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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 000-22877
--------------------------
@ ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1487156
(State or Other Jurisdiction (I.R.S. EMPLOYER OF IDENTIFICATION
Incorporation or Organization) NO.)
4643 ULSTER STREET 80237
SUITE 1300 (Zip Code)
DENVER, COLORADO
(Address of Principal Executive
Offices)
</TABLE>
--------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 770-4001
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
--------------------------
(Title of Class)
Indicate by check mark (X) whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in
Rule 405.) ZERO
The number of shares outstanding of @ Entertainment, Inc.'s common stock as
of December 31, 1999, was:
Common Stock 1,000
DOCUMENTS INCORPORATED BY REFERENCE
None.
The Registrant meets the conditions set forth in General Instructions
(I) (1) (a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
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<PAGE>
@ ENTERTAINMENT, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
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PAGE NUMBER
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<S> <C> <C>
PART I
ITEM 1. Business.................................................... 5
ITEM 2. Properties.................................................. 24
ITEM 3. Legal Proceedings........................................... 25
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 28
ITEM 6. Selected Financial Data..................................... 28
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................... 29
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk... 41
ITEM 8. Financial Statements and Supplementary Data................. 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 81
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 83
</TABLE>
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PART I
@ Entertainment, Inc., a Delaware corporation which is wholly-owned by
United Pan-Europe Communications N.V. ("UPC"), was established in May 1997.
References to the "Company" mean @ Entertainment and its consolidated
subsidiaries, including Poland Communications, Inc. ("PCI"), Wizja TV Limited
(previously At Entertainment Limited) ("Wizja TV Ltd"), MEDIALNE TOWARZYSTWO
AKCYJNE S.A., Wizja TV B.V. (previously Sereke Holding B.V.) ("Wizja TV B.V."),
Wizja TV Sp. z o.o. ("Wizja TV Sp. z o.o."), Ground Zero Media Sp. z o.o.
("GZM"), At Media Sp. z o.o. ("At Media"), and @Entertainment Programming, Inc.
("@EP").
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes," "expects," "intends," "plans," "anticipates," "likely,"
"will," "may," "shall" and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company (or entities in which the Company has
interests), or industry results, to differ materially from future results,
performance or achievements expressed or implied by such forward-looking
statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Annual
Report on Form 10-K. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, conditions or circumstances.
The risks, uncertainties and other factors that might cause such differences
include, but are not limited to: (i) general economic conditions in Poland and
in the pay television business in Poland; (ii) changes in regulations the
Company operates under; (iii) uncertainties inherent in new business strategies,
including the Company's satellite television business, new product launches and
development plans, which the Company has not used before; (iv) rapid technology
changes; (v) changes in, or failure or inability to comply with government
regulations; (vi) the development and provision of programming for new
television and telecommunications technologies; (vii) the continued strength of
competitors in the multichannel video programming distribution industry and
satellite services industry and the growth of satellite delivered programming;
(viii) future financial performance, including availability, terms and
deployment of capital; (ix) the ability of vendors to deliver required
equipment, software and services on schedule at the budgeted cost; (x) the
Company's ability to and hold and attract qualified personnel; (xi) changes in
the nature of strategic relationships with joint ventures; (xii) the overall
market acceptance of those products and services, including acceptance of the
pricing of those products and services; (xiii) possible interference by
satellites in adjacent orbital positions with the satellites currently being
used for the Company's satellite television business; and (xiv) acquisition
opportunities and (xv) the Company's new ownership structure.
EXCHANGE RATE
In this Annual Report on Form 10-K, references to "U.S. dollars" or "$" are
to U.S. currency, references to "Deutsche-Marks" or "DM" are to German currency,
and references to "zloty" or "PLN" are to Polish currency. The Company has
presented its primary consolidated financial statements in accordance with
generally accepted accounting principles in the U.S. in U.S. dollars. Amounts
originally measured in zloty for all periods presented have been translated into
U.S. dollars.
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For your convenience, this Annual Report contains certain zloty amounts not
derived from the consolidated financial statements which have been translated
into U.S. dollars. Readers should not assume that the zloty amounts actually
represent such U.S. dollar amounts or could be, or could have been, 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 4.1483 = $1.00, the exchange rate quoted by the
National Bank of Poland at noon on December 31, 1999. 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.
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ITEM 1. BUSINESS
BUSINESS
GENERAL
The Company is the leading provider of pay television in Poland and is
engaged principally in the provision of cable television services and in the
development, packaging and delivery of high-quality programming. Over the past
four years, the Company has experienced rapid growth in revenues and
subscribers, through acquisitions, through expansion of its own cable and
digital satellite direct-to-home ("D-DTH") networks and through the launch of
its D-DTH service, resulting in an average increase in revenues of 60% and total
subscribers of 34% per year. The Company has also increased its average revenue
per subscriber by 11% per year during the past three years.
On June 5, 1998, the Company launched its Wizja TV programming package,
originally consisting of 11 channels of primarily Polish-language programming,
over its cable networks. The Company believes that Wizja TV has provided 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 did not expect
to cover with its cable networks, on September 18, 1998 the Company launched a
complementary D-DTH service allowing subscribers to receive Wizja TV via a
satellite dish. The Company's multi-channel Polish-language D-DTH service was
the first D-DTH service available in Poland. The Company has entered into an
agreement with Philips Business Electronic B.V. to supply the reception systems
which include a satellite dish, digital set top box and related hardware, and to
distribute the Company's D-DTH service through the Philips retail network in
Poland. As of December 31, 1999, the Company had sold and installed
approximately 254,000 of these packages to consumers. With the launch of the
Company's D-DTH service, the Company has started the transmission of Wizja TV,
which currently consists of 24 channels (of which 17 are primarily Polish
language), on both its D-DTH system and its cable networks.
On June 2, 1999, the Company entered into an Agreement and Plan of Merger
with United Pan-Europe Communications N.V. ("UPC"), whereby UPC and its
wholly-owned subsidiary, Bison Acquisition Corp. ("Bison"), initiated a tender
offer to purchase all of the outstanding shares of the Company in an all cash
transaction valuing the Company's shares of common stock at $19.00 per share.
The tender offer, initiated pursuant to the Agreement and Plan of Merger
with UPC and Bison, closed at 12:00 midnight on August 5, 1999. On August 6,
1999, Bison reported that it had accepted for payment a total of 33,701,073
shares of the Company's common stock (including 31,208 shares tendered pursuant
to notices of guaranteed delivery) representing approximately 99% of the
Company's outstanding shares of common stock (the "Acquisition"). In addition,
UPC acquired 100% of the outstanding Series A and Series B 12% Cumulative
Preference Shares of the Company and acquired all of the outstanding warrants
and stock options.
Also on August 6, 1999, Bison was merged with and into the Company with the
Company continuing as the surviving corporation (the "Merger"). Accordingly, the
Company became a wholly-owned subsidiary of UPC. UnitedGlobalCom, Inc. is the
majority stockholder of UPC.
BUSINESS STRATEGY
The Company's principal objective is to enhance its position as the leading
provider of pay television in Poland by capitalizing on favorable opportunities
that it believes exist in Poland in the cable television, D-DTH and programming
markets.
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The Company's business strategy is designed to increase its market share and
subscriber base and to maximize revenue per subscriber. To accomplish its goals,
the Company intends to do the following:
- Develop and control the content of its programming;
- Increase its distribution capabilities through internal growth and through
acquisitions;
- Control its management of subscribers by using advanced information
systems; and
- Establish Wizja TV as the leading brand name in the Polish pay television
industry.
CABLE TELEVISION
The Company operates the largest cable television system in Poland with
approximately 1,756,000 homes passed and approximately 1,024,000 total
subscribers as of December 31, 1999. The Company's cable subscribers are located
in regional clusters encompassing eight of the ten largest cities in Poland,
including those cities which the Company believes provide the most favorable
demographics for cable television in the country. The Company believes that
additional subscriber growth can be achieved through a combination of increased
penetration, new network expansion and acquisitions. The Company's cable
television networks have been constructed with the flexibility and capacity to
be cost-effectively reconfigured to offer an array of interactive and integrated
entertainment, telecommunications and information service.
REGIONAL CLUSTERS
The Company has established five regional clusters for its cable television
business encompassing eight of the ten largest cities in Poland, which the
Company believes, are among those with the strongest economies and most
favorable demographics for cable television in the country. The following table
illustrates certain operating data of each of the Company's existing regional
clusters.
OVERVIEW OF THE COMPANY'S EXISTING CABLE SYSTEMS(1)
<TABLE>
<CAPTION>
AVERAGE MONTHLY
SUBSCRIPTION REVENUE
BASIC AND BASIC AND PER BASIC
TOTAL INTERMEDIATE INTERMEDIATE SUBSCRIBER
REGION TOTAL HOMES HOMES PASSED SUBSCRIBERS SUBSCRIBERS PENETRATION (USD) (2)
- - ------ ----------- ------------ ----------- ------------ ------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
North..................... 574,000 420,890 295,053 228,943 54.39% 6.98
South..................... 400,000 181,890 86,989 74,757 41.10% 7.50
Central................... 920,000 425,248 242,963 164,852 38.77% 7.74
West...................... 624,000 234,315 123,934 111,421 47.55% 6.15
Katowice.................. 1,200,000 493,255 274,884 203,001 41.16% 7.14
--------- --------- --------- ------- ----- ----
TOTAL................... 3,718,000 1,755,598 1,023,823 782,974 44.60% 6.68
========= ========= ========= ======= ===== ====
</TABLE>
- - ------------------------
(1) All data at or for the year ended December 31, 1999.
(2) Represents a weighted average for the Company based on the total number of
basic subscribers at December 31, 1999.
ACQUISITIONS
The Company regularly evaluates potential acquisitions of cable networks.
The Company currently has no definitive agreement with respect to any material
acquisition, although from time to time it has discussions with other companies
and assesses opportunities on an ongoing basis. The Company may be required to
apply for the approval of the Polish Anti-Monopoly Office with respect to any
acquisitions it
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wishes to consummate. The Company's ability to enter into definitive agreements
relating to material acquisitions and their potential terms, as well as its
ability to obtain the necessary anti-monopoly approvals, cannot be assured.
SERVICES AND FEES
The Company charges cable television subscribers an initial installation fee
and fixed monthly fees for their choice of service packages and for other
services such as premium channels and rental of remote control devices.
Throughout its cable television systems, the Company currently offers three
packages of cable television service: basic ("basic package"), broadcast
("broadcast package") and intermediate ("intermediate package") packages of
service in selected areas of Poland. On December 31, 1999, approximately 732,800
or 71.6% of the Company's subscribers received the basic package, approximately
50,200 or 4.9% received the intermediate package and approximately 240,800 or
23.5% received the broadcast package of service.
BASIC PACKAGE. The basic package includes approximately 30 to 70 channels.
This package generally includes all Polish terrestrial broadcast channels, most
major European satellite programming legally available in Poland, regional and
local programming and, on most of its cable networks, Wizja TV, including the
Company's proprietary Polish-language channel, Atomic TV. The Company's basic
package offerings vary by location. With the launch of Wizja TV across the
Company's cable networks on June 5, 1998, all of the Wizja TV programming became
part of the basic package except for the HBO Poland service, a Polish-language
premium movie channel owned in part by Home Box Office and, since September 18,
1999, Wizja Sport, a Polish-language premium sport channel.
INTERMEDIATE PACKAGE. The intermediate package includes approximately 17 to
24 channels. This package is offered for monthly fees equal to approximately
one-half of the amount charged for the basic package. The intermediate package
is designed to compete with small cable operators on a basis of price, using a
limited programming offering. The Company's intermediate package offerings vary
by location.
BROADCAST PACKAGE. The broadcast package includes 6 to 12 broadcast
channels with clear reception for monthly fees, which are substantially less
than the amounts charged for the intermediate package.
PREMIUM AND OTHER SERVICES. For an additional monthly charge, certain of
the Company's cable networks currently offer two premium television
services--the HBO Poland service (a Polish-language premium movie channel owned
in part by Home Box Office) and, since September 18, 1999, Wizja Sport, a
Polish-language premium sport channel. The Company plans to create additional
pay-per-view channels that will also be offered to cable customers for an
additional charge.
Other optional services include additional outlets and stereo service, which
enables a subscriber to receive 12 or more radio channels in stereo. Cable
television subscribers who require the use of a tuner to receive certain of the
Company's cable services are charged an additional fee of approximately $1.10
per month. Installation fees vary according to the type of connection required
by a cable television subscriber. The standard initial installation fee is
approximately $21 for buildings with multiple apartments and approximately $42
for single family dwellings, but such fees may be subject to reductions as a
result of promotional campaigns.
PRICING STRATEGY. Prior to December 1996, the Company's cable television
pricing strategy was designed to keep its profit margin relatively constant in
U.S. dollar terms in more mature systems and to increase rates in more recently
acquired or rebuilt systems. The Company has historically experienced annual
churn rates of less than 10%, and has been able to pass on the effects of
inflation through price increases. For the year ended December 31, 1999, the
churn rate was 21.5%, though it would have been 18.5% had the Company not
decided to reclassify another 20,556 subscribers to the intermediate tier. This
pricing strategy commenced in January 1997 and is designed to increase revenue
per subscriber and to achieve real profit margin increases in U.S. dollar terms.
The Company expects that it will continue to
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experience churn rates above historical levels during the implementation of its
current pricing strategy. The Company expects to offer promotional incentives in
certain areas of the country from time to time in connection with its marketing.
Cable television subscribers are billed monthly in advance and, as is
customary in Poland, most of the Company's customers pay their bills through
their local post office or bank. The Company has strict enforcement policies to
encourage timely payment. Such policies include notices of late payment, visits
from service personnel, and ultimately, disconnection for nonpaying customers
60 days after a bill becomes past due. The Company's system architecture in most
networks enables it to promptly shut off service to nonpaying customers and is
designed to reduce non-authorized use of its cable systems. The Company's bad
debts expense has historically averaged approximately 2.7% of revenue.
TECHNOLOGY AND INFRASTRUCTURE
The Company believes the fiber-optic cable television networks that it has
constructed, which serve approximately 692,000 of its subscribers, are among the
most technologically advanced in Poland and are comparable to modern cable
television networks in the U.S. All of the Company's networks that have been
constructed by the Company have bandwidths of at least 550 MHz. New portions of
the networks, which are currently being constructed, are being designed to have
minimum bandwidths of 860 MHz. The Company's goal is to upgrade any portions of
its cable television networks that have bandwidths below 550 MHz (generally
acquired from other entities) to at least 860 MHz in an effort to reduce the
number of satellite receivers and parts inventory required in the networks by
the end of 2000. The Company uses fiber-optic and coaxial cables, electronic
components and connectors supplied by leading Western firms in its cable
television networks.
The Company has been able to avoid constructing its own underground conduits
in certain areas by entering into a series of agreements with regional and local
branches of the Polish national telephone company (known in the Polish
telecommunications industry as "TPSA") which permit the Company to use TPSA's
conduit infrastructure for an indefinite period of time or for fixed periods up
to 20 years. The Company also has agreements to undertake joint construction
with another company for new conduits in certain areas. These agreements
represent a major advantage to the Company since they permit the Company to
minimize the costly and time-consuming process of building new conduit
infrastructure where TPSA conduit infrastructure exists and provide for joint
construction with TPSA and other utilities of conduit infrastructure where none
currently exists. As of December 31, 1999, approximately 81% of the Company's
cable television plant had been constructed utilizing pre-existing conduits of
TPSA. A substantial portion of the Company's contracts with TPSA allows for
termination by TPSA without penalty at any time either immediately upon the
occurrence of certain conditions or upon provision of three to six months'
notice without cause.
Generally speaking, TPSA may terminate a conduit agreement immediately (and
without penalty) if:
- the Company does not have a valid permit from the Polish State Agency of
Radio Communications authorizing the construction and operation of a cable
television network in a specified geographic area covering the subscribers
to which the conduit delivers the signal;
- the Company's cable network serviced by the conduit does not meet the
technical specifications required by the Polish Communications Act of
1990;
- the Company does not have a contract with the cooperative authority
allowing for the installation of the cable network; or
- the Company does not pay the rent required under the conduit agreement.
As of December 31, 1999, TPSA was legally entitled to terminate conduit
agreements covering approximately less than 1% of the Company's subscribers as a
result of the Company's failure to comply
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with certain terms of its conduit agreements with TPSA. Any termination by TPSA
of such contracts could result in the Company losing its permits, the
termination of agreements with co-op authorities and programmers, and in
inability to service customer with respect to areas where its networks utilize
the conduits that were the subject of such TPSA contracts.
In addition, some conduit agreements with TPSA provide that cables can be
installed in the conduit only for the use of cable television. If the Company
uses the cables for a purpose other than cable television, such as data
transmission, telephone, or Internet access, such use could be considered a
violation of the terms of certain conduit agreements, unless this use is
expressly authorized by TPSA. There is no guarantee that TPSA would give its
approval to permit other uses of the conduits.
D-DTH
The Company has expanded its distribution capacity with the launch of its
D-DTH broadcasting service for Poland. The programming provided is Wizja TV. The
Company's multi-channel Polish-language D-DTH service, which was the first D-DTH
service available in Poland, is being broadcast to Poland from its transmission
facilities in Maidstone, U.K. As of December 31, 1999, the Company distributed
to Philips' authorized retailers approximately 294,000 D-DTH packages. As of
December 31, 1999, the Company had sold and installed approximately 254,000 of
these packages to consumers. However, due to technical problems that Philips had
with a component of the decoder, the Company faced a backlog in decoder
deliveries in the fourth quarter of 1999 of approximately 48,000 decoders, all
of which the Company believes would have been sold if the Company had received
those decoders.
SERVICES AND FEES
The Company began broadcasting to Poland from its transmission facilities in
Maidstone, U.K. and retransmitting Wizja TV across its cable networks on
June 5, 1998, and on its D-DTH system on a limited basis on July 1, 1998, and on
a full-scale basis on September 18, 1998.
The Company expects to be able to offer event pay per view service to its
D-DTH subscribers by late 2000. The Company also expects to offer certain
recently released feature films and sports and other live events on such a
service.
The Company currently charges its D-DTH subscribers a monthly fee of
approximately $12 for all channels (other than any premium channels).
Subscribers to the Company's premium channels pay $5 per month for the HBO
Poland service and Wizja Sport.
TECHNOLOGY AND INFRASTRUCTURE
The Company's D-DTH service is encoded, processed, compressed, encrypted,
multiplexed (i.e., combined with other channels), modulated (i.e., applied to
the designated carrier frequency for transmission to satellite) and broadcast
from Maidstone, U.K. to Astra satellites in geosynchronous orbits ("uplinked").
The satellites receive, convert and amplify the digital signals and retransmit
them to earth in a manner that allows individual subscribers to receive and be
billed for the particular program services to which they subscribe.
TRANSMISSION AND UPLINK FACILITIES. The channels available on the Company's
D-DTH service include the Company's own proprietary channels and channels from
third parties originating from a number of sources in Poland, the U.K. and
elsewhere. Most of the tailoring of programs for the local market
("localization") to be undertaken by the Company, which will principally consist
of adding voice or dubbing into Polish for the Company's proprietary channels on
Wizja TV, will occur in Poland. For most of the channels on Wizja TV,
localization, editorial control and program packaging will be the responsibility
and at the cost of the channel supplier. The channels provided by third parties
will be delivered in tape
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format, through a landline or will be backhauled (i.e., transmitted via
satellite or other medium) to the Company's transmission facility in Maidstone
for broadcasting to Poland.
The Company has a 5-year contract with British Telecommunications plc ("BT")
for the provision and maintenance of uplink equipment at Maidstone. Other than
the BT uplink equipment, the Company owns all the required broadcasting
equipment at its facility in Maidstone. The Company's programming is currently
transmitted to the Company's transponders on Astra satellites 1E and 1F.
The Company's D-DTH signal is beamed by these satellites back to earth and
may be received in Poland by those who have the appropriate dedicated satellite
reception equipment and who have been connected by the Company to its D-DTH
service as subscribers. The signal is currently received by the Company's own
cable networks, and will also be received by the cable networks of other cable
operators, if any, having distribution agreements with the Company. Once the
D-DTH signal has been received at the cable networks, the signal is transmitted
by cable to those who have been connected by the Company to its cable service as
subscribers or connected by such other cable operators, if any, to their own
cable systems.
Philips provides the following critical components and services used in the
Company's D-DTH satellite transmission system and is the primary point of
contact for subscribers to the Company's D-DTH service:
- the Philips' digital integrated receiver decoders;
- a smartcard-based proprietary conditional access system which uses Philips
CryptoWorks-Registered Trademark- technology;
- a satellite receiving dish and related equipment;
- installation; and
- support services.
The Company's agreement with Philips provides for the following:
- Philips will be the exclusive supplier of the first 500,000 D-DTH
reception systems in connection with the launch of the Company's D-DTH
business in Poland.
- Philips has granted the Company an exclusive license of its
CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which will terminate when the Company has purchased 500,000
D-DTH reception systems from Philips, unless terminated earlier in
accordance with the terms of the agreement or extended by mutual consent
of Philips and the Company.
- Philips will not be able to distribute any other IRDs under the Philips'
trademark in Poland until December 31, 1999 or any earlier date on which
the Company has secured 500,000 initial subscribers to its D-DTH service
in Poland. After such period the Company may license one or two suppliers
of IRDs in addition to Philips and Philips shall license its
CryptoWorks-Registered Trademark- technology to such additional suppliers
for the Polish market. However, there can be no assurance that the Company
will be able to secure such additional suppliers, if necessary.
Any new D-DTH broadcaster wishing to commence the operation of an encrypted
pay television service within Poland would need to obtain a license from Philips
to use CryptoWorks-Registered Trademark- (after the exclusive license of
CryptoWorks-Registered Trademark- for Poland granted to the Company ends), or
acquire an alternative encryption and conditional access technology and build
its own decoder base capable of receiving transmissions encrypted using such
technology. If a competitor obtained a license from Philips, it could contract
with the Company for access to the installed encryption decoder base utilized by
the Company.
Transmissions using conditional access technology are encrypted prior to
being transmitted to satellites. The signal from the satellite is received by a
subscriber through an antenna and integrated receiver decoder, and is decrypted
via a smartcard inserted into a decoder, which is usually integrated with a
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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." Although the Company expects its
conditional access system, subscriber management system and smartcard system to
adequately prevent unauthorized access to programming, there can be no assurance
that the encryption technology to be utilized in connection with the Company's
D-DTH system will remain effective.
The Company believes that the Astra satellites,
CryptoWorks-Registered Trademark- encryption technology and the integrated
receiver decoder together constitute a reliable, end-to-end cost-effective D-DTH
system. However, certain other large European providers of D-DTH services have
selected different satellites, encryption technology and decoders.
SATELLITES. The Company currently broadcasts and expects to broadcast all
of its proprietary programming and that of most of third party programmers from
its transmission facility in the U.K. by cable to an earth station transmitting
antenna, located at its Maidstone site. The uplink facility transmits the
Company's programming signal via a transponder on an orbiting satellite
transponder to the cable system receiving antennae and also to D-DTH
subscribers' reception equipment throughout Poland. The Company has been
studying and discussing with relevant Polish authorities the feasibility of
locating its uplink and production facilities in Poland and applying for Polish
broadcasting licenses necessary to engage in such activities.
In March 1997, the Company entered into contracts with Societe Europeenne
des Satellites S.A. ("SES") for the lease of three transponders on two
satellites, Astra 1E and 1F. The leases for the one transponder on the Astra 1E
satellite and two transponders on the Astra 1F satellite will expire in 2007.
All three transponders are currently operational and available to the Company.
Aggregate charges for each transponder are capped at $6.75 million per year for
each transponder and approximately $162.0 million for all three transponders for
the remaining term of the contracts remaining after December 31, 1999. The
Company's transponder leases provide that the Company's rights are subject to
termination in the event that SES's franchise is withdrawn by the Luxembourg
Government.
The Company has been designated a "non-pre-emptible customer" under each of
its relevant transponder leases. As a result, in the event of satellite or
transponder malfunction, the Company's use of its transponders cannot be
suspended or terminated by a broadcaster which has pre-emption rights permitting
it to gain access to additional transponders in preference to certain other
Astra customers. The Company does not, however, have the right to pre-empt other
customers if its transponders stop working. A "protected customer" has
pre-emption rights if its transponders stop working and its service would be
moved on to the transponder carrying a pre-emptible customer's service.
PROGRAMMING
The Company believes that there is unsatisfied demand in the Polish market
for high-quality Polish-language programming and that the quality and variety of
Polish-language programming offered is a critical factor in building and
maintaining successful multi-channel pay television systems in Poland. The
principal programming objective of the Company is to develop and acquire
high-quality Polish-language programming that can be commercially exploited
throughout Poland through D-DTH and cable television exhibition and advertising
sales. The Company intends to use Wizja TV to increase the penetration rate for
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its cable television networks and its D-DTH system and to increase per
subscriber revenue from its cable systems. The Company also expects to
distribute Wizja TV on a wholesale basis to other cable operators in Poland.
WIZJA TV PROGRAMMING PACKAGE
Sport events were initially carried on Wizja Jeden or Twoja Wizja, and they
have been carried on Wizja Sport since its launch on September 18, 1999. Wizja
Sport provides approximately 10 hours of local and international sporting events
per day. The Company believes that Wizja Sport is the first channel in the
Polish market principally dedicated to Polish sports programming. The Company's
ability to broadcast certain of these sporting events on an exclusive basis may
be limited by pending regulatory changes.
Several of the sports rights contracts give the Company the ability to
obtain additional seasons of those sports events, either by way of a right of
first refusal or a right of first offer. Most of the sports rights agreements
grant the Company exclusive rights to broadcast the sports events live in
Poland. The exclusivity in some cases is subject to the ability of the rights
owner to grant limited rights to other broadcasters to show the events on a
delayed or highlights basis. The Company is currently in negotiations with other
sports rights holders to purchase the rights to additional local and
international sports events.
The Company has purchased exclusive rights from third parties for
programming on 9 of the current 24 channels on Wizja TV. In some of the
agreements, however, the channel supplier may terminate the agreement and/or
eliminate the exclusivity rights if the Company does not achieve specified
milestones for subscriber numbers by certain specified dates. In addition, most
of the agreements impose certain restrictions on the tiering of the particular
channel, which will limit the flexibility of the Company in determining program
tiering in the future, and also include provisions whereby the Company agrees to
indemnify the channel supplier against any claims, including claims made by
governmental authorities, resulting from the exclusive nature of the rights
granted or from the tiering restrictions. Some of the agreements require
payments based on a guaranteed minimum number of subscribers, and some require
payments at the time of execution. On December 31, 1999, the Company was
committed to pay approximately $214.0 million in guaranteed minimum payments
over the next seven years in respect of broadcasting and programming agreements,
of which approximately $55.6 million was committed through the end of 2000. In
addition, the Company is continuing to negotiate additional agreements with
channel and program suppliers and sports rights organizations, which agreements
if consummated may require the Company to pay additional guaranteed minimum
payments and/or payments at the time of execution. In most of the Company's
programming agreements, the channel supplier, at its own expense, must localize
its programming into the Polish language prior to the launch of Wizja TV. In
most of its programming agreements, the Company is required to make payments to
the channel supplier on a monthly basis based on the number of subscribers to
whom the programming is made available.
In addition, some of the agreements impose certain limitations, including:
- the channel must be received by 100% of subscribers to the Company's D-DTH
service and by all "basic package" subscribers of the Company's cable
system or by most of its cable subscribers;
- the channel must be provided, under certain restricted circumstances, on a
stand alone basis as well as part of a package of programming in certain
situations;
- the programming the Company may purchase for Wizja TV may be restricted;
- distribution of other channels as part of the Company's programming
package may be limited (consequently, the consummation of an agreement
with one channel supplier has had, and will in the future continue to
have, the effect of precluding the Company from entering into agreements
with other potential channel suppliers);
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- suppliers of programming to a channel supplier may require the Company to
assume the channel supplier's obligations to license the programming on
financial terms which are more favorable to the program provider than
those under the Company's existing agreement with the channel supplier;
- The Company may be required to install encryption decoder-based technology
in homes of cable subscribers receiving premium services; and
- if the Company undertakes certain investments or enters into certain
transactions, certain minimum guarantees payable under the agreement would
increase and the Company would lose certain rights.
The terms of the Company's agreements with third parties for programming on
Wizja TV range from 2 to 7 years.
PROPRIETARY PROGRAMMING
Wizja TV contains four channels, Atomic TV, Wizja Jeden, Wizja Pogoda and
Wizja Sport, that are owned and operated by the Company. The Company intends to
create additional proprietary channels, to be added to the Wizja TV line-up. In
addition, the Company has established and intends to continue to establish
entities to engage in the production of programming either to be included on the
Company's proprietary channels, or to be licensed to the Company for
distribution as part of the Wizja TV line-up.
In addition, the Company is developing Wizja Jeden as the primary channel
for entertainment. Wizja Pogoda as the weather channel, and Wizja Sport as the
sports channel for its programming platform. Wizja Jeden offers a wide range of
Polish-language programming, including full-length feature films, music,
lifestyle and childrens' programs, Wizja Sport offers a wide range of
international and Polish sports events.
In November 1997, the Company purchased 50% of WPTS Sp. z o.o. ("Twoj
Styl"), a Polish company producing, among others, the leading Polish lifestyle
magazine. The Company outsourced the publishing of a TV guide for its
subscribers to Twoj Styl.
In February 1998, the Company purchased, for approximately $500,000, an
option to buy a 50% plus one share interest in "Polonia" Sportowa S.A., a soccer
club in Poland. The purchase option expired in February 1999 and the Company has
no intention of extending this option.
PREMIUM TELEVISION CHANNELS. The Company has introduced its own premium
channel as well as premium channels supplied by third parties. On September 18,
1999 the Company introduced Wizja Sport as a premium channel. The Company has
also introduced a Polish-language version of premium movie channels to its cable
subscribers for an additional monthly fee. Currently, two premium movie channels
are available in Poland, Canal+ and the HBO Poland service. Both feature movies
and also carry, or will carry, live sports and other entertainment. The Company
has distributed Canal+ on a non-exclusive basis on some of its cable networks
since entering into a preliminary distribution agreement with Canal+ in
October 1995.
