of officers of the Company and of public
officials, and such other documents as we have deemed relevant and necessary as
the basis of the opinion set forth below. In such examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as photostatic or certified copies and authenticity of the
originals of such copies.
We are members of the Bar of the State of New York. We have made such
examination of the law of the State of New York, federal law and of the Delaware
General Corporation Law as we have deemed relevant for purposes of this opinion,
and we express no opinion as to laws of any other state or jurisdiction.
Based upon our examination, we are of the opinion that:
1. The Indenture has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
(a) as the enforcement may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to
<PAGE>
@Entertainment, Inc.
February 12, 1999
Page 2
fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and (b)
the waiver in Section 514 of the Indenture may be unenforceable due to
interests of public policy.
2. The Exchange Notes are in the form contemplated by the Indenture, have
been duly authorized by the Company and, when executed by the Company
and authenticated by the Trustee in the manner provided under the
Indenture and delivered in exchange for outstanding 14 1/2% Senior
Discount Notes due 2009 of the Company, will be enforceable against
the Company in accordance with their terms except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law), and will be entitled to the
benefits of the Indenture.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act.
Very truly yours,
/s/ Baker & McKenzie
-------------------------------
Baker & McKenzie
<PAGE>
[Baker & McKenzie Letterhead]
February 12, 1999
@Entertainment, Inc.
One Commercial Plaza
Hartford, CT 06103-3585
Dear Sirs:
We have acted as United States federal income tax counsel to
@Entertainment, Inc. (the "Company") in connection with the determination of the
principal consequences under United States federal income tax law of the
Company's proposed exchange of its 14.5% Series B Senior Discount Notes due 2009
for any and all of its outstanding 14.5% Senior Discount Notes due 2009 (the
"Exchange Offer"), as more completely described in the Registration Statement
dated February 12, 1999 (the "Registration Statement").
As United States federal income tax counsel to the Company we have examined
the Registration Statement and such other documents and records as we deemed
necessary and relevant for rendering our opinion as to the principal United
States federal income tax consequences of the Exchange Offer and of the holding
and disposing of the notes. Unless otherwise defined herein, all terms used
herein shall have the meanings assigned to them in the Registration Statement.
On the basis of the foregoing, and assuming that all relevant documents
have been, or will be, validly authorized, executed and delivered by all the
relevant parties, we are of the opinion that, under present United States
federal income tax laws, the principal United States federal income tax
consequences to holders of the exchange of existing notes for new notes in the
Exchange Offer and of the holding and disposing of the new notes are as
described in the Registration Statement under the caption "United States Tax
Considerations," subject to the limitations and qualifications set forth
therein. Further, our opinion of the principal United States federal income tax
consequences to holders of the exchange of existing notes for new notes in the
Exchange Offer and of the holding and disposing of the new notes is set forth in
the Registration Statement under the caption "United States Tax Considerations,"
and we hereby confirm our opinion as set forth therein.
The foregoing is based on the United States Internal Revenue Code of 1986,
as amended, regulations, rulings, administrative pronouncements and judicial
decisions relating thereto as of the date hereof. Subsequent developments in
these areas could have a material effect on this opinion.
<PAGE>
@Entertainment, Inc.
February 12, 1999
Page 2
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "United States Tax Considerations" in the prospectus forming a part of
the Registration Statement. This consent is not to be construed as an admission
that we are a person whose consent is required to be filed with the Registration
Statement under the provisions of the Securities Act.
Respectfully submitted,
/s/
BAKER & McKENZIE
JOD/LGH/JRH
<PAGE>
1
EXHIBIT 10.10
MANAGEMENT AGREEMENT
Entered into as of ________________ in C between:
A with an office in Hartford, this Agreement as A represented by:
B , referred to in this Agreement as B , represented by:
Article 1
B is a Polish economic entity conducting activities in the territory of the
Republic of Poland and outside its borders.
Article 2
A is a United States of America economic entity.
Article 3
A will provide to B organizational and consulting services pertaining to the
realization of B's objectives according to Article 5 of B's Deed of Association.
Article 4
Obligations outlined in Article 3 of this Agreement relate, in particular, to
the construction and exploitation of a cable television system in the region of
C (the " C System").
Article 5
The parties agree that A will receive from B a consulting management fee as
compensation for services provided pursuant to Article 3 and 4 of this
Agreement.
Article 6
1
<PAGE>
2
The services and expenses for which the consulting management fee described in
Article 5 is due include:
1. Organization consulting on behalf of B .
2. Organization activity directed to the fulfillment of
Article of B Deed of Association.
Article 7
The parties agree that for the fiscal year and for each year thereafter the
consulting management fee defined in Article 5 of this Agreement will be
equal to an equivalent of USD $ (Dollars 00/100) for the System.
Accrued management fees will become payable when and to the extent that B net
income exceeds zero.
Article 8
The amount determined in Article 7 was based on the feasibility study which
served as a basis for the issuance of the permit .
Article 9
The agreement shall continue until and shall be automatically
renewed for successive one (1) year periods unless terminated in writing by
either party at least thirty (30) days prior to the then existing term.
Article 10
This Agreement shall be binding on and inure to the parties' successors and
assigns. This Agreement relates to the operation of the C System. A hereby
acknowledges and agrees the B may assign all or a portion of rights granted to
it herein to any entity(ies) continuing to operate the C System without the
prior consent of A . Any such entity(ies) shall consent to be bound by the
obligations of B to A hereunder. A may assign its rights and obligations
hereunder to an affiliated entity capable of performing the services hereunder
without the prior consent of B .
Article 11
Matters unregulated by this Agreement will be governed by the Civil Code.
2
<PAGE>
3
Article 12
Potential disputes will be resolved by courts headquartered in the United
States.
Article 13
This Agreement was prepared in two counterparts, one for each party.
A
By:
------------------------------
B
By:
------------------------------
3
<PAGE>
1
EXHIBIT 10.11
SERVICE AGREEMENT
dated as of
among
[ PTK Company ] - Owner
A
and
B , As Agent
<PAGE>
2
Service Agreement ("Agreement") effective as of among [PTK Company]
("Owner"), A and B ("Agent"), as agent of A .
WHEREAS, Owner is currently engaged in the construction, development,
operation and management of a cable communications system (the "System") within
the city of C and the surrounding area in the Republic of Poland;
WHEREAS, A , through Agent, and otherwise, has available and has access
to financial, administrative, technical, managerial, supervisory, architectural,
operational, programming, marketing, sales and promotional, personnel, computer
analysts, and other professional and experienced personnel knowledgeable in the
construction, development, operation and management of cable facilities,
including cable communications systems;
WHEREAS, Owner has experienced logistical and economic constraints in
obtaining and maintaining the necessary supply of qualified personnel, materials
and other services and products required to achieve its business goals without
the assistance of an intermediary outside the Republic of Poland, and desires to
engage the services of A , and Agent on a non-exclusive basis to more
efficiently and economically conduct its business;
WHEREAS, Owner desires to engage A to perform, or cause to be
performed, certain services on a non-exclusive basis, and A desires to perform,
or will cause to be performed, said services, in accordance with the terms of
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual premises
and covenants hereinafter set forth, the parties agree with each other as
follows:
ARTICLE 1
THE PARTIES
Section 1.1 Description of the Parties.
(a) Owner is a
(b) A is a
(c) Agent is a
ARTICLE 2
THE SYSTEM
Section 2.1 The-Business of the Owner.
1
<PAGE>
3
The existing business of the Owner is to acquire, construct, own and
operate cable television systems to service the city of C and surrounding areas
in the Republic of Poland. The business of the Owner includes the construction
and development and promotion of the System in the Republic of Poland, the
purchase of equipment, supplies, and other goods and materials for the System,
the evaluation and acquisition of cable television systems, the operation and
maintenance of the Systems and managing personnel needed to carry out its
business goals and objectives and all other functions relating to the successful
operation of a cable television system. The activities as described in this
Section are referred to below as the "Business of the Owner".
ARTICLE 3
SERVICES/FEES/EXPENSES
Section 3.1 Agency Services/Fees/Expenses.
(a) Agency Services: A shall (or may cause its Agent or affiliates, in
its sole discretion, to) provide services to and at the request of Owner
relating to technical, managerial, supervisory, purchasing, operational,
financial and administrative functions ("Agency Services"), as follows:
(i) A shall engage (or cause to be engaged) personnel for the
benefit of and on behalf of Owner as A shall deem necessary and as requested by
Owner to perform the Agency Services. Such personnel, whether located in Poland,
the United States, or elsewhere, shall be engaged substantially full-time in
providing such services. All reasonable out-of-pocket costs and expenses
incurred by A (or Agent or affiliates) relating to these personnel (including,
without limitation, salaries, social security, insurance and other benefits,
housing allowances, travel and entertainment expenses and any other related and
sundry costs) (collectively "Personnel Costs") shall be reimbursed by Owner
pursuant to this Section;
(ii) With the consent of Owner, A shall purchase (or may cause
to be purchased) from unaffiliated third parties, as A shall deem necessary, any
equipment, supplies or other goods or materials to be used or useful for the
Business of Owner. Upon receipt of consideration for such purchases from Owner,
title to the foregoing shall be in Owner. All reasonable out-of-pocket costs and
expenses of unaffiliated third parties incurred by A or Agent or affiliates)
relating to these purchases (including without limitation, any and all
transportation, freight, shipping, import taxes, other taxes, fees, insurance
and brokerage fees) (collectively "Purchasing Costs") shall be reimbursed by
Owner pursuant to this Section;
(iii) A shall, at Owner's request, supervise the
2
<PAGE>
4
payment of, or at A 's election pay, any operating expenses relating to the
Business of the Owner ("Operating Expenses"). Expenses incurred by A or Agent in
accordance with this Subsection shall be reimbursed in full (with interest, if
applicable) by Owner pursuant to this Section;
(iv) A shall be entitled to reimbursement for all reasonable
out-of-pocket costs and expenses charged by unaffiliated third parties and
incurred by A or Agent or any of its affiliates on behalf of Owner in connection
with providing the Agency Services in accordance with this Agreement, including
without limitation, travel, lodging, entertainment, postage, or telephone costs
and expenses.
(v) All reimbursements by Owner shall be in the same currency
as payments, costs and expenses were made or incurred, unless otherwise agreed
to by the parties.
(b) A shall submit to Owner, within 30 days after each calendar
quarter, a statement indicating all payments, costs and expenses made or
incurred by A or Agent or affiliate during such calendar quarter and for which A
seeks to be reimbursed by Owner (each statement being referred to herein
individually as a "Statement" and collectively as "Statements"). Such amounts
shall be reimbursed within thirty (30) days of the date such Statement is
rendered unless otherwise agreed to by the parties. In no event shall any delay
or failure to list any cost or expense on a Statement waive any of A 's rights
to reimbursement upon submission of a Statement by A or its Agent setting forth
such cost or expense.
(c) Owner shall be deemed to have conclusively and irrevocably approved
any and all payments, costs and expenses made or incurred by A or Agent in
accordance with this Agreement (except for any payments, costs and expenses made
or incurred resulting from willful misconduct or gross negligence on the part of
A or Agent as described in Section 6.2 as it relates to Owner's indemnification
obligations set forth in Section 6.2) unless, as to each Statement , written
objection is given, as to each payment, cost or expense objected to, within
thirty (30) days of Owner's receipt of such Statement, specifying either that
(i) Owner notified A or Agent of its disapproval of such payment, cost or
expense prior to its having been made or incurred by WCCI29 A or Agent and
setting forth the specific facts regarding such disapproval, or (ii) A or Agent
was acting with gross negligence or willful misconduct in making or incurring
such payment, cost or expense. If Owner and A or Agent are in disagreement as to
right to reimbursement of a particular payment, cost or expense, the provisions
of Section 8.2 shall apply.
(d) Notwithstanding anything herein to the contrary, neither A nor
Agent nor any of their affiliates shall have any obligation
3
<PAGE>
5
to advance any payments to third parties on behalf of Owner, or make or incur
any fees, costs or expenses required to be paid directly by A , Agent or
affiliates, and such decision shall be within the sole discretion of A or Agent,
and upon making or incurring any such costs and expenses, A (or Agent or
affiliates, if applicable) shall be entitled to reimbursement. This Section
3.1(d) shall not apply to the General Services provided below in Section 3.2(a),
so long as Owner is not in default under Section 3.2(b) or otherwise in material
default under this Agreement. Further, Owner shall continue to have all rights
and powers to make, incur and/or pay directly to any creditor any fees, costs or
expenses related to its Business or otherwise on its own behalf, including,
without limitation, payments and reimbursements made directly to employees of A
or its Agent.
(e) In providing the Services hereunder, A and Agent shall make
reasonable efforts to comply with legal requirements actually known to A , or
Agent, which are applicable to the System and the conduct of the Business of the
Owner. In providing the Services hereunder, A and Agent shall make reasonable
efforts to comply with the requirements actually known to A of the insurance
companies with which insurance covering the System is carried.
Section 3.2 General Services/Fees/Expenses.
(a) General Services: At Owner's request, A or Agent or any of its
affiliates shall provide, on a non-exclusive basis, general administrative
services (other than as described in Section 3.3) to Owner, relating to the use
of A 's and its affiliates phone system(s), office machine(s), office space,
office supplies, computer services, receptionist and other general office
services;
(b) (i) In consideration for the General Services provided under this
Agreement, Owner shall pay A a fee of per calendar quarter, payable in arrears
in legal tender of the United States of America, on or before the last day of
each March, June, September and December, commencing .
(ii) Notwithstanding the provision of Section 3.2 (b)(i) above, if
Owner is obligated to pay management fees to A pursuant to any applicable
management agreement, the fees set forth in Section 3.2(b)(i) are waived for the
period such management agreement is in effect.
Section 3.3 Specific Services/Fees/Expenses.
(a) Specific Services: A shall provide or cause to be provided to
Owner, at Owner's request, legal, financial and other professional services, at
commercially reasonable rates, for specified activities, which services may be
performed by personnel of A or Agent or their affiliates, or by third parties
engaged by
4
<PAGE>
6
A or Agent on behalf of Owner at A 's or Agent's sole discretion ("Specific
Services").
(b) All fees, costs and expenses for Specific Services made, rendered,
or incurred by A , Agent or any of their affiliates from time to time in
accordance with Section 3.3(a), including reasonable out-of-pocket expenses,
shall be separately billed and shall be paid or reimbursed by Owner within
thirty (30) days of receipt of the bill.
(c) The provisions of Section 3.1(d) shall apply to this Section.
Section 3.4 Advances/Interest.
A , Agent or any of their affiliates, may, in accordance with this
Agreement but in no event shall A or its Agent have any obligation to, advance
funds to or on behalf of Owner or make or incur costs or expenses on behalf of
Owner. Any such funds advanced to or on behalf of Owner, or any such costs or
expenses or incurred by A , Agent or any of their affiliates on behalf of Owner
(individually "Advance", collectively "Advances"), shall bear interest at the
Market Interest Rate, as defined hereafter, accruing from and after the date
advanced, made or incurred, as applicable, until paid or reimbursed in full. The
Market Interest Rate shall be the rate of ten percent (10%) per annum for U.S.
dollar denominated advances.
Section 3.5 Documentation.
A and Agent shall promptly supply to Owner on request all supporting
documentation with respect to any payments or reimbursements asserted to be due
from Owner hereunder.
ARTICLE 4
THE ENGAGEMENT
Section 4.1 Engagement of A and Agent.
Owner engages A and Agent, on an non-exclusive basis, to perform the
various Services described in Article 3 of the Systems for the term of this
Agreement. A and Agent each accepts the engagement and agrees to perform the
Services in accordance with this Agreement. The parties acknowledge that, for
the purposes of this Agreement, Agent is acting solely on behalf of and as the
agent for A in carrying out A 's obligations under the terms of this Agreement
and its liability in all respects shall be limited to that status and as
otherwise set forth in Article 6 herein.
Section 4.2 Term of Agreement.
5
<PAGE>
7
(a) The term of this Agreement shall commence as of the date of this
Agreement and terminate on .
(b) The term of this Agreement shall be extended automatically for
successive periods of one calendar year unless a party notifies the others on or
before January 31 of any calendar year (after the year ) of its desire that the
term of this Agreement shall end on December 31 of the same calendar year, and,
in that event, this Agreement shall terminate on the December 31 of that
calendar year.
Section 4.3 Control and Compliance.
(a) It is the intention of the parties that the management and
operation of the System and the Business of the Owner be in compliance with the
pertinent rules, regulations and policies of Polish law. Nothing in this
Agreement shall serve, or shall be construed to serve, to prevent or hinder the
Owner from retaining and exercising full and complete control over the System
and the Business of the Owner, including but not limited to its assets, its
policies and practices, its personnel and the advertising and broadcast on the
System. In the event that the Polish government indicates to Owner, by formal or
informal means, that any term or provision of this Agreement is objectionable
under Polish law, the parties shall promptly make reasonable efforts to modify
this Agreement to the extent necessary to remove the objection of the Polish
government.
(b) No payments shall be made under this Agreement which require the
permission of the National Bank of Poland without the receipt of such
permission.
ARTICLE 5
AUTHORITY OF A AND AGENT
Section 5.1 Grant of Authority.
A (together with its Agent or any affiliates acting on its behalf
pursuant to this Agreement) is an independent contractor respect to the Agency
Services provided in Section 3.1.
ARTICLE 6
RELEASE/INDEMNIFICATION/LIABILITY
Section 6.1 Release.
Owner releases A , Agent, their affiliates, officers, directors,
stockholders, employees, partners, joint ventures, successors and assigns, from
any loss, liability or damage which may arise as a result of or in connection
with:
6
<PAGE>
8
(a) any occurrence to the extent which such loss, liability or damage
is covered by fire insurance or any of the perils covered by extended coverage
or difference of condition endorsements; and/or
(b) act or omission of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners or joint
venturers,successors and assigns other than willful misconduct or gross
negligence in the conduct of its duties unless such action shall have been in
good faith reliance on the opinion of counsel.
Section 6.2 Indemnification and Liability.
(a) Owner hereby indemnifies and holds harmless A , Agent, their
successors and assigns, their affiliates, officers, directors, stockholders,
employees, partners or joint venturers (jointly and severally, "Indemnitee")
from and against all claims and liabilities, whether they proceed to judgment or
are settled, and from and against all out-of-pocket expenses incurred by the
Indemnitee which are payable to any unaffiliated third party in defense of such
claims and liabilities, including reasonable attorney's fees, to which the
Indemnitee may become subject by reason of providing the Agency Services,
General Services, or Specific Services in accordance with this Agreement,
including, without limitation: (1) the choice, manner or extent of any Services
provided; (2) the entering into contractual relationships of any sort, whether
in the name of Indemnitee or Owner, on behalf of the Owner; and (3) the filing
or failure to file reports, notices, certificates or accounting required by any
law, rule, regulation or agreement of any country, state or other governmental
authority; provided, however, that the Indemnitee shall not be indemnified or
reimbursed in relation to any matter with respect to which it shall be
determined in a final judgment by a court of competent jurisdiction that
Indemnitee's action constituted gross negligence or willful misconduct in the
conduct of its duties unless such action shall have been determined to be in
good faith reliance on the opinion of counsel.
(b) The rights accruing to the Indemnitee hereunder shall not exclude
any other right to which it may be or come to be lawfully entitled, nor shall
anything contained herein restrict the right of the Owner to reimburse any
Indemnitee, in any lawful cause, even though not specifically provided for
herein.
(c) A and Agent shall not be liable in any respect for any act or
omission on the part of A , Agent, or any of their affiliates, partners,
officers, directors, stockholders, employees, partners, or joint venturers,
unless a final judgment is rendered by a court of competent jurisdiction that
such act or failure to act constitutes willful misconduct or gross negligence in
the conduct of A 's (or Agent's) duties hereunder unless such action
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9
shall have been in good faith reliance on the opinion of counsel. In no event
shall the officers, directors, stockholders, or employees of A or Agent have any
individual liability in any respect for any act or failure to act under the
terms of this Agreement.