The Company has signed agreements for the exclusive distribution on its
D-DTH system, and non-exclusive distribution across its cable networks, for the
HBO Poland service, a Polish-language premium movie channel owned in part by
Home Box Office. HBO currently has exclusive rights in Poland to movies from
Warner Bros., Columbia TriStar International Television and Buena Vista
International.
The HBO Poland service was launched on the Company's cable network in
September 1996. The Company began distribution of the HBO Poland service in
Warsaw in April and in Gdansk and Krakow in May 1997, and rolled out this
service to most of the Company's remaining cable systems by the end of 1997. The
HBO Poland service was launched on the Company's D-DTH system in July 1998. The
Company has offered and continues to offer the HBO Poland service on a
promotional basis to D-DTH subscribers for a period of three months and offers
the HBO Poland service to its cable subscribers
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through promotional campaigns. However, after this promotional period, the
Company charges approximately $5.29 per month for this service. Only a limited
number of subscribers continue the HBO Poland service past the expiration of the
promotional period.
Wizja Sport was launched on the Company's D-DTH and Cable systems on
September 18, 1999.
ADVERTISING
In October 1998, the Company established At Media Sp. z o.o. in Poland a
wholly-owned subsidiary, to develop advertising opportunities for the Wizja TV
programming package. At Media, currently offers commercial airtime on 12 of the
Company's 24 channels on Wizja TV to major advertising agencies and advertisers
in the Polish market.
COMPETITION
The multi-channel pay television industry in Poland has been, and is
expected to remain, highly competitive. The Company competes with other cable
television operators, as well as with companies employing numerous other methods
of delivering television signals to subscribers. The extent to which the
Company's multi-channel pay television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of Polish-language programming at a more reasonable price than
the programming and prices available through alternative delivery systems.
Pay television services also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
videocassette recorders. The extent of this type of competition depends upon,
among other things, the price, variety and quality of programming offered by pay
television services and the popularity of television itself.
CABLE TELEVISION. In the cable television industry, the Company believes
that competition for subscribers is primarily based on price, program offerings,
customer service, and quality and reliability of cable networks.
Operators of small cable networks, which are active throughout Poland, pose
a competitive threat to the Company because they often incur lower capital
expenditures and operating costs and therefore have the ability to charge lower
fees to subscribers than does the Company. While these operators often do not
meet the technical standards for cable systems under Polish law, enforcement of
regulations governing technical standards has historically been poor. Regardless
of the enforcement of these laws and regulations, the Company expects that
operators of small cable networks will continue to remain a competitive force in
Poland.
In addition, certain of the Company's competitors or their affiliates have
greater experience in the cable television industry and have significantly
greater resources (including financial resources and access to international
programming sources) than the Company. The largest competitors of the Company in
Poland include Elektrim S.A., which owns at least two cable systems (including
Aster City Cable Sp. z o.o.) and Multimedia Polska S.A., a Polish entity. In
addition, the Company understands that a number of cable operators in Poland
(led by Bresnan Communications) have formed, or are in the process of forming, a
consortium for the joint creation and production of Polish-language programming.
The Company's cable television business also competes with companies
employing other methods of delivering television signals to the subscribers,
such as terrestrial broadcast television signals and A-DTH television services,
and with a multi-channel multi-point distribution system and D-DTH services
(including the Company's own D-DTH service).
D-DTH. The Company's D-DTH business will compete with traditional third
party cable systems, and terrestrial broadcast and analog direct-to-home
("A-DTH") services as well as other potential D-DTH
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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+.
The Company cannot predict whether other European or Polish broadcasters,
such as BSkyB, Bertelsmann, Kirch or Polsat, will choose to enter the Polish
D-DTH market. Some of the Company's current and potential competitors, either
alone or in joint ventures with other competitors, have either launched or
announced plans to launch D-DTH systems for other European countries. Many of
the Company's current and potential competitors have significantly greater
financial, managerial and operational resources and more experience in the DTH
business than the Company.
PROGRAMMING. In the programming business, the Company competes with other
television companies, both free (broadcast) television and pay television
(including Canal + and HBO), for the acquisition of sports rights and most other
programming, including the rights to feature films and television series and the
right to participate in joint ventures with other creators of programming. The
Company also competes with other programming creators for the hiring of
personnel with creative and production talent for the development of
programming.
TRADEMARKS
The Company, either itself or through its subsidiaries, has filed or is in
the process of filing for registration of its various trademarks. The PTK logo
was registered for use in connection with television and programming services in
July 1997. Trademark applications are pending in Poland for other variations of
PTK trademarks. Also, numerous trademark applications have been filed in Poland
for the various Wizja trademarks, including but not limited to Atomic TV, Wizja,
Wizja TV and Wizja Jeden logos. Additional applications for other Wizja
trademarks and related trademarks will be filed in Poland in the near future.
EMPLOYEES
At December 31, 1999, the Company had approximately 1,257 permanent
full-time employees and approximately 47 part-time employees. In addition, as of
that date the Company employed approximately 35 salesmen who received both
commissions and a nominal salary, and from time to time the Company employs
additional salesmen on an as needed, commission only basis. The Company expects
that certain functions, such as satellite transmission and receiving and program
production, will be performed by employees of third parties pursuant to
medium-and long-term service agreements with the Company. In a division of one
of the Company's subsidiaries, a trade union, which has approximately 7 members,
was formed in mid-1999. The Company believes that its relations with its
employees are good.
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REGULATION
The Company is subject to regulation in Poland, the U.K. and the European
Union
POLAND
GENERAL
The operation of cable and digital satellite direct-to-home broadcasting
("D-DTH") television systems in Poland is regulated under the Polish
Communications Act of 1990 (the "Communications Act") and the Polish Radio and
Television Act of 1992 (the "Television Act"). These are regulated by:
--The Polish Minister of Communications;
--The Polish State Agency of Radio Communications ("PAR"); and
--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.
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.
Poland is in the process of negotiating its membership in the EU. In
connection with this process, Poland has started to adjust its legal system to
EU requirements and currently is in the process of revising its
telecommunications, broadcasting and copyright regulation. Proposed legislation
regarding those regulations is currently being discussed in the Polish
Parliament.
With one exception, all of the Wizja proprietary channels and all channels
on the Wizja platform are currently licensed in the United Kingdom by the
Independent Television Commission as satellite television services. As such,
they are then retransmitted under the European Convention on Transfrontier
Broadcasting to Poland and then distributed via cable and D-DTH in Poland. As
its regulatory regime develops, Poland may seek to regulate the reception of
D-DTH signals. Poland's regulatory environment is undergoing constant change.
The Company does not know how such change will impact its business.
COMMUNICATIONS ACT
PERMITS. The Communications Act and the required permits issued by PAR set
forth the terms and conditions for providing cable television services.
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; and
--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.
The Company will be required to obtain additional permits from the Minister
of Communications to offer other telecommunications services such as internet
access or broadband transmission services.
FOREIGN OWNERSHIP RESTRICTIONS. The Communications Act provides 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. If the Polish regulatory authorities were
to conclude that the Company's ownership or distribution structure is not in
compliance with Poland's regulatory restrictions on foreign ownership, the
Company could be forced to incur significant costs in order to bring its
ownership structure and distribution system into compliance with the applicable
regulations and the Company may be forced to dispose of its ownership interests
in various entities.
THE COMPANY'S PERMITS AND NEW CORPORATE ORGANIZATIONAL STRUCTURE. Prior to
the creation of PAR and the permit system, one of the Company's subsidiaries,
Polska Telewizja Kablowa S.A. ("PTK S.A."), received a license to operate cable
television systems in Warsaw, Krakow and the areas surrounding these cities
under the Polish Foreign Commercial Activity Act.
To comply with the foreign ownership requirements discussed above in areas
that are not covered by the licenses currently held by PTK S.A., the Company is
in the process of creating a new entity, Polska Telewizja Kablowa Operator Sp. z
o.o. ("PTK Operator"), which will own and/or operate the Company's new or
existing cable networks whose permits are subject to the foreign ownership
restrictions discussed above. The Company's subsidiary will hold a 47% ownership
stake in PTK Operator while the remaining 53% 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 company. The Company
believe that this ownership and operating structure complies with the
requirements of Polish law. PAR has granted permits to the Company and its
competitors, based on the lease of assets, for networks using an ownership and
operating structure substantially similar to the one described above.
Specifically, subsidiaries of the Company have received approximately 106
permits from PAR, covering approximately 674,200 of the Company's approximately
732,000 basic subscribers at December 31, 1999, including approximately 11,700
subscribers for whom the Company's permits are deemed extended under Polish law
pending PAR's response to the Company's permit renewal applications. However,
certain subsidiaries of the Company do not have valid permits covering certain
of the areas in which it operates cable networks. Of the approximately 64,200
basic subscribers at December 31, 1999 located in areas for which subsidiaries
of the Company do not currently have valid permits, approximately 78% are
located in areas serviced by recently acquired or constructed cable networks for
which permit applications cannot be made until all permit requirements are
satisfied (including obtaining agreements with cooperative authorities and the
upgrade of the acquired network to meet technical standards where necessary and
satisfying foreign ownership limitations), and approximately 22% are located in
areas serviced by networks for which subsidiaries of the Company have permit
applications pending. These subsidiaries of the Company have 9 permit
applications pending. There can be no assurance that PAR will issue any or all
of the Permits for which such subsidiaries have applied.
The Company may be subject to penalties if PAR or other Polish regulatory
authorities determine that all or part of the Company's ownership and operating
structure violates Polish regulatory restrictions on foreign ownership. The
Company would also be subject to penalties if PAR chooses to take action against
it for operating cable television networks in areas not covered by valid
permits.
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Any such actions by PAR or other Polish regulatory authorities would have a
material adverse effect on the Company's business, financial condition and
results of operations.
TELEVISION ACT
THE POLISH NATIONAL RADIO AND TELEVISION COUNCIL. The Council, an
independent agency of the Polish government, was created under the Television
Act to regulate broadcasting in Poland. The Council has 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. The
Company's subsidiaries have registered most of the programming that they
transmit on their cable networks, except programming transmitted on networks for
which they do not have permits. The Chairman of the Council may revoke the
registration of any of the Company's programming, or may not register all
additional programming that the Company desires to transmit over the Company's
networks. In addition, the Council may take action regarding unregistered
programming that the Company transmits over cable networks for which the Company
does not yet have PAR permits. This pertains to areas for which permit
applications cannot be made until all permit requirements are satisfied
(including obtaining agreements with the cooperative authorities, upgrading of
the acquired networks to meet technical standards where necessary and satisfying
foreign ownership limitations). Such actions could include the levying of
monetary fines against the Company, and the seizure of equipment involved in
transmitting such unregistered programming as well as criminal sanctions against
the Company's subsidiaries' management. These actions could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RESTRICTIONS ON FOREIGN OWNERSHIP OF POLISH BROADCASTERS. The Television
Act provides that programming may be broadcast in Poland only by Polish entities
in which foreign persons hold no more than 33% of the share capital, ownership
interest and voting rights. In addition, the Television Act provides that the
majority of the management and supervisory boards of any 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.
REQUIREMENTS CONCERNING PROGRAMS BROADCAST FROM OUTSIDE OF POLAND.
The Television Act does not include regulations directly applicable to the
broadcasting of programs being broadcast from abroad and received in Poland.
Specifically, there are no regulations in force concerning satellite
broadcasting of a program directed to a Polish audience if the transmission to
the satellite for the broadcasting of such program is made by a foreign
broadcaster from outside of Poland. The Company believes that the Television Act
does not apply to such broadcasting and that such activity is not subject to
Polish broadcasting requirements. A subsidiary of Canal + has filed suit against
HBO Polska Sp. z o.o. and certain Polish cable operators (including the
Company's subsidiaries) alleging violations of the Television Act in connections
with HBO's broadcasting activity from outside of Poland.
The Company has established and intends to continue to establish entities to
engage in the development and production of Polish-language thematic television
programming outside of Poland. While all of the content and programs which the
Company distributes across its cable networks and its D-DTH system are
distributed via satellite systems which are located outside of Poland, much of
the programming is
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produced or assembled entirely in Poland. The Company believes that the
ownership structure of its entities, as well as its operating strategy, are not
subject to Poland's regulatory restrictions on foreign ownership, licensing
requirements, restrictions and regulations on the operation of cable networks
and the broadcasting of programming.
If the Polish regulatory authorities determine otherwise, the Company would
be required to:
--secure additional licenses from the Chairman of the Council and permits
from PAR;
--modify the nature and content of its programming;
--pay fines or other penalties for lack of compliance with these
regulations; and
--comply with Polish regulations governing ownership structure and the
production and transmission of programming across a D-DTH system.
COPYRIGHT PROTECTION
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. 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. Most of
the Company's cable subsidiaries operate under a contract with ZASP and all of
its cable subsidiaries operate under a contract with ZAIKS. 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 "--Television Act" for a
discussion of the penalties and consequences associated with violations of the
Television Act and "--Communications Act" for a discussion of the penalties and
consequences associated with violations of the Communications Act and of a
television operator's permits. In addition, currently proposed legislation
regarding copyrights may increase the rights of organizations for collective
administration of copyrights. Adoption of the amendments in the proposed version
could potentially lead to a significant increase of fees to be paid by
broadcaster to authors and performers.
The Company is currently negotiating with several copyright collecting
societies in both the United Kingdom and Poland in relation to obtaining
appropriate copyright licenses for the Wizja owned channels.
ANTI-MONOPOLY ACT
EXCLUSIVE PROGRAMMING AGREEMENTS. Many of the programming agreements that
the Company has entered into for its cable networks and its D-DTH service
contain exclusivity clauses which restrict or prohibit the provider of such
programming from providing such programming to other cable or D-DTH operators.
Although such exclusivity clauses are not specifically prohibited under the
Anti-Monopoly Act, such agreements may be found unlawful, and therefore
unenforceable, if they restrict or hinder competition or otherwise involve the
abuse of a dominant position. A decision by the Anti-Monopoly Office to deem one
or more of these programming agreements as void due to the fact that it contains
an illegal exclusivity clause could have a material adverse effect on the
Company's business and financial results in that such a decision would
potentially reduce the commercial value of these contracts and could reduce the
consumer of appeal of the programming offered on the Company's cable networks
and its D-DTH system.
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MARKET DOMINANCE. Companies that obtain control of 40% or more of the
relevant market and do not encounter significant competition may be deemed to
have market dominance, and therefore face greater scrutiny from the
Anti-Monopoly Office.
From time to time, the Company receives inquiries from and are subject to
review by various divisions of the Anti-Monopoly Office.
RECENT ANTI-MONOPOLY OFFICE FINDINGS WITH RESPECT TO THE COMPANY AND ITS
SUBSIDIARIES. In mid 1998, the Anti-Monopoly Office issued a decision that PCI,
the Company's major cable operating subsidiary, had achieved a dominant position
and abused that dominant position in one of the areas in which it operates by
moving certain satellite channels to a different frequency. A number of PCI's
subscribers, whose television sets are not equipped to receive the new
frequency, received several different channels to replace the channels which had
been moved. The Company appealed both the finding of dominance and the finding
that PCI acted improperly by moving certain channels to the new frequency. In
late 1998, the Anti-Monopoly Court modified the Anti-Monopoly Office's decision
by ruling that PCI had abused its dominant position by moving certain channels
to the new frequency without termination of its agreements with subscribers
whose television sets are not equipped to receive the new frequency. The
Anti-Monopoly Court did not impose a fine on the Company or its subsidiaries.
The Company estimates that less than 1% of its subscribers in the area under
review have such television sets and would be affected by the ruling if, in the
future, the Company finds it necessary for technical reasons to move channels to
another frequency. The Company is appealing both the finding of dominance and
the finding that the Company must terminate some of its agreements with certain
subscribers before moving channels to another frequency.
In another market, the Anti-Monopoly Office recently issued a decision that
PCI had achieved a dominant position and abused that dominant position by:
(1) failing to create a uniform system for customer complaints, (2) increasing
rates without providing subscribers a detailed basis for the price increases,
and (3) changing the programming line-up without sufficient notice to
subscribers. The Anti-Monopoly Office did not impose a fine in connection with
its decision. The Company appealed both the finding of dominance and the finding
that it acted improperly in its relations with subscribers. In a recent
decision, the Anti-Monopoly Court agreed with the Company's position and
overturned the Anti-Monopoly Office's decision. The Anti-Monopoly Office is
appealing the Anti-Monopoly Court's decision.
In another market, the Anti-monopoly Office recently issued a decision that
PCI had achieved a dominant position and abused that dominant position by
issuing an offer for the extended basic package in a certain form. The
Anti-Monopoly Office imposed a fine of 26,700 zloty (the equivalent of $6,436).
The Company is appealing both the finding of dominance and finding that the form
of its offer to subscribers was improper. The case is suspended pending the
outcome of the Polish Supreme Court's ruling on the Anti-Monopoly Office's
appeal in another case.
In another market, the Anti-Monopoly issued a decision that PCI had achieved
a dominant position and abused that dominant position by: increasing rates
without providing subscribers a detailed basis for the price increases; and
changing the programming offer. The Anti-Monopoly Office imposed a fine of
50,000 zloty (the equivalent of $12,053). The Company is appealing both the
finding of dominance and the finding that it acted improperly in its relations
with subscribers.
UNITED KINGDOM
BROADCASTING REGULATION
Most of the channels in the Company's D-DTH service are 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. Wizja TV Limited has received an STS license for
Atomic TV, Wizja 1, Twoja Wizja, Wizja Sport, and Wizja Pogoda. For most of the
other channels on Wizja TV, the relevant channel supplier
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<PAGE>
is required to obtain an STS license from the Independent Television Commission.
The Independent Television Commission has wide discretion to vary the conditions
of licenses issued under the Broadcasting Act or amend its codes (including
codes on electronic programming guides, advertising sponsorship and content) to
which U.K.-licensed broadcasters are subject. Under the terms of its Astra
transponder agreements, the Company cannot carry programming if the channel
supplier does not have a valid broadcast license for that programming. An STS
license is issued for an initial period of 10 years but can be renewed.
The Broadcasting Act classifies some persons as "disqualified persons" who
are not permitted to hold STS licenses, including (A) any bodies whose objects
are wholly or mainly of a political or religious nature and advertising
agencies, or (B) any person owned by more than 5% by a disqualified person or
otherwise associated with a disqualified person in any manner specified in the
relevant provisions of the Broadcasting Act. There are no foreign ownership
restrictions which apply to STS licensees. If any person with an interest in
excess of 5% of the Company's issued capital stock is or becomes a disqualified
person or is or becomes associated with such a disqualified person, or if the
Company or any person with an interest in the Company's capital stock does or
were to fall within the scope of the restriction, then the Company may not be
entitled to hold STS licenses.
In issuing STS licenses, the Independent Television Commission follows the
"establishment" test set out in the EU's Television Without Frontiers Directive
which provides that each (European Union "EU") broadcaster should be regulated
primarily by the authorities in the member state of the EU where that
broadcaster is established, without regard to the country or countries within
the EU in which its transmits signal is received. Meanwhile, the 1989 European
Convention on Transfrontier Television currently provides that the country in
which a broadcaster transmits its programming to a satellite (or the country
which grants the broadcast frequency or satellite capacity) has jurisdiction
over that broadcaster. However, the 1989 European Convention on Transfrontier
Television was recently amended and if this amendment is implemented, the 1989
European Convention on Transfrontier Television would conform to the
"establishment" test and authorities in a receiving state should have less right
to seek to regulate a broadcaster whose services are intended to be received in
that state. In the event of inconsistency between the Television Without
Frontiers Directive and the 1989 European Convention of Transfrontier
Television, the provisions of the directive apply in member states of the EU
(e.g. the U.K.).
REGULATION OF COMPETITION
In the U.K., the Competition Act 1998 ("CA 1998") came into force on
March 1, 2000 and repeals the Respective Trade Practices Acts 1976 and 1977, the
Resale Prices Act 1976 and certain parts of the Competition Act 1980. It
introduces into U.K. law a system of controls based on EC competition law. Anti-
competitive agreements and conduct amounting to the abuse of a dominant position
are prohibited (closely following Articles 81 and 82).
The CA 1998 provides the Director General of Fair Trading ("DGFT") with
enhanced powers to investigate potential anti-competitive agreements and
conduct, including the power to require the production of any document or other
information which the DGFT considers relevant to the investigation and wide
powers of entry and search. The DGFT can impose fines for the infringement of
the CA of up to 10 per cent of U.K. turnover per annum for each year of
infringement, up to a maximum of three years. Competition rulings made by the
DGFT are subject to appeal to the Competition Commission and Restrictive
Practices Court. Wizja TV Limited is not involved in any current proceedings
relating to competition law before the U.K. courts nor are any investigations
which involve the Company underway before any authority exercising powers under
the CA 1998. For a more detailed description of Articles 81 and 82, see the
discussion in "--European Union--Regulation of Competition".
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<PAGE>
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 the Company's "home member
state" for the purposes of its D-DTH services because Wizja TV 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 (excluding time covering news, sports
events, games, advertising, teleshopping and teletext services). The Directive
does not define the term "where practicable and by appropriate means" and its
precise ambit is unclear.
--Each member states is required to ensure "where practicable and by
appropriate means" that broadcasters reserve at least 10% of their transmission
time (excluding time covering news, sports events, games, advertising,
teleshopping and teletext services) or, at the option of the member state, 10%
of their programming budget, for European works created by producers who are
independent of broadcasters. An adequate proportion of the relevant works should
be recent works. (Polish-language programming the Company produces or
commissions will be counted for the purposes of determining whether any service
broadcast by the Company complies with these quotas.)
--There are restrictions on advertising including restrictions on the timing
of commercial breaks, restrictions on the content of advertising, limitations or
prohibitions on tobacco, non-prescription drug and alcohol advertising and
restrictions limiting commercials to a maximum of 20% of transmission time per
hour, subject to an overall limit of 15% per day.
--There are restrictions on the content of programs to the extent necessary
(A) to protect minors and (B) to prevent the incitement of hatred on he grounds
of race, sex, religion or nationality.
1989 EUROPEAN CONVENTION ON TRANSFRONTIER TELEVISION. The 1989 European
Convention on Transfrontier Television is the other primary source of European
regulation affecting television broadcasting in Europe. The 1989 European
Convention on Transfrontier Television contains provisions that are
substantially similar to the Television Without Frontiers Directive. The 1989
European Convention on Transfrontier Television is effective in those countries
which have ratified it. Both the U.K. and Poland have ratified the 1989 European
Convention on Transfrontier Television. The 1989 European Convention on
Transfrontier Television currently provides that the country in which a
broadcaster transmits its programming to the satellite (or, if this is not the
case, the country which grants the broadcast frequency or satellite capacity to
the broadcaster) has jurisdiction over that broadcaster.Neither the Television
Without Frontiers Directive nor the 1989 European Convention on Transfrontier
Television contains any requirements or restrictions regarding foreign ownership
of broadcasters.
A change to the 1989 European Convention on Transfrontier Television was
agreed on September 9, 1998. This amendment will be effective if and when all
member states have signed the amendment or automatically on October 1, 2000,
unless a member state objects to such amendment coming into force. This
amendment, if it becomes effective, would have three significant effects:
--First, it would bring the 1989 European Convention on Transfrontier
Television into conformity with the Television Without Frontiers Directive's
"establishment" test, providing that a broadcaster should
22
<PAGE>
be regulated primarily by the authorities in the 1989 European Convention on
Transfrontier Television country in which the broadcaster is established.
--Second, this amendment would provide that when a broadcaster engages in
conduct that constitutes an "abuse of rights", the broadcaster would become
subject to the laws of the country of reception. Under this amendment, an "abuse
of rights" would occur when a broadcaster's channel is wholly or principally
directed at a country, other than that where it is established, for the purpose
of evading the laws of that country in the areas covered by the 1989 European
Convention on Transfrontier Television. The Company believes that its
broadcasting into Poland from the U.K. would not constitute an "abuse of rights"
under this amendment because it has valid business reasons for broadcasting from
the U.K. and it has not established its broadcasting facilities in the U.K. in
order to evade Polish laws in the areas covered by the 1989 European Convention
on Transfrontier Television. An adverse decision on this issue, if this
amendment becomes effective and Poland decides to invoke it against the
Company's broadcasts emanating from the U.K. could prevent the Company from
broadcasting its programming package.
--Third, this amendment would allow parties to the 1989 European Convention
on Transfrontier Television to designate that certain important events (e.g.,
major sporting events) cannot be broadcast exclusively by a single television
station so as to deprive a large proportion of the public of that 1989 European
Convention on Transfrontier Television country from seeing the event live or on
a deferred coverage basis on free (broadcast) television, and also to ensure
that broadcasters under the jurisdiction of one 1989 European Convention on
Transfrontier Television country cannot purchase exclusive rights to major
events specified by another 1989 European Convention on Transfrontier Television
country which would deprive a large proportion of the public in such member
countries of the 1989 European Convention on Transfrontier Television from
seeing the specified event on a live or deferred coverage basis on free
(broadcast) television. (If this amendment becomes effective and if it were
applied to the Polish pay television rights to certain sporting events purchased
on an exclusive basis by us, the Company may lose the right to broadcast such
events in Poland on an exclusive basis and may not be able to acquire the
exclusive Polish pay television rights to such events and to similar events in
the future.)
The 1989 European Convention on Transfrontier Television provides that where
a broadcaster under the jurisdiction of one member country of the 1989 European
Convention on Transfrontier Television transmits advertisements which are
directed specifically at audiences in another member country of the 1989
European Convention on Transfrontier Television, such advertisements must comply
with the advertising rules of the receiving member state. This rule requires
that advertisements inserted in the channels the Company distributes comply with
both Polish advertising rules as well as the rules applicable in the
jurisdiction in which the broadcaster is licensed.
REGULATION OF COMPETITION
EC competition law governs agreements which prevent, restrict or distort
competition and prohibits the abuse of dominant market positions through
Articles 81 and 82 of the EC Treaty.
Article 81 (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 81 (2) voids the
offending provision or the entire agreement, if the offending parts are not
severable. Article 81 (3) allows for exemption from the provisions of Articles
81 (1) and 81 (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. Article 82 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
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<PAGE>
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 firm may be dominant. However, dominance is not
unlawful per se; only the abuse of a dominant position is prohibited by
Article 82. Any action that is designed to, or could, seriously injure
competitors, suppliers, distributors, or consumers is likely to raise issues
under Article 82.
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 81 or in
relation to abusive conduct under Article 82. Agreements or practice that breach
these provisions will be void and unenforceable in national courts and third
parties that suffer loss as a result of a breach of Article 81 or Article 82 can
sue for damages and/or seek injunctive relief. The Company does not believe that
any of its current agreements infringe Article 81(1) or Article 82 and therefore
does not intend to bring them to the attention of the European Commission. If
the European Commission were to find the agreements infringed Article 81(1) or
Article 82, 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. Poland has announced 2003 as a target date for accession. If Poland
joins the EU, it would be required to implement and obey all of the laws and
regulations emanating from the European Commission, including the Television
Without Frontiers Directive and EC competition law in their then current
versions.
ITEM 2. PROPERTIES
On December 31, 1999, the Company owned equipment used for its cable
television business, including 99 satellite receivers for cable networks, and
approximately 4,664 kilometres of cable plant. The Company has approximately 206
lease agreements for offices, storage spaces and land adjacent to the buildings.
The total area leased amounts to approximately 29,300 square meters (most of
which is land adjacent to buildings). The areas leased by the Company range from
approximately 11 square meters up to more than 2,660 square meters. The
agreements are for specified and unspecified periods of time and those for an
unspecified period may be terminated with relatively short notice periods by
either party, usually three months.
The Company has entered into conduit leases with TPSA (the Polish national
telephone company) and, in certain cases, with other entities. The majority of
the TPSA leases require the Company to bear the costs of the maintenance of the
cable. The Company may not sublease the conduit or cables or allow a third party
to use the conduits or cables free of charge without TPSA's consent. The rental
charge for the conduit is usually determined on each 100 meters of conduit
occupied. The agreements also contain indexation clauses for rent adjustment
purposes (based on the change of U.S. dollar exchange rates or on the increase
of real maintenance costs). A substantial portion of the Company's contracts
with TPSA for the use of such conduits permit termination by TPSA without
penalty at any time either immediately upon the occurrence of certain conditions
or upon provision of three to six months' notice without cause. Any termination
by TPSA of such contracts could result in the Company losing its permits, the
termination of agreements with cooperative authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such TPSA contracts. For a list of
the reasons for which TPSA can terminate a conduit agreement, the proportion of
the Company's cable subscribers serviced by conduits leases subject to immediate
termination and the consequences to the Company of the loss of those conduit
leases, see "Business--Cable Operations--Technology and Intrastructure."
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The Company believes that its existing owned properties, lease agreements
and conduit agreements are adequate for purposes of the Company's cable
television operations, although additional space and conduits will be needed in
the future if the Company acquires other cable television networks.
In connection with the establishment of its D-DTH service and the
development of its programming business, the Company has leased office space and
premises providing satellite receiving (to receive programs from suppliers),
production, post-production and program packaging facilities. This space is in
aggregate approximately 6,500 square meters and is located in Maidstone, U.K.
The Company believes that its existing owned properties, lease agreements
and conduit agreements are adequate for the Company's D-DTH and programming
operations, although additional space may be needed in the future for the
Company's programming production activities.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the Company
is currently involved, individually and in the aggregate, is not material to the
Company's business financial condition or results of operations.