ARTICLE 7
ASSIGNMENT AND SUBORDINATION
Section 7.1 Assignment.
A or Agent may assign its rights under this Agreement to a parent,
affiliate or subsidiary of A or Agent, or as collateral security to any lending
institution providing credit to A or Agent.
Section 7.2 Assignment by Owner.
Owner may assign its rights and interest under this Agreement to any
lending or financial institution providing financing to Owner or to a new owner
of the System.
Section 7.3 Conditions to Assignment.
The following shall apply if any party assigns its interest, by law or
agreement. No assignment, other than to a lender as collateral security, shall
be effective unless and until the assignee assumes in writing or by law (i.e.,
merger or otherwise) all of the obligations of the assignor under this
Agreement. Such assignment shall not relieve the assignor of its obligations
under this Agreement.
ARTICLE 8
DEFAULTS AND DISPUTES
Section 8.1 Termination for Cause.
Owner or A or its Agent on its behalf may terminate this Agreement for
cause upon delivery of a written notice to the other parties.
(a) Owner shall have cause for termination if A or Agent shall default
in the performance of any material covenant, agreement, term or provision of
this Agreement, and the default shall continue for a period of sixty days after
written notice to A or Agent from Owner setting forth the specific default,
provided however, that if A or Agent commences to cure a default within the 60
day period but is unable to complete the cure within the 60 days despite the
exercise of reasonable diligence, A or Agent shall have the right to cure as
long as A or its Agent diligently
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10
prosecutes the cure thereafter.
(b) A or Agent may terminate this Agreement for cause:
(i) If the Owner shall default in the performance of any
material covenant, agreement, term or provision of this Agreement (other than as
contemplated in clause (v) below) and the default shall continue for a period of
60 days after written notice to Owner from A or Agent stating the specific
default.
(ii) If the System shall be damaged by fire or other casualty
and if the Owner fails to commence repairing, restoring, rebuilding or replacing
the portion of the System damaged or destroyed within 60 days after the fire or
other casualty, or shall fail to complete the work within a reasonable period of
time; or
(iii) If the license of or franchise for of the System cannot
be obtained or renewed, or is at any time suspended, terminated, or revoked; or
(iv) If, in the sole discretion of A or its Agent, a material
adverse change occurs or exists at any time in the Business, the System, and/or
the financial condition of Owner; or
(v) If Owner shall fail to make any material payment due
hereunder to A or Agent within 30 days after receiving written notice from A or
Agent of such failure.
In the event this Agreement is terminated for cause under one or more
of the terms of this section, all fees and payments due to A or its Agent
pursuant to this Agreement will remain payable and will be paid by Owner in
full.
Section 8.2 Disputes.
Any dispute arising under this Agreement which Owner, on the one hand,
and A or Agent, on the other hand, cannot resolve within a reasonable time shall
be resolved by arbitration by a board of three arbitrators in the United States,
one to be designated by Owner, one to be designated by A or Agent, and the third
to be designated by the first two arbitrators. The board of arbitrators shall
adopt procedures for the arbitration and, for this purpose, may adopt some or
all of the rules and regulations of the American Arbitration Association. The
cost of any arbitration shall be borne as determined by the board of
arbitrators. The decision of the board shall be in writing and shall be final
and unappealable.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Notice.
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11
Notices given under this Agreement shall be valid only if in writing
and properly mailed. A notice shall be properly mailed only if delivered by
overnight courier, with signature required, or if mailed by certified or
registered mail, if postage is prepaid, and if the notice if properly addressed.
A notice to a party shall be properly addressed only if addressed to the address
of the party set forth under Section 1 or to any other address the party may
designate by giving notice to the other party.
Section 9.2 Interpretation.
Captions and headings used in this Agreement are for reference only and
shall not be considered in connection with the interpretation of any provision
of this Agreement.
A male or female person may be referred to in this Agreement by a
neuter pronoun. A provision of this Agreement which requires a party to perform
an action shall be construed so as to require the party to perform the action or
to cause the action to be performed. The word "include" and variations of the
word such as "includes" and "including" shall not be construed as to limit the
generality of the statements they follow or precede and the phrase "shall not be
limited to" shall be deemed to follow every reference to the word "include" and
its variations. The singular includes the plural, and the plural includes the
singular. "Any" means "any and all".
"Notices" includes notices, consents, "approvals" and other
communications. This Agreement may not be changed or cancelled orally. No person
shall be regarded as a third party beneficiary of this Agreement.
Section 9.3 Status Reports.
Recognizing that each party may find it necessary, from time to time,
to establish to third parties, such as accountants, banks, mortgagees,
shareholders or the like, the financial status of its interest in this
Agreement, Owner and A agree to furnish, as promptly as practicable upon written
request of the other party a written statement as to the status of any matter
pertaining to this Agreement and the rights and obligations created by this
Agreement.
Section 9.4 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. The submission of an
unexecuted copy of this Agreement shall not constitute an offer to be legally
bound by the provisions of the copy submitted; and no party shall be bound by
this Agreement until it is executed by all of the parties. This Agreement may be
executed in counterparts, and each counterpart constitutes an original document.
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12
Section 9.5 Governing Law.
This Agreement shall be governed and construed in accordance with the
laws of the State of Connecticut.
To signify their agreement to the foregoing, the parties hereto have
caused this Agreement to be executed by duly authorized representatives.
[PTK Company]
By:
------------------------------
Its:
By:
------------------------------
Its:
A
By:
------------------------------
Its:
B
By:
------------------------------
Its:
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Exhibit 10.17
AMENDED STOCK OPTION AGREEMENT
BETWEEN
PRZEMYSLAW A. SZMYT
AND @ ENTERTAINMENT, INC.
This Amended Stock Option Agreement ("Option Agreement'),
dated March 31, 1998, is made effective as of June 22, 1997 (the "Effective
Date"), by and between Przemyslaw A. Szmyt ("Szmyt") and @ Entertainment, Inc.,
a Delaware corporation (the "Company"). This Option Agreement replaces and
supersedes the Stock Option Agreement by and between the Company and Szmyt, date
June 22, 1997.
1. Grant of Option and Option Period.
a. The Company hereby grants Szmyt an option (the "Option") to
purchase one hundred thirty one thousand (131,000) shares (the "Shares") of the
Company's common stock (the "Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be fifteen
dollars and twenty-four cents (U.S. $15.24) per share.
b. The option to purchase twenty-six thousand two hundred
(26,200) of these Shares will vest each year on the anniversary date of the
Effective Date beginning with the first anniversary of the Effective Date,
provided, however, that (i) the Option shall vest in full immediately on the
date of change in control of the Company (for purposes of this clause, the term
"change in control" shall have the same meaning, except with respect to the
Company rather than Poland Communications, Inc. ("PCI"), as that term has in the
Indenture dated as of October 31, 1996, between PCI and State Street Bank and
Trust Company as trustee with respect to those certain 9 7/8% Senior Notes of
the Company due 2003 and (ii) no portion of such option shall vest after the
date (the "Cut-Off Date") that is the earlier of (a) the date that the
Employment Agreement (as described in Section 16 of this Agreement) is
terminated , and (b) the date on which the Company sends Szmyt a notice referred
to in Section II of the Employment Agreement.
c. If Szmyt's employment with the Company is terminated for
any reason, Szmyt shall have only sixty (60) days after the Cut-Off Date to
exercise that portion of the Option that has vested as of the Cut-Off Date, and
Szmyt shall have no right to exercise any portion of the Option that has not
then vested.
d. Notwithstanding any other provision of this Option
Agreement, the Option shall expire and be of no further force or effect with
respect to any Shares on the earlier to occur of (i) the tenth anniversary of
the Effective Date or (ii) sixty days after the date that Szmyt ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Szmyt's death, disability, voluntary termination or involuntary termination).
<PAGE>
e. Each exercise of the Option shall reduce, by an equal
number the total number of shares of Company Common stock that may thereafter be
purchased by Szmyt under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Szmyt's lifetime, the Option
can only be exercised by Szmyt. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option or any interest therein contrary
to the provisions hereof, or the levy of any execution, attachment or similar
process upon the Option or any interest therein shall be null and void and
without force or effect. No transfer of the Option by gift in trust to a family
member, by will or by the laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been furnished written notice
thereof executed by the trustee(s) of a trust established for a family member or
the personal representative of the estate of Szmyt which shall be accompanied by
an authenticated copy of the documents appointing such trustee(s) or of the
letters testamentary appointing such personal representative, or such other
evidence as the Company may deem reasonably necessary to establish the validity
of the transfer, and also evidence as the Company may deem reasonably necessary
to establish the acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of the Option transferred by will or by the
laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Szmyt. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The
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reasonable determination of the Company regarding any adjustment will be final
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of the Shares.
5. Restrictions on Transfer of the Shares.
a. For as long as Szmyt is an employee of the Company or any
Associated Company (as that term is used in the Employment Agreement that is
described in Section 16 of this Option Agreement), Szmyt shall not transfer any
Shares to any person or entity other than the Company, unless such shares shall
have been registered pursuant to a Public Offering.
b. After Szmyt is no longer an employee of the Company or any
Associated Company and provided further that such shares shall not have been
registered pursuant to a Public Offering, Szmyt shall not sell, encumber,
pledge, transfer, hypothecate, assign or otherwise dispose of any of the Shares
until Szmyt shall have first offered to sell such Shares to the Company (the
"Offer") in accordance with the following provisions.
c. The Offer made pursuant to Subsection (b) above shall be in
writing, and shall state that Szmyt offers to sell to the Company a specified
number of the Shares owned by Szmyt. For every Offer of the shares pursuant to
Subsection (b) above, the Company shall have a period of fifteen (15) days from
the time of receiving the Offer to accept it; such acceptance shall be in
writing and shall be sent to Szmyt.
d. The purchase price of any of the Shares sold pursuant to
the provisions of Subsection (b) above shall be equal to the price offered to
Szmyt for such shares by a bona fide third party purchaser, as evidenced by a
written offer to purchase executed by such third party. The purchase price shall
be paid to Szmyt in cash within fifteen (15) days of the Company's acceptance of
the Offer. If any of the Shares which are offered for purchase pursuant to the
provisions of Subsection (c) above are not accepted for purchase by the Company
within the time limitations described in Subsection (c), Szmyt may transfer such
shares to such bona fide third party purchaser in accordance with the terms of
such purchaser's offer to purchase referred to in this Subsection (d).
e. As a condition to the transfer of any of the shares issued
pursuant to this Option Agreement, the Company may require an opinion of
Counsel, reasonably satisfactory to the Company, to the effect that such
transfer will not be in violation of the Securities Act of 1933, as amended
(such Act, or any similar Federal statute then in effect, being hereinafter
referred to as the "Act"), or any other applicable securities laws, rules or
regulations, or that such transfer has been registered under Federal and all
other applicable securities laws.
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f. Unless and until the Company shall have received a legal
opinion described in subparagraph (e) hereof, all certificates evidencing any of
the Shares, whether upon initial issuance or any transfer thereof, shall bear
the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY OTHER SECURITIES LAWS, AND THEREFORE CANNOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR ASSIGNED UNLESS THEY ARE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
UNDER ALL OTHER APPLICABLE SECURITIES LAWS, OR UNLESS AN
EXEMPTION THEREFROM IS AVAILABLE.
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF THAT CERTAIN STOCK OPTION AGREEMENT, EFFECTIVE
AS OF JUNE 22, 1997, BETWEEN PRZEMYSLAW A. SZMYT AND @
ENTERTAINMENT, INC., A COPY OF WHICH IS ON FILE IN THE OFFICE
OF THE SECRETARY OF @ ENTERTAINMENT, INC.
6. No Stock Rights.
Szmyt shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Szmyt has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
8. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement, Szmyt,
if requested by the Company and the lead underwriter of any public offering of
the Common Stock or other securities of the Company (the "Lead Underwriter"),
hereby irrevocably agrees not to sell, contract to sell, grant any option to
purchase, transfer the economic risk of ownership in,
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<PAGE>
make any short sale of, pledge or otherwise transfer or dispose of any interest
in any Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock (except
Common Stock included in such public offering or acquired on the public market
after such offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Szmyt further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock or such other
securities subject until the end of such period. The Company and Szmyt
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 8.
9. Registration Rights.
a. Incidental Rights. If the Company at any time proposes to
file with the Securities and Exchange Commission (the "Commission") on its
behalf and/or on behalf of any of its security holders (the "demanding security
holders") a Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act") on any form (other than a Registration Statement on Form
S-4 or S-8 or any successor form for securities to be offered in a transaction
of the type referred to in Rule 145 under the Securities Act or to employees of
the Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
Company, it will give written notice to Szmyt at least sixty (60) days before
the initial filing with the Commission of such Registration Statement, which
notice shall set forth the intended method of disposition of the securities
proposed to be registered by the Company and the intended price range if known.
The notice shall offer to include in such filing the aggregate number of Shares
as Szmyt may request.
Szmyt shall advise the Company in writing within thirty (30)
days after the date of receipt of such offer from the Company, setting forth the
amount of such Shares for which registration is requested. The Company shall
thereupon include in such filing the number of Shares for which registration is
so requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such Shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that, in its opinion, the distribution of the Shares requested to be included in
the registration concurrently with the securities being registered by the
Company or such demanding security holder would materially and adversely affect
the distribution of such securities by the Company or such demanding security
holder, then Szmyt shall reduce the amount of securities he intended to
distribute
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<PAGE>
through such offering on a pro rata basis with all other shareholders requesting
registration of a specified number of their shares (other than any demanding
security holder who initially requested such registration) based on the number
of shares Szmyt requested to be registered divided by the total number of shares
requested to be registered which are subject to decrease pursuant to this
sentence, multiplied by the total number of such shares as the managing
underwriter approves to be registered. Except as otherwise provided in Section
9(c), all expenses of such registration shall be borne by the Company.
b. Registration Procedures. If the Company is required by the
provisions of this Section 9 to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(I) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by Szmyt, but not to exceed one
hundred eighty (180) days.
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of one hundred eighty (180) days;
(iii) furnish to Szmyt such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as Szmyt may reasonably request; and
(iv) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto Rico as
Szmyt shall reasonably request (provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any jurisdiction in which it is not then qualified or to file any general
consent to service of process), and do such other reasonable acts and things as
may be required of it to enable Szmyt to consummate the disposition in such
jurisdiction of the securities covered by such Registration Statement.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 9 in respect of the
securities which are to be registered at the request of Szmyt that Szmyt shall
furnish to the Company such information regarding the securities held by Szmyt
and the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
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c. Expenses. All expenses incurred in complying with Section
9, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 9,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Szmyt; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Szmyt in connection with any registration.
d. Indemnification and Contribution.
(i) In the event of any registration of any of the Shares
under the Securities Act pursuant to this Section 9, the Company shall indemnify
and hold harmless Szmyt, against any losses, claims, damages or liabilities,
joint or several, to which Szmyt may become subject under the Securities Act or
any other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (1)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (2) any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
Szmyt for any legal or any other expenses reasonably incurred by Szmyt in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information regarding Szmyt or his stock furnished to the Company by Szmyt
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Szmyt, and shall survive the transfer
of such securities by Szmyt.
(ii) Szmyt by acceptance hereof, agrees to indemnify and hold
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Szmyt or his stock in writing provided to
the Company
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by Szmyt specifically for use in the following documents and contained, on the
effective date thereof, in any Registration Statement under which securities
were registered under the Securities Act at the request of Szmyt, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto.
(iii) If the indemnification provided for in this Section 9
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(iv) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
10. Representations and Warranties of Szmyt. In order to induce the
Company to accept this Option Agreement, Szmyt hereby represents and warrants to
the Company as follows:
a. Szmyt has received no solicitation or general advertisement
concerning the Company, but rather has become knowledgeable regarding the
business of the Company through personal interaction with the Company.
b. Szmyt confirms that no representations or warranties have
been made to Szmyt regarding the Company and that Szmyt has not relied upon any
representation or warranty in making or confirming this Option Agreement.
c. Szmyt has the ability to bear the economic investment, and
can afford a complete loss of his investment, with respect to the Option and to
the Shares.
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d. Szmyt, either by himself or together with his purchaser
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. Szmyt is accepting the Option, and will be purchasing the
Shares, for investment purposes, for Szmyt's own account and not with a view to,
or for sale in connection with, the distribution thereof.
f. Szmyt is familiar with the nature of, and the risks
attending, investments in securities such as the Option and the Shares, and he
has determined that the acceptance of the Option and the purchase of the Shares
is and will be consistent with his investment objectives.
g. Szmyt has been advised and understands that an investment
in the Option and in the Shares is speculative and involves a high degree of
risk.
h. Szmyt has no reason to anticipate any change in his
personal circumstances, financial or otherwise, which may cause or require sale
or distribution by him of all or any part of the Option or the Shares.
i. Szmyt confirms that he has been given an opportunity to
make any inquiries of the Company and its representatives that he desires to
make.
j. Szmyt is at least twenty-one (21) years of age.
k. Szmyt is aware of and understands the following:
(i) The business of the Company and the risks inherent in that
business;
(ii) That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the Option
or in the Shares or any recommendation or endorsement of the Option or of the
Shares;
(iii) That the Option and the Shares have not been registered
for sale under the Securities Act of 1933, as amended, or under any state "Blue
Sky Law"; and
(iv) That there are substantial restrictions on the
transferability of the Option and of the Shares; there is no public market, and
there will not necessarily be any public market, for the Option or the Shares in
the United States; Szmyt will not be able to avail himself of the provisions of
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act of 1933, as amended, unless all of the conditions of Rule 144 are met, and
9
<PAGE>
accordingly, Szmyt may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
l. If in the future Szmyt desires to offer or dispose of the
Option or any of the Shares or any interest therein, he will do so only in
compliance with applicable securities laws and this Option Agreement.
m. Szmyt understands and agrees that the Company has no
obligation to complete any public or private offering and sale of its Common
Stock to other investors, and that the Company shall have no liability to Szmyt
if it cannot complete any such offering and sale upon terms which, in the
Company's sole discretion, are favorable to the Company.
n. Szmyt acknowledges that there may be restrictions under the
securities laws of the jurisdiction(s) in which he resides on the sale of the
Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
o. Szmyt agrees that the representations and warranties of
Szmyt set forth in this Section 10 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
11. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
12. Benefit.
This Option Agreement shall be binding upon the Company, Szmyt, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Szmyt in furtherance thereof may execute a will directing Szmyt's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Szmyt's estate as provided in this Option Agreement. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto, any rights or remedies under or by reason of this
Option Agreement.
13. Specific Performance.
a. The parties to this Option Agreement hereby agree that an
award of damages alone is inadequate to remedy a breach of terms of this Option
Agreement and that specific performance, injunctive relief or other equitable
remedy is the only way by which the intent of this Option Agreement may be
adequately realized upon breach by one or more of the
10
<PAGE>
parties. Such remedy shall, however, be cumulative and not exclusive, and shall
be in addition to any other remedy which the parties may have.
b. In furtherance of and not in limitation of the foregoing,
should any dispute arise concerning a sale, purchase, encumbrance, pledge,
transfer, hypothecation, assignment or other disposition of the Option or any of
the Shares which is alleged to contravene the provisions of this Option
Agreement, an injunction may be issued restraining any such transaction pending
the determination of such controversy.
14. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
15. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U. S. A.
Facsimile: (860) 293-4297
Attention: John Frelas
11
<PAGE>
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Szmyt:
Przemyslaw A. Szmyt
Orzechowa #3
05830 Madarzyn
Poland
Facsimile: 48-22-729-8397
b. Notice given in accordance with this Section 15 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
16. Entire Agreement. This Option Agreement is subject to that certain
Employment Agreement between Szmyt and Poland Communications, Inc., which was
assigned to the Company as of June 22, 1997, and in the event of a conflict
between them, the provisions of the Employment Agreement shall prevail. Except
as provided in the foregoing sentence, this Option Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by writing executed by all of the parties.
17. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
18. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
19. Counterparts.
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<PAGE>
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option
Agreement effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
By:
-----------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
Przemyslaw A. Szmyt
13
<PAGE>
Exhibit 10.18
ADDENDUM TO THE EMPLOYMENT AGREEMENT
BY AND BETWEEN
POLAND COMMUNICATIONS, INC. AND PRZEMYSLAW SZMYT
EFFECTIVE FEBRUARY 7, 1997
AND ASSUMED BY @ENTERTAINMENT, INC. AS OF JUNE 20, 1997
Pursuant to Section 1.C. of the employment agreement by and between
Poland Communications, Inc. and Przemyslaw Szmyt effective February 7, 1997
and assumed by @Entertainment, Inc. as of June 20, 1997, the Base Salary of
Mr. Szmyt shall be $180,000. This addendum shall be effective as of January
1, 1998.
- -----------------------
Robert E. Fowler III
Chief Executive Officer
@Entertainment, Inc.
- -----------------------
Przemyslaw Szmyt
<PAGE>
Exhibit 10.19
STOCK OPTION AGREEMENT
BETWEEN
PRZEMYSLAW A. SZMYT
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement') is made
effective as of January 26, 1998 (the "Effective Date"), by and between
Przemyslaw A. Szmyt ("Szmyt") and @ Entertainment, Inc., a Delaware corporation
(the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Szmyt an option (the "Option") to
purchase seventy-five thousand (75,000) shares (the "Shares") of the Company's
common stock (the "Common Stock"), with a par value of $0.01 per share, pursuant
to the terms and conditions set forth in this Option Agreement. The exercise
price for the Option (the "Exercise Price") shall be twelve dollars and
twenty-four cents (U.S. $12.24) per share.
b. The option to purchase twenty-five thousand (25,000) of
these Shares will vest each year on the anniversary date of the Effective Date
beginning with the first anniversary of the Effective Date, provided, however,
that (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Poland Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends Szmyt a notice referred to in Section II of
the Employment Agreement.
c. If Szmyt's employment with the Company is terminated for
any reason, Szmyt shall have only sixty (60) days after the Cut-Off Date to
exercise that portion of the Option that has vested as of the Cut-Off Date, and
Szmyt shall have no right to exercise any portion of the Option that has not
then vested.
d. Notwithstanding any other provision of this Option
Agreement, the Option shall expire and be of no further force or effect with
respect to any Shares on the earlier to occur of (i) the tenth anniversary of
the Effective Date or (ii) sixty days after the date that Szmyt ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Szmyt's death, disability, voluntary termination or involuntary termination).
<PAGE>
e. Each exercise of the Option shall reduce, by an equal
number the total number of shares of Company Common stock that may thereafter be
purchased by Szmyt under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Szmyt's lifetime, the Option
can only be exercised by Szmyt. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option or any interest therein contrary
to the provisions hereof, or the levy of any execution, attachment or similar
process upon the Option or any interest therein shall be null and void and
without force or effect. No transfer of the Option by gift in trust to a family
member, by will or by the laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been furnished written notice
thereof executed by the trustee(s) of a trust established for a family member or
the personal representative of the estate of Szmyt which shall be accompanied by
an authenticated copy of the documents appointing such trustee(s) or of the
letters testamentary appointing such personal representative, or such other
evidence as the Company may deem reasonably necessary to establish the validity
of the transfer, and also evidence as the Company may deem reasonably necessary
to establish the acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of the Option transferred by will or by the
laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Szmyt. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The
2
<PAGE>
reasonable determination of the Company regarding any adjustment will be final
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of the Shares.
5. No Stock Rights.
Szmyt shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Szmyt has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement, Szmyt,
if requested by the Company and the lead underwriter of any public offering of
the Common Stock or other securities of the Company (the "Lead Underwriter"),
hereby irrevocably agrees not to sell, contract to sell, grant any option to
purchase, transfer the economic risk of ownership in, make any short sale of,
pledge or otherwise transfer or dispose of any interest in any Common Stock or
any securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (except Common Stock included in such
public offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended, or such shorter
period of time as the Lead Underwriter shall specify. Szmyt further agrees to
sign such documents as may be requested by the Lead Underwriter to effect the
foregoing and agrees that the Company may impose stop-transfer instructions with
respect to such Common Stock or such other securities subject until the end of
such period. The Company and Szmyt acknowledge that each Lead Underwriter of a
public offering of the Company's stock, during the period of such offering and
for the 180-day period thereafter, is an intended beneficiary of this Section 7.
3
<PAGE>
8. Registration Rights.
a. Registration Procedures. The Company will, as expeditiously
as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective;
(iii) furnish to Szmyt such number of copies of a prospectus,
in conformity with the requirements of the Securities Act, and such other
documents, as Szmyt may reasonably request; and
(iv) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto Rico as
Szmyt shall reasonably request (provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any jurisdiction in which it is not then qualified or to file any general
consent to service of process).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Szmyt that Szmyt shall
furnish to the Company such information regarding the securities held by Szmyt
and the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
b. Expenses. All expenses incurred in complying with Section
8, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 8,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Szmyt; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Szmyt in connection with any registration.
c. Indemnification and Contribution.
4
<PAGE>
(i) In the event of any registration of any of the Shares
under the Securities Act pursuant to this Section 8, the Company shall indemnify
and hold harmless Szmyt, against any losses, claims, damages or liabilities,
joint or several, to which Szmyt may become subject under the Securities Act or
any other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (1)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (2) any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
Szmyt for any legal or any other expenses reasonably incurred by Szmyt in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information regarding Szmyt or his stock furnished to the Company by Szmyt
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Szmyt, and shall survive the transfer
of such securities by Szmyt.
(ii) Szmyt by acceptance hereof, agrees to indemnify and hold
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Szmyt or his stock in writing provided to
the Company by Szmyt specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement under
which securities were registered under the Securities Act at the request of
Szmyt, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto.
(iii) If the indemnification provided for in this Section 8
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities
5
<PAGE>
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
(iv) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
9. Representations and Warranties of Szmyt.
In order to induce the Company to accept this Option Agreement, Szmyt hereby
represents and warrants to the Company as follows:
a. If in the future Szmyt desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. Szmyt acknowledges that there may be restrictions under the
securities laws of the jurisdiction(s) in which he resides on the sale of the
Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
c. Szmyt agrees that the representations and warranties of
Szmyt set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
11. Benefit.
6
<PAGE>
This Option Agreement shall be binding upon the Company, Szmyt, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Szmyt in furtherance thereof may execute a will directing Szmyt's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Szmyt's estate as provided in this Option Agreement. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto, any rights or remedies under or by reason of this
Option Agreement.
12. Specific Performance.
The parties to this Option Agreement hereby agree that an award of damages alone
is inadequate to remedy a breach of terms of this Option Agreement and that
specific performance, injunctive relief or other equitable remedy is the only
way by which the intent of this Option Agreement may be adequately realized upon
breach by one or more of the parties. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy which the
parties may have.
13. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
7
<PAGE>
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U. S. A.
Facsimile: (860) 293-4297
Attention: John Frelas
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Szmyt:
Przemyslaw A. Szmyt
Orzechowa #3
05830 Madarzyn
Poland
Facsimile: 48-22-729-8397
b. Notice given in accordance with this Section 15 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
15. Entire Agreement.
This Option Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by
writing executed by all of the parties.
16. Severability.
8
<PAGE>
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
17. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
18. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option
Agreement effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
By: /S/ ROBERT E. FOWLER, III
-----------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
/S/ PRZEMYSLAW A. SZMYT
--------------------------------
Przemyslaw A. Szmyt
9
<PAGE>
Exhibit 10.21
AMENDED STOCK OPTION AGREEMENT
BETWEEN
DAVID WARNER
AND @ ENTERTAINMENT, INC.
This Amended Stock Option Agreement ("Option Agreement'), dated March 31,
1998, is made effective as of June 22, 1997 (the "Effective Date"), by and
between David Warner ("Warner") and @ Entertainment, Inc., a Delaware
corporation (the "Company"). This Option Agreement replaces and supersedes the
Stock Option Agreement by and between the Company and Warner, date June 22,
1997.
1. Grant of Option and Option Period.
a. The Company hereby grants Warner an option (the "Option") to
purchase one hundred thirty one thousand (131,000) shares (the "Shares") of the
Company's common stock (the "Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be fifteen
dollars and twenty-four cents (U.S. $15.24) per share.
b. The option to purchase twenty-six thousand two hundred (26,200) of
these Shares will vest each year on the anniversary date of the Effective Date
beginning with the first anniversary of the Effective Date, provided, however,
that (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Poland Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends Warner a notice referred to in Section II of
the Employment Agreement.
c. If Warner's employment with the Company is terminated for any
reason, Warner shall have only sixty (60) days after the Cut-Off Date to
exercise that portion of the Option that has vested as of the Cut-Off Date, and
Warner shall have no right to exercise any portion of the Option that has not
then vested.
d. Notwithstanding any other provision of this Option Agreement, the
Option shall expire and be of no further force or effect with respect to any
Shares on the earlier to occur of (i) the tenth anniversary of the Effective
Date or (ii) sixty days after the date that Warner ceases to be an employee of
the company for any reason whatsoever (including but not limited to Warner's
death, disability, voluntary termination or involuntary termination).
<PAGE>
e. Each exercise of the Option shall reduce, by an equal number the
total number of shares of Company Common stock that may thereafter be purchased
by Warner under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Warner's lifetime, the Option
can only be exercised by Warner. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option or any interest therein contrary
to the provisions hereof, or the levy of any execution, attachment or similar
process upon the Option or any interest therein shall be null and void and
without force or effect. No transfer of the Option by gift in trust to a family
member, by will or by the laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been furnished written notice
thereof executed by the trustee(s) of a trust established for a family member or
the personal representative of the estate of Warner which shall be accompanied
by an authenticated copy of the documents appointing such trustee(s) or of the
letters testamentary appointing such personal representative, or such other
evidence as the Company may deem reasonably necessary to establish the validity
of the transfer, and also evidence as the Company may deem reasonably necessary
to establish the acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of the Option transferred by will or by the
laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Warner. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The
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reasonable determination of the Company regarding any adjustment will be final
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of the Shares.
5. Restrictions on Transfer of the Shares.
a. For as long as Warner is an employee of the Company or any
Associated Company (as that term is used in the Employment Agreement that is
described in Section 16 of this Option Agreement), Warner shall not transfer any
Shares to any person or entity other than the Company, unless such shares shall
have been registered pursuant to a Public Offering.
b. After Warner is no longer an employee of the Company or any
Associated Company and provided further that such shares shall not have been
registered pursuant to a Public Offering, Warner shall not sell, encumber,
pledge, transfer, hypothecate, assign or otherwise dispose of any of the Shares
until Warner shall have first offered to sell such Shares to the Company (the
"Offer") in accordance with the following provisions.
c. The Offer made pursuant to Subsection (b) above shall be in writing,
and shall state that Warner offers to sell to the Company a specified number of
the Shares owned by Warner. For every Offer of the shares pursuant to Subsection
(b) above, the Company shall have a period of fifteen (15) days from the time of
receiving the Offer to accept it; such acceptance shall be in writing and shall
be sent to Warner.
d. The purchase price of any of the Shares sold pursuant to the
provisions of Subsection (b) above shall be equal to the price offered to Warner
for such shares by a bona fide third party purchaser, as evidenced by a written
offer to purchase executed by such third party. The purchase price shall be paid
to Warner in cash within fifteen (15) days of the Company's acceptance of the
Offer. If any of the Shares which are offered for purchase pursuant to the
provisions of Subsection (c) above are not accepted for purchase by the Company
within the time limitations described in Subsection (c), Warner may transfer
such shares to such bona fide third party purchaser in accordance with the terms
of such purchaser's offer to purchase referred to in this Subsection (d).
e. As a condition to the transfer of any of the shares issued pursuant
to this Option Agreement, the Company may require an opinion of Counsel,
reasonably satisfactory to the Company, to the effect that such transfer will
not be in violation of the Securities Act of 1933, as amended (such Act, or any
similar Federal statute then in effect, being hereinafter referred to as the
"Act"), or any other applicable securities laws, rules or regulations, or that
such transfer has been registered under Federal and all other applicable
securities laws.
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f. Unless and until the Company shall have received a legal opinion
described in subparagraph (e) hereof, all certificates evidencing any of the
Shares, whether upon initial issuance or any transfer thereof, shall bear the
following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER
SECURITIES LAWS, AND THEREFORE CANNOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED UNLESS THEY ARE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL OTHER APPLICABLE
SECURITIES LAWS, OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF THAT CERTAIN STOCK OPTION AGREEMENT, EFFECTIVE AS OF JUNE
22, 1997, BETWEEN DAVID WARNER AND @ ENTERTAINMENT, INC., A COPY OF
WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF @ ENTERTAINMENT,
INC.
6. No Stock Rights.
Warner shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Warner has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue the number of shares of Common Stock deliverable
upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance in
accordance with the terms of this Agreement, be duly authorized, fully paid and
non-assessable.
8. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement, Warner, if
requested by the Company and the lead underwriter of any public offering of the
Common Stock or other securities of the Company (the "Lead Underwriter"), hereby
irrevocably agrees not to sell, contract to sell, grant any option to purchase,
transfer the economic risk of ownership in,
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make any short sale of, pledge or otherwise transfer or dispose of any
interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or
acquired on the public market after such offering) during the 180-day period
following the effective date of a registration statement of the Company filed
under the Securities Act of 1933, as amended, or such shorter period of time
as the Lead Underwriter shall specify. Warner further agrees to sign such
documents as may be requested by the Lead Underwriter to effect the foregoing
and agrees that the Company may impose stop-transfer instructions with
respect to such Common Stock or such other securities subject until the end
of such period. The Company and Warner acknowledge that each Lead Underwriter
of a public offering of the Company's stock, during the period of such
offering and for the 180-day period thereafter, is an intended beneficiary of
this Section 8.
9. Registration Rights.
a. Incidental Rights. If the Company at any time proposes to file with
the Securities and Exchange Commission (the "Commission") on its behalf and/or
on behalf of any of its security holders (the "demanding security holders") a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act") on any form (other than a Registration Statement on Form S-4
or S-8 or any successor form for securities to be offered in a transaction of
the type referred to in Rule 145 under the Securities Act or to employees of the
Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
Company, it will give written notice to Warner at least sixty (60) days before
the initial filing with the Commission of such Registration Statement, which
notice shall set forth the intended method of disposition of the securities
proposed to be registered by the Company and the intended price range if known.
The notice shall offer to include in such filing the aggregate number of Shares
as Warner may request.
Warner shall advise the Company in writing within thirty (30) days
after the date of receipt of such offer from the Company, setting forth the
amount of such Shares for which registration is requested. The Company shall
thereupon include in such filing the number of Shares for which registration is
so requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such Shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that, in its opinion, the distribution of the Shares requested to be included in
the registration concurrently with the securities being registered by the
Company or such demanding security holder would materially and adversely affect
the distribution of such securities by the Company or such demanding security
holder, then Warner shall reduce the amount of securities he intended to
distribute
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through such offering on a pro rata basis with all other shareholders
requesting registration of a specified number of their shares (other than any
demanding security holder who initially requested such registration) based on
the number of shares Warner requested to be registered divided by the total
number of shares requested to be registered which are subject to decrease
pursuant to this sentence, multiplied by the total number of such shares as
the managing underwriter approves to be registered. Except as otherwise
provided in Section 9(c), all expenses of such registration shall be borne by
the Company.
b. Registration Procedures. If the Company is required by the
provisions of this Section 9 to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(i) prepare and file with the Commission a Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by Warner, but not to exceed one
hundred eighty (180) days.
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of one hundred eighty (180) days;
(iii) furnish to Warner such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as Warner may reasonably request; and
(iv) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions within the United States and Puerto Rico as Warner
shall reasonably request (provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any jurisdiction in which it is not then qualified or to file any general
consent to service of process), and do such other reasonable acts and things as
may be required of it to enable Warner to consummate the disposition in such
jurisdiction of the securities covered by such Registration Statement.
It shall be a condition precedent to the obligation of the Company to take
any action pursuant to this Section 9 in respect of the securities which are to
be registered at the request of Warner that Warner shall furnish to the Company
such information regarding the securities held by Warner and the intended method
of disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
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c. Expenses. All expenses incurred in complying with Section 9,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 9,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Warner; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Warner in connection with any registration.
d. Indemnification and Contribution.
(i) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Section 9, the Company shall indemnify and
hold harmless Warner, against any losses, claims, damages or liabilities, joint
or several, to which Warner may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (1)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (2) any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
Warner for any legal or any other expenses reasonably incurred by Warner in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information regarding Warner or his stock furnished to the Company by Warner
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Warner, and shall survive the transfer
of such securities by Warner.
(ii) Warner by acceptance hereof, agrees to indemnify and hold
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Warner or his stock in writing provided to
the Company
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by Warner specifically for use in the following documents and contained, on the
effective date thereof, in any Registration Statement under which securities
were registered under the Securities Act at the request of Warner, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto.
(iii) If the indemnification provided for in this Section 9 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(iv) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
10. Representations and Warranties of Warner. In order to induce the Company
to accept this Option Agreement, Warner hereby represents and warrants to the
Company as follows:
a. Warner has received no solicitation or general advertisement
concerning the Company, but rather has become knowledgeable regarding the
business of the Company through personal interaction with the Company.
b. Warner confirms that no representations or warranties have been made
to Warner regarding the Company and that Warner has not relied upon any
representation or warranty in making or confirming this Option Agreement.
c. Warner has the ability to bear the economic investment, and can
afford a complete loss of his investment, with respect to the Option and to the
Shares.
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d. Warner, either by himself or together with his purchaser
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. Warner is accepting the Option, and will be purchasing the Shares,
for investment purposes, for Warner's own account and not with a view to, or for
sale in connection with, the distribution thereof.
f. Warner is familiar with the nature of, and the risks attending,
investments in securities such as the Option and the Shares, and he has
determined that the acceptance of the Option and the purchase of the Shares is
and will be consistent with his investment objectives.
g. Warner has been advised and understands that an investment in the
Option and in the Shares is speculative and involves a high degree of risk.
h. Warner has no reason to anticipate any change in his personal
circumstances, financial or otherwise, which may cause or require sale or
distribution by him of all or any part of the Option or the Shares.
I. Warner confirms that he has been given an opportunity to make any
inquiries of the Company and its representatives that he desires to make.
j. Warner is at least twenty-one (21) years of age.
k. Warner is aware of and understands the following:
(i) The business of the Company and the risks inherent in that
business;
(ii) That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the Option
or in the Shares or any recommendation or endorsement of the Option or of the
Shares;
(iii) That the Option and the Shares have not been registered for
sale under the Securities Act of 1933, as amended, or under any state "Blue Sky
Law"; and
(iv) That there are substantial restrictions on the
transferability of the Option and of the Shares; there is no public market, and
there will not necessarily be any public market, for the Option or the Shares in
the United States; Warner will not be able to avail himself of the provisions of
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act of 1933, as amended, unless all of the conditions of Rule 144 are met, and
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accordingly, Warner may have to hold the Option and the Shares and bear the
economic risk of this investment for an indefinite period.
l. If in the future Warner desires to offer or dispose of the Option or
any of the Shares or any interest therein, he will do so only in compliance with
applicable securities laws and this Option Agreement.
m. Warner understands and agrees that the Company has no obligation to
complete any public or private offering and sale of its Common Stock to other
investors, and that the Company shall have no liability to Warner if it cannot
complete any such offering and sale upon terms which, in the Company's sole
discretion, are favorable to the Company.
n. Warner acknowledges that there may be restrictions under the
securities laws of the jurisdiction(s) in which he resides on the sale of the
Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
o. Warner agrees that the representations and warranties of Warner set
forth in this Section 10 shall survive the exercise of the Option and the
termination or expiration of this Option Agreement for a period of six months.
11. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
12. Benefit.
This Option Agreement shall be binding upon the Company, Warner, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Warner in furtherance thereof may execute a will directing Warner's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Warner's estate as provided in this Option Agreement. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto, any rights or remedies under or by reason of this
Option Agreement.
13. Specific Performance.
a. The parties to this Option Agreement hereby agree that an award of
damages alone is inadequate to remedy a breach of terms of this Option Agreement
and that specific performance, injunctive relief or other equitable remedy is
the only way by which the intent of this Option Agreement may be adequately
realized upon breach by one or more of the
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parties. Such remedy shall, however, be cumulative and not exclusive, and shall
be in addition to any other remedy which the parties may have.
b. In furtherance of and not in limitation of the foregoing, should any
dispute arise concerning a sale, purchase, encumbrance, pledge, transfer,
hypothecation, assignment or other disposition of the Option or any of the
Shares which is alleged to contravene the provisions of this Option Agreement,
an injunction may be issued restraining any such transaction pending the
determination of such controversy.
14. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
15. Notice.
a. All notices required to be given under the terms of this Agreement
or which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U. S. A.
Facsimile: (860) 293-4297
Attention: Przemyslaw A. Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
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If to Warner:
David Warner
Millbank House
Cranbrook Road
Tenterden
Kent, England
TN30 6UN
Facsimile: ( )
b. Notice given in accordance with this Section 15 shall be deemed to
have been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its
new address in writing to the other party.
16. Entire Agreement. This Option Agreement is subject to that certain
Employment Agreement between Warner and Poland Communications, Inc., which was
assigned to the Company as of June 22, 1997, and in the event of a conflict
between them, the provisions of the Employment Agreement shall prevail. Except
as provided in the foregoing sentence, this Option Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by writing executed by all of the parties.
17. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
18. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
19. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
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IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
By:
-------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
David Warner
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Exhibit 10.22
STOCK OPTION AGREEMENT
BETWEEN
DAVID WARNER
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement'), is made
effective as of January 26, 1998 (the "Effective Date"), by and between David
Warner ("Warner") and @ Entertainment, Inc., a Delaware corporation (the
"Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Warner an option (the "Option")
to purchase seventy-five thousand (75.00) shares (the "Shares") of the Company's
common stock (the "Common Stock"), with a par value of $0.01 per share, pursuant
to the terms and conditions set forth in this Option Agreement. The exercise
price for the Option (the "Exercise Price") shall be twelve dollars and
twenty-four cents (U.S. $12.24) per share.
b. The option to purchase twenty-five thousand (25,000) of
these Shares will vest each year on the anniversary date of the Effective Date
beginning with the first anniversary of the Effective Date, provided, however,
that (i) the Option shall vest in full immediately on the date of change in
control of the Company (for purposes of this clause, the term "change in
control" shall have the same meaning, except with respect to the Company rather
than Polish Communications, Inc. ("PCI"), as that term has in the Indenture
dated as of October 31, 1996, between PCI and State Street Bank and Trust
Company as trustee with respect to those certain 9 7/8% Senior Notes of the
Company due 2003) and (ii) no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (a) the date that the Employment
Agreement (as described in Section 16 of this Agreement) is terminated , and (b)
the date on which the Company sends Warner a notice referred to in Section II of
the Employment Agreement.
c. If Warner's employment with the Company is terminated for
any reason, Warner shall have only sixty (60) days after the Cut-Off Date to
exercise that portion of the Option that has vested as of the Cut-Off Date, and
Warner shall have no right to exercise any portion of the Option that has not
then vested.
d. Notwithstanding any other provision of this Option
Agreement, the Option shall expire and be of no further force or effect with
respect to any Shares on the earlier to occur of (i) the tenth anniversary of
the Effective Date or (ii) sixty days after the date that Warner ceases to be an
employee of the company for any reason whatsoever (including but not limited to
Warner's death, disability, voluntary termination or involuntary termination).
e. Each exercise of the Option shall reduce, by an equal
number the total number of shares of Company Common stock that may thereafter be
purchased by Warner under the Option.
<PAGE>
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997 Stock Option
Plan). This Option is not assignable by operation of law or subject to
execution, attachment or similar process. During Warner's lifetime, the Option
can only be exercised by Warner. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option or any interest therein contrary
to the provisions hereof, or the levy of any execution, attachment or similar
process upon the Option or any interest therein shall be null and void and
without force or effect. No transfer of the Option by gift in trust to a family
member, by will or by the laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been furnished written notice
thereof executed by the trustee(s) of a trust established for a family member or
the personal representative of the estate of Warner which shall be accompanied
by an authenticated copy of the documents appointing such trustee(s) or of the
letters testamentary appointing such personal representative, or such other
evidence as the Company may deem reasonably necessary to establish the validity
of the transfer, and also evidence as the Company may deem reasonably necessary
to establish the acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of the Option transferred by will or by the
laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Warner. The terms of the Option
transferred in trust shall be binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The reasonable
determination of the Company regarding any adjustment will be final and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of the Shares.
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<PAGE>
5. No Stock Rights.
Warner shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Warner has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-Up Agreement
a. Agreement. During the term of this Option Agreement,
Warner, if requested by the Company and the lead underwriter of any public
offering of the Common Stock or other securities of the Company (the "Lead
Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant
any option to purchase, transfer the economic risk of ownership in, make any
short sale of, pledge or otherwise transfer or dispose of any interest in any
Common Stock or any securities convertible into or exchangeable or exercisable
for or any other rights to purchase or acquire Common Stock (except Common Stock
included in such public offering or acquired on the public market after such
offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Warner further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock or such other
securities subject until the end of such period. The Company and Warner
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 7.
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8. Registration Rights.
a. Registration Procedures. The Company will, as expeditiously
as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective;
(iii) furnish to Warner such number of copies of a prospectus,
in conformity with the requirements of the Securities Act, and such other
documents, as Warner may reasonably request; and
(iv) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto Rico as
Warner shall reasonably request (provided, however, that the Company shall not
be obligated to qualify as a foreign corporation to do business under the laws
of any jurisdiction in which it is not then qualified or to file any general
consent to service of process).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Warner that Warner shall
furnish to the Company such information regarding the securities held by Warner
and the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
b. Expenses. All expenses incurred in complying with Section
8, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 8,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Warner; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Warner in connection with any registration.
c. Indemnification and Contribution.
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(i) In the event of any registration of any of the Shares
under the Securities Act pursuant to this Section 8, the Company shall indemnify
and hold harmless Warner, against any losses, claims, damages or liabilities,
joint or several, to which Warner may become subject under the Securities Act or
any other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (1)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (2) any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
Warner for any legal or any other expenses reasonably incurred by Warner in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information regarding Warner or his stock furnished to the Company by Warner
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Warner, and shall survive the transfer
of such securities by Warner.
(ii) Warner by acceptance hereof, agrees to indemnify and hold
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information regarding Warner or his stock in writing provided to
the Company by Warner specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement under
which securities were registered under the Securities Act at the request of
Warner, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto.
(iii) If the indemnification provided for in this Section 8
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities
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<PAGE>
or expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
(iv) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
9. Representations and Warranties of Warner. In order to
induce the Company to accept this Option Agreement, Warner hereby represents and
warrants to the Company as follows:
a. If in the future Warner desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. Warner acknowledges that there may be restrictions under
the securities laws of the jurisdiction(s) in which he resides on the sale of
the Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
c. Warner agrees that the representations and warranties of
Warner set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
11. Benefit.
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This Option Agreement shall be binding upon the Company, Warner, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Warner in furtherance thereof may execute a will directing Warner's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Warner's estate as provided in this Option Agreement. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto, any rights or remedies under or by reason of this
Option Agreement.
12. Specific Performance.
The parties to this Option Agreement hereby agree that an award of damages alone
is inadequate to remedy a breach of terms of this Option Agreement and that
specific performance, injunctive relief or other equitable remedy is the only
way by which the intent of this Option Agreement may be adequately realized upon
breach by one or more of the parties. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy which the
parties may have.
13. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U. S. A.
Facsimile: (860) 293-4297
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<PAGE>
Attention: Przemyslaw Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Warner:
David Warner
Millbank House
Cranbrook Road
Tenterden
Kent, England
TN30 6UN
Facsimile:
b. Notice given in accordance with this Section 15 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
15. Entire Agreement. This Option Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by writing executed by all of the parties.
16. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
17. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
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<PAGE>
18. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option
Agreement effective as of the date first above written.
@ Entertainment, Inc., a
Delaware corporation
By:
----------------------------------
Robert E. Fowler, III
Its: Chief Executive Officer
--------------------------------
David Warner
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<PAGE>
Exhibit 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made effective
as of June 8, 1998 by and between Donald Miller-Jones, of 91 St. Georges Square
Mews, Aylesford Street, London SW1V 3RZ, United Kingdom ("Employee"), and
@Entertainment, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, Employee desires to serve as Chief Financial Officer of the
Company, and the Company desires to employ Employee as Chief Financial Officer,
and Employee and the Company desire to embody in this Agreement the terms and
conditions under which Employee shall be employed;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee and the Company,
intending to be and being legally bound hereby, AGREE AS FOLLOWS:
1. DEFINITIONS
For the purposes of this agreement, the following definitions shall
apply:
a. "Affiliate" of the Company shall mean any other Person controlling,
controlled by, or under common control with the Company.
b. "Associated Company" of the Company shall mean any Affiliate of the
Company or any Subsidiary.
c. "Business" means: (i) providing cable television services anywhere
in Poland; (ii) providing television programming in any city in Poland where the
Company or any Associated Company provides such programming; (iii) providing
local-loop telephony in any city in Poland where the Company or any Associated
Company provides such telephony; and (iv) providing direct to home television
services anywhere in Poland.
d. "Company" shall mean @Entertainment, Inc., a Delaware corporation.
e. "Dollars" and "$" each mean the lawful currency of the United States
of America.
f. "Effective Date" shall mean the date first above written.
g. "Employee" shall mean Donald Miller-Jones.
<PAGE>
h. "Person" shall mean a natural person, a juridical person of any
kind, a general or limited partnership, a corporation, a limited liability
company or partnership, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or other entity, or a governmental
entity or any department, agency or political subdivision thereof.
i. "Pounds" and "(pound)" shall mean the lawful currency of the United
Kingdom.
j. "Subsidiary" shall mean each Person, in which the Company, at the
time as of which such determination is being made, owns, directly or indirectly,
any of the outstanding voting securities.
2. EMPLOYMENT, DUTIES AND RESPONSIBILITIES
a. Performance of Job Duties. Employee shall be the Chief Financial
Officer of the Company, and shall perform the services and duties customary for
that position, all subject to the general supervision of the Board of Directors
of the Company. Employee shall also perform such services and duties with
respect to Associated Companies as may be assigned to him by the Company's Board
of Directors, so long as such services and duties are consistent with his
position as a senior executive officer of the Company. Among other things,
Employee shall have general supervision over all of the financial matters of the
Company and with respect to its Subsidiaries. Employee shall devote all of his
skill, time, attention, and best efforts to furthering the Company's businesses,
affairs, interests and welfare.
b. Appointment to Management Board or Supervisory Board. The parties
contemplate that Employee may be appointed to the Management Board or
Supervisory Board of one or more Associated Companies operating in Poland. The
compensation arrangements in connection with such appointment(s) shall be the
subject of a separate agreement between Employee and each such Associated
Company.
c. Compliance with Laws. Employee agrees to comply with all federal,
state, local, and foreign laws, and to comply with all of the Company's rules,
regulations, and policies in force during his employment, as well as with all
the rules, regulations and policies prescribed for all Associated Companies for
whom or with respect to the business of which he performs services during the
term of this Agreement.
d. Location. Employee shall travel to the United Kingdom, Poland, the
United States, and such other locations as necessary to fulfill his duties as
described in Section 2(a).
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<PAGE>
3. TERM OF AGREEMENT
This Agreement shall go into effect as of the Effective Date, and shall
continue until the third anniversary of the Effective Date unless terminated
earlier as provided in Section 8.
4. COMPENSATION
As compensation and consideration for the performance by Employee of
his obligations under this Agreement, Employee shall be entitled to the
following:
a. Base Salary. During the term of this Agreement, the Company shall
pay to Employee a base annual salary (the "Base Salary") totaling Ten Thousand
Two Hundred Twenty-Five Pounds ((pound)10,225) per month, less any compensation
paid to Employee pursuant to any separate agreement entered into as contemplated
by Section 2(b) above. This Base Salary may be increased by the Company in its
sole discretion. The Base Salary shall be paid in installments payable every
second week.
b. Payment of Bonuses During First Year. Employee shall be eligible for
a performance bonus of up to Thirty Thousand Five Hundred Pounds ((pound)30,500)
during the first year of his employment hereunder. Of such amount, Employee
shall be guaranteed to receive at least Eighteen Thousand Three Hundred Pounds
((pound)18,300). The performance bonus for such first year shall be paid to
Employee within thirty (30) days of the first anniversary of the Effective Date.
c. Eligibility for Subsequent Bonus. Employee shall be eligible for a
discretionary performance bonus reflecting the value of his services during the
second and third year of his employment hereunder. The performance criteria,
amounts, if any, and payment dates for such bonus shall be determined by the
Board of Directors of the Company in its sole discretion.
d. Expenses. The Company shall reimburse Employee for reasonable
out-of-pocket expenses incurred by Employee in connection with the business of
the Company and in performance of his duties under this Agreement, upon his
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the policies of the Company
relating to business-related expenses as in effect from time to time.
e. Additional Employee Benefits and Perquisites. In addition to the
foregoing, Employee shall receive the following benefits and perquisites:
(1) Benefits. During the term of this Agreement, Employee
shall be eligible to participate in such benefit programs as are made
available from time to time to senior executives of the Company, such
benefits to include health insurance coverage for Employee and his
immediate family under the Company's health insurance program, life
insurance in the amount of three times annual compensation, and annual
pension contribution in the amount of ten (10) percent of Employee's
Base Salary.
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<PAGE>
(2) Vacation. Employee shall be entitled to twenty (20) days
of paid vacation during each calendar year. Employee shall also be
entitled to all paid holidays given by the Company to its executives.
(3) Automobile. The Company shall provide Employee with
(pound)30,000 toward the purchase of an automobile, which automobile
shall belong to Employee at the termination of this Agreement.
f. Deduction and Withholding; Place of Payment. All compensation and
other benefits to or on behalf of Employee pursuant to this Agreement shall be
subject to such deductions and withholding as may be agreed to by Employee or
required by applicable law. All cash compensation payable to Employee hereunder
shall be paid at such bank or other place within or without the United Kingdom
and/or Poland, as Employee may direct, subject to applicable laws.
g. Stock Options. The Company shall grant to Employee a
non-transferable option to purchase Two Hundred Thousand (200,000) shares of the
Company's common stock, $0.01 par value per share, upon the terms and conditions
of a stock option agreement in the form of Exhibit A.
5. CONFIDENTIALITY
a. Confidentiality. Employee acknowledges that during the course of his
employment with the Company he will, from time to time, be invested with
confidential information (including without limitation) trade secrets relating
to, inter alia, the business practices, technology, products, business plans,
marketing, financial information and plans, and research activities of the
Company, Associated Companies, and customers and suppliers of the foregoing.
Employee hereby agrees to keep all such information confidential, regardless
whether documents containing such information are marked as confidential, if he
has been told, or should reasonably know or expect, that such information is
confidential. Employee also agrees that he will not, except as required in the
conduct of Company business, or as authorized in writing by the Company,
publish, disclose or make use of any such information or knowledge unless and
until such information or knowledge shall have ceased to be secret or
confidential without his fault.
b. Exclusive Property. Employee confirms that all confidential
information is the exclusive property of the Company. All business records,
papers and other documents kept or made by Employee relating to the business of
the Company or an Associated Company shall be and remain the property of the
Company or the Associated Company. Upon the termination of his employment with
the Company or upon the request of the Company at any time, Employee shall
promptly deliver to the Company, and shall retain no copies of, any written
materials, records and documents made by Employee or coming into his possession
concerning the business
4
<PAGE>
or affairs of the Company or an Associated Company other than personal notes or
correspondence of Employee not containing proprietary information relating to
such business or affairs.
c. Inventions, Rights to Improvements. Employee hereby sells, transfers
and assigns to the Company any right, title and interest in any and all
inventions, improvements, discoveries, and ideas (whether or not patentable or
copyrightable) (collectively the "Inventions") which Employee may make or
conceive while acting in his capacity as an employee of the Company during the
term of this Agreement, and which relate to or are applicable to any phase of
the Company's and the Associated Companies' businesses. Employee hereby agrees
to communicate promptly and disclose to the Company all information, details and
data pertaining to the aforementioned Inventions and to execute any documents
and do any act reasonably necessary to perform Employee's duties under this
Section 5(c). Employee also affirms that if any such Inventions shall be deemed
confidential by the Company, he will not disclose any such Inventions without
prior written authorization from a majority of the members of the Company's
Board of Directors.
d. Survival of Section. The provisions of this Section 5 shall survive
the termination of this Agreement for any reason whatsoever.
6. EXCLUSIVITY / NON-COMPETITION
a. Exclusivity/No Competing Employment. For the term of this Agreement
and a period of one (1) year following the date Employee is no longer employed
by the Company or any Associated Company (the "Restricted Period"), Employee
shall not directly or indirectly compete with the Company or any Associated
Company, and he shall not directly or indirectly own an interest in, manage,
operate, join, control, perform services for, lend money to, render financial or
other assistance to, participate in, or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise, any individual,
partnership, firm, corporation or other business organization or entity that at
such time is engaged in the Business.
b. No Interference. During the Restricted Period, Employee shall not,
whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization or entity,
intentionally solicit, endeavor to entice away from the Company or an Associated
Company, or otherwise interfere with the relationship of the Company or an
Associated Company with any person who is employed by the Company or an
Associated Company, or any person or entity who is, or was within the
twelve-month period immediately preceding, a customer, supplier or client of the
Company or an Associated Company.
c. Stock Ownership. Nothing in this Agreement shall prohibit Employee
from acquiring or holding any securities of any company listed on a national
securities exchange or quoted on the automated quotation system of the National
Association of Securities Dealers, Inc., provided that at any time during the
Restricted Period Employee and members of his immediate
5
<PAGE>
family do not own more than five percent (5 %) of any voting securities of any
company engaged in the Business.
d. Scope. The prohibitions in Sections 6(a) and 6(b) shall apply to
Poland and any other place where the Company or any Subsidiary is doing Business
on the first day of the Restricted Period. Said prohibitions shall also apply
with respect to any Person (or any subsidiary thereof) located within or without
the United States or the United Kingdom that is doing Business, directly or
indirectly, in Poland.
e. Survival of Section. The provisions of this Section 6 shall survive
the termination of this Agreement for any reason whatsoever.