Two of the Company's cable television subsidiaries, Telewizja Kablowa
Gosat-Service Sp. z o.o. and PTK S.A., and four unrelated Polish cable operators
and HBO Polska Sp. z o.o. ("HBO Polska") have been made defendants in a lawsuit
instituted by Polska Korporacja Telewizyjna Sp. z o.o., an indirect
partially-owned subsidiary of Canal+ S.A. The lawsuit was filed in the
Provincial Court in Warsaw, XX Economic Division (Sad Wojewodzki w Warszawie,
Wydzial XX Gospodarczy) (the "Court"). The main defendant in the proceedings is
HBO Polska which is accused of broadcasting HBO television programming in Poland
without a license from the Polish National Radio and Television Council as
required by the Polish Television Act and thereby undertaking an activity
constituting an act of unfair competition. The plaintiff has asked the Court to
order HBO Polska to cease broadcasting of its programming in Poland until it has
received a broadcasting license from the Polish National Radio and Television
Council, and that the defendant cable operators be ordered (i) to cease carrying
the HBO Polska programming on their cable networks in Poland until HBO Polska
has received a broadcasting license from the Polish National Radio and
Television Council, (ii) not to use their current filters for the purpose of
unscrambling the HBO Polska programming, and (iii) in the future, to use
effective encoding systems and systems of controlled access to the HBO Polska
programming. The Company does not believe that the lawsuit will have a material
adverse effect on its business operations.
On April 17, 1998, the Company signed a binding letter of intent with
Telewizyna Korporacja Partycypacyjna ("TKP"), the parent company of Canal+
Polska, which provided for bringing together the Company's Wizja TV programming
platform and the Canal+ Polska premium pay television channel and for the joint
development and operation of a D-DTH service in Poland. The establishment of the
joint venture was subject to the execution of definitive agreements, regulatory
approvals and certain other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent (the "Signature Date"). Therefore, the
Company terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed the Company that they believe the Company did not
have the right to terminate the letter of intent.
Under the terms of the letter of intent, TKP is obligated to pay the Company
a $5 million break-up fee within 10 days of the Signature Date if the definitive
agreements were not executed by the Signature Date, unless the failure to obtain
such execution was caused by the Company's breach of any of its obligations
under the letter of intent. If there was any such breach by the Company, the
Company would be obligated to pay TKP $10 million. However, if any breach of the
letter of intent by TKP caused the definitive agreements not to be executed, TKP
would be obligated to pay the Company a total of
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$10 million (including the $5 million break-up fee). In the event that TKP fails
to pay the Company any of the above-referenced amounts owed to the Company,
TKP's shareholders are responsible for the payment of such amounts.
The Company has demanded monies from TKP as a result of the failure to
execute the definitive agreements by the Signature Date. While the Company was
waiting for the expiration of the 10-day period for payment of the break-up fee,
TKP initiated arbitration proceedings before a three member-arbitration panel in
Geneva, Switzerland. In their claim, TKP and its shareholders have alleged that
the Company breached its obligation to negotiate in good faith and to use its
best efforts to agree and execute the definitive agreements and claimed the
Company is obligated to pay TKP $10 million pursuant to the letter of intent.
The Company has answered and brought counterclaims against TKP and its
shareholders. The arbitration hearings were conducted in Geneva in June 1999,
and parties filed their post-hearing briefs in August and September 1999. The
Company believes that a decision may be rendered in April 2000. 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.
On or about July 8, 1999, certain minority shareholders ("the minority
shareholders") of Poland Cablevision (Netherlands) B.V. (PCBV), an indirect
subsidiary of the Company, filed a lawsuit against the Company, Poland
Communications, Inc. ("PCI") and certain other defendants, in United States
District Court, Southern District of Ohio, Eastern Division, Civil Action No.
C2-99-621.
The relief sought by the minority shareholders includes: (1) unspecified
damages in excess of $75,000, (2) an order lifting the restrictions against
transfer of shares set forth in the Shareholders' Agreement among PCBV's
shareholders, as amended (the "Shareholders' Agreement") so that the minority
shareholders can liquidate their shares in PCBV, (3) damages in the amount of
1.7 percent of the payment made by UPC for the shares of the Company as set
forth in the Agreement and Plan of Merger between the Company and UPC dated
June 2, 1999, and (4) attorneys' fees and costs incurred in prosecuting the
lawsuit.
The amended complaint sets forth eight claims for relief based on
allegations that the defendants, including @Entertainment and PCI, committed the
following wrongful acts: (1) breached a covenant not to compete contained in the
Shareholders' Agreement relating to the shareholders of PCBV, (2) breached a
covenant in the Shareholders' Agreement requiring that any contract entered into
by PCBV with any other party affiliated with PCI be commercially reasonable or
be approved by certain of the minority shareholders, (3) breached a provision in
the Shareholders' Agreement that allegedly required co-defendant Chase
International Corp. ("CIC") to offer the minority shareholders the right to
participate in certain sales of PCBV shares and that required CIC to give
written notice of any offer to purchase the minority shareholders' shares in
PCBV, (4) breached their fiduciary duties to the minority shareholders,
(5) breached the agreement between PCBV and CIC, which allegedly limited the
amount of management fees that could be paid annually by PCBV, (6) made false
and misleading statements in various documents filed with the Securities and
Exchange Commission, (7) colluded to defraud the minority shareholders by
failing to make reference in certain Forms 8-K, 8-KA and 14D-1 to the minority
shareholders or their alleged rights and claims, (8) colluded to divert assets
of PCBV to affiliates of PCI and PCBV, including the Company, that allegedly
compete with PCI and PCBV.
The minority shareholders also seek damages in the amount of 1.7 percent of
the payment made by UPC for the shares of the Company, although the amended
complaint does not contain a separate claim for relief seeking that amount.
The Company intends to defend the lawsuit vigorously. The Company has also
conducted negotiations to purchase the minority shareholders' outstanding shares
in PCBV. If the negotiations produce a sale by the minority shareholders of
their shares in PCBV to the Company, the lawsuit would most likely be
terminated. The Company is unable to predict the outcome of those negotiations.
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In the event that the lawsuit is not terminated, its status is as follows:
The time for the Company and PCI to respond to the amended complaint has not yet
expired. Discovery has not yet commenced. At this early stage of the
proceedings, the Company is unable to predict the probable outcome of the
lawsuit or the Company's ultimate exposure in connection therewith.
In addition to the Ohio lawsuit, the other minority shareholders of PCBV
(representing an additional 6% of PCBV) have asserted similar claims for
compensation, but have not filed suit.
For a discussion of certain Anti-Monopoly Office's findings relating to the
Company, see "Regulation--Poland--Anti-Monopoly Act."
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
@ Entertainment, Inc.'s common stock is owned by UPC and is not traded on
any public trading market.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company for
each of the periods in the five years period ended December 31, 1999. The
Company for the four years ended December 31, 1998 and the period from
January 1, 1999 through August 5, 1999 prior to the Acquisition, is herein
referred to as "Predecessor" and the Company from August 6, 1999 through
December 31, 1999 after Acquisition is referred to as the "Successor". The
selected consolidated financial data set forth below have been derived from the
consolidated financial statements of the Company and the notes thereto prepared
in conformity with generally accepted accounting principles as applied in the
United States, which have been audited by the Company's independent public
accountants (the "Consolidated Financial Statements"). The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operation" included herein:
<TABLE>
PREDECESSOR
----------------------------------------------------------- SUCCESSOR
PERIOD FROM -----------------
JANUARY 1, PERIOD FROM
YEAR ENDED DECEMBER 31, 1999 AUGUST 6, 1999
------------------------------------------ THROUGH THROUGH
1995 1996 1997 1998 AUGUST 5, 1999 DECEMBER 31, 1999
-------- -------- -------- --------- -------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues....................................... $18,557 $24,923 $ 38,138 $ 61,859 $ 46,940 $ 38,018
Operating expenses:
Direct operating expenses.................. (5,129) (7,193) (14,621) (61,874) (70,778) (69,351)
Selling, general and administrative
expenses (1)............................. (4,684) (9,289) (49,893) (74,494) (51,034) (46,874)
Depreciation and amortization.............. (5,199) (9,788) (16,294) (26,304) (23,927) (40,189)
------- ------- -------- --------- --------- ---------
Operating income/(loss)........................ 3,545 (1,347) (42,670) (100,813) (98,799) (118,396)
Interest and investment income................. 174 1,274 5,754 3,355 2,823 731
Interest expense............................... (4,373) (4,687) (13,902) (21,957) (28,818) (24,459)
Equity in losses of affiliated companies....... -- -- (368) (6,310) (1,004) (291)
Foreign exchange loss, net..................... (17) (761) (1,027) (130) (2,188) (2,637)
Non-operating (expense)/revenue................ -- -- -- -- -- 1,977
Impairment..................................... -- -- -- -- -- (1,091)
Loss before income taxes, minority interest and
extraordinary item........................... (671) (5,521) (52,213) (125,855) (127,986) (144,166)
Income tax (expense)/ benefit.................. (600) (1,273) 975 (210) (30) (11)
Minority interest.............................. (18) 1,890 (3,586) -- -- --
------- ------- -------- --------- --------- ---------
Loss before extraordinary item................. (1,289) (4,904) (54,824) (126,065) (128,016) (144,177)
Extraordinary item--loss on early
extinguishment of debt....................... -- (1,713) -- -- --
------- ------- -------- --------- --------- ---------
Net loss..................................... (1,289) (6,617) (54,824) (126,065) (128,016) (144,177)
Accretion of redeemable preferred stock........ -- (2,870) (2,436) -- (2,436) --
Preferred stock dividend....................... -- (1,738) -- -- -- --
(Excess)/ deficit of consideration paid for
preferred stock under / (over) amount (2).... -- 3,549 (33,806) -- -- --
------- ------- -------- --------- --------- ---------
Net loss applicable to holders of common
stock........................................ $(1,289) $(7,676) $(91,066) $(126,065) $(130,452) $(144,177)
======= ======= ======== ========= ========= =========
Basic and diluted loss per common share........ $ (0.10) $ (0.44) $ (3.68) $ (3.78) $ (3.90) N/A
======= ======= ======== ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------- -----------
AS OF DECEMBER 31, AS OF
----------------------------------------- DECEMBER 31
1995 1996 1997 1998 1999
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents............... $ 2,343 $ 68,483 $105,691 $ 13,055 35,520
Property, plant and equipment, net...... 52,320 84,833 117,579 213,054 218,784
Total assets............................ 68,058 217,537 307,096 348,374 1,218,871
Total notes payable..................... 59,405 130,074 130,110 263,954 534,696
Redeemable preferred stock.............. -- 34,955 -- -- --
Total stockholder's equity.............. 190 31,048 152,355 33,656 606,960
</TABLE>
- - ------------------------
(1) The year ended December 31, 1997 includes a non-cash compensation expense of
$18,102,000 relating to the granting of certain management stock options.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and note 16 to the Consolidated Financial Statements.
(2) Represents the amount paid to preferred stockholders in excess of or less
than the carrying value of such shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On August 6, 1999, Bison Acquisition Corp., UPC's wholly-owned subsidiary,
was merged with and into the Company with the Company continuing as the
surviving corporation. Accordingly, the Company became a wholly-owned subsidiary
of UPC. UnitedGlobalCom, Inc. is the majority stockholder of UPC.
Until the limited launch of the Company's D-DTH business on July 1, 1998 and
subsequent full-scale launch on September 18, 1998, the Company's revenues were
derived entirely from its cable television business and programming related
thereto. The Company's revenue has increased 37.3% from $61.9 million in the
year ended December 31, 1998 to $85.0 million in the year ended December 31,
1999. This increase was due primarly to internal growth in subscribers through
increased penetration and new network expansion, increases in cable subscription
rates, further development of the Wizja TV programming package and advertising
sales.
Prior to June 1997, the Company's expenses were primarily incurred in
connection with its cable television business and programming related thereto.
Since June 1997, the Company has been incurring, in addition to expenses related
to its cable television and programming businesses, expenses in connection with
the operation of its D-DTH business and Wizja TV.
The Company generated an operating loss of $217.2 million for the year ended
December 31, 1999, primarily due to the significant costs associated with the
development of the Company's D-DTH and programming businesses, promotion of
those businesses, the development, production and acquisition of programming for
Wizja TV and fees paid for services in connection with the acquisition by UPC.
The Company divides operating expenses into (i) direct operating expenses,
(ii) selling, general and administrative expenses, and (iii) depreciation and
amortization expenses. Direct operating expenses consist of programming
expenses, maintenance and related expenses necessary to service, maintain and
operate the Company's cable systems, and D-DTH programming platform, billing and
collection expenses and customer service expenses. Selling, general and
administrative expenses consist principally of administrative costs, including
office related expenses, professional fees and salaries, wages and benefits of
non-technical employees, advertising and marketing expenses, bank fees and bad
debt expense. Depreciation and amortization expenses consist of depreciation of
property, plant and equipment and amortization of intangible assets.
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<PAGE>
SEGMENT RESULTS OF OPERATIONS
The Company classifies its business into three segments: (1) cable
television, (2) D-DTH television and programming, and (3) corporate. Information
about the operations of the Company in these different business segments is set
forth below based on the nature of the services offered. In addition to other
operating statistics, the Company measures its financial performance by EBITDA,
an acronym for earnings before interest, taxes, depreciation and amortization.
The Company defines EBITDA to be net loss adjusted for interest and investment
income, depreciation and amortization, interest expense, foreign currency gains
and losses, equity in losses of affiliated companies, income taxes and minority
interest. The items excluded from EBITDA are significant components in
understanding and assessing the Company's financial performance. The Company
believes that EBITDA and related measures of cash flow from operating activities
serve as important financial indicators in measuring and comparing the operating
performance of media companies. EBITDA is not a U.S. GAAP measure of profit and
loss or cash flow from operations and should not be considered as an alternative
to cash flows from operations as a measure of liquidity.
The following table presents an aggregation of the Company's segment results
of operations for the seven months of 1999 and five months of 1999 with
comparatives for the years ended December 31, 1998 and 1997.
SEGMENT RESULTS OF OPERATIONS
<TABLE>
SEVEN AGGREGATE
MONTHS FIVE YEAR ENDED YEAR ENDED DECEMBER 31,
OF MONTHS OF DECEMBER -------------------------
1999 1999 31, 1999 1998 1997(1)
-------- ---------- ---------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
REVENUES
Cable................................ 35,434 27,027 62,461 52,971 38,138
D-DTH and programming................ 23,633 19,851 43,484 22,320 --
Corporate and Other.................. -- -- -- -- --
Intersegment elimination............. (12,127) (8,860) (20,987) (13,432) --
------- -------- -------- -------- -------
TOTAL................................ 46,940 38,018 84,958 61,859 38,138
OPERATING LOSS
Cable................................ (11,936) (26,923) (38,859) (23,066) (20,308)
D-DTH and programming................ (72,926) (86,705) (159,631) (69,047) (10,210)
Corporate and Other.................. (13,937) (4,768) (18,705) (8,700) (12,152)
------- -------- -------- -------- -------
TOTAL................................ (98,799) (118,396) (217,195) (100,813) (42,670)
EBITDA
Cable................................ 1,883 (8,765) (6,882) (1,431) 5,387
D-DTH and programming................ (62,836) (64,691) (127,527) (64,378) (10,186)
Corporate and Other.................. (13,919) (4,751) (18,670) (8,700) (3,475)
------- -------- -------- -------- -------
TOTAL................................ (74,872) (78,207) (153,079) (74,509) (8,274)
</TABLE>
- - ------------------------
(1) In 1997, the cable segment included the activities of Mozaic Entertainment,
Inc., a subsidiary which provided programming content for the cable
business. In 1998, the Company's programming activities related solely to
the development of the Wizja TV platform and have been included solely in
the D-DTH and Programming segment. For the year ended December 31, 1997,
Mozaic Entertainment, Inc. revenues, operating loss and EBITDA were
$563,000, $2,071,000 and $(2,071,000), respectively. For the year ended
December 31, 1998, Mozaic Entertainment, Inc. was dormant.
30
<PAGE>
The period from January 1, 1999 through August 5, 1999 and the period from
August 6, 1999 through December 31, 1999 are referred to herein as the "seven
months of 1999" and "five months of 1999", respectively. All other references to
the period ended July 31, 1999 or balances as of July 31, 1999 should be
construed as relating to the period from January 1, 1999 through August 5, 1999
or August 5, 1999, respectively. All other references to the period ended
December 31, 1999 should be construed as relating to the period from August 6,
1999 through December 31, 1999.
All references to the year ended December 31, 1999 herein represent an
aggregation of the seven months of 1999 and the five months of 1999. No
adjustments have been made to the seven months of 1999 for the effect of the
Merger.
CABLE SEGMENT OVERVIEW
The Company's revenues in its cable segment have been and will continue to
be derived primarily from monthly subscription fees for cable television
services and one-time installation fees for connection to its cable television
networks. The Company charges cable subscribers fixed monthly fees for their
choice of service packages and for other services, such as premium channels,
tuner rentals and additional outlets, all of which are included in monthly
subscription fees. Through its cable segment, the Company currently offers
broadcast, intermediate (in limited areas) and basic packages of cable service.
At December 31, 1999, approximately 71.6% of the Company's cable subscribers
received its basic package compared to 74.7% for the year ended December 31,
1998. For the year ended December 31, 1999, approximately 94.0% of the Company's
cable revenue was derived from monthly subscription fees compared to
approximately 88.9% for the year ended December 31, 1998.
When the Company began operations in 1990, revenue from installation fees
exceeded revenue from monthly subscription fees because of the significant
number of new installations and the high amount of the installation fees
relative to the small existing subscriber base. As the Company's cable
subscriber base has grown, aggregate monthly subscription revenue has increased
and installation fees, while currently increasing on an aggregate basis, have
declined as a percentage of total revenue. The Company expects that installation
fees will continue to constitute a declining portion of the Company's revenue.
During 1998 and 1999, management completed or was in the process of
completing several strategic actions in support of its cable business and
operating strategy. On June 5, 1998, the Company began providing the Wizja TV
programming package, with its initial 11 channels of primarily Polish-language
programming, to its basic cable subscribers. Since that date, the basic Wizja TV
package has been expanded to 24 channels. On September 18, 1999, the Company
launched a proprietary premium channel called Wizja Sport. Management believes
that this selection of high quality primarily Polish-language programming will
provide it with a significant competitive advantage in increasing its cable
subscriber penetration rates.
The Company has implemented a pricing strategy designed to increase revenue
per cable subscriber and its profit margin. The Company has increased the
monthly price for the "basic" package to reflect the increased channel
availability, and premium channels such as the HBO Poland service (a
Polish-language version of HBO's premium movie channel) and Wizja Sport are
offered to cable customers for an additional monthly charge. The Company is in
the process of encrypting the HBO Poland service on cable and installing analog
decoders for all premium channel subscribers. This encryption and installation
process is expected to be rolled out in all major systems in 2000.
The cable segment generated operating losses of $38.9 million for aggregated
1999, $ 23.1 million for 1998 and $20.3 million for 1997 primarily due to the
purchase of Wizja TV programming for $21.0 million and $13.4 million in 1999 and
1998, respectively and the increased levels of the acquisition and related
costs. In addition, for the year ended December 31, 1997 the Company recorded a
one time charge for non-cash compensation related to stock options of
$9.4 million.
31
<PAGE>
D-DTH AND PROGRAMMING SEGMENT OVERVIEW
D-DTH. The principal objectives of the Company for the D-DTH and
programming segment is to develop, acquire and distribute high-quality
Polish-language programming that can be commercially exploited throughout Poland
through D-DTH and cable television exhibition, and to develop and maximize
advertising sales.
The Company's D-DTH roll-out strategy was to lease D-DTH reception systems
to up to 380,000 initial subscribers at promotional prices in the start-up phase
of its D-DTH service. The launch of its D-DTH service has been supported by the
Company's development of Wizja TV, which the Company believes addresses the
demand for high-quality Polish-language programming in Poland. Between
April 1999 and November 7, 1999, the Company switched its policy from leasing to
selling D-DTH reception systems and sold such systems to customers at a price
substantially reduced by promotional incentives. Beginning November 8, 1999, the
Company returned to leasing the D-DTH reception systems to its customers.
As of December 31, 1999, the Company distributed to Philips' authorized
retailers approximately 294,000 D-DTH packages. As of December 31, 1999, the
Company had sold and installed approximately 254,000 of these packages to
consumers. In September 1998, the number of Philips authorized electronics
retailers distributing the Wizja TV package increased from 70 to 550, and since
November 1998 more than 1,200 retailers have been distributing the Wizja TV
package. Each store is staffed with personnel specifically trained by the
Company to provide information on the Wizja TV packages. Installation personnel
are also trained to complete each customer's installation within 48 hours of
order placement. However, due to technical problems that Philips had with a
component of the decoder, the Company faced a backlog in decoder deliveries in
the fourth quarter of 1999 of approximately 48,000 decoders, all of which the
Company believes would have been sold if the Company had received those
decoders.
PROGRAMMING. The Company, both directly and through joint ventures,
produces television programming for distribution. The Company has developed a
multi-channel, primarily Polish-language programming platform under the brand
name Wizja TV. Wizja TV's current channel line-up includes four channels, Atomic
TV, Wizja Jeden, Wizja Pogoda and Wizja Sport, that are owned and operated by
the Company, and 20 channels that are produced by third parties, 11 of which are
broadcast under exclusive agreements for pay television in Poland.
The Company currently distributes Atomic TV and intends to distribute the
Wizja TV programming package to third party cable operators in Poland on a
per-subscriber fee basis. The Company exchanged letters of intent and is
continuing negotiations with two major cable associations in Poland,
representing an aggregate of approximately 2.6 million subscribers (including
the Company's cable subscribers), with the objective of making the Wizja TV
programming package available for distribution within the cable networks of
other providers which are members of the associations.
The Company expects to incur substantial operating losses and negative cash
flows related to the launch of its D-DTH business at least for the next year
while it develops and expands its D-DTH subscriber base. The Company's D-DTH
business plan requires the funding of substantial capital expenditures and
promotional incentives in order to expand its D-DTH business. The Company's
business plan anticipates spending an additional $33 million to provide D-DTH
reception systems to the 380,000 initial planned subscribers.
1999 COMPARED WITH 1998
CABLE SEGMENT
CABLE TELEVISION REVENUE. Revenue increased $9.5 million or 17.9% from
$53.0 million in the year ended December 31, 1998 to $ 62.5 million in the year
ended December 31, 1999. This increase was primarily attributable to a 6.0%
increase in the number of basic and intermediate subscribers from approximately
738,000 at December 31, 1998 to approximately 783,000 at December 31, 1999, as
well as an increase in monthly subscription rates. The Company introduced the
Wizja TV programming package on its cable systems for basic subscribers on
June 5, 1998, and after an initial free period, increased prices significantly
in September 1998. Approximately 28.2% of the net increase in basic subscribers
was the result of build-out of the Company's existing cable networks and the
remainder was due to acquisitions.
32
<PAGE>
Revenue from monthly subscription fees represented 88.9% of cable television
revenue for the year ended December 31, 1998 and 94.0% for the year ended
December 31, 1999. During the year ended December 31, 1999, the Company
generated approximately $2.1 million of additional premium subscription revenue
as a result of providing the HBO Poland service pay movie channels to cable
subscribers as compared to $3.1 million for the year ended December 31, 1998.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $11.0
million or 31.6%, from $34.8 million for the year ended December 31, 1998 to
$45.8 million for the year ended December 31, 1999, principally as a result of
the purchase of the Wizja TV programming package from the Company's D-DTH and
programming segment and higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks as well as the
increased size of the Company's cable television system. Direct operating
expenses increased from 65.7 % of revenues for the year ended December 31, 1998
to 73.3% of revenues for the year ended December 31, 1999. However, without
considering the intersegment charge for Wizja TV programming package, direct
operating expenses as a percentage of revenue would have been 39.7% and 40.4% in
the year ended December 31, 1999 and 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.9 million or 19.9% from $19.6 million for
the year ended December 31, 1998 to $23.5 million for the year ended
December 31, 1999, principally as a result of increases in sales and marketing
expenses incurred in newly acquired networks to support our pricing strategy,
extensive country-wide Autumn marketing campaign and general growth of the
business. Selling, general and administrative expenses increased from 37.0% of
revenues for the year ended December 31, 1998 to 37.6% for the year ended
December 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$10.4 million, or 48.1%, from $21.6 million for the year ended December 31, 1998
to $32.0 million for the year ended December 31, 1999 principally as a result of
depreciation and amortization of additional goodwill pushed down as a result of
the merger with UPC and the continued build-out of the Company's cable networks.
Depreciation and amortization expense as a percentage of revenues increased from
40.8% for the year ended December 31, 1998 to 51.2 % for the year ended
December 31, 1999.
OPERATING LOSS. Each of these factors contributed to an operating loss of
$38.9 million for the year ended December 31, 1999 and $23.1 million for the
year ended December 31, 1998.
D-DTH AND PROGRAMMING SEGMENT
D-DTH AND PROGRAMMING REVENUE. D-DTH and programming revenue increased
$21.2 million or 95.1% from $22.3 million for the year ended December 31, 1998
to $ 43.5 million for the year ended December 31, 1999. Revenue from the
provision of the Wizja TV programming package to the Company's cable systems,
which was eliminated as a result of the consolidation of the Company's financial
results, represented $13.4 million and $21.0 million or 60.1% and 48.3% of D-DTH
revenue for the year ended December 31, 1998 and 1999, respectively.
Revenue from subscription fees, after elimination of revenue from the cable
segment represented 88.6% of D-DTH revenue for the year ended December 31, 1998
and 75.6%for the year ended December 31, 1999. Advertising and other revenue for
the year ended December 31, 1998 and 1999 represented 11.3% and 24.4%,
respectively of D-DTH revenue after elimination of inter-segment revenues.
DIRECT OPERATING EXPENSES. Direct operating expenses increased
$74.8 million, from $40.5 million for the year ended December 31, 1998 to
$115.3 million for the year ended December 31, 1999. These increases principally
were the result of: the $31.7 million cost related to D-DTH reception systems
sold below cost and the write down of D-DTH reception systems included in
inventory from April 1, 1999 to November 8, 1999 to net realizable value, a
$30.0 million increase in programming costs in the year ended December 31, 1999,
and costs associated with the lease of three transponders on the Astra
satellites which provide the capability to deliver the Company's Polish-language
programming platform to cable and
33
<PAGE>
D-DTH customers in Poland. Direct operating expenses increased from 181.6% of
revenue for the year ended December 31, 1998 to 265.1% for the year ended
December 31, 1999. Excluding the write down of D-DTH reception systems to net
realizable value, direct operating expenses as a percentage of revenue would
have been 198.9% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $9.4 million or 20.3% from $46.3 million for
the year ended December 31, 1998 to $55.7 million for the year ended
December 31, 1999. As a percentage of revenue, selling, general and
administrative expenses amounted to approximately 207.2% and 128.0% for the
years ended December 31, 1998 and 1999, respectively. The increase in selling,
general and administrative expenses was attributable mainly to sales and
marketing expenses associated with promotion of the Company's D-DTH service and
Wizja TV programming platform and the preparation for the launch and operation
of the Company's proprietary premium sports channel called Wizja Sport. The
increase in selling, general and administrative expenses was also attributable
to the installation and distribution costs associated with the sale of Wizja TV
programming packages an increase in the number of Sales and Call Center staff
associated with the Wizja TV programming package, as well as an increase in
professional fees associated with obtaining long-term programming contracts and
broadcast/exhibition rights.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
increased $27.4 million from $4.7 million for the year ended December 31, 1998
to $32.1 million for the year ended December 31, 1999, principally as a result
of additional goodwill pushed down as a result of the merger with UPC and an
increased number of D-DTH decoders. Depreciation and amortization expense as a
percentage of revenues increased from 21.1% for the year ended December 31, 1998
to 73.8% for the year ended December 31, 1999.
OPERATING LOSS Each of these factors contributed to an operating loss of
$69.1 million for the year ended December 31, 1998 compared to an operating loss
of $159.6 million for the year ended December 31, 1999.
CORPORATE AND OTHER SEGMENT
Corporate and other segment consists of corporate overhead costs. The
Company continues to evaluate opportunities for improving its operations and
reducing its cost structure. Corporate net expenses amounted to $18.7 million
for the year ended December 31, 1999 as compared to $8.7 million for the
corresponding period in 1998. Corporate expenses for the year ended
December 31, 1999 included a non-recurring expense of $9.1 million related to
fees paid to Goldman Sachs for its services in connection with the acquisition
by UPC.
NON OPERATING RESULTS
INTEREST EXPENSE. Interest expense increased $31.3 million, or 142.7%, from
$22.0 million for the year ended December 31, 1998 to $53.3 million for the year
ended December 31, 1999 mainly as a result of the accretion of interest of the
$252 million aggregate principal amount at maturity of the Company's 14 1/2%
Senior Discount Notes due 2009, which were issued on January 22, 1999 and
Series C Senior Discount Notes due 2008, which were issued on January 20, 1999.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased
$0.2 million, or 5.9%, from $3.4 million for the year ended December 31, 1998 to
$3.6 million for the year ended December 31, 1999, primarily due to increase in
cash balances resulting from the issuance of the above mentioned Discount Notes
and an increase in interest rates.
EQUITY IN LOSSES OF AFFILIATED COMPANIES. The Company recorded
$6.3 million of equity in losses of affiliated companies for the year ended
December 31, 1998 and $1.3 million for the year ended December 31, 1999. This
equity in losses resulted from the Company's 50% investment in Twoj Styl, a
publishing
34
<PAGE>
company and 20% investment in Fox Kids Poland, a channel content provider and
30% investment in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna, a Polish
basketball team.
FOREIGN EXCHANGE LOSS, NET. For the year ended December 31, 1999 foreign
exchange loss amounted to $4.8 million. For the year ended December 31, 1998
foreign exchange loss amounted to $0.1 million.
NET LOSS. For the years ended December 31, 1998 and 1999, the Company had
net losses of $126.1 million and $272.2 million, respectively. These losses were
the result of the factors discussed above.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased from a loss of $126.1 million for the year ended
December 31, 1998 to a loss of $274.6 million for the year ended December 31,
1999 due to the factors discussed above.
1998 COMPARED WITH 1997
CABLE SEGMENT
CABLE TELEVISION REVENUE. Revenue increased $14.9 million or 39.1% from
$38.1 million in the year ended December 31, 1997 to $53.0 million in the year
ended December 31, 1998. This increase was primarily attributable to a 16%
increase in the number of basic and intermediate subscribers from approximately
636,300 at December 31, 1997 to approximately 738,000 at December 31, 1998, as
well as an increase in monthly subscription rates. The Company introduced the
Wizja TV programming package on its cable systems for basic subscribers on
June 5, 1998, and after an initial free period, increased prices significantly
in September 1998. Approximately 91.9% of the net increase in basic subscribers
was the result of build-out of the Company's existing cable networks and the
remainder was due to acquisitions.
Revenue from monthly subscription fees represented 84.0% of cable television
revenue for the year ended December 31, 1997 and 88.9% for the year ended
December 31, 1998. During the year ended December 31, 1998, the Company
generated approximately $3.1 million of additional premium subscription revenue
as a result of providing the HBO Poland service and Canal+ pay movie channels to
cable subscribers as compared to $1.0 million for the year ended December 31,
1997.
DIRECT OPERATING EXPENSES. Direct operating expenses increased
$23.0 million or 194.9%, from $11.8 million for the year ended December 31, 1997
to $34.8 million for the year ended December 31, 1998, principally as a result
of the purchase of the Wizja TV programming package from the Company's D-DTH and
programming segment and higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks as well as the
increased size of the Company's cable television system. Direct operating
expenses increased from 31.0% of revenues for the year ended December 31, 1997
to 65.7% of revenues for the year ended December 31, 1998. However, without
considering the intersegment charge for the Wizja TV programming package, direct
operating expenses as a percentage of revenue would have been 41.0% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $10.7 million or 35.3% from $30.3 million for
the year ended December 31, 1997 to $19.6 million for the year ended
December 31, 1998. A portion of this decrease was attributable to non-recurring,
non-cash compensation expense of approximately $9.4 million recorded in the year
ended December 31, 1997 in connection with stock options granted to certain key
executives. Selling, general and administrative expenses decreased from 79.5% of
revenues for the year ended December 31, 1997 to 37% for the year ended
December 31, 1998. However, without considering the non-cash compensation
expense related to the stock options described above, selling, general and
administrative expenses as percentage of revenues would have been 54.9% in 1997.
This percentage decrease was attributable to operating efficiencies realized by
the Company in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$5.3 million, or 32.5%, from $16.3 million for the year ended December 31, 1997
to $21.6 million for the year ended December 31, 1998 principally as a result of
depreciation and amortization of additional cable television systems and
35
<PAGE>
related goodwill acquired and the continued build-out of the Company's cable
networks. Depreciation and amortization expense as a percentage of revenues
decreased from 42.8% for the year ended December 31, 1997 to 40.8% for the year
ended December 31, 1998.
OPERATING LOSS. Each of these factors contributed to an operating loss of
$20.3 million for the year ended December 31, 1997 and $23.1 million for the
year ended December 31, 1998.
D-DTH AND PROGRAMMING SEGMENT
D-DTH AND PROGRAMMING REVENUE. D-DTH and programming revenue amounted to
$22.3 million for the year ended December 31, 1998. Revenue from the supply of
the Wizja TV programming package to the Company's cable systems, which
eliminates on consolidation, represented $13.4 million or 60.1% of D-DTH revenue
for the year ended December 31, 1998.
Since the Company only commenced the broadcast of its Wizja TV programming
package over its cable systems on June 5, 1998 and through its D-DTH service in
July 1998, there were no revenue related to this segment in 1997.
Revenue from subscription fees, after elimination of revenue from the cable
segment represented 88.6% of D-DTH revenue for the year ended December 31, 1998.
Advertising and other revenue for the year ended December 31, 1998 represented
11.3% of D-DTH revenue after elimination of inter-segment revenues.
DIRECT OPERATING EXPENSES. Direct operating expenses increased
$37.6 million, from $2.8 million for the year ended December 31,1997 to
$40.4 million for the year ended December 31,1998. These costs principally were
the result of the following: programming costs for the Wizja TV platform of
$22.6 million, expenses associated with the establishment of a satellite up-link
and studio facility located in Maidstone, U.K. the $4.1 million payment for
Wizja TV brand name, costs associated with the lease of three transponders on
the Astra satellites which provide the capability to deliver the Company's
Polish-language programming platform to cable and D-DTH customers in Poland.
Direct operating expenses amounted to 181.2% of revenues for the year ended
December 31, 1997 and 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $38.9 million or 525.7% from $7.4 million for
the year ended December 31, 1997 to $46.3 million for the year ended
December 31, 1998. As a percentage of revenue, selling, general and
administrative expenses amounted to approximately 207.2% for the year ended
December 31, 1998. The increase in selling, general and administrative expenses
was attributable mainly to an increase in sales and marketing expenses incurred
in preparation for launch and operation of the Company's D-DTH service and Wizja
TV programming package, installation and distribution costs associated with the
sale of Wizja TV programming packages an increase in the number of
administrative staff associated with the Maidstone facility, a $5 million
payment to Philips to compensate it for costs incurred as a result of the
temporary suspension of production of the D-DTH reception systems' and the Wizja
TV programming package, as well as an increase in professional fees associated
with obtaining long-term programming contracts and broadcast/ exhibition rights,
and negotiations with TKP, a Polish pay television provider, regarding a
potential joint-venture.
DEPRECIATION AND AMORTIZATION. The Company incurred $4.7 million in
depreciation and amortization for the year ended December 31, 1998. Depreciation
and amortization expense as a percentage of revenues amounted to 21.1% for the
year ended December 31, 1998.
Each of these factors contributed to an operating loss of $69.1 million for
the year ended December 31, 1998 compared to an operating loss of $10.2 million
for the year ended December 31, 1997.
CORPORATE AND OTHER SEGMENT
Corporate and other consists of corporate overhead costs when primarily
include remuneration of corporate employees, costs associated with operation of
the Company's corporate officers in London,
36
<PAGE>
consulting fees and certain legal costs. Corporate expenses amounted to
$8.7 million for the year ended December 31, 1998 compared with $12.2 million
for the year ended December 31, 1997. Included in 1997 costs is an $8.7 million
non-cash compensation expense relating to stock options granted to certain key
executives.
NON OPERATING RESULT
INTEREST EXPENSE. Interest expense increased $8.1 million, or 58.3%, from
$13.9 million for the year ended December 31, 1997 to $22.0 million for the year
ended December 31, 1998 mainly as a result of the accretion of interest of the
$252 million aggregate principal amount at maturity of the Company's 14 1/2%
Senior Discount Notes due 2008, which were issued on July 14, 1998.
INTEREST AND INVESTMENT INCOME. Interest and investment income decreased
$2.4 million, or 41.4%, from $5.8 million for the year ended December 31, 1997
to $3.4 million for the year ended December 31, 1998, primarily due to reduction
of cash balances resulting from the increased payments and expenses described
above and decrease in interest rates.
EQUITY IN LOSSES OF AFFILIATED COMPANIES. The Company recorded
$6.3 million of equity in losses of affiliated companies for the year ended
December 31, 1998. This equity in losses resulted from the Company's 50%
investment in WPTS ("Twoj Styl"), a publishing company and 20% investment in Fox
Kids Poland, a channel content provider.
FOREIGN EXCHANGE LOSS, NET. For the year ended December 31, 1998 foreign
exchange loss amounted to $0.1 million. For the year ended December 31, 1997
foreign exchange loss amounted to $1.0 million.
MINORITY INTEREST. No minority interest was recorded for the year ended
December 31, 1998, compared to minority interest expense of $3.6 million for the
corresponding period in 1997. The 1997 expense represents a fourth quarter
adjustment to write-off certain receivable balances that were not recoverable.
All minority interest were eliminated in 1998 as the minority interest share of
the losses exceeded the value of the minority interest investments.
NET LOSS. For the years ended December 31, 1997 and 1998, the Company had
net losses of $54.9 million and $126.1 million, respectively. These losses were
the result of the factors discussed above.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased from a loss of $91.1 million for the year ended
December 31, 1997 to a loss of $126.1 million for the year ended December 31,
1998 due to the factors discussed above. For the year ended December 31, 1997,
net loss applicable to common stockholders included the excess of consideration
paid for preferred stock over the carrying amount of such stocks of
$33.8 million and $2.4 million related to the accretion of redeemable preferred
stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from certain of the Company's principal
stockholders, (ii) borrowings under available credit facilities, (iii) cash
flows from operations, (iv) the sale of approximately $200 million of common
stock through the Company's initial public equity offering in August 1997,
(v) 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, (vi) the sale of $36,001,321 principal amount at maturity of its
Series C Discount Notes in January 1999 with gross proceeds of $9.8 million,
(vii) the sale of its 14 1/2% Senior Discount Notes in January 1999 with gross
proceeds of $96.1 million, and (viii) the sale of the Series A 12% Cumulative
Preference Shares, the Series B 12% Cumulative Preference Shares and Warrants in
January 1999 with gross proceeds of $48.2 million.
Since the acquisition of all of the outstanding stock of the Company by UPC
on August 6, 1999, the Company has met its capital requirements primarily
through capital contributions and loans from UPC.
37
<PAGE>
FINANCING. PCI has entered into an agreement with American Bank in Poland
S.A. ("AmerBank") which provides for a credit facility of approximately
$6.5 million. All amounts under this facility were drawn in June 1998. Interest,
based on LIBOR plus 3%, was due quarterly. All advances under the loan were
repaid on November 20, 1999.
On October 31, 1996, $130 million aggregate principal amount of 9 7/8%
Senior Notes ("PCI 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.
In August 1997, the Company raised approximately $200 million through its
initial public equity offering. The Company used $60 million to purchase all of
PCI's outstanding Series A Preferred Stock and its Series C Preferred Stock held
by affiliates of the principal stockholders.
On July 14, 1998, $252 million principal amount at maturity of 14 1/2%
Senior Discount Notes ("@Entertainment Notes") were sold by the Company to
initial purchasers pursuant to a purchase agreement, with gross proceeds to the
Company of approximately $125 million. The initial purchasers subsequently
completed a private placement of the @Entertainment Notes. The @Entertainment
Notes were issued pursuant to an indenture.
On January 19, 1999 the Company sold $36 million principal amount at
maturity of its Series C Senior Discount Notes ("Series C Notes") to an initial
purchaser pursuant to a purchase agreement for gross proceeds of approximately
$9.8 million. The Series C Notes were issued pursuant to an indenture.
On January 22, 1999 the Company sold $256.8 million principal amount at
maturity of 14 1/2% Senior Discount Notes ("Discount Notes") to initial
purchasers pursuant to purchase agreement, with gross proceeds to the Company
$96.1 million. The Discount Notes were issued pursuant to the indenture.
Pursuant to the indentures governing the PCI Notes, the @Entertainment
Notes, the Series C Notes, and the Discount Notes, the Company is subject to
certain restrictions and covenants, including, without limitation, covenants
with respect to the following matters:
a. limitation on indebtedness;
b. limitation on restricted payments;
c. limitation on issuances and sales of capital stock of restricted
subsidiaries;
d. limitation on transactions with affiliates;
e. limitation on liens;
f. limitation on guarantees of indebtedness by subsidiaries;
g. purchase of the notes upon a change of control;
h. limitation on sale of assets;
i. limitation on dividends and other payment restrictions affecting
restricted subsidiaries;
j. limitation on investments in unrestricted subsidiaries;
k. consolidations, mergers, and sale of assets;
l. limitation on lines of business; and
m. provision of financial statements and reports
The Company is in compliance with these covenants.
The indentures covering each of the @Entertainment Notes, Series C Notes,
Discount Notes and the PCI Notes provide that, following a Change of Control (as
defined therein), each noteholder had the right, at such holder's option, to
require the respective issuer to offer to repurchase all or a portion of such
holder's notes at the repurchase prices, described below. The Company believes
that the August 6, 1999 acquisition by UPC of the Company constituted a Change
of Control. Accordingly, @Entertainment and PCI made offers to repurchase (the
"Offers") from the holders the @Entertainment Notes, Series C
38
<PAGE>
Notes, Discount Notes and the PCI Notes. The Offers expired at 12:01 PM, New
York City time, on November 2, 1999.
In accordance with the terms of the indentures governing the @Entertainment
Notes, Series C Notes, Discount Notes and the PCI Notes, @Entertainment was
required to offer to repurchase the @Entertainment Notes, Series C Notes,
Discount Notes at 101% of their accreted value at maturity on the Expiration
Date plus accrued and unpaid interest and PCI was required to offer to
repurchase the PCI Notes at the purchase price 101% of principal. As of
August 5, 1999, @Entertainment had $376,943,000 aggregate principal amount at
maturity of @Entertainment Notes, Series C Notes, Discount Notes outstanding and
PCI had $129,668,000 aggregate principal amount at maturity of PCI Notes
outstanding. Pursuant to the Offer, @Entertainment has purchased $49,139,000
aggregate principal amount of @Entertainment Notes, Series C Notes, Discount
Notes for an aggregate price of $26,455,014 and PCI has purchased $113,237,000
aggregate principal amount of PCI Notes for an aggregate price of $114,369,370.
UPC financed the repurchase of the @Entertainment Notes Series C Notes,
Discount Notes and PCI Notes and the Company's operating activities by making
loans of $217.3 million to @Entertainment in the fourth quarter of 1999.
On December 31, 1999, the Company had, on a consolidated basis,
approximately $534.7 million aggregate principal amount of indebtedness
outstanding, of which $220.1 million was owed UPC.
The Company purchased 14,000 shares of Debenture Stock issued by PCI for
$140 million to fund PCI's purchase of PCI Notes and operations. The Company
used a portion of the proceeds of the loans from UPC to purchase the Debenture
Stock. The Debenture Stock is redeemable on December 31, 2003 at the issue price
plus interest of 10% per annum compounded annually. To secure its obligations
under the Debenture Stock, PCI will pledge to the Company notes issued to it by
its subsidiary PCBV with an aggregate principal amount of $176,815,000. The PCI
Noteholders will be equally and ratably secured by the pledge in accordance with
the terms of the PCI Indenture.
The Company had negative cash flows from operating activities of $143.4
million for the year ended December 31, 1999 and $70.7 million for the year
ended December 31, 1998, primarily due to the significant operating costs
associated with the development and launch of its D-DTH service and the Wizja TV
programming platform. The Company had negative cash flow from operating
activities of $18.8 million for the year ended December 31, 1997, primarily due
to the operating loss for that year.
Cash used for the purchase and build-out of the Company's cable television
networks, purchase of D-DTH equipment including set top decoders, and the
purchase of other property, plant, and equipment was $51.0 million in 1999,
$115.0 million in 1998 and $39.6 million in 1997. The 1998 increase primarily
relates to the Company's acquisition of additional cable networks' assets and
capital expenditures associated with the expansion of its existing cable
networks and the development of its D-DTH service and Wizja TV. The decrease in
1999 is partially related to the fact that a significant portion of the D-DTH
boxes were sold as opposed to leased in 1999.
On December 31, 1999, the Company was committed to pay at least $453.7
million in guaranteed payments (including but not limited to payments for D-DTH
reception systems and payments of guaranteed minimum amounts due under
programming agreements and satellite transponder leases) over the next eight
years of which at least approximately $140.7 million was committed through the
end of 2000.
Cash used for the acquisition of subsidiaries, net of cash received, was
$7.9 million in 1999, $27.0 million in 1998 and $20.9 million in 1997.
The Company used the net proceeds from the offerings completed in
January 1999 to fund capital expenditures, operating losses and working capital
primarily related to the development and operation of its D-DTH business, and
for general corporate purposes and certain other investments, including the
possible acquisition of cable television networks and certain minority interests
in our subsidiaries which are held by unaffiliated third parties. The loans from
UPC were used primarily for the repurchase of the
39
<PAGE>
@Entertainment Notes, Discount Notes, Series C Notes and PCI Notes and for the
same purposes as the proceeds of the January 1999 offerings.
As of December 31, 1999, the Company has negative working capital and
significant commitments under non-cancelable operating leases and for
programming rights.
The Company's cash on hand will be insufficient to satisfy all of its
obligations related to its offer to repurchase its and its subsidiary's
outstanding senior notes and to complete its current business plan for its D-DTH
and programming businesses. UPC and the Company are evaluating various
alternatives to meet the Company's capital needs. Future sources of financing
for the Company could include public or private debt or bank financing or any
combination thereof, subject to the restrictions contained in the indentures
governing the outstanding senior indebtedness of the Company, UPC, and United
GlobalCom, Inc., UPC's parent. Moreover, if the Company's plans or assumptions
change, if its assumptions prove inaccurate, if it consummates unanticipated
investments in or acquisitions of other companies, if it experiences unexpected
costs or competitive pressures, or if existing cash, and projected cash flow
from operations prove to be insufficient, the Company may need to obtain greater
amounts of additional financing. While it is the Company's intention to enter
only into new financing or refinancings that it considers advantageous, there
can be no assurance that such sources of financing would be available to the
Company in the future, or, if available, that they could be obtained on terms
acceptable to the Company. The Company is also dependent on its parent, UPC, to
provide financing to achieve the Company's business strategy. UPC has declared
that it will continue to financially support the Company and its subsidiaries as
a going concern, and accordingly enable the Company and its subsidiaries to meet
their financial obligations if and when needed, for the period at least through
January 31, 2001.
YEAR 2000 COMPLIANCE
The Company has not experienced any problems with its computer systems
relating to distinguishing twenty-first century dates from twentieth century
dates, which generally are referred to as year 2000 problems. The Company is
also not aware of any material year 2000 problems with its clients or vendors.
The Company did not and does not anticipate incurring material expenses or
experiencing any material operation disruptions as a result of any year 2000
problems.
CURRENT OR ACCUMULATED EARNINGS AND PROFITS
For the fiscal year ended December 31, 1999, the Company had no current or
accumulated earnings and profits. Therefore, none of the interest which accreted
during the fiscal year ended December 31, 1999 with respect to the Company's
14 1/2% Senior Discount Notes due 2008, 14 1/2% Series B Discount Notes due
2008, 14 1/2% Senior Discount Notes due 2009, 14 1/2% Series B Discount Notes
due 2009 and its Series C Senior Discount Notes will be deemed to be a "Dividend
Equivalent Portion" as such term is defined in Section 163(e)(5)(B) of the
Internal Revenue Code, as amended.
IMPLEMENTATION OF A NEW ACCOUNTING STANDARDS
None.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires that companies
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. Under this statement, accounting for changes in fair value of a
derivative depends on its intended use and designation. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of Effective Date of
FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of
40
<PAGE>
SFAS 133, which will now be effective for our first quarter 2001. We are
currently assessing the effect of this new standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is foreign
exchange rate risk from fluctuations in the Polish zloty currency exchange rate.
The Company's long term debt is primarily subject to a fixed rate, and therefore
variations in the interest rate do not have a material impact on net interest
expense.
FOREIGN EXCHANGE AND OTHER INTERNATIONAL MARKET RISKS.
Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically affect
economic growth, inflation, interest rates, governmental actions and other
factors. These changes, if material, can cause the Company to adjust its
financing and operating strategies. The discussion of changes in currency
exchange rates below does not incorporate these other important economic
factors.
International operations constitute 100% of the Company's 1999 consolidated
operating loss. Some of the Company's operating expenses and capital
expenditures are expected to continue to be denominated in or indexed in U.S.
dollars. By contrast, substantially all of the Company's revenues are
denominated in zloty. Therefore, any devaluation of the zloty against the U.S.
dollar that the Company is unable to offset through price adjustments will
require it to use a larger portion of its revenue to service its U.S. dollar
denominated obligations and contractual commitments.
The Company estimates that a further 10% change in foreign exchange rates
would impact operating loss by approximately $10.3 million. In other terms a 10%
depreciation of the Polish zloty and British pound against the U.S. dollar,
would result in a $10.3 million decrease in the reported operating loss for the
year ended December 31, 1999. The Company believes that this quantitative
measure has inherent limitations because, as discussed in the first paragraph of
this section, it does not take into account any governmental actions or changes
in either customer purchasing patterns or the Company's financing or operating
strategies.
The Company does not generally hedge currency translation risk. While the
Company may consider entering into transactions to hedge the risk of exchange
rate fluctuations, there is no assurance that it will be able to obtain hedging
arrangements on commercially satisfactory terms. Therefore, shifts in currency
exchange rates may have an adverse effect on the Company's financial results and
on its ability to meet its U.S. dollar denominated debt obligations and
contractual commitments.
Poland has historically experienced high levels of inflation and significant
fluctuations in the exchange rate for the zloty. The Polish government has
adopted policies that slowed the annual rate of inflation from approximately
250% in 1990 to approximately 14.9% in 1997, approximately 11.8% in 1998 and
7.3% in 1999. The exchange rate for the zloty has stabilized and the rate of
devaluation of the zloty has generally decreased since 1991. The zloty
appreciated against the U.S. dollar by approximately 0.4% for the year ended
December 31, 1998. However for the year ended December 31, 1999, the zloty has
depreciated against the U.S. dollar by approximately 17.4%. Inflation and
currency exchange fluctuations may have a material adverse effect on the
business, financial condition and results of operations of the Company.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder of @ Entertainment, Inc.:
We have audited the accompanying consolidated balance sheet of @
Entertainment, Inc. and its subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, comprehensive loss, changes in
stockholder's equity and cash flows for the period from January 1, 1999 to
August 5, 1999 and the period from August 6, 1999 to December 31, 1999. 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 audit.
We conducted our audit 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 audit provides 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 its subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the period from January 1,
1999 to August 5, 1999 and the period from August 6, 1999 to December 31, 1999
in conformity with generally accepted accounting principles in the United States
of America.
Arthur Andersen
Warsaw, Poland
March 29, 2000
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
@ Entertainment, Inc.:
We have audited the accompanying consolidated balance sheet of @
Entertainment, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, comprehensive loss, changes in
stockholder's equity and cash flows for the years ended December 31, 1998 and
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, 1998, and the results of
their operations and their cash flows for the years ended December 31, 1998 and
1997, in conformity with generally accepted accounting principles in the United
States of America.
KPMG
Warsaw, Poland
March 29, 1999
43
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
SUCCESSOR PREDECESSOR
(NOTE 2) (NOTE 2)
DECEMBER 31, DECEMBER 31
1999 1998
---------- ---------
<S> <C> <C>
) (IN THOUSANDS
ASSETS
Current assets:
Cash and cash equivalents................................. $ 35,520 $ 13,055
Trade accounts receivable, net of allowance for doubtful
accounts of $3,090 in 1999 and $1,095 in 1998 (note
5)...................................................... 12,808 7,408
Programming and broadcast rights (note 9)................. 7,200 9,030
VAT recoverable........................................... 9,623 8,785
Prepayments............................................... 1,883 10,803
Other current assets...................................... 1,162 1,475
---------- ---------
Total current assets.................................... 68,196 50,556
---------- ---------
Property, plant and equipment (note 7):
Cable television systems assets........................... 123,845 175,053
D-DTH equipment........................................... 82,327 68,419
Construction in progress.................................. 7,400 2,739
Vehicles.................................................. 1,943 2,792
Other..................................................... 15,871 16,119
---------- ---------
231,386 265,122
Less accumulated depreciation............................. (12,602) (52,068)
---------- ---------
Net property, plant and equipment....................... 218,784 213,054
Inventories for construction................................ 5,511 8,869
Intangible assets, net (note 8)............................. 906,987 43,652
Investments in affiliated companies (note 10)............... 19,393 19,956
Other assets................................................ -- 12,287
---------- ---------
Total assets............................................ $1,218,871 $ 348,374
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 72,963 $ 44,258
Accrued interest.......................................... 243 2,140
Deferred revenue.......................................... 4,009 4,366
Current portion of notes payable.......................... -- 6,500
---------- ---------
Total current liabilities............................... 77,215 57,264
Long-term liabilities:
Notes payable and accrued interest to UPC (note 12)....... 220,149 --
Notes payable (note 12)................................... 314,547 257,454
---------- ---------
Total liabilities....................................... 611,911 314,718
---------- ---------
Commitments and contingencies (notes 17 and 19)
Stockholder's equity (note 1):
Common stock, $.01 par value; Authorized 70,000,000
shares, issued and outstanding 33,310,000 shares in 1998
and 1,000 issued and outstanding in 1999................ -- 333
Paid-in capital........................................... 812,549 237,954
Accumulated other comprehensive income.................... (61,412) (467)
Accumulated deficit....................................... (144,177) (204,164)
---------- ---------
Total stockholder's equity............................ 606,960 33,656
---------- ---------
Total liabilities and stockholder's equity............ $1,218,871 $ 348,374
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR
(NOTE 2) PREDECESSOR (NOTE 2)
------------ ---------------------------------------
PERIOD FROM PERIOD FROM
AUGUST 6, JANUARY 1,
1999 THROUGH 1999 THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, AUGUST 5, ------------------------
1999 1999 1998 1997
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues..................................... $ 38,018 $ 46,940 $ 61,859 $ 38,138
Operating expenses:
Direct operating expenses.................. 69,351 70,778 61,874 14,621
Selling, general and administrative
expenses................................. 46,874 51,034 74,494 49,893
Depreciation and amortization.............. 40,189 23,927 26,304 16,294
--------- --------- --------- --------
Total operating expenses..................... 156,414 145,739 162,672 80,808
Operating loss............................. (118,396) (98,799) (100,813) (42,670)
Interest and investment income............... 731 2,823 3,355 5,754
Interest expense............................. (24,459) (28,818) (21,957) (13,902)
Equity in losses of affiliated companies..... (291) (1,004) (6,310) (368)
Foreign exchange loss, net................... (2,637) (2,188) (130) (1,027)
Non-operating income......................... 1,977 -- -- --
Impairment of D-DTH equipment (note 7)....... (1,091) -- -- --
--------- --------- --------- --------
Loss before income taxes and minority
interest................................. (144,166) (127,986) (125,855) (52,213)
Income tax (expense)/benefit (note 11)....... (11) (30) (210) 975
Minority interest............................ -- -- -- (3,586)
--------- --------- --------- --------
Net loss................................... (144,177) (128,016) (126,065) (54,824)
Accretion of redeemable preferred stock.... -- (2,436) -- (2,436)
Excess of consideration paid for preferred
stock over carrying amount............... -- -- -- (33,806)
--------- --------- --------- --------
Net loss applicable to holders of common
stock...................................... $(144,177) $(130,452) $(126,065) $(91,066)
========= ========= ========= ========
Basic and diluted net loss per common share
(note 15).................................. N/A $ (3.90) $ (3.78) $ (3.68)
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
SUCCESSOR
(NOTE 2) PREDECESSOR (NOTE 2)
------------- --------------------------------------------
PERIOD FROM PERIOD FROM
AUGUST 6, JANUARY 1,
1999 THROUGH 1999 THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, AUGUST 5, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
------------- ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net loss.................................... $(144,177) $(128,016) $(126,065) $(54,824)
Other comprehensive income/(loss):
Translation adjustment.................... (61,412) (21,327) (249) (218)
--------- --------- --------- --------
Comprehensive loss.......................... (205,589) (149,343) (126,314) (55,042)
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK OTHER
------------------- ---------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT TOTAL
-------- -------- ----------- -------- -------- ------------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997........ 18,948,000 189 54,134 -- (23,275) 31,048
Translation adjustment....... -- -- -- -- -- (218) -- (218)
Net loss..................... -- -- -- -- -- -- (54,824) (54,824)
Net proceeds from initial
public offering............ -- -- 9,500,000 95 183,197 -- -- 183,292
Purchase of PCI series A and
C redeemable preferred
stock...................... -- -- -- -- (33,806) -- -- (33,806)
Accretion of redeemable
preferred stock............ -- -- -- -- (2,436) -- -- (2,436)
Conversion of series B
redeemable preferred
stock...................... -- -- 4,862,000 49 11,148 -- -- 11,197
Stock option compensation
expense (note 16).......... -- -- -- -- 18,102 -- -- 18,102
------ ------- ----------- ---- -------- ------- -------- --------
Balance December 31, 1997...... -- -- 33,310,000 333 230,339 (218) (78,099) 152,355
Translation adjustment....... -- -- -- -- -- (249) -- (249)
Net loss..................... -- -- -- -- -- -- (126,065) (126,065)
Warrants attached to Senior
Discount Notes (note 12)... -- -- -- -- 7,615 -- -- 7,615
------ ------- ----------- ---- -------- ------- -------- --------
Balance December 31, 1998...... -- -- 33,310,000 333 237,954 (467) (204,164) 33,656
Proceeds from issuance of
preferred stock.............. 5,000 28,812 -- -- 19,483 -- -- 48,295
Accretion of redeemable
preferred stock.............. -- 2,436 -- -- (2,436) -- -- --
Warrants attached to Senior
Discount Notes............... -- -- -- -- 7,452 -- -- 7,452
Proceeds from issuance of
common stock................. -- -- 96,000 1 195 -- -- 196
Proceeds from exercise of
warrants..................... -- -- 538,616 5 6,441 -- -- 6,446
Translation adjustment......... -- -- -- -- -- (21,327) -- (21,327)
Net loss....................... -- -- -- -- -- -- (128,016) (128,016)
------ ------- ----------- ---- -------- ------- -------- --------
Balance August 5, 1999,
Predecessor (note 2)....... 5,000 31,248 33,944,616 339 269,089 (21,794) (332,180) (53,298)
====== ======= =========== ==== ======== ======= ======== ========
Warrants exercise............ -- -- -- -- 146 -- -- 146
Issuance of common stock..... -- -- 1,000 -- -- -- -- --
Purchase accounting
adjustments................ (5,000) (31,248) (33,944,616) (339) 543,314 21,794 332,180 865,701
------ ------- ----------- ---- -------- ------- -------- --------
Balance August 6, 1999,
Successor.................. -- -- -- -- 812,549 -- -- 812,549
------ ------- ----------- ---- -------- ------- -------- --------
Translation adjustment....... -- -- -- -- -- (61,412) -- (61,412)
Net loss..................... -- -- -- -- -- -- (144,177) (144,177)
------ ------- ----------- ---- -------- ------- -------- --------
Balance December 31, 1999,
Successor (note 2)........... -- -- 1,000 -- 812,549 (61,412) (144,177) 606,960
====== ======= =========== ==== ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
@ ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR (NOTE
2) PREDECESSOR (NOTE 2)
----------------- -----------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER
AUGUST 6, 1999 JANUARY 1, 1999 31,
THROUGH THROUGH --------------------
DECEMBER 31, 1999 AUGUST 5, 1999 1998 1997
----------------- ------------------ --------- --------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(144,177) $(128,016) $(126,065) $(54,824)
Adjustments to reconcile net loss to net cash used
in operating activities:
Minority interest............................... -- -- -- 3,586
Depreciation and amortization................... 40,189 23,927 26,304 16,294
Amortization of notes payable discount and issue
costs......................................... 16,838 19,209 9,182 1,040
Gain on sale of investment securities........... -- -- -- (358)
Non-cash stock option compensation expense...... -- -- -- 18,102
Equity in loss of affiliated companies.......... 291 1,004 6,310 368
Impairment of D-DTH equipment................... 1,091 -- -- --
Unrealized foreign exchange losses.............. 3,939 -- -- --
Other........................................... (2,200) 619 2,196 --
Changes in operating assets and liabilities:
Accounts receivable........................... (3,746) (2,651) (2,780) (3,191)
Other current assets.......................... 1,647 6,985 (7,959) (2,101)
Programming and broadcast rights.............. 5,208 (3,378) (8,136) (894)
Accounts payable.............................. 6,688 403 25,185 5,757
Income taxes payable.......................... (85) 85 2,026 (2,707)
Accrued interest.............................. -- -- (35) --
Deferred revenue.............................. 1,125 1,103 3,104 155
Trade accounts payable to UPC................. 1,206 -- -- --
Interest payable to UPC....................... 2,804 -- -- --
Other......................................... 3,211 3,468 -- --
--------- --------- --------- --------
Net cash used in operating activities....... (65,971) (77,242) (70,668) (18,773)
--------- --------- --------- --------
Cash flows from investing activities:
Construction and purchase of property, plant
and equipment............................... (27,021) (24,034) (114,992) (39,643)
Repayment of notes receivable from
affiliates.................................. -- -- -- 2,521
Issuance of notes receivable from
affiliates.................................. -- -- -- (721)
Proceeds from maturity of investment
securities.................................. -- -- -- 25,473
Purchase of other assets...................... -- -- -- (10,200)
Investment in affiliated companies............ -- -- (5,228) (21,420)
Other investments............................. (237) (1,753) -- --
Purchase of intangibles....................... (308) -- -- --
Purchase of subsidiaries, net of cash
received.................................... (954) (6,860) (26,990) (20,852)
--------- --------- --------- --------
Net cash used in investing activities....... (28,520) (32,647) (147,210) (64,842)
--------- --------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock and
exercise of warrants........................ 146 6,447 -- 183,292
Redemption of preferred stock................. -- -- -- (60,000)
Proceeds from issuance of notes payable....... -- 109,755 123,985 --
Proceeds from loans from affiliates........... 217,012 -- -- --
Proceeds from issuance of preferred stock and
warrants.................................... -- 48,295 7,615 --
Repayment of bonds payables................... (149,395) (5,156) (5,960) (1,749)
Repayment of notes payable.................... -- -- (398) (720)
--------- --------- --------- --------
Net cash provided by financing activities... 67,763 159,341 125,242 120,823
--------- --------- --------- --------
Net increase/(decrease) in cash and cash
equivalents............................... (26,728) 49,452 (92,636) 37,208
Effect of exchange rates on cash and cash
equivalents............................... (259) -- -- --
Cash and cash equivalents at beginning of period.... 62,507 13,055 105,691 68,483
--------- --------- --------- --------
Cash and cash equivalents at end of period.......... $ 35,520 $ 62,507 $ 13,055 105,691
========= ========= ========= ========
Supplemental cash flow information:
Cash paid for interest.............................. $ 6,270 $ 7,304 $ 13,014 $ 12,873
Cash paid for income taxes.......................... $ 37 $ 47 $ 589 $ 1,732
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. ORGANIZATION AND FORMATION OF HOLDING COMPANY
@ Entertainment, Inc. ("@ Entertainment"), a Delaware corporation and fully
owned subsidiary of United Pan-Europe Communications N.V. ("UPC") was
established 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. On August 6, 1999, United
Pan-Europe Communications N.V. ("UPC") through its wholly-owned subsidiary,
Bison Acquisition Corporation ("Bison") acquired all of the outstanding shares
of the Company. The period from January 1, 1999 through August 5, 1999 and the
period from August 6, 1999 through December 31, 1999 are referred to herein as
the "seven months of 1999" and "five months of 1999", respectively.