7. REMEDIES
a. Arbitration. The Parties agree, expressly renouncing any other forum
for the resolution of disputes, that except as provided in Section 7(b), any
disputes arising out of, relating to, or arising in connection with this
Agreement or arising out of, relating to, or arising in connection with
Employee's employment, shall be finally settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(except insofar as those rules are modified by the terms of this Section 7). The
arbitration will be held in Hartford, Connecticut, USA; and it shall be held as
promptly as possible at such time as the arbitration tribunal may determine. The
arbitration will be held in the English language. The arbitrator(s) shall state
the reasons upon which the award is based. Judgment upon the arbitration award
may be entered in any court of competent jurisdiction (including without
limitation the courts of the United States, any country where the Company or any
Associated Company is engaged in business, and the respective political
subdivisions of each of the foregoing), or application may be made to any such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. If any Party employs an attorney or commences legal or arbitral
proceedings to enforce the provisions of this Agreement, the prevailing Party
shall be entitled (unless the relevant tribunal decides otherwise) to recover
from the other, reasonable costs incurred in connection with such enforcement,
including but not limited to, attorney's fees and costs of investigation and
litigation/arbitration. Except as otherwise specifically provided in this
Section 7, no Party shall institute any action or proceeding against any other
Party in any court with respect to any dispute which is or could be the subject
of a claim or proceeding pursuant to this Section 7.
b. Equitable Remedies. Employee hereby acknowledges that breaches of
Sections 5 or 6 of this Agreement may result in material irreparable injury to
the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such breaches, and that in the event of such a
breach or threat thereof the Company shall be entitled (notwithstanding the
provisions of Section 7(a)) to seek and obtain a temporary restraining order, a
preliminary injunction, a permanent injunction or other equitable relief
restraining Employee from engaging in activities prohibited by this Agreement.
Employee further acknowledges that in the event of such a breach or threat
thereof the Company shall be entitled to obtain such other
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<PAGE>
or further relief as may be required to specifically enforce any of the
covenants of this Agreement. Employee hereby agrees and consents that such
injunctive or other relief may be sought in any court of competent jurisdiction,
including, without limitation, any court in the nation, state and/or political
subdivision thereof in which such violation may occur, at the election of the
Company. Employee agrees to and hereby does submit to in personam jurisdiction
before each and every such court for that purpose.
c. Suspension of Payments. Should an alleged breach by Employee of
Sections 5 or 6 of this Agreement occur, the Company shall not be entitled to
suspend any payments otherwise due to Employee during litigation of any action
it may bring against Employee for injunctive and/or monetary relief.
d. Remedies not Exclusive. The remedies of this Section shall be
cumulative and not exclusive, and shall be in addition to any other remedy which
the Company may have.
e. Survival of Remedies. This Section 7 shall survive the termination
of this Agreement for any reason whatsoever.
8. TERMINATION OF EMPLOYMENT
This Agreement and Employee's employment hereunder may be terminated
without any breach of this Agreement under the following conditions:
a. Termination by Employee. Employee may terminate this Agreement, with
or without cause, by sending written notice thereof at least four (4) months in
advance of the date of his proposed termination.
b. Termination by the Company for Cause. The Company may terminate the
Agreement and Employee's employment for Cause prior to the expiration of this
Agreement as provided in this Section 8(b). If the Cause is susceptible of
remedy by Employee, then the Company shall first deliver to Employee written
notice of such Cause; and if Employee has not remedied the Cause within thirty
(30) days after receipt of that notice, the Company may terminate this agreement
forthwith thereafter by written notice effective immediately. If the Cause is
not susceptible of remedy by Employee, then the Company may terminate this
agreement forthwith by written notice effective immediately. For purposes of
this Section 8(b) "Cause" shall mean (1) dishonesty or fraud resulting in damage
to the business of the Company or any of its Associated Companies; (2)
embezzlement or theft of assets of the Company or any of its Associated
Companies; (3) competing with the Company or aiding a competitor of the Company
or any of its Associated Companies to the detriment of the Company or any of its
Associated Companies; (4) a substantial breach of this Agreement; (5) conduct of
an illegal or criminal nature under the laws of the United States, the United
Kingdom, Poland, or any political subdivision thereof (except for minor traffic
offenses and other minor offenses which do not indicate moral turpitude), or (6)
a
7
<PAGE>
substantial violation of any applicable polices and procedures set forth in
any policy manual as may be adopted by the Board of Directors of the Company.
c. Termination by the Company without Cause. Notwithstanding the
provisions of Section 8(b) above, the Company may terminate this Agreement and
Employee's employment upon six (6) month's written notice without cause.
d. Later Employment With Successor in Interest of Company. Employee
shall not be deemed to have been terminated under this Agreement if he is
offered employment on substantially the same or better terms by any Associated
Company; by any successor in interest or assign of the Company; or by any
purchaser of substantially all of the Company's assets.
e. Death. Notwithstanding anything to the contrary herein contained,
Employee's employment and this Agreement shall terminate upon his death or his
inability due to disability to perform the essential functions of his position
for a continuous period of ninety (90) days.
f. Delivery of Material. Employee agrees that upon the termination of
this Agreement he will deliver to the Company all documents, papers, materials
and other property of the Company relating to its affairs which may then be in
his possession or under his control.
g. Accrual. If the Company or Employee terminates this Agreement,
Employee shall not be entitled to any compensation or benefits after the
effective date of his termination except as provided in section 8(c).
9. NOTICES
a. All notices required to be given under the terms of this Agreement
or which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
@Entertainment, Inc.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7200
Attention: Przemyslaw Szmyt
With a copy to:
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<PAGE>
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Employee:
Donald Miller-Jones
91 St. Georges Square Mews
Aylesford Street
London SW1V 3RZ
United Kingdom
Facsimile: (44-171) 976 6684
b. Notice given in accordance with this Section 9 shall be deemed to
have been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its
new address in writing to the other party.
10. MISCELLANEOUS
a. Agreement is Non-Assignable. This Agreement is a personal service
contract and shall not be assignable by Employee or by the Company, except that
the Company may assign this Agreement to an Associated Company or any Person
that succeeds to the Company's rights and liabilities by merger, sale of assets
as a going concern, or consolidation with the Company.
b. Binding Effect. All rights and obligations and agreements of the
parties under this Agreement shall be binding upon and enforceable against, and
inure to the benefit of the parties and their personal representatives, heirs,
legatees and devises, and any Person succeeding by operation of law to their
rights under this Agreement, except that such personal representatives, heirs,
legatees, devises and other persons shall have no obligation to perform
Employee's duties described in Section 2 hereof.
c. Further Assurances. Employee and the Company, as the case may be,
shall execute and deliver such further instruments and do such further acts and
things as may be required to carry out the terms or conditions of this Agreement
or as may be consistent with the intent and purpose of this Agreement.
9
<PAGE>
d. Rights of Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement (except that any option
which has vested in Employee as of the date of his death, as well as any accrued
but unpaid compensation as of the date of his death, shall pass to his estate on
death, subject to the limitations on exercise of the option contained in Exhibit
A).
e. Effect of Waiver. A waiver of, or failure to exercise, any rights
provided for in this Agreement, in any respect, shall not be deemed a waiver of
any further or future rights hereunder. Except for rights which must be
exercised within a specified time period under this Agreement or Exhibit A, no
rights herein shall be considered as waived, whether intentionally or not,
unless waived in a writing signed by the party to be charged with the waiver.
f. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts made
and performed in that jurisdiction, without regard to the principles of
conflicts of laws.
g. Amendments. This Agreement may not be changed or amended orally, but
only by an agreement in writing signed by all parties hereto.
h. Counterparts This Agreement may be executed in several counterparts,
each of which shall be an original, and such counterparts shall together
constitute but one and the same instrument.
i. Severability. If a court of competent jurisdiction declares that any
term or provision of this Agreement is invalid or unenforceable, then:
(1) the remaining terms and provisions hereof shall be
unimpaired, and
(2) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
j. No Conflicts. Employee represents and warrants that he is not
prevented by any other employment agreement, arrangement, contract,
understanding, court order or otherwise, which in any way directly or indirectly
conflicts, is inconsistent with, or restricts or prohibits him from fully
performing the duties of the Employment, in accordance with the terms and
conditions of this Agreement.
k. Entire Agreement. This Agreement supersedes all prior agreements,
oral or written, between the parties hereto with respect to the employment of
10
<PAGE>
Employee by the Company. This Agreement contains the entire agreement of the
parties with respect to the employment of Employee by the Company, and the
parties shall not be bound by any terms, conditions, statements, covenants,
representations or warranties, oral or written, not herein contained.
1. Employee Acknowledgment. EMPLOYEE REPRESENTS THAT HE HAS HAD AMPLE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND EMPLOYEE ACKNOWLEDGES THAT HE
UNDERSTANDS THAT IT CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT AND THAT IT
EXPLAINS POSSIBLE CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF EMPLOYEE BREACHES
THE AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement effective as of the date first above written.
@Entertainment, Inc., a
Delaware corporation
______________________________ By:__________________________
Donald Miller-Jones
Its:
11
<PAGE>
Exhibit 10.27
Exhibit A
STOCK OPTION AGREEMENT
BETWEEN
DONALD MILLER-JONES
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made effective as
of June 8, 1998 (the "Effective Date"), by and between Donald Miller-Jones
("Miller-Jones") and @Entertainment, Inc., a Delaware corporation (the
"Company"), pursuant to the @Entertainment, Inc. 1997 Stock Option Plan, as
amended (the "Plan").
1. Grant of Option and Option Period.
a. The Company hereby grants Miller-Jones an option (the
"Option") to purchase Two Hundred Thousand shares (200,000) (the "Shares") of
the Company's common stock ("Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be Fourteen
Dollars and Thirty Cents (U.S. $14.30) per share.
b. The option to purchase Sixty-six Thousand Six Hundred
Sixty-seven (66,667) of these Shares will vest each year on the anniversary date
of the Effective Date beginning with the first anniversary of the Effective
Date, provided, however, that (i) the Option shall vest in full immediately (A)
on the date of change in control of the Company (for purposes of this clause,
the term "change in control" shall have the same meaning, except with respect to
the Company rather than Poland Communications, Inc. ("PCI") as that term has in
the Indenture dated as of October 31, 1996, between PCI and State Street Bank
and Trust Company as trustee with respect to those certain 9 7/8% Senior Notes
of the Company due 2003 (the "Indenture")), and (ii) no portion of the Option
shall vest after the date (the "Cut-Off Date") that is the earlier of (i) the
date that the Executive Employment Agreement (as described in Section 14 of this
Agreement) is terminated, and (ii) the date on which the Company sends
Miller-Jones a notice referred to in 8(b) of the Executive Employment Agreement.
c. If Miller-Jones's employment with the Company, or any of
its affiliates, is terminated for any reason, Miller-Jones shall have only sixty
(60) days after the Cut-Off Date to exercise that portion of the Option that has
vested as of the Cut-Off Date, and Miller-Jones shall have no right to exercise
any portion of the Option that has not then vested.
d. Notwithstanding any other provision of this Option
Agreement, the Option shall expire and be of no further force or effect with
respect to any Shares on the earlier to occur of (i) the tenth anniversary of
the Effective Date or (ii) sixty days after the date that Miller-Jones ceases
to be an employee of the Company, or any of its affiliates, for any reason
whatsoever
Exhibit A - Page 1
<PAGE>
(including but not limited to Miller-Jones's death, disability, voluntary
termination or involuntary termination).
e. Each exercise of the Option shall reduce, by an equal
number, the total number of shares of Common Stock that may thereafter be
purchased by Miller-Jones under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3
below, the Option shall be exercised by delivering written notice of exercise to
the Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner (other than by
will or by the laws of descent and distribution during the option period
described in Section 1, or in a manner as may be established from time to time
by the Company's Stock Option Committee pursuant to the Plan ). This Option is
not assignable by operation of law or subject to execution, attachment or
similar process. During Miller-Jones's lifetime, the Option can only be
exercised by Miller-Jones. Any attempted sale, pledge, assignment, hypothecation
or other transfer of the Option or any interest therein contrary to the
provisions hereof, or the levy of any execution, attachment or similar process
upon the Option or any interest therein shall be null and void and without force
or effect. No transfer of the Option by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished written notice thereof executed by the personal
representative of the estate of Miller-Jones which shall be accompanied by an
authenticated copy of the letters testamentary appointing such personal
representative, or such other evidence as the Company may deem reasonably
necessary to establish the validity of the transfer, and also evidence as the
Company may deem reasonably necessary to establish the acceptance by the
transferee or transferees of the terms and conditions of the Option. The terms
of the Option transferred by will or by the laws of descent and distribution
shall be binding upon the executors, administrators, heirs and successors of
Miller-Jones.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the
Company due to stock dividends, recapitalizations, reorganizations, mergers,
consolidations, split-ups, rights offering, warrants, or exchange of shares, the
number and kind of the Shares and/or the purchase price per Share will be
appropriately adjusted, upwards or downwards, consistent with such change. The
reasonable determination of the Company regarding any adjustment will be final
and conclusive.
Exhibit A - Page 2
<PAGE>
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of the Shares.
5. No Stock Rights.
Miller-Jones shall not be entitled to vote, be deemed the holder of any
Shares, have the right to receive dividends with respect to any Shares, or
otherwise have any of the rights of a stockholder of the Company with respect to
any Shares, unless and until Miller-Jones has exercised the Option with respect
to such Shares in accordance with the terms and conditions of this Option
Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, the number of shares of Common
Stock that is sufficient for the purpose of enabling it to satisfy any
obligation to issue the shares of Common Stock upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-up Agreement
During the term of this Option Agreement, Miller-Jones if requested by
the Company and the lead underwriter of any public offering of the Common Stock
or other securities of the Company (the "Lead Underwriter"), hereby irrevocably
agrees not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of any interest in any Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in such public
offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended, or such shorter
period of time as the Lead Underwriter shall specify. Miller-Jones further
agrees to sign such documents as may be requested by the Lead Underwriter to
effect the foregoing and agrees that the Company may impose stop-transfer
instructions with respect to such Common Stock or such other securities subject
until the end of such period. The Company and Miller-Jones acknowledge that each
Lead Underwriter of a public offering of the Company's stock, during the period
of such offering and for the 180-day period thereafter, is an intended
beneficiary of this Section 7.
8. Representations and Warranties of Miller-Jones. In order to induce
the Company to accept this Option Agreement, Miller-Jones hereby represents and
warrants to the Company as follows:
Exhibit A - Page 3
<PAGE>
a. If in the future Miller-Jones desires to offer or dispose
of the Option or any the Shares or any interest therein, he will do so only in
compliance with applicable securities laws and this Option Agreement.
b. Miller-Jones acknowledges that there may be restrictions
under the securities laws of the jurisdiction(s) in which he resides on the sale
of the Shares he obtains on exercise of the Option, and that he should seek
legal assistance before proceeding with the purchase or sale of said Shares.
c. Miller-Jones agrees that the representations and warranties
of Miller-Jones set forth in this Section 8 shall survive the exercise of the
Option and the termination or expiration of this Option Agreement for a period
of six months.
9. Governing Law.
This Option Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware without regard to the principles
of conflicts of laws or choice of law.
10. Benefit.
This Option Agreement shall be binding upon the Company, Miller-Jones,
their heirs, executors, administrators, legal representatives, successors, and
permitted assigns, and Miller-Jones in furtherance thereof may execute a will
directing Miller-Jones's executor to perform this Option Agreement and to
execute all documents necessary to effectuate the purposes of this Option
Agreement, but the failure to execute such a will shall not affect the rights of
the Company or the obligations of Miller-Jones's estate as provided in this
Option Agreement. Nothing in this Option Agreement, expressed or implied, is
intended to confer upon any person, other than the parties hereto, any rights or
remedies under or by reason of this Option Agreement.
11. Specific Performance.
The parties to this Option Agreement hereby agree that an award of
damages alone is inadequate to remedy a breach of terms of this Option Agreement
and that specific performance, injunctive relief or other equitable remedy is
the only way by which the intent of this Option Agreement may be adequately
realized upon breach by one or more of the parties. Such remedy shall, however,
be cumulative and not exclusive, and shall be in addition to any other remedy
which the parties may have.
12. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of this Option Agreement shall not be deemed a waiver of
such terms, covenants or conditions, nor
Exhibit A - Page 4
<PAGE>
shall any waiver or relinquishment of any right or power hereunder at any one
time or more times be deemed a waiver or relinquishment of such right or power
at any other time or times.
13. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
ul. Pawinskiego 5A
Blok D
02-106 Warsaw, Poland
Facsimile: (48-22) 668-7200
Attention: Przemyslaw Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Miller-Jones:
Donald Miller-Jones
91 St. Georges Square Mews
Aylesford Street
London SW1V 3RZ
United Kingdom
Facsimile: (44-171) 976 6684
b. Notice given in accordance with this Section 13 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
Exhibit A - Page 5
<PAGE>
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
14. Entire Agreement.
This Option Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by writing executed by all of the parties.
15. Severability.
The invalidity or unenforceability of any provisions of this Option
Agreement shall in no way affect the validity or enforceability of any other
provision hereof.
16. Headings.
The headings to the sections of this Option Agreement are used for
reference only and are not to be construed as limiting or extending the
provisions hereof.
17. Counterparts.
This Option Agreement may be executed in any number of counterparts,
each of which shall be considered an original but all of which shall constitute
the Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
@ ENTERTAINMENT, INC.,
a Delaware corporation
By: ___________________________
Its: __________________________
________________________________
Exhibit A - Page 6
<PAGE>
Donald Miller-Jones
Exhibit A - Page 7
<PAGE>
Exhibit 10.29
STOCK OPTION AGREEMENT
BETWEEN
SAMUEL CHISHOLM
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement") is made
effective as of January 1, 1998 (the "Effective Date"), by and between Samuel
Chisholm ("Chisholm") of London, England, and @ Entertainment, Inc., a Delaware
corporation (the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Chisholm an option (the "Option")
to purchase five hundred thousand shares (500,000) (the "Shares") of the
Company's common stock (the "Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be twelve dollars
(U.S. $12.00) per share.
b. The option to purchase two hundred and fifty thousand
(250,000) of these Shares will vest each year for two years on the anniversary
date of the Effective Date beginning with the first anniversary of the Effective
Date, provided, however, that no portion of such option shall vest after the
date (the "Cut-Off Date") that the Consultancy Agreement (as described in
Section 15 of this Agreement) is terminated.
c. If Chisholm's consultancy with the Company is terminated
for cause Chisholm shall have no right to exercise any portion of the Option
that has not then vested.
d. Each exercise of the Option shall reduce, by an equal
number, the total number of shares of Company Common stock that may thereafter
be purchased by Chisholm under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established from time to time by the
Company's Stock Option Committee pursuant to the Company's 1997
<PAGE>
Stock Option Plan). This Option is not assignable by operation of law or subject
to execution, attachment or similar process. During Chisholm's lifetime, the
Option can only be exercised by Chisholm. Any attempted sale, pledge,
assignment, hypothecation or other transfer of the Option or any interest
therein contrary to the provisions hereof, or the levy of any execution,
attachment or similar process upon the Option or any interest therein shall be
null and void and without force or effect. No transfer of the Option by gift in
trust to a family member, by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished written notice thereof executed by the trustee(s) of a trust
established for a family member or the personal representative of the estate of
Chisholm which shall be accompanied by an authenticated copy of the documents
appointing such trustee(s) or of the letters testamentary appointing such
personal representative, or such other evidence as the Company may deem
reasonably necessary to establish the validity of the transfer, and also
evidence as the Company may deem reasonably necessary to establish the
acceptance by the transferee or transferees of the terms and conditions of the
Option. The terms of the Option transferred by will or by the laws of descent
and distribution shall be binding upon the executors, administrators, heirs and
successors of Chisholm. The terms of the Option transferred in trust shall be
binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The reasonable
determination of the Company regarding any adjustment will be final and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of the Shares.
5. No Stock Rights.
Chisholm shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Chisholm has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
2
<PAGE>
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-up Agreement
a. Agreement. During the term of this Option Agreement,
Chisholm if requested by the Company and the lead underwriter of any public
offering of the Common Stock or other securities of the Company (the "Lead
Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant
any option to purchase, transfer the economic risk of ownership in, make any
short sale of, pledge or otherwise transfer or dispose of any interest in any
Common Stock or any securities convertible into or exchangeable or exercisable
for or any other rights to purchase or acquire Common Stock (except Common Stock
included in such public offering or acquired on the public market after such
offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Chisholm further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock or such other
securities subject until the end of such period. The Company and Chisholm
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 7.