@ Entertainment, Inc. and its subsidiaries (the "Company") offer pay
television services to business and residential customers in Poland. Its
revenues are derived primarily from monthly basic and premium service fees for
cable and digital satellite direct-to-home ("D-DTH") television services
provided primarily to residential, rather than business, customers. In
September 1998, the Company launched its D-DTH broadcasting service throughout
Poland. In addition to developing and acquiring programming for distribution on
its cable and D-DTH television networks, the Company commenced distribution of a
branded digital encrypted platform of Polish-language programming under the
brand name Wizja TV in June and September 1998 on its cable and D-DTH television
networks, respectively.
At December 31, 1999, @ Entertainment, wholly owned PCI, @ Entertainment
Programming, Inc. ("@EPI")--United States corporations, Wizja TV Limited
(previously AT Entertainment Limited ("Wizja TV Ltd")), At Entertainment
Services Limited ("@ES")--United Kingdom corporations, Wizja TV B.V.(previously
Sereke Holding B.V.("Wizja TV BV"))--a Netherlands corporation and Wizja TV Sp.
z o.o., Ground Zero Media Sp. z o.o. ("GZM") and Wizja TV Spolka Produkcyjna Sp.
z o.o., which are Polish corporations. PCI owns 92.3% of the capital stock of
Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands corporation and
first-tier subsidiary of PCI. @ Entertainment, PCI and PCBV are holding
companies that directly or indirectly hold controlling interests in a number of
Polish cable television companies, collectively referred to as the "PTK
Companies". As of December 31, 1999, substantially all of the assets and
operating activities of the Company were located in Poland and the United
Kingdom.
2. CONSUMMATION OF UPC TENDER OFFER AND MERGER
On June 2, 1999, the Company entered into an Agreement and Plan of Merger
with United Pan-Europe Communications N.V. ("UPC"), whereby UPC and its
wholly-owned subsidiary, Bison Acquisition Corp. ("Bison"), initiated a tender
offer to purchase all of the outstanding shares of the Company in an all cash
transaction valuing the Company's shares of common stock at $19.00 per share.
The tender offer, initiated pursuant to the Agreement and Plan of Merger
with UPC and Bison, closed at 12:00 midnight on August 5, 1999. On August 6,
1999, Bison reported that it had accepted for payment a total of 33,701,073
shares of the Company's common stock (including 31,208 shares tendered pursuant
to notices of guaranteed delivery) representing approximately 99% of the
Company's outstanding shares of common stock (the "Acquisition"). In addition
UPC acquired 100% of the outstanding Series A and Series B 12% Cumulative
Preference Shares of the Company and acquired all of the outstanding warrants
and stock options.
Also on August 6, 1999, Bison was merged with and into the Company with the
Company continuing as the surviving corporation (the "Merger"). Accordingly, the
Company became a wholly-owned subsidiary
49
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. CONSUMMATION OF UPC TENDER OFFER AND MERGER (CONTINUED)
of UPC. UnitedGlobalCom, Inc. is the majority stockholder of UPC. The Company
believes that a Change of Control occurred on August 6, 1999 as a result of the
Acquisition and Merger. @ Entertainment prior to the Acquisition, is herein
referred to as the "Predecessor" while the Company after the Acquisition is
referred to as the "Successor".
The Acquisition was accounted for under the purchase method of accounting,
with all of the purchase accounting adjustments "pushed-down" to the
consolidated financial statements of @ Entertainment. Accordingly, the purchase
price was allocated to the underlying assets and liabilities based upon their
estimated fair values and any excess to goodwill. The Company restated some of
its assets and liabilities at August 5, 1999. At this date the Notes of the
Company and Poland Communications, Inc. ("PCI") were restated to reflect the
market value and as a result were increased by $61.9 million and deferred
financing costs of $16.1 million and deferred revenues of $2.0 million were
written down to zero. The consideration paid by UPC for all shares outstanding,
warrants and options totalled $812.5 million. At this time the Company had
negative net assets of approximately $53.3 million and existing goodwill at net
book value of $37.5 million which was realized on previous transactions. As a
result of the above considerations, UPC recognized goodwill of approximately
$979.3 million. As a result of the Acquisition, UPC pushed down its basis to the
Company establishing a new basis of accounting as of the acquisition date.
The following pro forma condensed consolidated results for the seven months
of 1999, the years ended December 31, 1998 and 1997 give effect to the
Acquisition of @ Entertainment as if it had occurred at the beginning of the
periods presented. This pro forma condensed consolidated financial information
does not purport to represent what the Company's results would actually have
been if such transaction had in fact occurred on such date. The pro forma
adjustments are based upon the assumptions that goodwill and the amortization
thereon would be pushed down as if the transaction had occurred at the beginning
of each period presented. Additionally, interest expense related to the deferred
financing costs was removed for each of the periods presented. There was no tax
effect from these adjustments because of the significant net losses.
<TABLE>
<CAPTION>
FIVE MONTHS SEVEN MONTHS YEAR ENDED YEAR ENDED
OF 1999 OF 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------- ----------------------- ----------------------- -----------------------
HISTORICAL HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Service and other revenue... $ 38,018 $ 46,940 $ 46,940 $ 61,859 $ 61,859 $ 38,138 $ 38,138
========= ========= ========= ========= ========= ======== =========
Net loss.................... $(144,177) $(128,016) $(163,421) $(126,065) $(187,509) $(54,824) $(116,518)
========= ========= ========= ========= ========= ======== =========
</TABLE>
3. 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. Pay television operators typically experience losses and
negative cash flow in their initial years of operation due to the large capital
investment required for the construction or acquisition of their cable networks,
acquisition of programming rights and reception system for its D-DTH business
and the administrative costs associated with commencing operations. Consistent
with this pattern, the Company has incurred substantial operating losses since
inception (1990). The Company expects to experience substantial operating losses
and negative cash flows for at least the next year in association with the
expansion of the D-DTH and programming businesses. As of December 31, 1999, the
Company has negative working capital and significant commitments under non-
50
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
3. FINANCIAL POSITION AND BASIS OF ACCOUNTING (CONTINUED)
cancelable operating leases and for programming rights. 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 third party financing to support the planned
expansion, as well as obtaining additional financing from its parent, UPC. The
Company's current cash on hand will be insufficient to satisfy all of its
commitments and to complete its current business plan for its D-DTH, cable and
programming business.
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) develop and control the content of programming on its
cable and D-DTH systems; (ii) increase its distribution capabilities through
internal growth and through acquisitions; (iii) control its management of
subscribers by using advanced integrated management information systems; and
(iv) establish Wizja TV as the leading brand name in the Polish pay television
industry. If the Company's plans or assumptions change, if its assumptions prove
inaccurate, if it consummates unanticipated investments in or acquisitions of
other companies, if it experiences unexpected costs or competitive pressures, or
if existing cash, and projected cash flow from operations prove to be
insufficient, the Company may need to obtain greater amounts of additional
financing. While it is the Company's intention to enter only into new financing
or refinancing that it considers advantageous, there can be no assurance that
such sources of financing would be available to the Company in the future, or,
if available, that they could be obtained on terms acceptable to the Company.
The Company is also dependent on its parent, UPC, to provide financing to
achieve the Company's business strategy. UPC has declared that it will continue
to financially support @ Entertainment and its subsidiaries as a going concern,
and accordingly enable @ Entertainment and its subsidiaries to meet their
financial obligations if and when needed, for the period at least through
January 31, 2001.
Several of the Company's Polish subsidiaries have statutory shareholders'
equity less than the legally prescribed limits because of accumulated losses.
The management of these companies will have to make decisions on how to increase
the shareholders' equity to be in compliance with the Polish Commercial Code.
The Company is currently considering several alternatives, including the
conversion of intercompany debt into equity, in order to resolve these
deficiencies.
4. 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 Company maintains its books of account in Poland and in the UK in
accordance with accounting standards in the respective countries. These
financial statements include certain adjustments not reflected in the Company's
statutory books to present these statements in accordance with 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
51
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
members to the Managing Board. All 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.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable.
REVENUE RECOGNITION
CABLE TELEVISION REVENUES:
Revenue from subscription fees is recognized on a monthly basis as the
service is provided. Installation fee revenue for connection to the
Company's cable television system, is recognized to the extent of direct
selling costs and the balance is deferred and amortized to income over the
estimated average period that new subscribers are expected to remain
connected to the systems.
D-DTH SUBSCRIPTION REVENUES:
Until April 1, 1999 the Company provided its Wizja TV package (consisting of
a one-year rental of a D-DTH reception system, installation and a one-year
subscription to the Company's D-DTH service) to retail customers for one
up-front payment at the time of installation. The Company recognized
subscription revenues at the time of installation to the extent of direct
selling costs incurred, and the balance is deferred and amortized to income
over the remaining term of the subscription. There were no revenues derived
from D-DTH subscription revenues prior to 1998.
Since April 1, 1999 the Company has no longer provided its Wizja TV package
based on up-front one year payment for installation and subscription. As a
result the Company recognizes revenue from subscription fees on a monthly
basis as the service is provided.
OTHER REVENUES:
Advertising revenues are recognized when advertisements are aired under
broadcast contracts.
TAXATION
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
52
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
U.S. TAXATION:
The Company and PCI are subject to U.S. federal income taxation on its
worldwide income. The Polish corporations are not engaged in a trade or
business within the U.S. or do not derive income from U.S. sources and
accordingly, are not subject to U.S. income tax.
FOREIGN TAXATION:
The Polish companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the Polish
companies are exempt from import duties on certain in-kind capital
contributions.
The Polish companies' income tax is calculated in accordance with Polish tax
regulations. Due to differences between accounting practices under Polish
tax regulations and those required by U.S. GAAP, certain income and expense
items are recognized in different periods for financial reporting purposes
and income tax reporting purposes which may result in deferred income tax
assets and liabilities.
Effective January 1998, the Company adopted EITF 92-8--"Accounting for the
Income Tax Effects under FASB Statement No. 109 of a Change in Functional
Currency When an Economy Ceases to Be Considered Highly Inflationary". As a
result of adopting EITF 92-4, "Accounting for a Change in Functional Currency
When the Economy Ceases to Be Considered Highly Inflationary," the Company's
functional currency bases exceeded the local currency tax bases of nonmonetary
items. The difference between the new functional currency and the tax bases have
been recognized as temporary differences in accordance with EITF 92-8.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes assets used in the development and
operation of the Company's D-DTH and cable television systems and set-top boxes.
During the period of construction, plant costs and a portion of design,
development and related overhead costs are capitalized as a component of the
Company's investment in D-DTH and cable television systems. When material, the
Company capitalizes interest costs incurred during the period of construction in
accordance with SFAS No. 34, "Capitalization of Interest Cost". Interest is not
capitalized for short-term construction projects. During 1998, the Company
capitalized approximately $664,000 of interest related to required up-front
payments to Philips for D-DTH reception systems. During the five months of 1999,
seven months of 1999 and the year ended December 31, 1997, no interest costs
were capitalized.
Cable and D-DTH subscriber related costs and general and administrative
expenses are charged to operations when incurred.
Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television system assets.............................. 10 years
D-DTH system assets......................................... 5 years
Set-top boxes............................................... 5 years
Vehicles.................................................... 5 years
Other property, plant and equipment......................... 5-10 years
</TABLE>
53
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES FOR CONSTRUCTION
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to cable television systems. Cost of inventory includes purchase price,
transportation, customs and other direct costs.
GOODWILL AND OTHER INTANGIBLES
Prior to the Merger, goodwill, which represents the excess of purchase price
over fair value of net assets acquired, was amortized on a straight-line basis
over the expected periods to be benefited, generally ten years, with the
exception of amounts paid relating to non-compete agreements. The portion of the
purchase price relating to the non-compete agreements was amortized over the
term of the underlying agreements, generally five years.
Effective as of the Merger Date, the Company revalued all its goodwill,
including amounts related to non-compete agreements that related to transactions
completed prior to the Merger. The goodwill that was pushed down to the Company
is amortized using straight-line basis over the expected periods to be
benefited, which is fifteen years.
Through its subsidiaries, the Company has entered into lease agreements with
the Polish national telephone company ("TPSA"), for the use of underground
telephone conduits for cable wiring. Costs related to obtaining conduit and
franchise agreements with housing cooperatives and governmental authorities are
capitalized and amortized generally over a period of ten years. In the event the
Company does not proceed to develop cable systems within designated cities,
costs previously capitalized will be charged to expense.
PROGRAMMING AND BROADCAST RIGHTS
The Company enters 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".
DEFERRED FINANCING COSTS
Costs incurred to obtain financing have been deferred and amortized over the
life of the related loan using the effective interest method. Such costs were
written off in 1999 at the Merger as part of the purchase accounting adjustment.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies are accounted for using the equity
method. Where the purchase price exceeds the fair value of the Company's
percentage of net assets acquired, the difference is amortized over the expected
period to be benefited as a charge to equity in profits of affiliated companies.
Where the expected period to be benefited is limited by licensing agreements,
the difference is amortized over the term of the licensing agreement.
54
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 translated at rates of exchange at balance sheet date. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations.
The financial statements of foreign subsidiaries are translated to U.S.
dollars using (i) exchange rates in effect at period end for assets and
liabilities, and (ii) average exchange rates during the period for results of
operations. Adjustments resulting from translation of financial statements are
reflected in accumulated other comprehensive loss as a separate component of
stockholder's equity. The Company considers all of its intercompany loans to its
Polish subsidiaries to be of a long-term investment nature. As a result, any
foreign exchange gains or losses resulting from the intercompany loans are
reported in accumulated other comprehensive loss.
Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for non-monetary items of its Polish subsidiaries
in accordance with guidelines established within EITF Issue 92-4, "ACCOUNTING
FOR A CHANGE IN FUNCTIONAL CURRENCY WHEN AN ECONOMY CEASES TO BE CONSIDERED
HIGHLY INFLATIONARY". That basis is computed by translating the historical
reporting currency amounts of non-monetary items into the local currency at
current exchange rates.
Prior to January 1, 1998 the financial statements of foreign subsidiaries
were translated into U.S. dollars using (i) exchange rates in effect at period
end for monetary assets and liabilities, (ii) exchange rates in effect at
transaction dates (historical rates) for non monetary assets and liabilities,
and (iii) average exchange rates during the period for revenues and expenses,
other than those revenues and expenses that relate to non monetary assets and
liabilities (primarily amortization of fixed assets and intangibles) which are
translated using the historical exchange rates applicable to those non monetary
assets and liabilities. Adjustments resulting from translation of financial
statements were reflected as foreign exchange gains or losses in the
consolidated statements of operations.
55
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value Of Financial Instruments"
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets, for which it is practicable to estimate fair value.
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses and notes payable.
At December 31, 1999 and 1998, the carrying value of cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses on
the accompanying consolidated balance sheets approximates fair value due to the
short maturity of these instruments.
At December 31, 1999 and 1998 the fair value of the Company's notes payable
balance approximates $320,635,000 and $230,194,000, respectively, based on the
last trading price of the notes payable in the respective years.
At the date of the Merger the Company's and PCI Notes were restated to their
fair market value at this date. The resulting $61.9 million, increase was
recorded in the pushed-down purchase accounting entries.
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.
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 presentation contained in the 1999
periods.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires that companies
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. Under this statement, accounting for changes in fair value of a
derivative depends on its intended use and designation. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral
56
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the
effective date of SFAS 133, which will now be effective for the first quarter
2001. We are currently assessing the effect of this new standard.
5. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
THE BEGINNING CHARGED TO AMOUNTS THE END OF
OF THE PERIOD EXPENSE WRITTEN OFF THE PERIOD
------------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
1997................... Accounts $ 545 $ 494 $ 273 $ 766
Allowance for Doubtful
1998................... Accounts $ 766 $1,383 $1,054 $1,095
Allowance for Doubtful
Seven months of 1999... Accounts $1,095 $ 740 $ 223 $1,612
Allowance for Doubtful
Five months of 1999.... Accounts $1,612 $2,331 $ 853 $3,090
</TABLE>
6. ACQUISITIONS
During 1999, the Company made several acquisitions of which details follow.
In each case, the acquisition was accounted for using the purchase method,
whereby the purchase price was allocated to the underlying assets and
liabilities based on their proportionate share of fair values on the date of
acquisition and any excess to goodwill. The results of operations of each of the
businesses acquired are included in the Company's consolidated financial
statements since the date of acquisition. In each case the goodwill life was 10
years. However, as discussed in Note 4, the revalued goodwill resulting from the
Merger is being amortized over 15 years.
On February 25, 1999, @ Entertainment purchased for approximately
$1.8 million a 30% interest in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna,
a joint stock company which owns Hoop Pekaes Pruszkow, a Polish basketball club.
In connection with this purchase @ Entertainment has agreed to act as a sponsor
for Hoop Pekaes Pruszkow. As of year ended December 31, 1999 the Company through
its subsidiaries committed to pay an additional $4.8 million for the sponsorship
of this basketball club and to secure future programming rights.
On March 31, 1999, a subsidiary of PCI purchased certain cable television
system assets for an aggregate consideration of approximately $509,000. The
acquisition was accounted for using the purchase method, whereby the purchase
price was allocated among the fixed assets acquired based on their fair value on
the date of acquisition and any excess to goodwill. The purchase price exceeded
fair value of the assets acquired by approximately $108,000.
On July 9, 1999, a subsidiary of the Company entered into an agreement to
acquire 100% of a cable television system for total consideration of
approximately $7,500,000. The consummation of this transaction is subject to
Polish Ministry of Telecommunications approval. The acquisition has been
accounted for under the purchase method where the purchase price was allocated
to the underlying assets and liabilities based upon their estimated fair values
and any excess to goodwill. The acquisition did not have a material effect on
the Company's results of operations in 1999. The purchase price exceeded fair
value of the assets acquired by approximately $5,336,000.
57
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
6. ACQUISITIONS (CONTINUED)
On July 26, 1999, a subsidiary of the Company entered into an agreement to
purchase all of the assets and subscriber lists of a cable television system for
total consideration of approximately $2,800,000. The purchase was accounted for
under the purchase method where the purchase price was allocated to the
underlying assets based upon their estimated fair values and the excess to
goodwill. The purchase price did not materially exceed the value of the assets
acquired.
Had these acquisitions occurred on January 1, 1998, the Company's pro-forma
consolidated results for the years ended December 31, 1999 and 1998, would not
be materially different from those presented in the Consolidated Statements of
Operations.
In February 1998, PCI acquired substantially all of the assets and
liabilities of a cable television business for an aggregate consideration of
approximately $1,574,000. The purchase price exceeded the fair value of the net
liabilities acquired by approximately $2,041,000. In association with this
acquisition, the Company assumed a $2,150,000 loan from Bank Rozwoju Exportu
S.A. (refer to note 12).
In February and March 1998, the Company acquired the remaining 55% equity
interest in an affiliated company for approximately $9,389,000. The purchase
price exceeded the fair value of the net liabilities acquired by approximately
$9,945,000.
On July 16, 1998, the Company purchased the remaining 45.25% interest in a
subsidiary of the Company which was held by unaffiliated third parties for an
aggregate purchase price of approximately $10,655,000, of which approximately
$9,490,000 relates to non-compete agreements. The purchase price, excluding the
amount paid relating to the non-compete agreements, exceeded the fair value of
the assets acquired by $604,000. The portion of the purchase price relating to
the non-compete agreements will be amortized over the five-year term of the
agreements.
On August 15, 1998, a subsidiary of the Company purchased the remaining
approximately 50% minority interest in another subsidiary of the Company which
was held by unaffiliated third parties for aggregate consideration of
approximately $5,372,000. The purchase price exceeded the fair value of the
assets acquired by $1,104,000.
Additionally, during 1998 PCI acquired certain cable television system
assets and subscriber lists for aggregate consideration of approximately
$2,000,000. The purchase price did not materially exceed the fair value of the
assets acquired.
Effective January 1, 1997, PCI acquired the remaining 51% of a subsidiary
company for aggregate consideration of approximately $9,927,000. The acquisition
has been accounted for as a purchase with the purchase price allocated among the
assets acquired and liabilities assumed based upon the fair values at the date
of acquisition and any excess to goodwill. The purchase price exceeded the fair
value of the net assets acquired by approximately $5,556,000.
In May 1997, the Company's subsidiaries 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
purchase price exceeded the fair value of the net assets acquired by
approximately $9,910,000.
During 1997, the Company's subsidiaries acquired certain cable television
system assets and subscriber lists for aggregate consideration of approximately
$3,200,000. The acquisitions have been accounted for as fixed asset purchases
with the purchase price allocated among the fixed assets acquired based upon
their
58
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
6. ACQUISITIONS (CONTINUED)
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.
7. PROPERTY, PLANT AND EQUIPMENT
As part of the accounting for the Merger the Company recorded its fixed
asset fair values and re-set accumulated depreciation to zero. The following pro
forma consolidated tangible fixed assets balances for the year ended
December 31, 1999 and 1998 give effect of the Acquisition of @Entertainment as
it had occurred on December 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Property, plant and equipment:
Cable television systems assets........................... 123,845 129,625
D-DTH equipment........................................... 82,327 65,227
Construction in progress.................................. 7,400 2,739
Vehicles.................................................. 1,943 1,930
Other..................................................... 15,871 13,533
-------- -------
231,386 213,054
Less accumulated depreciation............................. (12,602) --
-------- -------
Net property, plant and equipment....................... 218,784 213,054
</TABLE>
Between April 1, and November 8, 1999 the Company was selling digital
direct-to-home ("D-DTH") reception systems to customers. Prior to April 1, 1999,
the systems were leased to customers, classified as fixed assets and depreciated
over 5 years. Due to this change, the Company classified reception systems as
inventory. As a result of the change the Company wrote down the value of all
reception systems acquired after April 1, 1999 and before November 8, 1999 to
their net realizable value. The effect of the change was to increase operating
loss by approximately $8,852,000, and $19,891,000 for the five months of 1999
and seven months of 1999, respectively. Due to the change of ownership of the
Company in connection with the Merger, beginning November 8, 1999 the Company
returned to leasing its D-DTH reception systems. The Company has impaired the
value of D-DTH boxes leased to customers, which have been disconnected and where
it is unlikely for the Company to recover the value of the boxes.
The Company incurred depreciation charges for tangible fixed assets of
$14,079,000, $19,733,000, $19,864,000 and $14,010,000 for the five months of
1999, seven months of 1999 and for years ended December 31, 1998 and 1997,
respectively.
59
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Conduit, franchise agreements and other............. $ 4,334 $ 6,745
Goodwill............................................ 928,763 27,510
Non-compete agreements.............................. -- 19,006
-------- -------
933,097 53,261
Less accumulated amortization....................... (26,110) (9,609)
-------- -------
Net intangible assets............................... $906,987 $43,652
======== =======
</TABLE>
The Acquisition was accounted for under the purchase method of accounting,
with all of the purchase accounting adjustments "pushed-down" to the
consolidated financial statements of @ Entertainment. Accordingly, the purchase
price was allocated to the underlying assets and liabilities based upon their
estimated fair values and any excess to goodwill. The Company restated some of
its assets and liabilities at August 5, 1999. At this date the Notes of the
Company and PCI were restated by $61.9 million and deferred financing costs of
$16.1 million and deferred revenue of $2.0 million were written down to zero.
The consideration paid by UPC for all shares outstanding, warrants and options
totalled $812.5 million. At this time the Company had negative net assets of
approximately $53.3 million and existing goodwill at net book value of $37.5
million which was realized on previous transactions. As a result of the above
considerations, UPC recognized goodwill of approximately $979.3 million. As a
result of the Acquisition, UPC pushed down its basis to the Company establishing
a new basis of accounting as of the acquisition date. The Company incurred
amortization charges for intangible assets of $26,110,000, $4,194,000,
$6,440,000, and $2,284,000 for five and seven months of 1999 and the years ended
December 31, 1998 and 1997, respectively.
9. PROGRAMMING AND BROADCAST RIGHTS
Programming and broadcast rights include approximately $7,200,000 and
$9,030,000 paid for certain broadcast rights purchased as of December 31, 1999
and 1998, respectively, but not yet available for viewing.
10. INVESTMENTS IN AFFILIATED COMPANIES
Investment in affiliated companies at December 31, 1999 consist of 30% of
common Stock of Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna, 20% of the
common stock of Fox Kids Poland Ltd. ("FKP") and 50% of the common stock of Twoj
Styl Sp. z o.o. ("Twoj Styl"). At December 31, 1997 investments in affiliated
companies also included 45% of the common stock of Ground Zero Media
Sp. z o.o. During 1998, the Company acquired the remaining interest in Ground
Zero Media Sp. z o.o (refer to note 6).
60
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
10. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
On February 25, 1999, @ Entertainment purchased for approximately
$1.8 million a 30% interest in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna,
a joint stock company which owns Hoop Pekaes Pruszkow, a Polish basketball team.
In connection with this purchase @ Entertainment has agreed to act as a sponsor
for Hoop Pekaes Pruszkow.
For five months of 1999 and seven months of 1999 the Company recorded a loss
related to this investment of $325,000 and $473,000, respectively.
In December 1997, the Company acquired a 20% interest in FKP, a joint
venture formed to provide programming to the Company for an aggregate purchase
price of approximately $10,000,000. The purchase price exceeded the fair value
of the Company's ownership percentage of net assets by approximately
$10,000,000. During 1998, the Company contributed an additional $4,926,000 to
the joint venture which was accounted for as an additional investment in
affiliated companies. These differences are being amortized over five years as a
charge to equity in profits of affiliated companies.
For the five months of 1999, seven months of 1999 and the years ended
December 31, 1998 and 1997, the Company recorded losses related to this
investment of $333,000, $445,000, $6,343,000 and $0, respectively.
In December 1997, the Company acquired a 50% interest in Twoj Styl, a
magazine publishing company for an aggregate purchase price of approximately
$11,100,000. In 1998, the Company paid approximately $302,000 for stamp duty and
professional fees, which was added to the cost of the investment. The purchase
price exceeded the fair value of the Company's ownership percentage of net
assets by approximately $9,600,000. This difference is being amortized over ten
years as a charge to equity in income of affiliated companies. For five months
of 1999, seven months of 1999 and the years ended December 31, 1998 and 1997,
the Company recorded a (loss)/profit related to this investment of $367,000,
$(86,000), $(181,000) and $152,000, respectively. In addition, the Company
agreed to provide additional future financing to Twoj Styl, either debt or
equity, of up to $7,700,000 to develop Polish-language programming and ancillary
services. As of December 31, 1999, no additional financing had been provided.
It was not practical to estimate the market value of the investments in
affiliated companies due to the nature of these investments, the relatively
short existence of the affiliated companies and the absence of quoted market
price for the affiliated companies. Because these acquisitions occurred only
shortly before the Acquisition, the historical investments costs were assessed
as the fair values.
61
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
11. INCOME TAXES
Income tax (expense)/benefit consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Five months of 1999
U.S. Federal..................................... $ -- $ -- $ --
State and local.................................. -- -- --
Foreign.......................................... (11) -- (11)
------ ---- ------
$ (11) $ -- $ (11)
====== ==== ======
Seven months of 1999
U.S. Federal..................................... $ -- $ -- $ --
State and local.................................. -- -- --
Foreign.......................................... (30) -- (30)
------ ---- ------
(30) (30)
====== ==== ======
Year ended December 31, 1998:
U.S. Federal..................................... $ -- $ -- $ --
State and local.................................. -- -- --
Foreign.......................................... (210) -- (210)
------ ---- ------
$ (210) $ -- $ (210)
====== ==== ======
Year ended December 31, 1997:
U.S. Federal..................................... $1,438 $ -- $1,438
State and local.................................. -- -- --
Foreign.......................................... (463) -- (463)
------ ---- ------
$ 975 $ -- $ 975
====== ==== ======
</TABLE>
Sources of loss before income taxes and minority interest are presented as
follows:
<TABLE>
<CAPTION>
FIVE MONTHS OF SEVEN MONTHS OF YEAR ENDED DECEMBER 31,
-------------- --------------- ------------------------
1999 1999 1998 1997
-------------- --------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic loss............................... (85,831) (53,786) $ (52,341) $(20,628)
Foreign loss................................ (58,335) (74,200) (73,514) (31,585)
--------- -------- --------- --------
(144,166) (127,986) $(125,855) $(52,213)
========= ======== ========= ========
</TABLE>
62
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
11. INCOME TAXES (CONTINUED)
Income tax (expense)/benefit for five months of 1999, seven months of 1999
and the years ended December 31, 1998 and, 1997 differed from the amounts
computed by applying the U.S. federal income tax rate of 34 percent to pre-tax
loss as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
FIVE MONTHS SEVEN MONTHS -------------------
OF 1999 OF 1999 1998 1997
--------------- ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computed "expected" tax benefit............ 49,016 43,515 $ 43,061 $ 17,752
Non-deductible expenses.................... (5,973) (5,330) (1,635) (101)
Change in valuation allowance.............. (33,722) (29,932) (30,299) (15,424)
Adjustment for adoption of EITF 92-8....... -- -- (11,311) --
Adjustment to deferred tax asset for
enacted changes in tax rates............. (9,332) (8,283) (695) (789)
Foreign tax rate differences............... -- -- 606 (463)
Other...................................... -- -- 63 --
-------- -------- -------- --------
(11) (30) $ (210) $ 975
======== ======== ======== ========
</TABLE>
63
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
11. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Foreign net operating loss carry forward.................. $ 35,181 $ 27,930
Domestic net operating loss carry forward................. 39,326 7,459
Interest income........................................... -- 2,650
Service revenue........................................... 2,351 2,100
Accrued liabilities....................................... 4,176 4,061
Deferred costs............................................ 4,570 6,447
Stock options............................................. -- 2,950
Bad debt expense.......................................... 927 --
Deferred revenue.......................................... 1,203 --
Accrued interest.......................................... 14,420 2,183
Unrealized foreign exchange losses........................ 23,112 9,066
Other..................................................... 1,237 1,394
--------- --------
Total gross deferred tax assets............................. 126,503 66,240
Less valuation allowance.................................... (117,986) (54,332)
--------- --------
Net deferred tax assets..................................... 8,517 $ 11,908
========= ========
Deferred tax liabilities:
Excess of book value over tax basis of fixed assets
resulting from conversion off hyperinflation............ $ (5,614) $(11,311)
Accelerated fixed assets depreciation..................... (2,337) (475)
Other..................................................... (566) (122)
--------- --------
Total gross deferred tax liabilities...................... (8,517) $(11,908)
--------- --------
Net deferred tax liability................................ $ -- $ --
========= ========
</TABLE>
The net increase in the valuation allowance for five months of 1999, seven
months of 1999 and the years ended December 31, 1998 and 1997 was $33,722,000,
$29,932,000, $30,299,000 and $15,424,000, respectively. In assessing the
realiability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future taxable
income and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation allowances at
December 31, 1999.
64
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
11. INCOME TAXES (CONTINUED)
As each of the Polish, Netherlands and UK subsidiaries of the Company are
not subject to group taxation, the deferred tax assets and liabilities in the
individual companies must be evaluated on a stand-alone basis. The reported
foreign net operating losses are presented on an aggregate basis and are not
necessarily indicative of the actual losses available to the individual
companies. As a result, some of the foreign subsidiaries may have no losses or
other deferred tax assets available to them individually.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1999 will be reported in the consolidated
statement of operations.
Prior to 1999, foreign losses carryforwards can be offset against Polish
subsidiaries taxable income and utilized at rate of one-third per year in each
of the three years subsequent to the year of 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. Foreign loss carryforwards
starting from 1999 can be offset against the Polish subsidiaries taxable income
and utilized during each of the five years subsequent to the year of the loss
with no more than 50% of the loss in one given year. For losses incurred in U.S.
taxable years prior to 1998, loss carryforwards can be applied against taxable
income three years retroactively and fifteen years into the future. For losses
incurred in U.S. taxable years from 1998, loss carryforwards can be applied
against taxable income two years retroactively and twenty years into the future.
As of December 31, 1999, the Company has approximately $115 million of U.S. net
operating loss carryforwards.
At December 31, 1999, the Company has foreign net operating loss
carryforwards of approximately $141,654,000 which will expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 (IN THOUSAND)
- - ----------------------- --------------
<S> <C>
2000........................................................ $ 22,620
2001........................................................ 20,350
2002........................................................ --
2003........................................................ 49,342
2004........................................................ 49,342
------------
$ 141,654
============
</TABLE>
65
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. NOTES PAYABLE AND OFFER TO REPURCHASE NOTES
Notes payable excluding amounts due to UPC consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
@ Entertainment Senior Discount Notes due 2008, net of
discount.................................................. $144,442 $125,513
@ Entertainment Senior Discount Notes due 2009, net of
discount.................................................. 141,807 --
@ Entertainment Series C Senior Discount Notes due 2008, net
of discount............................................... 11,841 --
PCI Notes, net of discount.................................. 14,899 129,627
American Bank in Poland S.A. ("AmerBank") revolving credit
loan...................................................... -- 6,500
Bank Rozwoju Exportu S.A. Deutsche--Mark facility........... 1,286 1,912
Other....................................................... 272 402
-------- --------
Total notes payable......................................... $314,547 $263,954
======== ========
</TABLE>
@ ENTERTAINMENT NOTES
On January 22, 1999, the Company sold 256,800 units (collectively, the
"Units") to two initial purchasers pursuant to a purchase agreement, each Unit
consisting of $1,000 principal amount at maturity of 14 1/2% Senior Discount
Notes (the "Notes") due 2009 and four warrants (each a "Warrant"), each
initially entitling the holder thereof to purchase 1.7656 shares of common
stock, par value $0.01per share at an exercise price of $9.125 per share,
subject to adjustment. The Notes were issued at a discount to their aggregate
principal amount at maturity and, together with the Warrants generated gross
proceeds to the Company of approximately $100,003,000, of which $92,551,000 has
been allocated to the initial accreted value of the Notes and approximately $
7,452,000 has been allocated to the Warrants.
The Notes are unsubordinated and unsecured obligations. Cash interest on the
Notes will not accrue prior to February 1, 2004. Thereafter cash interest will
accrue at a rate of 14.5% per annum on the principal amount and will be payable
semiannually in arrears on August 1 and February 1 of each year, commencing
August 1, 2004. The Notes will mature on February 1, 2009. At any time prior to
February 1, 2002, the Company may redeem up to a maximum of 35% of the
originally issued aggregate principal amount at maturity of the Notes at a
redemption price equal to 117.5% of the accreted value thereof at the redemption
date, plus accrued and unpaid interest, if any, to the date of redemption with
some or all of the net cash proceeds of one or more public equity offerings;
provided, however, that not less than 65% of the originally issued aggregate
principal amount at maturity of the Notes remain outstanding immediately after
giving effect to such redemption.
The Warrants initially entitled the holders thereof to purchase 1,813,665
shares of common stock, representing, in the aggregate, approximately 5% of the
outstanding common stock on a fully-diluted basis (using the treasury stock
method) immediately after giving effect to the Units offering and the Company's
offering of Series A 12% Cumulative Preference Shares and Series B 12%
Cumulative Preference Shares. In July and August 1999 certain warrant holders
executed their right to purchase common stock (see note 13). The remaining
unexercised Warrants were redeemed in connection with the Merger.
On January 20, 1999, the Company sold $36,001,000 aggregate principal amount
at maturity of Series C Senior Discount Notes (collectively the "Series C
Notes") due 2008. The Series C Notes are
66
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. NOTES PAYABLE AND OFFER TO REPURCHASE NOTES (CONTINUED)
senior unsecured obligations of the Company ranking PARI PASSU in right of
payment with all other existing and future unsubordinated obligations of the
Company. The Series C Notes were issued at a discount to their aggregate
principal amount at maturity and generated gross proceeds to the Company of
approximately $9,815,000. Cash interest on the Series C Notes will not accrue
prior to July 15, 2004. Thereafter cash interest will accrue at a rate of 7.0%
per annum on the principal amount at maturity, and will be payable semiannually
in arrears on July 15 and January 15 of each year commencing January 15, 2005.
The Series C Notes will mature on July 15, 2008.
On July 14, 1998, the Company sold 252,000 units (collectively, the "Units")
to two initial purchasers pursuant to a purchase agreement, each Unit consisting
of $1,000 principal amount at maturity of 14 1/2% Senior Discount Notes (the
"Discount Notes") due 2008 and four warrants (each a "Warrant"), each initially
entitling the holder thereof to purchase 1.81 shares of common stock, par value
$0.01 per share (the "Common Stock") at an exercise price of $13.20 per share,
subject to adjustment.
The Discount Notes were issued at a discount to their aggregate principal
amount at maturity and, together with the Warrants generated gross proceeds to
the Company of approximately $125,100,000 of which $117,485,000 has been
allocated to the initial accreted value of the Discount Notes and approximately
$7,615,000 has been allocated to the Warrants. The portion of the proceeds that
is allocable to the Warrants was accounted for as part of paid-in capital. The
allocation was made based on the relative fair values of the two securities at
the time of issuance. Net proceeds to the Company after deducting initial
purchasers' discount and offering expenses were approximately $118,972,000.
The Discount Notes are unsubordinated and unsecured obligations. Cash
interest on the Discount 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 Discount 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 Discount
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 Discount Notes remains
outstanding immediately after giving effect to such redemption. The effective
interest rate of the Discount Notes is approximately 16.5%.
The Warrants initially entitled 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 basis immediately after giving
effect to the sale of the Units. The Warrants were exercisable at any time and
will expire on July 15, 2008. The remaining unexercised Warrants were redeemed
in connection with the Merger.
Pursuant to the Indenture governing the Notes, Series C Notes, and the
Discount Notes (the "Indenture"), the Company is subject to certain restrictions
and covenants, including, without limitation, covenants with respect to the
following matters: (i) limitation on additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuance and sales of capital stock of
restricted subsidiaries; (iv) limitation on transactions with affiliates;
(v) limitation on liens; (vi) limitation on guarantees of indebtedness by
restricted subsidiaries; (vii) purchase of Notes upon a change of control;
(viii) limitation
67
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. NOTES PAYABLE AND OFFER TO REPURCHASE NOTES (CONTINUED)
on sale of assets; (ix) limitation on dividends and other payment restrictions
affecting restricted subsidiaries; (x) limitation on investments in unrestricted
subsidiaries; (xi) consolidations, mergers, and sale of assets;
(xii) limitation on lines of business; and (xiii) provision of financial
statements and reports. As of December 31, 1999 the Company is in compliance
with these covenants.
PCI NOTES
On October 31, 1996, PCI sold $130,000,000 aggregate principal amount of
Senior Notes ("PCI Notes") to an initial purchaser pursuant to a purchase
agreement. The initial purchaser subsequently completed a private placement of
the PCI Notes. In June 1997, substantially all of the outstanding PCI Notes were
exchanged for an equal aggregate principal amount of publicly-registered PCI
Notes.
The PCI Notes have an interest rate of 9 7/8% and a maturity date of
November 1, 2003. Interest is paid on the PCI Notes on May 1 and November 1 of
each year. As of December 31, 1999 and 1998 the Company accrued interest expense
of $243,000 and $2,140,000, respectively. Prior to November 1, 1999, PCI could
have redeem up to a maximum of 33% of the initially outstanding aggregate
principal amount of the PCI Notes with some or all of the net proceeds of one or
more public equity offerings at a redemption price equal to 109.875% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption; provided that immediately after giving effect to such redemption,
at least $87 million aggregate principal amount of the PCI Notes remains
outstanding.
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 $176,398,000 and $160,450,000 at December 31, 1999 and 1998,
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
restricted subsidiaries; (iv) limitation on transactions with affiliates;
(v) limitation on liens; (vi) limitation on guarantees of indebtedness by
subsidiaries; (vii) purchase of PCI Notes upon a change of control;
(viii) limitation on sale of assets; (ix) limitation on dividends and other
payment restrictions affecting subsidiaries; (x) limitation on investments in
unrestricted subsidiaries; (xi) consolidations, mergers and sale of assets;
(xii) limitation on lines of business; and (xiii) provision of financial
statements and reports. As of December 31, 1999, the Company was in compliance
with such covenants.
Pursuant to the terms of the indentures covering each of the @Entertainment
Notes and the PCI Notes (as defined hereinafter), which provided that, following
a Change of Control (as defined therein), each holder of @Entertainment Notes
and PCI Notes had the right, at such holder's option, to require the Company and
PCI, respectively to offer to repurchase all or a portion of such holder's
@Entertainment Notes and PCI Notes at the Repurchase Price. @Entertainment and
PCI made offers to repurchase (the "Offers") from the holders of the Notes
@Entertainment's 14 1/2% Series B Senior Discount Notes due 2008, 14 1/2% Senior
Discount Notes due 2008, Series C Senior Discount Notes due 2008, 14 1/2%
Series B
68
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. NOTES PAYABLE AND OFFER TO REPURCHASE NOTES (CONTINUED)
Senior Discount Notes due 2009, and 14 1/2% Senior Discount Notes due 2009
(collectively, the "@Entertainment Notes") and PCI's 9 7/8% Series B Senior
Notes Due 2003 and 9 7/8% Senior Notes Due 2003 (collectively, the "PCI
Notes").The Offers expired at 12:01 PM, New York City time, on November 2, 1999.
The Company was required to offer to repurchase the @Entertainment Notes at
101% of their accreted value per $1,000 principal amount of @Entertainment Notes
at maturity on the Expiration Date plus accrued and unpaid interest and PCI was
required to offer to repurchase the PCI Notes at their purchase price of $1,010
per $1,000 principal amount of the PCI Notes, which is 101% per $1,000 principal
amount of the PCI. As of August 5, 1999, the Company had $376,943,000 aggregate
principal amount at maturity of @Entertainment Notes outstanding and PCI had
$130,000,000 aggregate principal amount at maturity of PCI Notes outstanding.
Pursuant to its repurchase offer, the Company has purchased $49,139,000
aggregate principal amount of @Entertainment Notes for an aggregate price of
$26,455,014, and PCI has purchased $113,237,000 aggregate principal amount of
PCI Notes for an aggregate price of $114,369,370. In December 1999, PCI
repurchased an additional $2,000,000 aggregate principal amount of PCI Notes for
an aggregate price of $2,040,024. PCI's repurchases were funded by the sale of
14,000 shares of PCI's Mandatorily Redeemable Debenture Stock to the Company for
$140 million. To secure its obligations under the Debenture Stock, PCI will
pledge to the Company notes issued by its subsidiary PCBV with an aggregate
principal amount of $176,815,000. The PCI Noteholders will be equally and
ratably secured by the pledge in accordance with the terms of the PCI Indenture.
NOTES PAYABLE TO UPC
As of December 31, 1999, the Company had a loan payable to UPC of
approximately $220,149,000. The amount includes accrued interest of
approximately $2,804,000. All of the interest was accrued in the five months of
1999. The loan bears interest at a rate of 10% per annum and has no defined
repayment terms.
AMERICAN BANK IN POLAND S.A. REVOLVING CREDIT LOAN
The revolving credit loan allowing the Company to borrow up to a maximum
principal amount of $6,500,000 on or before December 31, 1998, was fully drawn
as of December 31, 1998. The facility bears interest at LIBOR plus 3.0% (8.0% as
at December 31, 1998), was repaid in full on November 20, 1999, and was secured
by promissory notes en blanc from certain of the Company's subsidiaries, and
pledges of the shares of certain of the Company's subsidiaries.
BANK ROZWOJU EKSPORTU S.A. DEUTSCHE--MARK FACILITY
The Deutsche--Mark facility represents a credit facility of DM 3,948,615 of
which approximately DM 2,503,000 was outstanding at December 31, 1999. The
facility bears interest at LIBOR plus 2.0% (5.5% as at December 31, 1999), is
repayable in full on December 27, 2002, and is ultimately secured by a pledge of
the common shares of one of the Company's subsidiaries.
Interest expense relating to notes payable was in the aggregate
approximately $24,459,000, $28,818,000, $21,535,000 and $13,902,000 for the five
months of 1999, the seven months of 1999 and for the years ended December 31,
1998 and 1997, respectively.
69
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
13. PREFERENCE OFFERINGS
On January 22, 1999 the Company sold 50,000 (45,000 Series A and 5,000
Series B) 12% Cumulative Redeemable Preference Shares (collectively "the
Preference Shares") and 50,000 Warrants (each a "Preference Warrant") each
Preference Warrant initially entitling the holders thereof to purchase 110
shares of common stock, par value $0.01 per share, of the Company at an exercise
price of $10.00 per share, subject to adjustment. The Preference Shares together
with the Preference Warrants generated gross proceeds to the Company of
$50,000,000 of which approximately $28,812,000 has been allocated to the initial
unaccreted value of the Preference Shares (net of commissions and offering costs
payable by the Company of approximately $1,700,000), and approximately
$19,483,000 has been allocated to the Preference Warrants.
The Series A 12% Cumulative Redeemable Preference Shares, the Series A 12%
Cumulative Redeemable Preference Shares and the Preference Warrants issued in
the Preference offering were registered on a registration statement on
Form S-3. This registration statement was declared effective on July 2, 1999.
In the Tender Offer, initiated pursuant to the Agreement and Plan of Merger
with UPC and Bison, UPC acquired 100% of the outstanding Series A and Series B
12% Cumulative Redeemable Preference Shares, and the Preference Warrants.
14. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into transactions
with related parties. The principal related party transactions are described
below.
PROGRAMMING
Programming is provided to the Company by certain of its affiliates. The
Company incurred programming fees from these affiliates of $1,745,000 and
$1,025,000 for five and seven months of 1999, respectively and $418,000 and
$559,000 for the years ended December 31, 1998 and 1997, respectively.
PRINT MEDIA SERVICES
An affiliate of the Company provides print media services to the Company.
The Company incurred operating costs related to these services of $2,849,000,
$3,863,000 , $4,355,000 for the five months of 1999, seven months of 1999 and
the year ended December 31, 1998, respectively. The Company did not incur any
costs from this affiliate prior to 1998.
UPC
As discussed in the note 12, the Company has $220,149,000 of notes payable
to UPC, additionally the Company has $1,206,000 of trade payables related to
management fees charged during the five months of 1999.
15. PER SHARE INFORMATION
Basic loss per share has been computed by dividing net loss attributable to
common stockholders by the weighted average number of common shares outstanding
during the year. The effect of potential
70
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@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
15. PER SHARE INFORMATION (CONTINUED)
common shares (stock options and warrants outstanding) is antidilutive,
accordingly, dilutive loss per share is the same as basic loss per share. As of
December 31, 1998 options for 3,924,000 shares were excluded from the
calculation of earnings per share.
The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR (NOTE 2)
(NOTE 2) ------------------------------------------
-------------- YEAR ENDED DECEMBER 31,
FIVE MONTHS OF SEVEN MONTHS OF ------------------------
1999 1999 1998 1997
-------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Net loss attributable to common stockholders
(in thousands)............................ $(144,177) $(130,452) $(126,065) $(91,066)
Basic weighted average number of common
shares outstanding (in thousands)......... N/A 33,459 33,310 24,771
--------- --------- --------- --------
Net loss per share-basic and diluted........ N/A $ (3.90) $ (3.78) $ (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, subject to adjustment in
accordance with the 1997 Plan. At December 31, 1998, options for 3,924,000
shares had been granted. Of this amount, 1,671,000 options became exercisable
upon the IPO but could not be sold for a period of two years from July 30, 1997.
The Company granted 1,671,000 stock options in January 1997 at a price
substantially below the IPO price of $21.00 per share. Such options vested in
full upon the completion of the IPO. In accordance with generally accepted
accounting principles, the Company recognized approximately $18,102,000 of
compensation expense included in selling, general, and administrative expenses
for these options in 1997 representing the difference between the exercise price
of the options and the fair market value of the shares on the date of grant. All
other stock options were granted with exercise prices at or below the fair
market value of the shares on the date of grant.
Future stock options are granted with an exercise price that must be at
least equal to the stock's fair market value at the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the maximum term of an incentive stock option must not exceed
five years. The term of all other options granted under the 1997 Plan may not
exceed ten years. Options become exercisable at such times as determined by the
Board of Directors and as set forth in the individual stock option agreements.
Generally, all stock options vest ratably over 2 to 5 years commencing one year
after the date of grant.
71
<PAGE>
@ ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
16. STOCK OPTION PLAN (CONTINUED)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Balance at January 1, 1997 (none exercisable)........... 241,000 $ 1.99
Granted................................................. 2,083,000 $ 5.98
---------- -------
Balance at December 31, 1997 (none exercisable)......... 2,324,000 $ 5.57
Granted................................................. 1,600,000 $ 12.31
---------- -------
Balance at December 31, 1998 (2,643,000 exercisable).... 3,924,000 $ 8.32
Granted................................................. 700,000 $ 14.30
Forfeited............................................... (623,750) $ (4.55)
Exercised............................................... (96,000) $ (1.99)
Acquired as part of Merger and cancelled................ (3,904,250) $(10.16)
---------- -------
Balance at August 5, 1999............................... --
Transactions during five months of 1999 --
---------- -------
Balance at December 31, 1999 -- --
========== =======
</TABLE>
In February 1999 a number of the Company's employees were granted options to
purchase 700,000 shares of common stock at a price of $14.30 per share, vesting
ratably over a three-year period starting from January 1, 2000. The exercise
price of such options exceeded the quoted market price for the Company's shares
on the date of grant. All stock options were cancelled and paid in cash in full
in connection with the Merger.
The per share weighted-average fair value of stock options granted during
1999 and 1998 was $2.82 and $4.22, respectively on the date of grant using the
Black Scholes option-pricing model. The following weighted-average assumptions
were used; expected volatility of 53% and 43.0%, expected dividend yield 0.0%,
risk-free interest rate of 4.78% and 5.72%, and an expected life of 4 years,
respectively for 1999 and 1998.
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>
YEAR ENDED DECEMBER 31,
FIVE MONTHS SEVEN MONTHS -----------------------
OF 1999 OF 1999 1998 1997
----------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net loss-as reported.......................... $(144,177) $(128,689) $(126,065) $ (54,824)
Net loss-pro forma............................ N/A (128,016) (131,511) (56,607)
Basic and diluted net loss per share--as
reported.................................... N/A (3.90) (3.78) (3.68)
Basic and diluted loss per share-pro forma.... N/A (3.92) (3.95) (3.75)
</TABLE>
72
<PAGE>
17. LEASES
Total rental expense associated with the operating leases mentioned below
for five months of 1999, seven months of 1999 and the years ended December 31,
1998 and 1997 was $3,827,000, $5,358,000, $10,521,000, and $3,696,000,
respectively.
BUILDING LEASES
The Company leases several offices and warehouses within Poland under
cancelable operating leases. The Company has a noncancelable operating lease for
a building in the United Kingdom which houses the majority of its technical
equipment relating to the D-DTH network. The noncancelable lease for the
building in the United Kingdom expires in 2002, and contains a renewal option
for an additional five years. Future minimum lease payments as of December 31,
1999 are $1,337,000 in 2000, $1,377,000 in 2001 and $1,418,000 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 approximately
$50,000 approximating future minimum commitments of $580,000 in 2000, $580,000
in 2001, $580,000 in 2002, $580,000 in 2003 and $1,305,000 in 2004 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 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 20 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.
Minimum future lease commitments for the aforementioned conduit leases
relate to 2000 only, as all leases are cancelable in accordance with the
aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $622,000 as of the year ended December 31, 1999.
TRANSPONDER LEASES
During 1997, the Company entered into certain operating leases pursuant to
which the Company is liable for charges associated with each of its three
transponders on the Astra satellites, which can amount to a maximum of
$6,750,000 per year for each transponder and up to $162 million for all three
transponders for the term of their leases. The future maximum lease payments
applicable to the transponders approximate $20,250,000 in 2000, $20,250,000 in
2001, $20,250,000 in 2002, $20,250,000 in 2003 and $81,000,000 in 2004 and
thereafter. The leases for the two transponders on the Astra 1F satellite and
the transponder on the Astra 1G satellite will expire in 2007. The Company's
transponder leases provide that the Company's rights are subject to termination
in the event that the lessor's franchise is withdrawn by the Luxembourg
Government.
73
<PAGE>
18. SEGMENT INFORMATION
@Entertainment and its subsidiaries operate in three business segments,
cable television, digital direct-to-home television and programming, and
corporate functions. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes not including nonrecurring items and foreign exchange gains and loss. The
Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The Company classifies its business into three segments: (1) cable
television, (2) D-DTH television and programming, and (3) corporate. Information
about the operations of the Company in these different business segments is set
forth below based on the nature of the services offered. In addition to other
operating statistics, the Company measures its financial performance by EBITDA,
an acronym for earnings before interest, taxes, depreciation and amortization.
The Company defines EBITDA to be net loss adjusted for interest and investment
income, depreciation and amortization, interest expense, foreign currency gains
and losses, equity in losses of affiliated companies, income taxes and minority
interest. The items excluded from EBITDA are significant components in
understanding and assessing the Company's financial performance. The Company
believes that EBITDA and related measures of cash flow from operating activities
serve as important financial indicators in measuring and comparing the operating
performance of media companies.
74
<PAGE>
18. SEGMENT INFORMATION (CONTINUED)
EBITDA is not a U.S. GAAP measure of profit and loss or cash flow from
operations and should not be considered as an alternative to cash flows from
operations as a measure of liquidity.
<TABLE>
<CAPTION>
D-DTH AND
CABLE PROGRAMMING CORPORATE TOTAL
-------- ----------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIVE MONTHS OF 1999
Revenues from external customers................. $ 27,027 $ 10,991 $ -- $ 38,018
Intersegment revenues............................ -- 8,860 -- 8,860
Operating loss................................... (26,923) (86,705) (4,768) (118,396)
EBIDTA........................................... (8,765) (64,691) (4,751) (78,207)
Depreciation and amortization.................... (18,158) (22,014) (17) (40,189)
Net loss......................................... (33,130) (97,653) (13,394) (144,177)
Segment assets................................... 524,931 678,588 15,352 1,218,871
SEVEN MONTHS OF 1999
Revenues from external customers................. $ 35,434 $ 11,506 $ -- $ 46,940
Intersegment revenues............................ -- 12,127 -- 12,127
Operating loss................................... (11,936) (72,927) (13,936) (98,799)
EBIDTA........................................... 1,883 (62,837) (13,918) (74,872)
Depreciation and amortization.................... (13,819) (10,090) (18) (23,927)
Net loss......................................... (20,672) (85,358) (21,986) (128,016)
Segment assets................................... 186,941 126,911 69,164 383,016
1998
Revenues from external customers................. $ 52,971 $ 8,888 $ -- $ 61,859
Intersegment revenues............................ -- 13,432 -- 13,432
Operating loss................................... (23,066) (69,047) (8,700) (100,813)
EBIDTA........................................... (1,431) (64,378) (8,700) (74,509)
Depreciation and amortization.................... (21,635) (4,669) -- (26,304)
Net loss......................................... (37,193) (79,877) (8,995) (126,065)
Segment assets................................... 193,785 132,998 21,591 348,374
1997
Revenues from external customers................. $ 38,138 $ -- $ -- $ 38,138
Intersegment revenues............................ -- -- -- --
Operating loss................................... (20,308) (10,210) (12,152) (42,670)
EBIDTA........................................... 5,387 (10,186) (3,475) (8,274)
Depreciation and amortization.................... (16,270) (24) -- (16,294)
Net loss......................................... (35,087) (7,668) (12,069) (54,824)
Segment assets................................... 187,449 36,466 83,181 307,096
</TABLE>
In 1997, the cable segment includes the activities of Mozaic
Entertainment, Inc., a subsidiary that provided programming content for the
cable business. In 1999 and 1998, the Company's programming activity related to
the department of Wizja platform and has been included solely in the D-DTH and
Programming segment. For the year ended December 31, 1997, Mozaic
Entertainment, Inc. revenues, operating loss and net loss were $563,000,
$2,071,000 and $3,027,000, respectively.