8. Registration Rights.
a. Registration Procedures. The Company will, as
expeditiously as possible:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective;
(iii) furnish to Chisholm such number of copies of a
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as Chisholm may reasonably request; and
(iv) use its best efforts to register or
qualify the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as Chisholm shall reasonably request (provided,
3
<PAGE>
however, that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it is not
then qualified or to file any general consent to service of process).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Chisholm that Chisholm
shall furnish to the Company such information regarding the securities held by
Chisholm and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company.
b. Expenses. All expenses incurred in complying with Section
8, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 8,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Chisholm; and (ii) the Company shall not be liable for any
fees or expenses of counsel for Chisholm in connection with any registration.
c. Indemnification and Contribution.
(i) In the event of any registration of any of
the Shares under the Securities Act pursuant to this Section 8, the Company
shall indemnify and hold harmless Chisholm, against any losses, claims, damages
or liabilities, joint or several, to which Chisholm may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (1) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (2) any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse Chisholm for any legal or any other expenses reasonably incurred
by Chisholm in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or alleged
omission made in such Registration Statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with written
information regarding Chisholm or his stock furnished to the Company by Chisholm
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Chisholm, and shall survive the
transfer of such securities by Chisholm.
4
<PAGE>
(ii) Chisholm by acceptance hereof, agrees to
indemnify and hold harmless the Company, its directors and officers and each
other person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director or officer or any such person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon information regarding Chisholm
or his stock in writing provided to the Company by Chisholm specifically for use
in the following documents and contained, on the effective date thereof, in any
Registration Statement under which securities were registered under the
Securities Act at the request of Chisholm, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto.
(iii) If the indemnification provided for in this
Section 8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(iv) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 8(c) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
9. Representations and Warranties of Chisholm. In order to induce the
Company to accept this Option Agreement, Chisholm hereby represents and warrants
to the Company as follows:
5
<PAGE>
a. If in the future Chisholm desires to offer or dispose of
the Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
b. Chisholm acknowledges that there may be restrictions under
the securities laws of the jurisdiction(s) in which he resides on the sale of
the Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
c. Chisholm agrees that the representations and warranties of
Chisholm set forth in this Section 9 shall survive the exercise of the Option
and the termination or expiration of this Option Agreement for a period of six
months.
10. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
11. Benefit.
This Option Agreement shall be binding upon the Company, Chisholm, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Chisholm in furtherance thereof may execute a will directing
Chisholm's executor to perform this Option Agreement and to execute all
documents necessary to effectuate the purposes of this Option Agreement, but the
failure to execute such a will shall not affect the rights of the Company or the
obligations of Chisholm's estate as provided in this Option Agreement. Nothing
in this Option Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto, any rights or remedies under or by reason
of this Option Agreement.
12. Specific Performance.
The parties to this Option Agreement hereby agree that an award of damages alone
is inadequate to remedy a breach of terms of this Option Agreement and that
specific performance, injunctive relief or other equitable remedy is the only
way by which the intent of this Option Agreement may be adequately realized upon
breach by one or more of the parties. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy which the
parties may have.
13. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall
6
<PAGE>
any waiver or relinquishment of any right or power hereunder at any one time or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
14. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Przemyslaw Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Chisholm:
Samuel Chisholm
21 Hyde Park Square
London, England WC2
Facsimile:
b. Notice given in accordance with this Section 15 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
7
<PAGE>
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
15. Entire Agreement.
This Option Agreement is subject to that certain Consultancy Agreement between
Chisholm and @ Entertainment, Inc., dated November 17, 1997, and in the event of
a conflict between them, the provisions of the Consultancy Agreement shall
prevail. Except as provided in the foregoing sentence, this Option Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by writing executed by all of the
parties.
16. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
17. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
18. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option
Agreement effective as of the date first above written.
@ Entertainment, Inc.,
a Delaware corporation
By: ____________________________
Robert E. Fowler, III
Its: Chief Executive Officer
_________________________________
Samuel Chisholm
8
<PAGE>
Exhibit 10.30
STOCK OPTION AGREEMENT
BETWEEN
DAVID CHANCE
AND @ ENTERTAINMENT, INC.
This Stock Option Agreement ("Option Agreement') is made
effective as of January 1, 1998 (the "Effective Date"), by and between David
Chance ("Chance") of London, England, and @ Entertainment, Inc., a Delaware
corporation (the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Chance an option (the "Option")
to purchase five hundred thousand shares (500,000) (the "Shares") of the
Company's common stock (the "Common Stock"), with a par value of $0.01 per
share, pursuant to the terms and conditions set forth in this Option Agreement.
The exercise price for the Option (the "Exercise Price") shall be twelve dollars
(U.S. $12.00) per share.
b. The option to purchase two hundred and fifty thousand
(250,000) of these Shares will vest each year for two years on the anniversary
date of the Effective Date beginning with the first anniversary of the Effective
Date, provided, however, that no portion of such option shall vest after the
date (the "Cut-Off Date") that the Consultancy Agreement (as described in
Section 15 of this Agreement) is terminated.
c. If Chance's consultancy with the Company is terminated for
cause Chance shall have no right to exercise any portion of the Option that has
not then vested.
d. Each exercise of the Option shall reduce, by an equal
number, the total number of shares of Company Common stock that may thereafter
be purchased by Chance under the Option.
2. Manner of Exercise.
Subject to the conditions and restrictions contained in Section 3 below, the
Option shall be exercised by delivering written notice of exercise to the
Secretary of the Company. Such notice shall be irrevocable and must be
accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement,
reasonably acceptable to both parties.
3. Non-transferability.
Neither this Option nor any interest therein may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner (other than by will or by
the laws of descent and distribution during the option period described in
Section 1, or in a manner as may be established
<PAGE>
from time to time by the Company's Stock Option Committee pursuant to the
Company's 1997 Stock Option Plan). This Option is not assignable by operation of
law or subject to execution, attachment or similar process. During Chance's
lifetime, the Option can only be exercised by Chance. Any attempted sale,
pledge, assignment, hypothecation or other transfer of the Option or any
interest therein contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon the Option or any interest therein
shall be null and void and without force or effect. No transfer of the Option by
gift in trust to a family member, by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished written notice thereof executed by the trustee(s) of a trust
established for a family member or the personal representative of the estate of
Chance which shall be accompanied by an authenticated copy of the documents
appointing such trustee(s) or of the letters testamentary appointing such
personal representative, or such other evidence as the Company may deem
reasonably necessary to establish the validity of the transfer, and also
evidence as the Company may deem reasonably necessary to establish the
acceptance by the transferee or transferees of the terms and conditions of the
Option. The terms of the Option transferred by will or by the laws of descent
and distribution shall be binding upon the executors, administrators, heirs and
successors of Chance. The terms of the Option transferred in trust shall be
binding upon the trustee(s) of such trust.
4. Adjustment in the Event of Change in Stock.
In the event of any change in the outstanding Common Stock of the Company due to
stock dividends, recapitalizations, reorganizations, mergers, consolidations,
split-ups, rights offering, warrants, or exchange of shares, the number and kind
of the Shares and/or the purchase price per Share will be appropriately
adjusted, upwards or downwards, consistent with such change. The reasonable
determination of the Company regarding any adjustment will be final and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of the Shares.
5. No Stock Rights.
Chance shall not be entitled to vote, be deemed the holder of any Shares, have
the right to receive dividends with respect to any Shares, or otherwise have any
of the rights of a stockholder of the Company with respect to any Shares, unless
and until Chance has exercised the Option with respect to such Shares in
accordance with the terms and conditions of this Option Agreement.
6. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue the number of shares of Common Stock
deliverable upon exercise of the Option.
2
<PAGE>
b. The Company covenants that all Shares will, upon issuance
in accordance with the terms of this Agreement, be duly authorized, fully paid
and non-assessable.
7. Lock-up Agreement
a. Agreement. During the term of this Option Agreement,
Chance if requested by the Company and the lead underwriter of any public
offering of the Common Stock or other securities of the Company (the ALead
Underwriter@), hereby irrevocably agrees not to sell, contract to sell, grant
any option to purchase, transfer the economic risk of ownership in, make any
short sale of, pledge or otherwise transfer or dispose of any interest in any
Common Stock or any securities convertible into or exchangeable or exercisable
for or any other rights to purchase or acquire Common Stock (except Common Stock
included in such public offering or acquired on the public market after such
offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Chance further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock or such other
securities subject until the end of such period. The Company and Chance
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 7.
8. Registration Rights.
a. Registration Procedures. The Company will, as
expeditiously as possible:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-8 (the
"Registration Statement") with respect to the Shares and use its best efforts to
cause such Registration Statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective;
(iii) furnish to Chance such number of copies of a
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as Chance may reasonably request; and
(iv) use its best efforts to register or qualify
the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as Chance shall reasonably request (provided, however,
3
<PAGE>
that the Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it is not then qualified
or to file any general consent to service of process).
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of Chance that Chance shall
furnish to the Company such information regarding the securities held by Chance
and the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
b. Expenses. All expenses incurred in complying with Section
8, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to this Section 8,
shall be paid by the Company, except that (i) the Company shall not be liable
for any fees, discounts or commissions to any underwriter in respect of the
securities sold by Chance; and (ii) the Company shall not be liable for any fees
or expenses of counsel for Chance in connection with any registration.
c. Indemnification and Contribution.
(i) In the event of any registration of any of
the Shares under the Securities Act pursuant to this Section 8, the Company
shall indemnify and hold harmless Chance, against any losses, claims, damages or
liabilities, joint or several, to which Chance may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (1) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (2) any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse Chance for any legal or any other expenses reasonably incurred
by Chance in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or alleged
omission made in such Registration Statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with written
information regarding Chance or his stock furnished to the Company by Chance
specifically for use therein or so furnished for such purposes by any
underwriter. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Chance, and shall survive the transfer
of such securities by Chance.
(ii) Chance by acceptance hereof, agrees to
indemnify and hold harmless the Company, its directors and officers and each
other person, if any, who controls the Company
4
<PAGE>
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer or any such person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information regarding Chance or his stock in writing provided to the Company by
Chance specifically for use in the following documents and contained, on the
effective date thereof, in any Registration Statement under which securities
were registered under the Securities Act at the request of Chance, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto.
(iii) If the indemnification provided for in this
Section 8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(iv) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 8(c) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
9. Representations and Warranties of Chance. In order to induce the
Company to accept this Option Agreement, Chance hereby represents and warrants
to the Company as follows:
a. If in the future Chance desires to offer or dispose of the
Option or any the Shares or any interst therein, he will do so only in
compliance with applicable securies laws and this Option Agreement.
5
<PAGE>
b. Chance acknowledges that there may be restrictions under
the securities laws of the jurisdiction(s) in which he resides on the sale of
the Shares he obtains on exercise of the Option, and that he should seek legal
assistance before proceeding with the purchase or sale of said Shares.
c. Chance agrees that the representations and warranties of
Chance set forth in this Section 9 shall survive the exercise of the Option and
the termination or expiration of this Option Agreement for a period of six
months.
10. Governing Law.
This Option Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware without regard to the principles of conflicts of
laws or choice of law.
11. Benefit.
This Option Agreement shall be binding upon the Company, Chance, their heirs,
executors, administrators, legal representatives, successors, and permitted
assigns, and Chance in furtherance thereof may execute a will directing Chance's
executor to perform this Option Agreement and to execute all documents necessary
to effectuate the purposes of this Option Agreement, but the failure to execute
such a will shall not affect the rights of the Company or the obligations of
Chance's estate as provided in this Option Agreement. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto, any rights or remedies under or by reason of this
Option Agreement.
12. Specific Performance.
The parties to this Option Agreement hereby agree that an award of damages alone
is inadequate to remedy a breach of terms of this Option Agreement and that
specific performance, injunctive relief or other equitable remedy is the only
way by which the intent of this Option Agreement may be adequately realized upon
breach by one or more of the parties. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy which the
parties may have.
13. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants or
conditions of this Option Agreement shall not be deemed a waiver of such terms,
covenants or conditions, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
6
<PAGE>
14. Notice.
a. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, by facsimile, or
by registered or certified mail with proof of receipt, postage and expenses
prepaid and with return receipt requested addressed as follows:
If to the Company:
@ Entertainment, Inc.
c/o Chase Enterprises
One Commercial Plaza
Hartford, Connecticut 06103
Facsimile: (860) 293-4297
Attention: Przemyslaw Szmyt
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U. S. A.
Facsimile: (202) 452-7074
If to Chance:
David Chance
British Sky Broadcasting
Athena Court, Grant Way
Isleworth TW7 5QD
Willoughby Road
East Twickenham TWI 2QJ
United Kingdom
Facsimile: (44-171) 705-3730
b. Notice given in accordance with this Section 15 shall be
deemed to have been given when delivered personally, or when received if sent
via express delivery, facsimile, or registered or certified mail, postage
prepaid and return receipt requested.
c. Any party may change its address for notices by
communicating its new address in writing to the other party.
7
<PAGE>
15. Entire Agreement.
This Option Agreement is subject to that certain Consultancy Agreement between
Chance and @Entertainment, Inc., dated November 17, 1997, and in the event of a
conflict between them, the provisions of the Consultancy Agreement shall
prevail. Except as provided in the foregoing sentence, this Option Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by writing executed by all of the
parties.
16. Severability.
The invalidity or unenforceability of any provisions of this Option Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
17. Headings.
The headings to the sections of this Option Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
18. Counterparts.
This Option Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS THEREOF, the undersigned have executed this Option
Agreement effective as of the date first above written.
@ Entertainment, Inc.,
a Delaware corporation
By: ____________________________
Robert E. Fowler, III
Its: Chief Executive Officer
-----------------------------------
David Chance
8
<PAGE>
Exhibit 10.31
@Entertainment, Inc.
January 23, 1998
Agnieszka Holland
[Title]
[Address]
Dear Agnieszka:
I am pleased to offer you a position as a member of the Board of
Directors of @Entertainment, Inc. (the "Company"). As we discussed, we would
also like to engage your services as an artistic consultant to the Company. The
principal terms and conditions of your positions as director and artistic
consultant are set forth below:
1. Your term as a director and as an artistic consultant shall begin on
January __, 1998 ("Effective Date").
2. Your target compensation for services rendered in your capacity as a
director and as an artistic consultant shall be US$50,000 per year. The
components of your compensation are as follows:
a. In your capacity as a director of the Company, you shall
attend meetings of the Company's Board of Directors, subject
to your availability and other work commitments. In
consideration for your services rendered as a director of the
Company, the Company shall pay to you the sum of US$5,000 per
meeting for each of the five regular meetings of the Board of
Directors that you attend each year.
b. In your capacity as an artistic consultant to the Company, you
shall be available, either in person or by telephone, on an ad hoc
basis to consult with officers or directors of the Company on
issues of an artistic nature that relate to the Company or its
business, subject to your availability and other work commitments.
In consideration for your consulting services, the Company will
pay to you US$25,000 per year, in 12 equal prorated amounts, to be
paid within 30 days of the end of each month. Your consultancy
agreement shall continue for a period of two years and shall be
terminable by either party on 30 days notice.
3. All reasonable expenses incurred by you in rendering services as a
director or as an artistic consultant of the Company shall be for the
account of the Company.
<PAGE>
4. Your consultancy services shall be provided to the Company on a
nonexclusive basis and you shall be free to provide services to third
parties.
5. This letter agreement shall be subject to the provisions set forth in
the Indemnification Agreement, dated as of January ___, 1998, between
you and the Company, and the provisions set forth in the Company's
Directors and Officers Liability Insurance Policy, which the Company
agrees shall be in effect throughout the term of your directorship.
6. You agree, in the provision of your consultancy services and
thereafter, to keep confidential all confidential information disclosed
to you by the Company and its representatives.
7. The terms of this letter agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
the conflicts of law rules thereof.
Please sign below to signify your acceptance of the above terms of
appointment as a member of the Board of Directors and as an artistic consultant
of the Company.
Yours sincerely,
Robert E. Fowler, III
Chief Executive Officer
Accepted and Agreed:
________________________________
Agnieszka Holland
<PAGE>
1
Exhibit 10.33
AGREEMENT
FOR THE LEASE OF CABLE CONDUITS
concluded on [ ] between Telekomunikacja Polska S.A. hereinafter referred
to as the Lessor, represented by the director of the TP S.A. Office in Opole and
[ ], hereinafter referred to as the Lessee, represented by:
[ ]
SEC.1
1. The Lessor shall, for a period of [ ] years, lease the part of the cable
conduit belonging to it and located on the territory of the town of [ ] for the
purposes of [ ].
2. The object of lease described in the documentation approved by the
Lessor, and its state are described in the specification in the form of a
protocol constituting annex no. 1, which is an integral part of this Agreement.
Page 1
<PAGE>
SEC.2
1. The parties agree that the rental fee for each commenced 100m of the
cable conduit will be [ ] + 22% VAT, proportionally to the part of the opening
in this conduit occupied by the Lessor, according to the capacity norm of the
opening.
2. The whole of the rental fee for the lease of the object of the Agreement
in accordance with sec.2, item 1, amounts to [ ] zlotys and is payable monthly
at the latest within 14 days of the date of the issuance of the invoice. In the
case of any delay in the payment of rental fees statutory interest will be
charged.
3. The rental fee as mentioned in items 1 and 2 is set on the basis of the
maintenance costs for the cable conduit, increased by 20% profit.
4. The rental fee described in items 1, 2 and 3 is revised each quarter and
its level will be calculated pursuant to the compound interest method on the
basis of the monthly consumer prices increase index declared by the Chief
Statistic Office. The change in the level of rent will not be treated by the
Parties as an amendment of the terms of this Agreement.
Page 2
<PAGE>
5. In the case of any significant discrepancies between the increase in the
rent, calculated according to the method as described in item 4, and the
increase in the real costs of exploitation, the rent will be set by the Lessor
proportionally to the actual incurred costs of exploitation. The change of the
rent will not result in the amendment of the terms of this Agreement.
6. The Lessor will inform the lessee of any changes in the rental fee in a
written form.
7. The Lessee undertakes to pay the rental fee in the amount as indicated
in the notification mentioned in item 6.
8. Any change to the scope of the object of lease as described in sec.1,
item 2 herein, and the rental fee relating thereto, shall be described in
annexes to this Agreement, including an appropriate protocol. The rental fee for
each commenced 100m of cable conduit, shall be set in the annex at the level of
the rent applicable on the date of the signing of the annex.
1
2
SEC.3
Page 3
<PAGE>
1. The Lessee undertakes to use the cable conduit exclusively for the
purpose as described in sec.1, item 1 of the Agreement.
2. The Lessee undertakes to install and use equipment, lines or
telecommunications networks in accordance with the Telecommunications Act dated
23 November 1990 (Journal of Laws no. 86, pos. 504, as amended) and the
regulations issued on its basis, as well as to use equipment having homologation
certificates issued by the Ministry of Telecommunications when such equipment
connects with the public network.
3. All work relating to the assembly of cables and other telecommunications
equipment in the leased cable conduit, must be notified to TP S.A. by the
Lessee. The Lessor has the right to conduct a technical supervision of the work
performed.
4. The Lessee undertakes to perform the work as described in item 3 so that
they do not cause electro-magnetic interference and do not damage the equipment
of the Lessor.
5. The Lessee can not, without the consent of the Lessor, make any changes
to the leased cable conduit.
Page 4
<PAGE>
6. The Lessee can not, without the consent of the Lessor, sub-lease or
allow the free use of the object of lease to third parties.
7. The Lessor has the right to conduct a control of the leased conduit in
the presence of the authorized representative of the Lessee.