75
<PAGE>
18. SEGMENT INFORMATION (CONTINUED)
Total long-lived assets as of December 31, 1999 and 1998 and total revenues
for five and seven months of 1999 and years ended December 31, 1998 and 1997
analyzed by geographical location are as follows:
<TABLE>
<CAPTION>
TOTAL REVENUES
------------------------------------------------ LONG-LIVED ASSETS
FIVE MONTHS SEVEN MONTHS -------------------
OF 1999 OF 1999 1998 1997 1999 1998
----------- ------------ -------- -------- -------- --------
(IN THOUSAND) (IN THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
Poland.................................... 38,018 46,940 61,859 38,138 206,442 257,625
United Kingdom............................ -- -- -- -- 21,493 20,208
Other..................................... -- -- -- -- 514 29
------ ------ ------ ------ ------- -------
Total..................................... 38,018 46,940 61,859 38,138 228,449 277,862
====== ====== ====== ====== ======= =======
</TABLE>
All of the Company's revenue is derived from activities carried out in
Poland. Long-lived assets consist of property, plant, and equipment, inventories
for construction and intangible assets other than goodwill and other assets.
19. COMMITMENTS AND CONTINGENCIES
In addition to lease commitments presented in note 17 the Company has the
following 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 December 31, 1999 or any
earlier date on which the Company has secured 500,000 initial subscribers to its
D-DTH service in Poland. Philips has granted the Company an exclusive license of
its CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which will terminate when the Company has purchased 500,000 D-DTH
Reception Systems from Philips, unless terminated earlier in accordance with the
terms of the agreement or extended by mutual consent of Philips and the Company.
As of December 31, 1999, the Company had an aggregate minimum commitment toward
the purchase of the Reception Systems of approximately $60,800,000 over the next
two years.
PROGRAMMING, BROADCAST AND EXHIBITION RIGHT COMMITMENTS
The Company has entered into long-term programming agreements and agreements
for the purchase of certain exhibition or broadcast rights with a number of
third party content providers for its digital direct-to-home ("D-DTH") and cable
systems. The agreements have terms which range from one to seven years and
require that the license fees be paid either at a fixed amount payable at the
time of execution or based upon a guaranteed minimum number of subscribers
connected to the system each month. At December 31, 1999, the Company had an
aggregate minimum commitment in relation to these agreements of approximately
$213,973,000 over the next seven years, approximating $55,555,000 in 2000,
$51,787,000 in 2001, $48,116,000 in 2002, $29,922,000 in 2003 and $28,593,000 in
2004 and thereafter.
76
<PAGE>
19. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SPONSORSHIP COMMITMENTS
As of the year ended December 31, 1999, the Company through its subsidiaries
commited to pay approximately $4.8 million for the sponsorship of the Hoop
Pekaes Pruszkow basketball club and to secure future programming rights.
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.
LITIGATION AND CLAIMS
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, which provided for bringing together the Company's Wizja TV programming
platform and the Canal+ Polska premium pay television channel and for the joint
development and operation of a D-DTH service in Poland. The establishment of the
joint venture was subject to the execution of definitive agreements, regulatory
approvals and certain other closing conditions.
The definitive agreements were not agreed and executed by the parties by the
date set forth in the letter of intent (the "Signature Date"). Therefore, the
Company terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed the Company that they believe the Company did not
have the right to terminate the letter of intent.
Under the terms of the letter of intent, TKP is obligated to pay the Company
a $5 million break-up fee within 10 days of the Signature Date if the definitive
agreements were not executed by the Signature Date, unless the failure to obtain
such execution was caused by the Company's breach of any of its obligations
under the letter of intent. If there was any such breach by the Company, the
Company would be obligated to pay TKP $10 million. However, if any breach of the
letter of intent by TKP caused the definitive agreements not to be executed, TKP
would be obligated to pay the Company a total of $10 million (including the
$5 million break-up fee). In the event that TKP fails to pay the Company any of
the above-referenced amounts owed to the Company, TKP's shareholders are
responsible for the payment of such amounts.
The Company has demanded monies from TKP as a result of the failure to
execute the definitive agreements by the Signature Date. While the Company was
waiting for the expiration of the 10-day period for payment of the break-up fee,
TKP initiated arbitration proceedings before a three member-arbitration panel in
Geneva, Switzerland. In their claim, TKP and its shareholders have alleged that
the Company breached its obligation to negotiate in good faith and to use its
best efforts to agree and execute the definitive agreements and claimed the
Company is obligated to pay TKP $10 million pursuant to the letter of intent.
The Company has answered and brought counterclaims against TKP and its
shareholders. The arbitration hearings were conducted in Geneva in June 1999,
and parties filed their post-hearing briefs in August and September 1999. The
Company believes that a decision may be rendered by April 2000. 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.
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19. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PCBV MINORITY STOCKHOLDER'S CLAIM
On or about July 8, 1999, certain minority shareholders ("the minority
shareholders") of Poland Cablevision (Netherlands) B.V. (PCBV), an indirect
subsidiary of the Company, filed a lawsuit against the Company, Poland
Communications, Inc. ("PCI") and certain other defendants, in United States
District Court, Southern District of Ohio, Eastern Division, Civil Action No.
C2-99-621.
The relief sought by the minority shareholders includes: (1) unspecified
damages in excess of $75,000, (2) an order lifting the restrictions against
transfer of shares set forth in the Shareholders' Agreement among PCBV's
shareholders, as amended (the "Shareholders' Agreement") so that the minority
shareholders can liquidate their shares in PCBV, (3) damages in the amount of
1.7 percent of the payment made by UPC for the shares of the Company as set
forth in the Agreement and Plan of Merger between the Company and UPC dated
June 2, 1999, and (4) attorneys' fees and costs incurred in prosecuting the
lawsuit.
The amended complaint sets forth eight claims for relief based on
allegations that the defendants, including @Entertainment and PCI, committed the
following wrongful acts: (1) breached a covenant not to compete contained in the
Shareholders' Agreement relating to the shareholders of PCBV, (2) breached a
covenant in the Shareholders' Agreement requiring that any contract entered into
by PCBV with any other party affiliated with PCI be commercially reasonable or
be approved by certain of the minority shareholders, (3) breached a provision in
the Shareholders' Agreement that allegedly required co-defendant Chase
International Corp. ("CIC") to offer the minority shareholders the right to
participate in certain sales of PCBV shares and that required CIC to give
written notice of any offer to purchase the minority shareholders' shares in
PCBV, (4) breached their fiduciary duties to the minority shareholders,
(5) breached the agreement between PCBV and CIC, which allegedly limited the
amount of management fees that could be paid annually by PCBV, (6) made false
and misleading statements in various documents filed with the Securities and
Exchange Commission, (7) colluded to defraud the minority shareholders by
failing to make reference in certain Forms 8-K, 8-KA and 14D-1 to the minority
shareholders or their alleged rights and claims, (8) colluded to divert assets
of PCBV to affiliates of PCI and PCBV, including the Company, that allegedly
compete with PCI and PCBV.
The minority shareholders also seek damages in the amount of 1.7 percent of
the payment made by UPC for the shares of the Company, although the amended
complaint does not contain a separate claim for relief seeking that amount.
The Company intends to defend the lawsuit vigorously. The Company has also
conducted negotiations to purchase the minority shareholders' outstanding shares
in PCBV. If the negotiations produce a sale by the minority shareholders of
their shares in PCBV to the Company, the lawsuit would most likely be
terminated. The Company is unable to predict the outcome of those negotiations.
In the event that the lawsuit is not terminated, its status is as follows:
The time for the Company and PCI to respond to the amended complaint has not yet
expired. Discovery has not yet commenced. At this early stage of the
proceedings, the Company is unable to predict the probable outcome of the
lawsuit or the Company's ultimate exposure in connection therewith.
In addition to the Ohio lawsuit, the other minority shareholders of PCBV
(representing an additional 6% of PCBV) have asserted similar claims for
compensation, but have not filed suit.
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19. COMMITMENTS AND CONTINGENCIES (CONTINUED)
DIVIDEND RESTRICTIONS
The Company's Polish subsidiaries are only able to distribute dividends to
the extent of accounting profit determined in accordance with Polish Accounting
Principles. As of December 31, 1999, the Company's Polish subsidiaries have no
profit available for distribution as dividends.
20. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
D-DTH BUSINESS
The Company expects to experience substantial operating losses and negative
free cash flows for at least the next year due to (i) the large investments
required for the acquisition of equipment and facilities for its D-DTH business,
and (ii) the large investments required to develop, produce and acquire the
programming for Wizja TV. There can be no assurance that the Company will be
able to generate operating income or positive cash flows in the future or that
its operating losses and negative cash flows will not increase.
SUPPLIER AGREEMENT
Certain critical components and services used in the Company's D-DTH
satellite transmission system, including the D-DTH Reception System, as well as
retail, installation and support services, are initially to be provided
exclusively by Philips. The Company has concluded an agreement with Philips
providing for Philips to be the exclusive supplier to the Company of the first
500,000 D-DTH Reception Systems in connection with the launch of the Company's
D-DTH business in Poland. Philips had granted the Company an exclusive license
of its CryptoWorks-Registered Trademark- technology in Poland for the term of
the agreement, which will terminate when the Company has purchased 500,000 D-DTH
Reception Systems from Philips, unless terminated earlier in accordance with the
terms of the agreement or extended by mutual consent of Philips and the Company.
Philips had agreed not to distribute any other IRDs under the Philips' trademark
in Poland until December 31, 1999 or any earlier date on which the Company has
secured 500,000 initial subscribers to its D-DTH service in Poland. The
Company's agreement with Philips provides that after such period the Company may
license one or two suppliers of IRDs in addition to Philips and Philips shall
license its CryptoWorks-Registered Trademark- technology to such additional
suppliers for the Polish market. Although the agreement with Philips provides a
means by which the Company could obtain a second and third supplier for all or
part of its future requirements for D-DTH Reception Systems, there can be no
assurance that the Company will be able to secure such additional suppliers.
The failure of Philips to deliver D-DTH Reception Systems on schedule, or at
all, would delay or interrupt the development and operation of the Company's
D-DTH service and thereby could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's agreement with Philips provides for full distribution,
installation and servicing through more than 1,200 Philips authorized
electronics retailers located throughout Poland. Philips has agreed to
distribute a complete subscription package, comprising the D-DTH Reception
System, as well as the necessary installation and support services through
Philips' retail network in Poland, and will therefore be the primary point of
contact for subscribers to the Company's D-DTH service. Failure by Philips'
retail network to provide the desired levels of service, quality and expertise
(which are outside the control of the Company) could have a material adverse
impact on the Company's operations and financial condition.
In the fourth quarter of 1999, due to technical problems that Philips had
with a component of the decoder, the Company faced a backlog in decoder
deliveries of approximately 48,000 decoders.
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20. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
PIRACY
The delivery of subscription programming requires the use of encryption
technology to prevent signal theft or "piracy." Historically, piracy in the
cable television and European A-DTH industries has been widely reported. The
Company's IRDs incorporate Philips' CryptoWorks-Registered Trademark-
proprietary encryption technology as part of its conditional access system.
These IRDs use smartcard technology, making it possible to change the
conditional access system in the event of a security breach either through
over-the-air methods such as issuing new electronic decryption "keys"
over-the-air as part of the Company's regular D-DTH broadcasts or by issuing new
smartcards. To the Company's knowledge, there has not been a breach of
CryptoWorks-Registered Trademark- since its introduction in Malaysia in 1996. To
the extent a breach occurs, the Company will take countermeasures, including
over-the-air measures and, if necessary, the replacement of smartcards. Although
the Company expects its conditional access system, subscriber management system
and smartcard system to adequately prevent unauthorized access to programming,
there can be no assurance that the encryption technology to be utilized in
connection with the Company's D-DTH system will remain effective. If the
encryption technology is compromised in a manner which is not promptly
corrected, the Company's revenue and its ability to contract or maintain
contracts for programming services from unrelated third parties would be
adversely affected.
USE OF TPSA CONDUITS
The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television networks depends on,
among other things, the Company's continued ability to design and obtain access
to network routes, and to secure other construction resources, all at reasonable
costs and on satisfactory terms and conditions. Many of such factors are beyond
the control of the Company. In addition, at December 31, 1999, approximately
81.0% 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 television networks. Due to the high cost of
insurance policies relating to satellite operations, the Company does not insure
against possible interruption of access to the transponders leased by it for
satellite transmission of its broadcasting. Accordingly, any catastrophe
affecting a significant portion of the Company's cable television networks or
disrupting its access to its leased satellite transponders could result in
substantial uninsured losses and could have a material adverse effect on the
Company.
YEAR 2000 COMPLIANCE
The Company has not experienced any problems with its computer systems
relating to distinguishing twenty-first century dates from twentieth century
dates, which generally are referred to as year 2000 problems. The Company is
also not aware of any material year 2000 problems with its clients or vendors.
The Company did not and does not anticipate incurring material expenses or
experiencing any material operation disruptions as a result of any year 2000
problems.
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<PAGE>
20. CONCENTRATIONS OF BUSINESS AND CREDIT RISK (CONTINUED)
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 1999 or 1998. 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.
21. SUBSEQUENT EVENTS
Subsequent to December 31, 1999 UPC TV, an affiliate of the Company entered
into joint venture with MTV Network Europe for a 50% equity interest in MTV
Polska for the purpose of producing MTV and VH1 programming for distribution in
Poland. The Company contributes all Ground Zero Media assets to the joint
venture. UPC TV and MTV Polska enter into a distribution agreement whereby MTV
Polska licenses its programming to UPC TV for distribution throughout the UPC
Group.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Previous independent accountant:
(i) On November 17, 1999, the Company notified KPMG Polska Sp. z o.o.
("KPMG") by telephone of its intent to dismiss KPMG as its independent
accountants, and on the same date KPMG sent a letter to the the Company,
with a copy to the Chief Accountant at the Securities and Exchange
Commission, acknowledging such dismissal. On November 26, 1999, the Company
sent a letter to KPMG formally dismissing KPMG as its independent
accountants.
(ii) The report of KPMG Polska Sp. z o.o. on the Company's financial
statements for the fiscal years ended December 31, 1997 and 1998 contained
no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principle.
(iii) The Company's Board of Directors participated in and approved the
decision to change independent accountants.
(iv) In connection with its audits for the fiscal years ended
December 31, 1997 and 1998 and the relationship through the date of the
dismissal, there have been no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of KPMG would have caused them to make reference thereto in
their report on the financial statements for such fiscal years.
(v) In a letter dated March 31, 1999 to the Company's Board of Directors
following its 1998 audit, KPMG commented on certain matters involving the
internal control structure and operation of the Company, including:
(i) the need for more experience and resources in the financial
reporting area;
(ii) the need for an effective internal audit department;
(iii) problems in the translation of Polish zloty balances and
transactions into U.S. dollars;
(iv) problems with financial statements of certain subsidiaries and
affiliates presented for consolidation; and
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<PAGE>
(v) other control weaknesses involving currency translations, monthly
reconciliations and other matters that should have been resolved prior to
being presented for consolidation and audit purposes.
Certain members of management, including a member of the Company's Board of
Directors, discussed the subject matter of certain of these issues with KPMG.
The Company intends to continue addressing these issues, and the Company has
authorized KPMG to respond fully to the inquiries of the successor accountant
concerning such events.
(vi) The Company has requested that KPMG furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not it
agrees with the above statements. A copy of such letter, dated December 2, 1999,
is incorporated by reference to this Form 10-K.
(b) New independent accountant:
(i) The Company engaged Arthur Andersen Sp. z o.o. ("Arthur Andersen")
as its new independent accountant as of November 30, 1999. During the two most
recent fiscal years and through November 26, 1999, the Company has not consulted
with Arthur Andersen regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements
(and no written report or oral advice has been provided to the Company by Arthur
Andersen on an accounting, auditing or financial reporting issue); or (ii) any
matter that was either the subject of a disagreement, as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES.
The financial statements as set forth under Item 8 of this report on
Form 10-K are incorporated herein by reference. Financial statement schedules
have been omitted since they are either not required, not applicable, or the
information is otherwise included.
(B) REPORTS ON FORM 8-K
The Company filed the following Reports on Form 8-K during the quarter ended
December 31, 1999:
Report on Form 8-K, filed on December 2, 1999, relating to change in the
Company's certified accountant.
Report on Form 8-K, filed on November 3, 1999, relating to the expiration of
@ Entertainment's Offer to Repurchase Notes due to a change in control.
(C) EXHIBIT LISTING
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ---------------------
<S> <C>
2.1 Merger Agreement and Plan of Merger among @Entertainment,
Inc, United Pan-Europe Communications N.V., and Bison
Acquisition Corp., dated as of June 2, 1999 (Incorporated by
reference to Exhibit (c)(1) of @Entertainment, Inc.'s
Schedule 14D-9)
2.2 Form of Common Stockholder Agreement, dated as of June 2,
1999, between United Pan-Europe Communications N.V., Bison
Acquisition Corp., and certain common stockholders of
@Entertainment, Inc.
2.3 Form of Preferred Stockholder Agreement, dated as of
June 2, 1999, between United Pan-Europe Communications N.V.,
Bison Acquisition Corp., and each of @Entertainment, Inc.
2.4 Confidentiality Agreement between @Entertainment, Inc. and
United Pan-Europe Communications, N.V., dated April 12, 1999
(Incorporated by reference to Exhibit (c)(2) of
@Entertainment, Inc.'s Schedule 14D-9)
3(i) Certificate of Ownership and Merger Merging Bison
Acquisition Corp. Into @ Entertainment.
3(ii) Amended and Restated By-laws of @Entertainment, Inc., as
amended.
3(iii) Certificate of Designations, Preferences and Rights of
Series A 12% Cumulative Preference Shares and Series B 12%
Cumulative Preference Shares. (Incorporated by reference to
Exhibit 4.15 to @Entertainment's Annual Report on
Form 10-K).
4.1 Form of Indenture dated as of January 20, 1999 between
@Entertainment and Bankers Trust Company relating to
@Entertainment's Series C Senior Discount Notes due 2008.
4.2 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.
11 Statement re computation of per share earnings (contained in
Note 15 to Financial Statements in this Annual Report on
Form 10-K)
21 Subsidiaries of @Entertainment, Inc.
27 Financial Data Schedule
99.1 Letter from KPMG, dated December 2, 1999. (Incorporated by
reference to @Entertainment's Form 8-K, filed in
December 2, 1999)
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
@ ENTERTAINMENT, INC.
By: /s/ RAY D. SAMUELSON
-----------------------------------------
Ray D. Samuelson
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND PRINCIPAL ACCOUNTING
OFFICER)
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Executive Officer and
------------------------------------------- Director
Nimrod J. Kovacs
Chief Financial Officer
/s/ RAY D. SAMUELSON (Principal Financial and
------------------------------------------- Principal Accounting March 30, 2000
Ray D. Samuelson Officer)
/s/ GENE MUSSELMAN Director
------------------------------------------- March 30, 2000
Gene Musselman
Chairman of the Board of
------------------------------------------- Directors
Mark L. Schneider
/s/ ANTON TUIJTEN Director
------------------------------------------- March 30, 2000
Anton Tuijten
/s/ SIMON OAKES Director
------------------------------------------- March 30, 2000
Simon Oakes
</TABLE>
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Exhibit 2.2
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of June 2, 1999, among UNITED PAN-EUROPE
COMMUNICATIONS NV, a corporation organized under the laws of The Netherlands
(`Parent'), BISON ACQUISITION CORP., a Delaware corporation and an indirect
wholly owned subsidiary of Parent (`Sub'), and the other parties signatory
hereto (individually and collectively, the `Stockholder').
W I T N E S S E T H :
WHEREAS, prior to entering into this Agreement, Parent, Sub and Eagle,
Inc., a Delaware corporation (the `Company'), entered into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
`Merger Agreement'; capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement), pursuant to which
Sub will be merged with and into the Company (the `Merger');
WHEREAS, in furtherance of the Merger, Parent and the Company desire
that as soon as practicable (and not later than five business days) after the
execution and delivery of the Merger Agreement, Sub commence a cash tender offer
to purchase all outstanding shares of Company Common Stock (as defined in
Section 1) including all of the Shares (as defined in Section 2); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholder agree, and the Stockholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) `Company Common Stock' shall mean at any time the common stock, $.01 par
value, of the Company.
(b) `Company Securities' shall mean the Existing Options and the Existing
Company Warrants, together with any Options or Company Warrants acquired by
the Stockholder after the date hereof and prior to the termination of this
Agreement, whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by
means of purchase, dividend, distribution or otherwise.
(c) `Existing Company Warrants' shall mean the Company Warrants set forth
opposite the Stockholder's name on Schedule I hereto.
(d) `Existing Options' shall mean the Options set forth opposite the
Stockholder's name on Schedule I hereto.
(e) `Person' shall mean an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
2. TENDER OF SHARES.
(a) Stockholder hereby agrees to validly tender (and not to withdraw) pursuant
to and in accordance with the terms of the Offer, in a timely manner for
acceptance by Sub in the Offer, the number of shares of Company Common
Stock (if any) set forth opposite the Stockholder's name on Schedule I
hereto (the `Existing Shares' and, together with any shares of Company
Common Stock acquired by the Stockholder after the date hereof and prior to
the termination of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution or
otherwise, the `Shares'), owned by it. The Stockholder hereby acknowledges
and agrees that Parent's obligation to accept for payment and pay for
Company Common Stock in the Offer, including the Shares, is subject to the
terms and conditions of the Offer. The Stockholder shall be entitled to
receive the highest price paid by Sub pursuant to the Offer. The Offer
Price shall not be less than $19.00, payable in cash.
<PAGE>
(b) The Stockholder hereby agrees to permit Parent and Sub to publish and
disclose in the Offer Documents and, if approval of the stockholders of the
Company is required under applicable law, the Proxy Statement (including
all documents and schedules filed with the Securities and Exchange
Commission) its identity and ownership of Company Common Stock and the
nature of its commitments, arrangements and understandings under this
Agreement.
3. PROVISIONS CONCERNING COMPANY COMMON STOCK.
The Stockholder hereby agrees that during the period commencing on the date
hereof and continuing until the first to occur of (i) the Effective Time,
(ii) the last date the Option is exercisable pursuant to Section 4 and (iii)
the termination date set forth in Section 9, at any meeting of the holders
of Company Common Stock, however called, or in connection with any written
consent of the holders of Company Common Stock, the Stockholder shall vote
(or cause to be voted) the Shares (if any) owned by the Stockholder whether
issued, heretofore owned or hereafter acquired, (i) in favor of the Merger,
the execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and this Agreement and any actions required in
furtherance thereof and hereof; (ii) against any action or agreement that
would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the
Merger Agreement; and (iii) except as otherwise agreed to in writing in
advance by Parent, against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or its subsidiaries; (B) a
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries, or a reorganization, recapitalization, dissolution or
liquidation of the Company or its subsidiaries; (C) (1) any change in a
majority of the persons who constitute the board of directors of the
Company; (2) any change in the present capitalization of the Company or any
amendment of the Company's Certificate of Incorporation or By-laws; (3) any
other material change in the Company's corporate structure or business; or
(4) any other action involving the Company or its subsidiaries which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. The Stockholder
shall not enter into any agreement or understanding with any Person or
entity the effect of which would be to violate the provisions and agreements
contained in this Section 3.
4. STOCK OPTION; CERTAIN PURCHASE OBLIGATIONS.
(a) The Stockholder hereby grants to Sub (x) an irrevocable option (the `Stock
Option') to purchase the Shares at a purchase price per Share (the
`Purchase Price') equal to $19.00, payable in cash, and (y) an irrevocable
option (the `Securities Option' and, together with the Stock Option, the
`Option') to purchase the Company Securities at a price per Company
Security equal to the Purchase Price LESS the exercise price of such
Company Security, payable in cash, in each case until the termination date
set forth in Section 9. Until the termination date set forth in Section 9,
if (i) the Offer is terminated, abandoned or withdrawn by Parent or Sub
(whether due to the failure of any of the conditions thereto or otherwise),
(ii) the Offer is consummated but the Shares have not been validly tendered
into the Offer or (iii) the Merger Agreement is terminated in accordance
with its terms, the Option shall, in any such case, become exercisable, in
whole but not in part, upon the first to occur of any such event and remain
exercisable, in whole but not in part, until the date which is 90 days
after the date of the occurrence of such event, but shall not be
exercisable in each case unless: (x) all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the `HSR
Act'), required for the purchase of Shares and/or Company Securities, as
the case may be, upon the exercise of the Option shall have expired or been
waived and all other necessary governmental consents required for Sub to
purchase Shares and/or Company Securities, as the case may be, upon the
exercise of the Option, including, but not limited to, all necessary
approvals of the Polish Anti-Monopoly Commission, and (y) there shall not
then be in effect any preliminary or final injunction or other order issued
by any court or governmental, administrative or regulatory agency or
authority prohibiting the exercise of the Option pursuant to this
Agreement. Provided that this Agreement has not been terminated, in the
event that the Option is not exercisable because the circumstances
described in clauses (x) and (y) have not occurred, then the Option shall
be exercisable for the 90 day period commencing on the date that the
circumstances set forth in clauses (x) and (y) have occurred. In the event
that Parent wishes to exercise the Option, Parent shall send a written
notice to the Stockholder identifying the place for the closing of such
purchase at least three business days prior to such closing.
(b) In the event that Sub shall have purchased Shares purchased in the Offer in
an amount necessary to satisfy the Minimum Condition in accordance with the
terms of the Merger Agreement, Sub shall thereafter purchase all of the
Company Securities then held by the Stockholder no later than the date
which is the third business day after the date of such consummation, at a
purchase price per Company Security equal to the Offer Price for the Shares
underlying such Company Security less the exercise price of such Company
Security.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
The Stockholder hereby represents and warrants to Parent as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record and beneficial owner of
the number of Shares and Company Securities set forth opposite such
Stockholder's name on Schedule I hereto. On the date hereof, the Existing
Shares, Existing Options and Existing Company Warrants set forth opposite
such Stockholder's name on Schedule I hereto constitute all of the Shares
and Company Securities owned beneficially or of record by such Stockholder.
The Stockholder has sole voting power and sole power to issue instructions
with respect to the matters set forth in Sections 2, 3 and 4 hereof, sole
power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Existing Shares,
Existing Options and Existing Company Warrants set forth opposite
Stockholder's name on Schedule I hereto, with no limitations,
qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity, power and
authority to enter into and perform all of the Stockholder's obligations
under this Agreement. The execution, delivery and performance of this
Agreement by such Stockholder will not violate any other agreement to which
the Stockholder is a party including, without limitation, any voting
agreement, stockholders agreement or voting trust. This Agreement has been
duly and validly executed and delivered by the Stockholder and constitutes
a valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by the Stockholder of the
transactions contemplated hereby.
(c) NO CONFLICTS. Except for (i) filings and approvals under the HSR Act or any
other applicable Laws related to competition, antitrust, monopoly or
similar matters, (A) no filing with, and no permit, authorization, consent
or approval of, any state or federal public body or authority is necessary
for the execution of this Agreement by such Stockholder and the performance
by such Stockholder of its obligations hereunder and (B) none of the
execution and delivery of this Agreement by such Stockholder, the
performance by such Stockholder of its obligations hereunder or compliance
by such Stockholder with any of the provisions hereof shall (1) conflict
with or result in any breach of any applicable organizational documents
applicable to such Stockholder, or (2) violate any order, writ, injunction,
decree, judgment, statute, rule or regulation applicable to such
Stockholder or any of such Stockholder's properties or assets.
(d) NO FINDER'S FEES. Except as disclosed in the Merger Agreement, no broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder.
(e) NO ENCUMBRANCES. The Stockholder's Shares and Company Securities and the
certificates representing such Shares and Company Securities are now, and
at all times during the term hereof will be, held by such Stockholder, or
by a nominee or custodian for the benefit of such Stockholder, free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
The transfer by the Stockholder of its Shares and Company Securities to Sub
in the Offer or hereunder shall pass to and unconditionally vest in Sub
good and valid title to all such Shares and Company Securities, free and
clear of all claims, liens, restrictions, security interests, pledges,
limitations and encumbrances whatsoever.
(f) RELIANCE BY PARENT. The Stockholder understands and acknowledges that
Parent is entering into, and causing Sub to enter into, the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
<PAGE>
6. COVENANTS OF THE STOCKHOLDER.
The Stockholder covenants and agrees as follows:
(a) NO SOLICITATION. Beginning on the date hereof and ending on the last date
the Option is exercisable pursuant to Section 4 hereof, the Stockholder
shall not, in its capacity as such, directly or indirectly, initiate,
solicit (including by way of furnishing information), encourage or respond
to or take any other action knowingly to facilitate, any inquiries or the
making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) with respect to the Company that constitutes or
reasonably may be expected to lead to, an Acquisition Proposal, or enter
into or maintain or continue discussions or negotiate with any person or
entity in furtherance of such inquiries or to obtain any Acquisition
Proposal, or agree to or endorse any Acquisition Proposal, or authorize or
permit any Person or entity acting on behalf of the Stockholder to do any
of the foregoing. If the Stockholder receives any inquiry or proposal
regarding any Acquisition Proposal, the Stockholder shall promptly inform
Parent of that inquiry or proposal and the details thereof.
(b) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Beginning on the
date hereof and ending on the last date the Stock Option is exercisable
pursuant to Section 4 hereof, except as expressly contemplated by this
Agreement, the Stockholder shall not (i) directly or indirectly, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all
of such Stockholder's Shares and Company Securities or any interest
therein; provided that the Stockholder may transfer any Shares and/or
Company Securities to any Affiliate of the Stockholder; provided, further
that such transferee shall have become a party to this Agreement (or an
agreement identical to this Agreement) and shall be deemed to make all
representations and warranties set forth in paragraph 5 hereof on the date
of the transfer of such Shares and/or Company Securities; (ii) grant any
proxies or powers of attorney (except for powers of attorney granted to
Affiliates of the Stockholder solely for administrative purposes and which
require the holder thereof to vote any and all Shares subject to such
powers in accordance with this Agreement), deposit any Shares and/or
Company Securities into a voting trust or enter into a voting agreement
with respect to any Shares and/or Company Securities; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing the
Stockholder from performing the Stockholder's obligations under this
Agreement.