SEC.4
The Lessor can give notice of termination of the agreement with immediate
effect in the event of the Lessee failing to comply with the terms of the
agreement, and in particular:
- the installation of the cables and assembly of other machinery in
violation of the technical conditions or without the consent of the
Lessor.
- a delay in the payment of rent exceeding [ ] month,
- failure to pay the rent according to the new rate, after the expiry of [
] month from the date he was informed of the change to the level of rent.
Page 5
<PAGE>
SEC.5
1. The Lessor has the right to demand from the Lessee the removal of his
installation from the leased conduit (if the technical state of the conduit
enables this), within 30 days in the case of:
- the expiry of the agreement,
- resignation from the lease,
- notice of termination of the agreement and the expiry of the period
defined in sec.11,
- notice of termination with immediate effect, in accordance with sec.4.
2. Upon the expiry of the period as mentioned in item 1, the Lessor has the
right to remove the Lessee's installation and charge him with the costs of
disassembly and storage.
SEC.6
1. The Lessor is obliged, under the rental fee, to maintain the leased
Page 6
<PAGE>
conduit in a proper technical state at all times.
2. Joint undertakings concerning the supplementation or construction of
conduits will be performed on the basis of separate agreements.
3
SEC.7
Upon the expiry of the Agreement the Lessor undertakes to return the cable
conduit in a state as described in the protocol prepared at the conclusion of
the agreement, subject to the provisions of sec.6.
SEC.8
Any amendments to this Agreement must be in writing.
SEC.9
For matters not regulated in this Agreement the provisions of the Civil
Code shall apply.
SEC.10
Page 7
<PAGE>
The settlement of disputes arising during the performance of this Agreement
shall be performed by the appropriate common courts.
SEC.11
1. This Agreement shall expire on [ ].
2. In the case of the intention to extend the duration of the agreement,
the Lessee is under obligation to inform the Lessor of such an intention within
3 months prior to the date of the expiry of the lease agreement. The Lessor
reserves the right to refuse to extend the period of validity of the agreement.
3. Each party has the right to terminate the Agreement with [ ] months
notice.
SEC.12
This Agreement was prepared in [ ] identical counterparts, from which [ ]
copy is intended for the Lessee and [ ] for the Lessor.
Page 8
<PAGE>
1
Exhibit 10.38
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement"), effective as of June
23, 1997 ("Effective Date"), between Poland Communications, Inc. ("PCI"), a New
York corporation with offices at c/o Chase Enterprises, One Commercial Plaza,
Hartford, Connecticut 06103 and @Entertainment, Inc. ("Entertainment"), a
Delaware corporation with offices at c/o Chase Enterprises, One Commercial
Plaza, Hartford, Connecticut 06103.
WHEREAS, PCI and _________________ ("Employee") are parties to that
certain Executive Employment Agreement (the "Employment Agreement") effective as
of _________________ ("Option Agreement");
WHEREAS, effective June 22, 1997, PCI, as part of a reorganization of
its corporate structure, became a subsidiary of Entertainment through a
contribution of shares from shareholders of PCI;
WHEREAS, in connection therewith, Entertainment will assume certain
duties formerly performed by PCI, including the employment of certain employees
of PCI, including Employee;
WHEREAS, the Option Agreement provides for adjustment/substitution of
shares subject to the option in the event of certain reorganizations;
WHEREAS, Entertainment has adopted the @Entertainment 1997 Stock Option
Plan (the "Option Plan");
NOW THEREFORE, for the consideration of One Dollar ($1.00), and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows;
1. PCI hereby assigns to Entertainment all of its right, title and interest as
employer, (defined as "the Company") in the Employment Agreement and Option
Agreement.
2. Entertainment hereby assumes and agrees to perform all the obligations and
responsibilities of PCI as the employer under the employment Agreement and
Option Agreement and Agrees to be bound by all the provisions of the
employment Agreement and Option Agreement. Employee shall become and be
considered an employee of Entertainment.
3. Entertainment hereby agrees that Employee's option to purchase common stock
of PCI, constitutes, pursuant to the terms of the Option Agreement and this
Agreement, an option to purchase _________________ shares of Common Stock of
Entertainment at $ _________________ per share. Any incremental rights to
exercise the option shall be adjusted accordingly. Such option to purchase
common stock of Entertainment is issued in connection with, and is subject to
the terms and conditions of, the Option Plan and the Option Agreement;
however, in the event of a conflict, the terms of the Option Agreement shall
control.
4. Entertainment indemnifies and agrees to hold PCI harmless from and against
any and all claims made, suits commenced or judgments entered arising out of
or in connection with the Employment Agreement, Option Agreement and its
employment of Employee.
5. This Agreement is binding upon PCI, Entertainment and Employee, and their
respective heirs, successors, executors, administrators, personal
representatives and assigns.
<PAGE>
1
Exhibit 10.39
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement"), effective as of June
23, 1997 ("Effective Date"), between Poland Communications, Inc. ("PCI"), a New
York corporation with offices at c/o Chase Enterprises, One Commercial Plaza,
Hartford, Connecticut 06103 and @Entertainment, Inc. ("Entertainment"), a
Delaware corporation with offices at c/o Chase Enterprises, One Commercial
Plaza, Hartford, Connecticut 06103.
WHEREAS, PCI and _________________ ("Employee") are parties to that
certain Executive Employment Agreement (the "Employment Agreement") effective as
of _________________ ("Option Agreement");
WHEREAS, effective June 22, 1997, PCI, as part of a reorganization of
its corporate structure, became a subsidiary of Entertainment through a
contribution of shares from shareholders of PCI;
WHEREAS, in connection therewith, Entertainment will assume certain
duties formerly performed by PCI, including the employment of certain employees
of PCI, including Employee;
WHEREAS, the Option Agreement provides for adjustment/substitution of
shares subject to the option in the event of certain reorganizations;
WHEREAS, Entertainment has adopted the @Entertainment 1997 Stock Option
Plan (the "Option Plan");
NOW THEREFORE, for the consideration of One Dollar
Page 1
<PAGE>
($1.00), and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows;
1. PCI hereby assigns to Entertainment all of its right, title and interest as
employer, (defined as "the Company") in the Employment Agreement and Option
Agreement.
2. Entertainment hereby assumes and agrees to perform all the obligations and
responsibilities of PCI as the employer under the employment Agreement and
Option Agreement and Agrees to be bound by all the provisions of the
employment Agreement and Option Agreement. Employee shall become and be
considered an employee of Entertainment.
3. Entertainment hereby agrees that Employee's option to purchase common stock
of PCI, constitutes, pursuant to the terms of the Option Agreement and this
Agreement, an option to purchase _________________ shares of Common Stock of
Entertainment at $ _________________ per share. Any incremental rights to
exercise the option shall be adjusted accordingly. Such option to purchase
common stock of Entertainment is issued in connection with, and is subject to
the terms and conditions of, the Option Plan and the Option Agreement;
however, in the event of a conflict, the terms of the Option Agreement shall
control.
4. Entertainment indemnifies and agrees to hold PCI harmless from and against
any and all claims made, suits commenced or judgments entered arising out of
or in connection with the Employment Agreement, Option Agreement and its
Page 2
<PAGE>
employment of Employee.
5. This Agreement is binding upon PCI, Entertainment and Employee, and their
respective heirs, successors, executors, administrators, personal
representatives and assigns.
Page 3
<PAGE>
Sheet 1
Exhibit 11.1
@ ENTERTAINMENT, INC.
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
For the years ended December 31, 1995, 1996, and 1997
and the nine months ended September 30, 1997 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------- -------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net loss applicable to
common shareholders......... $ (1,289) $(7,676) $(91,066) $(67,386) $(75,725)
Basic weighted average number of
common shares outstanding... 11,037 17,271 24,771 22,104 33,310
Nominal issuance................. 2,437 346 -- -- --
-------- ------- -------- -------- --------
13,474 17,617 24,771 22,104 33,310
-------- ------- -------- -------- --------
Net loss per share $ (0.10) $ (.44) $ (3.68) $ (3.05) $ (2.27)
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
</TABLE>
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
COMPANY JURISDICTION
Poland Communications, Inc. New York
- -------------------------------------------------------------------------------
At Entertainment Limited United Kingdom
- -------------------------------------------------------------------------------
Wizja TV Sp. z o.o Poland
- -------------------------------------------------------------------------------
Poland Cablevision (Netherlands) B.V. Netherlands
- -------------------------------------------------------------------------------
Sereke Holding B.V. Netherlands
- -------------------------------------------------------------------------------
@Entertainment Programming, Inc. Delaware
- -------------------------------------------------------------------------------
Czestochowska TK Sp. z o.o. Poland (in liquidation)
- -------------------------------------------------------------------------------
Wizja TV Spoka Produkcyjna Sp z o.o. Poland
- -------------------------------------------------------------------------------
ETV Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Gosat-Service Sp.z o.o. Poland
- -------------------------------------------------------------------------------
Ground Zero Media Sp. z o.o. Poland
- -------------------------------------------------------------------------------
At Media Sp. z o.o. Poland
- -------------------------------------------------------------------------------
At Entertainment Services Limited United Kingdom
- -------------------------------------------------------------------------------
Kolor-Sat Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Mazurska Telewizja Kablowa Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Opolskie TTT S.A. Poland
- -------------------------------------------------------------------------------
Mozaic Entertainment, Inc. Delaware
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa Krakow S.A. Poland
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa Lublin S.A. Poland
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa Operator Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa S.A. Poland
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa Szczecin Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Polska Telewizja Kablowa Warszawa S.A. Poland
- -------------------------------------------------------------------------------
Poltelkab Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Szczecinska Telewizja Kablowa Sp. z o.o. Poland
- -------------------------------------------------------------------------------
Telkat Sp. z o.o. Poland
- -------------------------------------------------------------------------------
TV Kabel Sp. z o.o. Poland
- -------------------------------------------------------------------------------
TV-SAT Ursus Sp. z o.o. Poland (in liquidation)
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 23.1
[LETTERHEAD]
The Board of Directors
@ Entertainment, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Summary Consolidated Financial Data", "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG Polska Sp. z o.o.
Warsaw, Poland
February 12, 1998
<PAGE>
EXHIBIT 25
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
130 LIBERTY STREET 10006
NEW YORK, NEW YORK (Zip Code )
(Address of principal executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
@ENTERTAINMENT
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1487156
(State or other jurisdiction of (I.R.S. employer identification no.)
Incorporation or organization)
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(Address, including zip code, and
telephone number of principal executive offices)
$256,800,000 14 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2009
(Title of the indenture securities)
-----------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers. Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990, Certificate of Amendment
of the Organization Certificate of Bankers Trust Company
dated June 21, 1995 - Incorporated herein by reference
to Exhibit 1 filed with Form T-1 Statement, Registration
No. 33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated
March 20, 1996, incorporate by referenced to Exhibit 1
filed with Form T-1 Statement, Registration No.
333-25843 and Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated
June 19, 1997, copy attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed with
Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate trust
powers Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration No.
33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended on
November 18, 1997. Copy attached.
-2-
<PAGE>
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. Incorporated herein by reference to
Exhibit 4 filed with Form T-1 Statement, Registration
No. 22-18864.
EXHIBIT 7 - The latest report of condition of Bankers Trust Company
dated as of September 30, 1998. Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 9th day
of February, 1999.
BANKERS TRUST COMPANY
/S/ DOROTHY ROBINSON /S/
------------------------
By: Dorothy Robinson
Assistant Vice President
-4-
<PAGE>
STATE OF NEW YORK,
BANKING DEPARTMENT
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated June 19, 1997, providing for an increase in
authorized capital stock from $1,601,666,670 consisting of 100,166,667 shares
with a par value of $10 each designated as Common Stock and 600 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,001,666,670 consisting of 100,166,667 shares with a par value of $10 each
designated as Common Stock and 1,000 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, MY HAND AND OFFICIAL SEAL OF THE BANKING DEPARTMENT AT THE CITY OF NEW
YORK,
THIS 27TH DAY OF JUNE IN THE YEAR OF OUR LORD ONE THOUSAND NINE
HUNDRED AND NINETY-SEVEN.
MANUEL KURSKY
------------------------------
DEPUTY SUPERINTENDENT OF BANKS
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of march, 1903.
3. The organization certificate as heretofore amended is hereby amended to
increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into One
Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 600 shares with a par value of One Million Dollars ($1,000,000)
each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars ($1,000,000)
each designated as Series Preferred Stock."
<PAGE>
5. The foregoing amendment of the organization certificate was authorized
by unanimous written consent signed by the holder of all outstanding shares
entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this 19th
day of June, 1997.
James T. Byrne, Jr.
------------------------
James T. Byrne, Jr.
Managing Director
Lea Lahtinen
------------------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant
Secretary of Bankers Trust Company, the corporation described in the foregoing
certificate; that she has read the foregoing certificate and knows the contents
thereof, and that the statements herein contained are true.
Lea Lahtinen
-------------------
Lea Lahtinen
Sworn to before me this 19th day of June, 1997.
Sandra L. West
- -----------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE>
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE>
BY-LAWS
OF
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
<PAGE>
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who shall have attained age 72 shall be eligible to be elected or
re-elected a director. Such director may, however, remain a director of the
Company until the next annual meeting of the stockholders of Bankers Trust New
York Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE>
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
<PAGE>
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of Directors
may require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records and
premises of the Company and shall delegate such authority to his subordinates.
He shall have the duty to report to the Audit Committee on all matters
concerning the internal audit
<PAGE>
program and the adequacy of the system of internal controls of the Company which
he deems advisable or which the Audit Committee may request. Additionally, the
General Auditor shall have the duty of reporting independently of all officers
of the Company to the Audit Committee at least quarterly on any matters
concerning the internal audit program and the adequacy of the system of internal
controls of the Company that should be brought to the attention of the directors
except those matters responsibility for which has been vested in the General
Credit Auditor. Should the General Auditor deem any matter to be of special
immediate importance, he shall report thereon forthwith to the Audit Committee.
The General Auditor shall report to the Chief Financial Officer only for
administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the
<PAGE>
President, and (ii) only if and to the extent that, after making such efforts as
the Chairman of the Board, the Chief Executive Officer or the President shall
deem adequate in the circumstances, such person shall be unable to obtain
indemnification from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
<PAGE>
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 09/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: / 0 / 0 / 6 / 2 / 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------------------
C400
---------------------------------------
DOLLAR AMOUNTS IN THOUSANDS RCFD BIL MIL THOU
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS / / / / / / / / / / / / / / / / / /
1. Cash and balances due from depository
institutions (from Schedule RC-A): / / / / / / / / / / / / / / / / / /
a. Noninterest-bearing balances and
currency and coin (1) ......................... 0081 2,291,000 1.a.
b. Interest-bearing balances (2) .................. 0071 2,636,000 1.b.
2. Securities: / / / / / / / / / / / / / / / / / /
a. Held-to-maturity securities
(from Schedule RC-B, column A) ................ 1754 0 2.a.
b. Available-for-sale securities
(from Schedule RC-B, column D)................. 1773 6,617,000 2.b.
3. Federal funds sold and securities
purchased under agreements to resell.............. 1350 32,734,000 3.
4. Loans and lease financing receivables: / / / / / / / / / / / / / / / / / /
a. Loans and leases, net of unearned income
(from Schedule RC-C) .......................... RCFD 2122 20,227,000 / / / / / / / / / / / / / / / / / / 4.a.
b. LESS: Allowance for loan
and lease losses........................ RCFD 3123 619,000 / / / / / / / / / / / / / / / / / 4.b.
c. LESS: Allocated transfer risk
reserve ................................ RCFD 3128 0 / / / / / / / / / / / / / / / / / 4.c.
d. Loans and leases, net of unearned
income, allowance, and reserve
(item 4.a minus 4.b and 4.c) .................. 2125 19,608,000 4.d.
5. Trading Assets (from schedule RC-D) .............. 3545 49,545,000 5.
6. Premises and fixed assets
(including capitalized leases) ................... 2145 885,000 6.
7. Other real estate owned
(from Schedule RC-M) ............................. 2150 115,000 7.
8. Investments in unconsolidated subsidiaries
and associated companies (from Schedule RC-M) 2130 391,000 8.
9. Customers' liability to this bank on
acceptances outstanding .......................... 2155 392,000 9.
10. Intangible assets (from Schedule RC-M) ............ 2143 266,000 10.
11. Other assets (from Schedule RC-F) ................. 2160 5,884,000 11.
12. Total assets (sum of items 1 through 11) .......... 2170 121,364,000 12.
--------------------------------------
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 09/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State ZIP: New York, NY 10006 12
FDIC Certificate No.: / 0 / 0 / 6 / 2 / 3
</TABLE>
SCHEDULE RC--CONTINUE
<TABLE>
<CAPTION>
--------------------------------------
DOLLAR AMOUNTS IN THOUSANDS BIL MIL THOU
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES / / / / / / / / / / / / / / / / / / / /
13. Deposits: / / / / / / / / / / / / / / / / / / / /
a. In domestic offices (sum of totals of columns
A and C from Schedule RC-E, part I) RCON 2200 22,231,000 13.a.
(1) Noninterest-bearing(1) ....... RCON 6631 3,040,000..... / / / / / / / / / / / / / / / / / / / / 13.a.(1)
(2) Interest-bearing ............. RCON 6636 19,191,000..... / / / / / / / / / / / / / / / / / / / / 13.a.(2)
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule
RC-E part II) .................................. RCFN 2200 21,932,000 13.b.
(1) Noninterest-bearing .......... RCFN 6631 2,423,000..... / / / / / / / / / / / / / / / / / / / / 13.b.(1)
(2) Interest-bearing ............. RCFN 6636 19,509,000..... / / / / / / / / / / / / / / / / / / / / 13.b.(2)
14. Federal funds purchased and securities sold
under agreements to repurchase .................... RCFD 2800 14,360,000 14.
15. a. Demand notes issued to the U.S. Treasury ........ RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D) ........ RCFD 3548 32,890,000 15.b.
16. Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases): / / / / / / / / / / / / / / / / / / / /
a. With a remaining maturity of one year or less ... RCFD 2332 7,653,000 16.a.
b. With a remaining maturity of more than one year
through three years ............................ A547 3,707,000 16.b.
c. With a remaining maturity of more than
three years .................................... A548 3,034,000 16.c
17. Not Applicable. / / / / / / / / / / / / / / / / / / / / 17.
18. Bank's liability on acceptances executed and
outstanding ....................................... RCFD 2920 392,000 18.
19. Subordinated notes and debentures (2)............... RCFD 3200 1,533,000 19.
20. Other liabilities (from Schedule RC-G) ............. RCFD 2930 6,595,000 20.
21. Total liabilities (sum of items 13 through 20) ..... RCFD 2948 114,327,000 21.
22. Not Applicable / / / / / / / / / / / / / / / / / / / /
/ / / / / / / / / / / / / / / / / / / / 22.
EQUITY CAPITAL / / / / / / / / / / / / / / / / / / / /
23. Perpetual preferred stock and related surplus ...... RCFD 3838 1,500,000 23.
24. Common stock ....................................... RCFD 3230 2,002,000 24.
25. Surplus (exclude all surplus related to
preferred stock) .................................. RCFD 3839 540,000 25.
26. a. Undivided profits and capital reserves .......... RCFD 3632 3,421,000 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities .................. RCFD 8434 (46,000) 26.b.
27. Cumulative foreign currency translation
adjustments ....................................... RCFD 3284 (380,000) 27.