(c) WAIVER OF APPRAISAL RIGHTS. The Stockholder hereby irrevocably waives any
rights of appraisal or rights to dissent from the Merger that the
Stockholder may have.
(d) STOP TRANSFER; CHANGES IN SHARES. The Stockholder agrees with, and
covenants to, Parent that the Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate
or uncertificated interest representing any of the Stockholder's Shares or
Company Securities, unless such transfer is made in compliance with this
Agreement. In the event of a stock dividend or distribution, or any change
in the Company Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
`Shares' shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged and the Purchase
Price shall be appropriately adjusted. The Stockholder shall be entitled to
receive any cash dividend paid by the Company during the term of this
Agreement until Shares are purchased in the Offer or hereunder.
7. FIDUCIARY DUTIES.
Notwithstanding anything in this Agreement to the contrary, the covenants
and agreements set forth herein shall not prevent of the Stockholder (or
any of its designees) from taking any action, subject to the applicable
provisions of the Merger Agreement, while acting in his or her (or such
designee's) capacity as a director of the Company.
8. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement; provided that no party shall be required to incur unreasonable
expense in complying with this paragraph.
(b) ENTIRE AGREEMENT. This Agreement and the Merger Agreement constitute the
entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understanding, both
written and oral, between the parties with respect to the subject matter
hereof.
(c) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise,
including, without limitation, such Stockholder's heirs,
<PAGE>
guardians, administrators or successors. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor in the event such
transferee does not perform such obligations.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the other party provided
that Parent may assign, at its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly-owned subsidiary of Parent,
although no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the relevant
parties hereto.
(f) NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to
have been duly received if so given) by hand delivery, telegram, telex or
telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express,
providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to the Stockholders: At the addresses set forth on Schedule I hereto
copy to:
If to Parent or Sub:
c/o United Pan-Europe Communications NV
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Anton H.E. van Voskuijlen
Facsimile: +31 20 778 9817
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: William F. Wynne, Jr., Esq.
Facsimile +212 354 8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law but if any provision or portion of any provision
of this Agreement is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other
provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity; provided that no party shall be liable for
any consequential or punitive damages or damages for lost profits or lost
opportunities, whether or not such damages, profits or opportunities were
foreseen or foreseeable by such party, except to the extent such damages
are the result of a breach of this Agreement arising out of the gross
negligence or willful misconduct of such party.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
<PAGE>
(j) NO WAIVER. The failure of any party hereto to exercise any right, power or
remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by
such party of its right to exercise any such or other right, power or
remedy or to demand such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the
benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in accordance
with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the exclusive
jurisdiction of any United States District Court or any court of the State
of Delaware, in each case located in the City of Wilmington, Delaware, in
any action, suit or proceeding arising in connection with this Agreement,
and agrees that any such action, suit or proceeding may be brought in such
court (and waives any objection based on forum non conveniens or any other
objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this paragraph (m)
and shall not be deemed to be a general submission to the jurisdiction of
said Courts or in the State of Delaware other than for such purposes. EACH
PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH
ANY SUCH ACTION, SUIT OR PROCEEDING.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for
convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same Agreement.
9. TERMINATION.
This Agreement shall terminate, and no party shall have any rights or
obligations hereunder and this Agreement shall become null and void and have
no effect upon the fifth day after the earlier of (1) the expiration of the
90 day exercise period set forth in Section 4 hereof, (2) at the
Stockholders, option upon the valid termination of the Merger Agreement by
the Company pursuant to Section 10.3 thereof or (3) the date which is 180
days after the date hereof.
10. BINDING AGREEMENT.
All authority and rights herein conferred or agreed to be conferred by the
Stockholder shall survive the death or incapacity of the Stockholder. This
Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
IN WITNESS WHEREOF, Parent, Sub and each Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
[ ]
By: _______________________
Name:
Title:
[ ]
By: _______________________
Name:
Title:
[ ]
By: _______________________
Name:
Title:
<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES AND/OR COMPANY SECURITIES OWNED
<S> <C>
Attention:
</TABLE>
<PAGE>
Exhibit 2.3
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of June 2, 1999, among UNITED PAN-EUROPE
COMMUNICATIONS NV, a corporation organized under the laws of The Netherlands
("Parent"), BISON ACQUISITION CORP., a Delaware corporation and an indirect
wholly owned subsidiary of Parent ("Sub"), and the other parties signatory
hereto (individually and collectively, the "Stockholder").
W I T N E S S E T H :
WHEREAS, prior to entering into this Agreement, Parent, Sub
and Eagle, Inc., a Delaware corporation (the "Company"), entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement),
pursuant to which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company
desire that as soon as practicable (and not later than five business days) after
the execution and delivery of the Merger Agreement, Sub commence a cash tender
offer to purchase all outstanding shares of Company Common Stock (as defined in
Section 1) including all of the Shares (as defined in Section 2); and
WHEREAS, as a condition to entering into the Merger Agreement,
Parent has required that all of the holders of the Company Preference Shares
agree to sell such Company Preference Shares to Parent; and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, Parent has required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Company Common Stock" shall mean at any time the common
stock, $.01 par value, of the Company.
(b) "Company Preference Shares" shall mean the Series A
Cumulative Preference Shares of the Company, par value $.01 per share and the
Series B Cumulative Preference Shares of the Company, par value $.01 per share.
"Existing Shares" shall mean the Company Preference Shares set
forth on Schedule I hereto.
<PAGE>
(d) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
(e) "Shares" shall mean the Existing Shares, together with
any other Company Preference Shares, in each case which such Company Preference
Shares were acquired by the Stockholder after the date hereof and prior to the
termination of this Agreement, whether upon the exercise of options, warrants or
rights, the conversion or exchange of convertible or exchangeable securities, or
by means of purchase, dividend, distribution or otherwise
2. PROVISIONS CONCERNING COMPANY PREFERENCE SHARES. (a) The
Stockholder hereby agrees that during the period commencing on the date hereof
and continuing until the first to occur of (i) the Effective Time, (ii) the last
date the Stock Option is exercisable pursuant to Section 3 and (iii) the
termination date set forth in Section 8, at any meeting of the holders of
Company Preference Shares (or of the Company Common Stock, to the extent the
holders of Company Preference Shares are entitled to vote as with the holders of
Company Common Stock, whether as a single class or otherwise), however called,
or in connection with any written consent of the holders of Company Preference
Shares, the Stockholder shall vote (or cause to be voted) the Shares owned by
the Stockholder whether issued, heretofore owned or hereafter acquired, (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; (ii) against any action or agreement that
would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement; and (iii) except as otherwise agreed to in writing in advance by
Parent, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (B) a sale, lease or
transfer of a material amount of assets of the Company or its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (C) (1) any change in a majority of the persons who constitute
the board of directors of the Company; (2) any change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation or By-laws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action involving the Company
or its subsidiaries which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by this Agreement and the Merger
Agreement. The Stockholder shall not enter into any agreement or understanding
with any Person or entity the effect of which would be to violate the provisions
and agreements contained in this Section 2.
(b) The Stockholder hereby agrees to permit Parent and Sub to
publish and disclose in the Offer Documents and, if approval of the stockholders
of the Company is required under applicable law, the Proxy Statement (including
all documents and schedules filed with the Securities and Exchange Commission)
its identity and ownership of Company Preference Shares and the nature of its
commitments, arrangements and understandings under this Agreement.
-2-
<PAGE>
3. PURCHASE RIGHT. (a) The Stockholder hereby grants to Sub an
irrevocable option (the "Stock Option") to purchase the Shares at a purchase
price per Share (the "Purchase Price") equal to the liquidation preference of
such share PLUS all accrued and unpaid dividends thereon on the date of
purchase, payable in cash, until the termination date set forth in Section 8.
Until the termination date set forth in Section 8, if (i) the Offer is
terminated, abandoned or withdrawn by Parent or Sub (whether due to the failure
of any of the conditions thereto or otherwise), (ii) the Offer is consummated
but Sub has not accepted for payment and paid for the Shares or (iii) the Merger
Agreement is terminated in accordance with its terms, the Stock Option shall, in
any such case, become exercisable, in whole but not in part, upon the first to
occur of any such event and remain exercisable, in whole but not in part, until
the date which is 90 days after the date of the occurrence of such event, but
shall not be exercisable in each case unless: (x) all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), required for the purchase of Shares upon the exercise of the Stock Option
shall have expired or been waived and all other necessary governmental consents
required for Sub to purchase Shares upon the exercise of the Stock Option,
including, but not limited to, all necessary approvals of the Polish
Anti-Monopoly Commission, and (y) there shall not then be in effect any
preliminary or final injunction or other order issued by any court or
governmental, administrative or regulatory agency or authority prohibiting the
exercise of the Stock Option pursuant to this Agreement. Provided that this
Agreement has not been terminated, in the event that the Stock Option is not
exercisable because the circumstances described in clauses (x) and (y) have not
occurred, then the Stock Option shall be exercisable for the 90 day period
commencing on the date that the circumstances set forth in clauses (x) and (y)
have occurred. In the event that Parent wishes to exercise the Stock Option,
Parent shall send a written notice to the Stockholder identifying the place for
the closing of such purchase at least three business days prior to such closing.
(b) In the event that Sub shall have purchased Shares of
Company Common Stock in the Offer in an amount necessary to satisfy the Minimum
Condition in accordance with the terms of the Merger Agreement, Sub shall
thereafter purchase all of the Shares then held by the Stockholder no later than
the date which is the third business day after the date of such consummation at
a purchase price per Share equal to the liquidation preference of such share
PLUS all accrued and unpaid dividends thereon on the date of purchase.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record and
beneficial owner of the number of Shares set forth opposite such Stockholder's
name on Schedule I hereto. On the date hereof, the Existing Shares set forth
opposite such Stockholder's name on Schedule I hereto constitute all of the
Shares owned beneficially or of record by such Stockholder. The Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Sections 2 and 3 hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Existing Shares set forth opposite Stockholder's name on
Schedule I hereto, with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of this Agreement.
-3-
<PAGE>
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal
capacity, power and authority to enter into and perform all of the Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to which
the Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which the Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) NO CONFLICTS. Except for (i) filings and approvals under
the HSR Act or any other applicable Laws related to competition, antitrust,
monopoly or similar matters, (A) no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
performance by such Stockholder of its obligations hereunder and (B) none of the
execution and delivery of this Agreement by such Stockholder, the performance by
such Stockholder of its obligations hereunder or compliance by such Stockholder
with any of the provisions hereof shall (1) conflict with or result in any
breach of any applicable organizational documents applicable to such
Stockholder, or (2) violate any order, writ, injunction, decree, judgment,
order, statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) NO FINDER'S FEES. Except as disclosed in the Merger
Agreement, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder.
(e) NO ENCUMBRANCES. The Stockholder's Shares and the
certificates representing such Shares are now, and at all times during the term
hereof will be, held by such Stockholder, or by a nominee or custodian for the
benefit of such Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder. The transfer by the Stockholder of its Shares to Sub
in the Offer or hereunder shall pass to and unconditionally vest in Sub good and
valid title to all Shares, free and clear of all claims, liens, restrictions,
security interests, pledges, limitations and encumbrances whatsoever.
(f) RELIANCE BY PARENT. The Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and delivery of
this Agreement.
5. COVENANTS OF THE STOCKHOLDER. The Stockholder covenants and
agrees as follows:
(a) NO SOLICITATION. Beginning on the date hereof and ending
on the last date the Stock Option is exercisable pursuant to Section 3 hereof,
the Stockholder shall not, in its
-4-
<PAGE>
capacity as such, directly or indirectly, initiate, solicit (including by way of
furnishing information), encourage or respond to or take any other action
knowingly to facilitate, any inquiries or the making of any proposal by any
person or entity (other than Parent or any affiliate of Parent) with respect to
the Company that constitutes or reasonably may be expected to lead to, an
Acquisition Proposal, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain any Acquisition Proposal, or agree to or endorse any Acquisition
Proposal, or authorize or permit any Person or entity acting on behalf of the
Stockholder to do any of the foregoing. If the Stockholder receives any inquiry
or proposal regarding any Acquisition Proposal, the Stockholder shall promptly
inform Parent of that inquiry or proposal and the details thereof.
(b) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE.
Beginning on the date hereof and ending on the last date the Stock Option is
exercisable pursuant to Section 4 hereof, except as expressly contemplated by
this Agreement, the Stockholder shall not (i) directly or indirectly, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Shares or any interest therein; provided that the Stockholder may
transfer any Shares to any Affiliate of the Stockholder; provided, further that
such transferee shall have become a party to this Agreement (or an agreement
identical to this Agreement) and shall be deemed to make all representations and
warranties set forth in paragraph 4 hereof on the date of such transfer of
Shares; (ii) grant any proxies or powers of attorney (except for powers of
attorney granted to Affiliates of the Stockholder for purely administrative
purposes and which require the holder thereof to vote any and all Shares subject
to such powers in accordance with this Agreement), deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing the Stockholder from performing the Stockholder's obligations under
this Agreement.
(c) WAIVER OF APPRAISAL RIGHTS. The Stockholder hereby
irrevocably waives any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
(d) STOP TRANSFER; CHANGES IN SHARES. The Stockholder agrees
with, and covenants to, Parent that the Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares, unless
such transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Company Preference Shares by
reason of any stock dividend, split-up, recapitalization, combination, exchange
of shares or the like, the term "Shares" shall be deemed to refer to and include
the Shares as well as all such stock dividends and distributions and any shares
into which or for which any or all of the Shares may be changed or exchanged and
the Purchase Price shall be appropriately adjusted. The Stockholder shall be
entitled to receive any cash dividend paid by the Company during the term of
this Agreement until Shares are purchased in the Offer or hereunder.
6. FIDUCIARY DUTIES. Notwithstanding anything in this
Agreement to the contrary, the covenants and agreements set forth herein shall
not prevent of the Stockholder (or
-5-
<PAGE>
any of its designees) from taking any action, subject to the applicable
provisions of the Merger Agreement, while acting in his or her (or such
designee's) capacity as a director of the Company.
7. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement; provided that no party shall be required to incur an unreasonable
expense in complying with this paragraph.
(b) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understanding, both
written and oral, between the parties with respect to the subject matter hereof.
(c) CERTAIN EVENTS. The Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations under this Agreement of the
transferor in the event such transferee does not perform such obligations.
(d) ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
party provided that Parent may assign, at its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of
Parent, although no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
relevant parties hereto.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholders: At the addresses set forth on
Schedule I hereto
copy to:
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<PAGE>
If to Parent or Sub:
c/o United Pan-Europe Communications NV
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Anton H.E. van Voskuijlen
Facsimile: +31 20 778 9817
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: William F. Wynne, Jr., Esq.
Facsimile: +212 354 8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity;
provided that no party shall be liable for any consequential or punitive damages
or damages for lost profits or lost opportunities, whether or not such damages,
profits or opportunities were foreseen or foreseeable by such party, except to
the extent such damages are the result of a breach of this Agreement arising out
of the gross negligence or willful misconduct of such party.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a
-7-
<PAGE>
waiver by such party of its right to exercise any such or other right, power or
remedy or to demand such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court or any court of the
State of Delaware, in each case, located in the City of Wilmington, Delaware in
any action, suit or proceeding arising in connection with this Agreement, and
agrees that any such action, suit or proceeding may be brought in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein); provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this paragraph (m) and shall not be deemed
to be a general submission to the jurisdiction of said Courts or in the State of
Delaware other than for such purposes. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
8. TERMINATION. This Agreement shall terminate, and no party
shall have any rights or obligations hereunder and this Agreement shall become
null and void and have no effect upon the fifth day after the earlier of (1) the
expiration of the 90 day exercise period set forth in Section 4 hereof, (2) at
the Stockholder's option upon the valid termination of the Merger Agreement by
the Company pursuant to Section 10.3 thereof or (3) the date which is 180 days
after the date hereof.
9. BINDING AGREEMENT. All authority and rights herein
conferred or agreed to be conferred by the Stockholder shall survive the death
or incapacity of the Stockholder. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
-8-
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and each Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
[ ]
By: ________________________
Name:
Title:
[ ]
By: ________________________
Name:
Title:
[ ]
By: ________________________
Name:
Title:
-9-
<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES OWNED
<S> <C>
</TABLE>
Attention:
-10-
<PAGE>
EXHIBIT 3(i)
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
BISON ACQUISITION CORP.
INTO
@ ENTERTAINMENT, INC.
* * * * *
Bison Acquisition Corp. (`Bison'), a corporation organized and existing
under the laws of Delaware, DOES HEREBY CERTIFY pursuant to Section 253 of the
General Corporation Law of the State of Delaware (the `DGCL'):
FIRST: That Bison was incorporated on the twenty-eighth day of May,
1999, pursuant to the DGCL.
SECOND: That Bison owns (i) at least ninety percent of the outstanding
shares of the common stock, par value $0.01 per share (the `Common Stock'), (ii)
all of the Series A Cumulative Preference Shares, par value $0.01 per share (the
`Series A Preference Shares'), and (iii) all of the Series B Cumulative
Preference Shares, par value $0.01 per share (the `Series B Preference Shares'),
of @ Entertainment (`@ Entertainment'), a corporation incorporated on the
twenty-seventh day of May, 1997, pursuant to the DGCL, and that no other class
of capital stock is currently issued and outstanding.
THIRD: That Bison, by the following resolutions of its Board of
Directors, duly adopted by unanimous written consent, filed with the minutes of
the Board of Directors on the sixth day of August, 1999, determined to merge
itself into @ Entertainment:
RESOLVED, that Bison merge itself into @ Entertainment, and @
Entertainment shall assume all of Bison's obligations (the `Merger'); and it is
further
RESOLVED, that @ Entertainment shall be the surviving corporation (the
`Surviving Corporation') of the Merger; and it is further
RESOLVED, that the Merger shall be effective upon filing the Delaware
Merger Certificate with the Secretary of State of Delaware; and it is further
RESOLVED, that the name of the Surviving Corporation shall be `@
Entertainment, Inc.' And the certificate of incorporation of the Surviving
Corporation shall be amended in its entirety as follows:
FIRST: The name of the Corporation is @ ENTERTAINMENT, INC.
SECOND: The registered office of the Corporation in the State
of Delaware is located at 30 Old Rudnick Lane, Suite 100, Dover, County of Kent.
The name of its registered agent in the State of Delaware at such address is
Lexis Document Services, Inc.
THIRD: The purpose of the Corporation is to engage, directly
or indirectly, in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware as from
time to time in effect.
FOURTH: The total authorized capital stock of the Corporation
shall be 1,000 shares of Common Stock, par value $0.01 per share.
FIFTH: The business of the Corporation shall be managed under
the direction of the Board of Directors except as otherwise provided by law. The
number of Directors of the Corporation shall be fixed from time to time by, or
in the manner provided in, the By-Laws. Election of Directors need not be by
written ballot unless the By-Laws of the Corporation shall so provide.
SIXTH: The Board of Directors may make, alter or repeal the
By-Laws of the Corporation except as otherwise provided in the By-Laws adopted
by the Corporation's stockholders.
SEVENTH: The Directors of the Corporation shall be protected
from personal liability, through indemnification or otherwise, to the fullest
extent permitted under the General Corporation Law of the State of Delaware as
from time to time in effect.
<PAGE>
1. A Director of the Corporation shall under no circumstances
have any personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director except for those breaches and
acts or omissions with respect to which the General Corporation Law of the State
of Delaware, as from time to time amended, expressly provides that this
provision shall not eliminate or limit such personal liability of Directors.
Neither the modification or repeal of this paragraph 1 of Article SEVENTH nor
any amendment to said General Corporation Law that does not have retroactive
application shall limit the right of Directors hereunder to exculpation from
personal liability for any act or omission occurring prior to such amendment,
modification or repeal.
2. The Corporation shall indemnify each Director and Officer
of the Corporation to the fullest extent permitted by applicable law, except as
may be otherwise provided in the Corporation's By-Laws, and in furtherance
hereof the Board of Directors is expressly authorized to amend the Corporation's
By-Laws from time to time to give full effect hereto, notwithstanding possible
self interest of the Directors in the action being taken. Neither the
modification or repeal of this paragraph 2 of Article SEVENTH nor any amendment
to the General Corporation Law of the State of Delaware that does not have
retroactive application shall limit the right of Directors and Officers to
indemnification hereunder with respect to any act or omission occurring prior to
such modification, amendment or repeal.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.; and it is further
RESOLVED, that at the Effective Time, each share of Common Stock issued
and outstanding immediately prior to the Effective Time (other than (i) any
shares of Common Stock which are held by any subsidiary or in the treasury of @
Entertainment, or which are held, directly or indirectly, by United Pan-Europe
Communications N.V., (`Parent'), a corporation organized under the laws of the
Netherlands and the parent of Bison, or any direct or indirect subsidiary of
Parent (including Bison), all of which shall cease to be outstanding and be
canceled and retired and none of which shall receive any payment with respect
thereto and (ii) any shares of Common Stock held by dissenting stockholders) and
all rights in respect thereof shall, by virtue of the Merger and without any
action on the part of the holder thereof, forthwith cease to exist and be
converted into and represent the right to receive an amount in cash equal to
$19.00, without interest, and each of the Series A Preference Shares and the
Series B Preference Shares shall be cancelled and no further consideration shall
be payable in respect thereof; and it is further
RESOLVED, that at the Effective Time, each share of common stock, no
par value, of Bison then issued and outstanding shall, by virtue of the Merger
and without any action on the part of the holder thereof, become one fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation; and it is further
RESOLVED, that the By-Laws of @ Entertainment as they exist at the
Effective Time shall be the By-laws of Bison until the same shall be altered,
amended or repealed as therein provided; and it is further
RESOLVED, that each of the officers of @ Entertainment as they exist at
the Effective Time shall, subject to the applicable provisions of the
Certificate of Incorporation and By-Laws of the Surviving Corporation, be and
remain officers of the Surviving Corporation until his or her respective
successor shall have been duly elected or appointed and qualified; and it is
further
RESOLVED, that the number of directors of the Surviving Corporation
shall be reduced from eight (8) to two (2) and further that the directors of
Bison as they exist on the effective date of the Merger shall be the directors
of the Surviving Corporation, each such director to hold office, subject to the
applicable provisions of the Certificate of Incorporation and By-Laws of the
Surviving Corporation, until the next annual stockholder's meeting of the
Surviving Corporation and until his or her respective successor shall have been
duly elected or appointed and qualified; and it is further
RESOLVED, that if, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation's right, title or interest in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to effect the
transactions contemplated by the Merger Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either of the constituent corporations of the Merger, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in the Surviving Corporation or otherwise to
carry out the intent of the Merger Agreement; and it is further
RESOLVED, that each officer of Bison be, and each is, hereby directed
to make and execute such documentation as may be necessary to effectuate the
Merger, including the Delaware Merger Certificate, and to cause the Delaware
Merger Certificate to be filed with the Secretary of State of Delaware and to do
all acts and things whatsoever, whether within or without the State of Delaware,
which may be in any way necessary or proper to effect the Merger; and it is
further
RESOLVED, that each officer of Bison be, and each is, hereby
authorized, in the name and on behalf of Bison, to take all such other actions,
including executing and delivering such agreements, documents, certificates,
instruments
<PAGE>
and filings as may be necessary or appropriate (such necessity or
appropriateness to be conclusively evidenced by the execution and delivery
thereof) to effectuate or carry out the purposes and intent of the foregoing
resolutions and for the performance of Bison's obligations under the Delaware
Merger Certificate and otherwise to consummate the transactions contemplated by
the Delaware Merger Certificate; and it is further
RESOLVED, that all actions and deeds heretofore taken by any officer of
Bison in connection with the transactions contemplated by the Delaware Merger
Certificate or any of the other transactions contemplated by these resolutions
are hereby approved, ratified and confirmed in all respects.
FOURTH: That the Merger was approved by the written consent of the sole
stockholder of Bison on the sixth day of August, 1999.
IN WITNESS WHEREOF, Bison Acquisition Corp. has caused this
Certificate to be signed by Charles H. R. Bracken, its vice president, as of the
sixth day of August, 1999.
By: /s/ Charles H. R. Bracken
----------------------------
Name: Charles H. R. Bracken
Title: Vice President
<PAGE>
Exhibit 3(ii)
AMENDED AND RESTATED BY-LAWS
OF
@ENTERTAINMENT, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation shall be held either within or without the State
of Delaware, at such date, time and place as the Board of Directors may
designate in the call or in a waiver of notice thereof, for the purpose of
electing directors and for the transaction of such other business as may
properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special Meetings of the
stockholders may be called by the Board of Directors or by the Chief Executive
Officer, and shall be called by the Chief Executive Officer or by the Secretary
upon the written request of the holders of record of at least twenty-five per
cent (25%) of the shares of stock of the Corporation, issued and outstanding and
entitled to vote, at such times and at such place either within or without the
State of Delaware as may be stated in the call or in a waiver of notice thereof.
SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and
purpose of every meeting of stockholders shall be delivered personally or mailed
not less than ten days nor more than sixty days previous thereto to each
stockholder of record entitled to vote, at such stock-holder's post office
address appearing upon the records of the Corporation or at such other address
as shall be furnished in writing by him or her to the Corporation for such
purpose. Such further notice shall be given as may be required by law or by
these By-Laws. Any meeting may be held without notice if all stockholders
entitled to vote are present in person or by proxy, or if notice is waived in
writing, either before or after the meeting, by those not present.
SECTION 4. QUORUM. The holders of record of at least a
majority of the shares of the stock of the Corporation, issued and outstanding
and entitled to vote, present in person or by proxy, shall, except as otherwise
provided by law or by these By-Laws, constitute a quorum at all meetings of the
stockholders; if there be no such quorum, the holders of a majority of such
shares so present or represented may adjourn the meeting from time to time until
a quorum shall have been obtained.
SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the
stockholders shall be presided over by the Chairman of the Board, if there be
one, or if the Chairman of the Board is not present by the Chief Executive
Officer, or if the Chief Executive Officer is not present, by a
<PAGE>
chairman to be chosen at the meeting. The Secretary of the Corporation, or in
the Secretary of the Corporation's absence, an Assistant Secretary, shall act as
Secretary of the meeting, if present.
SECTION 6. VOTING. At each meeting of stockholders, except as
otherwise provided by statute or the Certificate of Incorporation, every holder
of record of stock entitled to vote shall be entitled to one vote in person or
by proxy for each share of such stock standing in his or her name on the records
of the Corporation. Elections of directors shall be determined by a plurality of
the votes cast and, except as otherwise provided by statute, the Certificate of
Incorporation, or these By-Laws, all other action shall be determined by a
majority of the votes cast at such meeting. Each proxy to vote shall be in
writing and signed by the stockholder or by such stockholder's duly authorized
attorney.
At all elections of directors, the voting shall be by ballot
or in such other manner as may be determined by the stockholders present in
person or by proxy entitled to vote at such election. With respect to any other
matter presented to the stockholders for their consideration at a meeting, any
stockholder entitled to vote may, on any question, demand a vote by ballot.
A complete list of the stockholders entitled to vote at each
such meeting, arranged in alphabetical order, with the address of each, and the
number of shares registered in the name of each stockholder, shall be prepared
by the Secretary and shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in
advance of any meeting of stockholders may appoint one or more Inspectors of
Election to act at the meeting or any adjournment thereof. If Inspectors of
Election are not so appointed, the chairman of the meeting may, and on the
request of any stockholder entitled to vote shall, appoint one or more
Inspectors of Election. Each Inspector of Election, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election at such meeting with strict impartiality and
according to the best of his or her ability. If appointed, Inspectors of
Election shall take charge of the polls and, when the vote is completed, shall
make a certificate of the result of the vote taken and of such other facts as
may be required by law.
SECTION 8. ACTION BY CONSENT. Any action required or permitted
to be taken at any meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if, prior to such action, a written
consent or consents thereto, setting forth such action, is signed by the holders
of record of shares of the stock of the Corporation, issued and outstanding and
entitled to vote thereon, having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
<PAGE>
ARTICLE II
DIRECTORS
SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The Board
of Directors of the Corporation shall consist of such number of directors as may
be determined from time to time by resolution of the Board of Directors. The
number of directors may be changed by a resolution passed by a majority of the
whole Board or by a vote of the holders of record of at least a majority of the
shares of stock of the Corporation, issued and outstanding and entitled to vote.
A majority of the members of the Board of Directors then
holding office (but not less than one-third of the total number of directors nor
less than two directors) shall constitute a quorum for the transaction of
business, but if at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained.
Directors shall hold office until the next annual election and
until their successors shall have been elected and shall have qualified, unless
sooner displaced.
Whenever any vacancy shall have occurred in the Board of
Directors, by reason of death, resignation, or otherwise, other than removal of
a director with or without cause by a vote of the stockholders, it shall be
filled by a majority of the remaining directors, though less than a quorum
(except as otherwise provided by law), or by the stockholders, and the person so
chosen shall hold office until the next annual election and until a successor is
duly elected and has qualified.
Any one or more of the directors of the Corporation may be
removed either with or without cause at any time by a vote of the holders of
record of at least a majority of the shares of stock of the Corporation, issued
and outstanding and entitled to vote, and thereupon the term of the director or
directors who shall have been so removed shall forthwith terminate and there
shall be a vacancy or vacancies in the Board of Directors, to be filled by a
vote of the stockholders as provided in these By-Laws.
SECTION 2. MEETINGS, NOTICE. Meetings of the Board of
Directors shall be held at such place either within or without the State of
Delaware, as may from time to time be fixed by resolution of the Board, or as
may be specified in the call or in a waiver of notice thereof. Regular meetings
of the Board of Directors shall be held at such times as may from time to time
be fixed by resolution of the Board, and special meetings may be held at any
time upon the call of two directors, the Chairman of the Board, if one be
elected, or the Chief Executive Officer, by oral, telegraphic or written notice,
duly served on or sent or mailed to each director not less than two days before
such meeting. A meeting of the