28. Total equity capital (sum of items 23 through 27) .. RCFD 3210 7,037,000 28.
29. Total liabilities and equity capital
(sum of items 21 and 28)........................... RCFD 3300 121,364,000 29
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<S> <C> <C> <C> <C>
1. Indicate in the box at the right the number of the statement
below that best describes the most comprehensive level of NUMBER
auditing work performed for the bank by independent external --------------------
auditors as of any date during 1997 .............................. /RCFD 6724 1 / M.1
-----------------------
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements included in the Company's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 67,888
<SECURITIES> 0
<RECEIVABLES> 12,143
<ALLOWANCES> 1,657
<INVENTORY> 9,530
<CURRENT-ASSETS> 86,962
<PP&E> 215,185
<DEPRECIATION> 45,467
<TOTAL-ASSETS> 374,991
<CURRENT-LIABILITIES> 34,658
<BONDS> 259,497
0
0
<COMMON> 333
<OTHER-SE> 80,474
<TOTAL-LIABILITY-AND-EQUITY> 374,991
<SALES> 0
<TOTAL-REVENUES> 38,877
<CGS> 0
<TOTAL-COSTS> 104,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (891)
<INTEREST-EXPENSE> 13,814
<INCOME-PRETAX> (75,229)
<INCOME-TAX> 496
<INCOME-CONTINUING> (75,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,725)
<EPS-PRIMARY> (2.27)
<EPS-DILUTED> (2.27)
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
@ Entertainment, Inc.
OFFER TO EXCHANGE
14 1/2% Series B Senior Discount Notes due 2009
for any and all of its outstanding
14 1/2% Senior Discount Notes due 2009
Pursuant to the Prospectus, dated ______ __, 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________,
1999 UNLESS EXTENDED ("THE EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery to: Bankers Trust Company, Exchange Agent
By Mail or by Hand
Four Albany Street
7th Floor
New York, New York 10006
Attention: Corporate Trust Trustee Administration
Telephone: 212-250-6573
By Facsimile: 212-250-0933
Delivery of this instrument to an address other than as set
forth above, or transmission of instructions via facsimile other than as set
forth above, will not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated _________, 1999 (the "Prospectus"), of @ Entertainment, Inc.,
a Delaware corporation ("@Entertainment"), and this Letter of Transmittal (the
"Letter"), which together constitute @Entertainment's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 14 1/2% Series B Senior
Discount Notes due 2009 (the "Exchange Notes") for each $1,000 principal amount
of its outstanding 14 1/2% Senior Discount Notes due 2009 (the "Old Notes") of
which $256.8 million in aggregate principal amount are outstanding from the
holders thereof.
With respect to the Old Notes accepted for exchange, the
holders of such Old Notes will receive Exchange Notes in such aggregate
principal amount equal to that of the surrendered Old Notes. The Exchange
Notes will bear interest at the same rate and on the same terms as the Old
Notes. Consequently, interest on the Exchange Notes will be payable
semi-annually in cash in arrears on August 1 and February 1 of each year,
commencing August 1, 2004, at the rate of 14 1/2% per annum. Accreted Value
on the Exchange Notes will accrue from July 27, 1999 (the "Issue Date").
Holders whose Old Notes are accepted for exchange will not receive Accreted
Value thereon, but because the Accreted Value of the Exchange Notes is
calculated from the Issue Date, there will be no forfeiture of Accreted Value
by the holders of the Old Notes whose Old Notes are accepted for exchange in
the Exchange Offer.
<PAGE>
This Letter is to be completed by a holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder of Old Notes promptly
and instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter and
delivering its Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a properly
completed power of attorney power from the registered holder of Old Notes. The
transfer of record ownership may take considerable time.
The undersigned has completed the appropriate boxes below and
signed this letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
List below the Old Notes to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and aggregate
principal amount of the Old Notes should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF
OLD NOTES 1 2 3
- ----------------------------------------------- ---------------- --------------------- ----------------------
Aggregate Principal
Amount
of 14 1/2%% Senior Aggregate Principal
Name(s) and Address(es) of Registered Holder(s) Certificate Discount Notes due Amount
(Please fill in, if blank) Number(s)* 2009 Tendered**
- ----------------------------------------------- ---------------- --------------------- ----------------------
<S> <C> <C> <C>
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
---------------- --------------------- ----------------------
Total
---------------- --------------------- ----------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2.
- -------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------
Account Number Transaction Code Number
-------------------------- -------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Names(s) of Registered Holder(s)
---------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------------
Name of Institution which guaranteed delivery
--------------------------------
<PAGE>
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
-------------------------
Transaction Code Number
--------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the
Exchange Offer, the undersigned hereby tenders to @Entertainment the
aggregate Specified Amount of Old Notes indicated above. Subject to, and
effective upon, the acceptance for exchange of the Old Notes tendered hereby,
the undersigned hereby sells, assigns and transfers to, or upon the order of,
@Entertainment all right, title and interest in and to such Old Notes as are
being tendered hereby, and hereby appoints the Exchange Agent as the true and
lawful agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as agent of @Entertainment) of such holder of Old Notes, in
order to (i) transfer ownership of such Old Notes on the account books
maintained by The Depositary Trust Company (together, in any such case, with
all accompanying evidences of transfer and authenticity) to @Entertainment,
(ii) present and deliver such Old Notes for transfer on the books of
@Entertainment and (iii) receive all benefits and otherwise exercise all
rights and incidents of beneficial ownership with respect to such Old Notes,
all in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to tender, sell, assign and transfer
the Old Notes tendered hereby and that @Entertainment will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same is accepted
by @Entertainment. The undersigned hereby further represents that any Exchange
Notes acquired in exchange for Old Notes tendered hereby will have been acquired
in the ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, that neither the holder of such
Old Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder of such Old Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act"), of @Entertainment.
The undersigned also acknowledges that this Exchange Offer
is being made based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") which lead @Entertainment to believe
that the Exchange Notes issued in exchange for the Old Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of
@Entertainment within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. If any
holder is an affiliate of @Entertainment or is engaged in or has any
arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements
of the Securities Act.
The undersigned will, upon request, execute and deliver any
additional documents deemed by @Entertainment to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the Old Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the Exchange Notes (and, if
applicable, substitute certificates
<PAGE>
representing Old Notes for any Old Notes not exchanged) to the undersigned at
the address shown above in the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION
OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY
(See Instructions 3 and 4) INSTRUCTIONS
(See Instructions 3 and 4)
<S> <C>
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Notes not exchanged and/or for Old Notes not exchanged and/or
Exchange Notes are to be issued in the Exchange Notes are to be sent to someone
name of and sent to someone other than the other than the person or persons whose
person or persons whose signature(s) signature(s) appear(s) on this Letter
appear(s) on this Letter above, or if Old above or to such person or persons at an
Notes delivered by book-entry transfer address other than shown in the box
which are not accepted for exchange are to entitled "Description of Old Notes"
be returned by credit to an account above.
maintained at the Book-Entry Transfer
Facility other than the account indicated
above.
Mail: Exchange Notes and/or Old Notes
Issue: Exchange Notes and/or Old Notes to:
to:
Name(s) Name(s)
----------------------------------------- -------------------------------------
(Please Type or Print) (Please Type or Print)
----------------------------------------- --------------------------------------
(Please Type or Print) (Please Type or Print)
Address Address
----------------------------------------- --------------------------------------
- ------------------------------------------------ ---------------------------------------------
(Zip Code) (Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes
delivered by book-entry transfer to
the Book-Entry Transfer Facility set
forth below.
(Book-Entry Transfer Facility
Account Number, if applicable)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF
TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX
ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING
HOLDERS)
(Complete Accompanying Substitute Form W-9 on
reverse side)
<TABLE>
<CAPTION>
<S> <C>
Dated:.................................................... 1999
X .......................................................
X .......................................................
Signature(s) of Owner
Area Code and telephone Number ..........................
</TABLE>
<PAGE>
If a holder is tendering any Old Notes, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s):
------------------------------------------
--------------------------------------------------
(Please Type or Print)
Capacity:
-----------------------------------------
Address:
-----------------------------------------
-------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
--------------------------
(Authorized Signature)
--------------------------------------------------
(Title)
--------------------------------------------------
(Name and Firm)
--------------------------------------------------
Dated: , 1999
---------------------------------------
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer of
14 1/2% Series B Senior Discount Notes due 2009
for any and all of its outstanding
14 1/2% Senior Discount Notes due 2009
of @ Entertainment, Inc.
1. Delivery of this Letter and Old Notes; Guaranteed Delivery
Procedures.
This letter is to be completed by securityholders either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Securityholders whose certificates for Old Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date,
or who cannot complete the procedure for book-entry transfer on a timely
basis, may tender their Old Notes pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus. Pursuant to such procedures, (i) such tender must
be made through an Eligible Institution, (ii) prior to the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by @Entertainment (by
telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, must be received by the Exchange Agent
within five NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Notes are sent by mail, it is suggested that
registered mail, properly insured, with return receipt requested, be used and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to securityholders who tender
by book-entry transfer).
If less than all of the Old Notes evidenced by a submitted
certificate is to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Aggregate Amount Tendered." A reissued certificate
representing the balance of nontendered Old Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box on this Letter,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter is signed by the registered holder of the
Old Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or
more joint owners, all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
<PAGE>
When this Letter is signed by the registered holder or holders
of the Old Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered
holder or holders of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter or any or any certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
@Entertainment, proper evidence satisfactory to @Entertainment of their
authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on
bond powers required by this Instruction 3 must be guaranteed by a firm which is
a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States (an
"Eligible Institution").
Signatures on this Letter need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of Old Notes (which term, for purposes of the Exchange Offer, includes
any participant in the Book-Entry Transfer Facility system whose name appears on
a security position listing as the holder of such Old Notes) who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the
applicable box the name and address to which Exchange Notes issued pursuant to
the Exchange Offer and/or substitute certificates evidencing Old Notes not
exchanged are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Securityholders tendering Old Notes by book-entry transfer may
request that Old Notes not exchanged be credited to such account maintained at
the Book-Entry Transfer Facility as such securityholder may designate hereon. If
no such instructions are given, such Old Notes not exchanged will be returned to
the name or address of the person signing this Letter.
5. Tax Identification Number.
Federal income tax law generally requires that a tendering
holder whose Old Notes are accepted for exchange must provide @Entertainment (as
payor) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which in the case of a tendering holder who is an
individual, is his or her social security number. If @Entertainment is not
provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of Exchange Notes may be
subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old
Notes must provide its correct TIN by completing the Substitute Form W-9 set
forth below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give @Entertainment a completed
Form W-8, Certificate of Foreign Status.
<PAGE>
These forms may be obtained from the Exchange Agent. If the Old Notes are in
more than one name or are not in the name of the actual owner, such holder
should consult the W-9 Guidelines for information on which TIN to report. If
such holder does not have a TIN, such holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking
this box and writing "applied for" on the form means that such holder has
already applied for a TIN or that such holder intends to apply for one in the
near future. If such holder does not provide its TIN to @Entertainment within 60
days, backup withholding will begin and continue until such holder furnishes its
TIN to @Entertainment.
6. Transfer Taxes.
@Entertainment will pay all transfer taxes, if any, applicable
to the transfer of Old Notes to it or its order pursuant to the Exchange Offer.
If, however, Exchange Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old Notes tendered hereby, or if tendered Old
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Old Notes to @Entertainment or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be
necessary for transfer tax stamps to be affixed to the Old Notes specified in
this Letter.
7. Waiver of Conditions.
@Entertainment reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders of Old Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their Old
Notes for exchange.
Neither @Entertainment, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes has been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: @ Entertainment, Inc.
<TABLE>
<CAPTION>
<S> <C>
SUBSTITUTE Part 1--PLEASE
FORM W-9 PROVIDE YOUR TIN IN
Department of THE BOX AT RIGHT TIN:
the Treasury AND CERTIFY BY ------------------
Internal SIGNING AND DATING
Revenue BELOW Social Security Number
Service or
Employer
Identification Number
Payer's Request Part 2--TIN Applied for / /
For Taxpayer
Identification
Number
("TIN") and 11.CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Certification
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be
issued to me).
(2) I am not subject to backup withholding because (a) I am exempt
from backup withholding, or (b) I have not been notified by
the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me that I am
no longer subject to backup withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE DATE
-------------------- -------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION
NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
<PAGE>
Signature Date
- --------------------------------------------------------------------------------
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to
Give the Payor. -- Social Security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payor.
- ------------------------------------------------------------------------------
Give the
For this type of account: name and
SOCIAL SECURITY
number of --
- ------------------------------------ ---------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the account
(joint account) or, if combined funds, the first
individual on the account(1)
3. Husband and wife (joint The actual owner of the account
account) or, if joint funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor is the
account) only contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
- ------------------------------------------------------------------------------
Give the
For this type of account: name and EMPLOYER
IDENTIFICATION
number of --
- ------------------------------------ ---------------------------------
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10 Corporate account The corporation
11 Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state or
local government, school
district, or prison) that
receives agricultural
program payments
- -------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show your individual name. You may also enter your business name. You
may use your Social Security number or employer identification number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
Payees and Payments Exempt from Backup Withholding Payees specifically exempted
from backup withholding on ALL payments include the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under Section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under Section 584(a) of the
Code.
o An exempt charitable remainder trust, or a non- exempt trust described
in Section 4947(a)(1) of the Code.
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under Section
1441 of the Code.
o Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding
including the following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the taxpayer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt- interest dividends
under Section 852 of the Code).
o Payments described in Section 6049(b)(5) of the Code to nonresident
aliens.
o Payments on tax-free covenant bonds under Section 1451 of the Code.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYOR. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYOR A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N of the Code.
Privacy Act Notice. -- Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payors who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payors must be given the numbers whether or not
recipients are required to file tax returns. Payors must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payor.
Certain penalties may also apply.
Penalties
(1) Failure to Furnish Taxpayer Number. -- If you fail to furnish your taxpayer
identification number to a payor, you are subject to a penalty of $50 for each
such failure unless your failure is due to reasonable cause and not to willful
neglect.
(2) Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT 99.2
@ ENTERTAINMENT, INC.
OFFER TO EXCHANGE
14 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2009
FOR ANY AND ALL OF ITS OUTSTANDING
14 1/2% SENIOR DISCOUNT NOTES DUE 2009
TO: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
@ Entertainment, Inc. ("@ Entertainment") is offering, upon and subject
to the terms and conditions set forth in the Prospectus, dated ________, 1999
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of
its 14 1/2% Series B Senior Discount Notes due 2009 (the "Exchange Notes")
pursuant to a registration statement of which this Prospectus is a part (the
"Registration Statement") for each $1,000 principal amount of its outstanding
14 1/2% Senior Discount Notes due 2009 (the "Old Notes") of which $256.8
million in aggregate principal amount are outstanding as of the date hereof.
The Exchange Offer is being made in order to satisfy certain obligations of @
Entertainment contained in the Purchase Agreement dated as of January 22,
1999 between and among @Entertainment and Merrill, Lynch, Pierce, Fenner &
Smith Incorporated and Deutsche Bank Securities, Inc. (collectively, the
"Initial Purchasers").
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ________, 1999;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer,
if certificates for Old Notes are not immediately available, or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below), or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
<PAGE>
6. Return envelopes addressed to ____________________, the Exchange Agent
for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, [_______________], 1999 unless extended by
@Entertainment, provided it may not be extended beyond _________________ (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent, and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
@ Entertainment will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. @ Entertainment will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed
to________________, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
@ ENTERTAINMENT, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF @ ENTERTAINMENT, INC. OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS OF BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE>
1
EXHIBIT 99.3
@ENTERTAINMENT, INC.
OFFER TO EXCHANGE
14 1/2% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OF ITS OUTSTANDING
14 1/2% SENIOR NOTES DUE 2009
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ________ __, 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of
@Entertainment,Inc. ("@Entertainment") to exchange $1,000 principal amount of
its 14 1/2% Series B Senior Discount Notes due 2009 (the "Exchange Notes"),
which exchange has been registered under the Securities Act of 1933, as
amended, pursuant to a registration statement of which the Prospectus is
part, for each $1,000 principal amount of its outstanding 14 1/2% Senior
Discount Notes due 2009 (the "Old Notes") of which $256.8 million in
aggregate principal amount are outstanding as of the date hereof, upon the
terms and subject to the conditions described in the Prospectus and the
Letter of Transmittal. The Exchange Offer is being made in order to satisfy
certain obligations of @Entertainment contained in the 10.43 - Preference
Warrant Agreement dated as of January 27, 1999 by and between @Entertainment,
Inc. and Baker's Trust Company. (collectively, the "Initial Purchasers").
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on _______________________, 1999, unless extended by
@Entertainment. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions to the
Exchange Offer."
<PAGE>
3. Any transfer taxes incident to the transfer of Old Notes from the holder to
@Entertainment will be paid by @Entertainment, except as otherwise provided in
the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
______________, 1999, unless extended by @Entertainment, provided it may not be
extended beyond ________.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by
@Entertainment, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount
of Old Notes
14 1/2% SENIOR DISCOUNT NOTES DUE 2009 . . . . . . . . . .
- -------------------------------------
[ ] Please do not tender any Old Notes
held by you for my account.
Dated: , 1998 -------------------------------------------
----------------------
-------------------------------------------
Signature(s)
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
<PAGE>
-------------------------------------------
Area Code and Telephone Number
-------------------------------------------
Tax Identification or Social Security No(s).
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
Exhibit 99.4
NOTICE OF GUARANTEED DELIVERY FOR
@ ENTERTAINMENT, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of @Entertainment, Inc., ("@Entertainment") made pursuant to the
Prospectus, dated ______ __, 1999 (the "Prospectus"), if certificates for
14 1/2% Senior Discount Notes due 2009 of @Entertainment are not immediately
available or if the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach
@Entertainment prior to 5:00 p.m., New York City time, on the Expiration Date of
the Exchange Offer. Such form may be delivered or transmitted by telegram, mail
or hand delivery to __________________ (the "Exchange Agent") as set forth
below. Capitalized terms not defined herein are defined in the Prospectus.
Delivery to: Bankers Trust Company, the Exchange Agent
By Facsimile: By Mail, By Hand and Confirm by Telephone:
Overnight Courier:
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to
@Entertainment the aggregate principal amount of 14 1/2% Senior Discount Notes
due 2009 set forth below, pursuant to the guaranteed delivery procedure
described in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus.
Aggregate Principal
Amount of 14 1/2% Senior Discount Notes due 2009
Tendered:
$
------------------------------------------------
Certificate Nos. (if available):
------------------------------------------------
Aggregate Number of Shares Represented by Old
Certificates(s):
$
------------------------------------------------
If 14 1/2% Senior Discount Notes due 2009 will be
delivered by book-entry transfer to The Depository
Trust Company, provide account number.
Account Number
--------------------------------
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X , 1999
----------------------------------- ----------
X ,1999
----------------------------------- ----------
Signature(s) of Owners(s) or Date
Authorized Signatory
Area Code and Telephone
Number:
----------------------
Must be signed by the holder(s) of 14 1/2% Senior Discount Notes due 2009
as their name(s) appear(s) on certificates for 14 1/2% Senior Discount Notes due
2009 or on a security position listing, or by person(s) authorized to become
registered holder(s) by endorsement and documents transmitted with this Notice
of Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
Please print name(s) and address(es)
Name(s):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------
Address(es):
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
GUARANTEE
The undersigned, a member of a registered national securities
exchange, or a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent
in the United States, hereby guarantees that the certificates representing
the shares of 14 1/2% Senior Discount Notes due 2009 tendered hereby in
proper form for transfer, or timely confirmation of the book-entry transfer
of such 14 1/2% Senior Discount Notes due 2009 into the Exchange Agent's
account at The Depository Trust Company pursuant to the procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five New York Stock Exchange trading days after the date
of execution hereof.
- -------------------------------------- --------------------------------------
Name of Firm Authorized Signature
- -------------------------------------- --------------------------------------
Address Title
Name:
- -------------------------------------- --------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
--------------- -------------------------------
<PAGE>
NOTE: DO NOT SEND CERTIFICATES FOR 14 1/2% SENIOR DISCOUNT NOTES DUE 2009 WITH
THIS FORM. CERTIFICATES FOR 14 1/2% SENIOR DISCOUNT NOTES DUE 2009 SHOULD
ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
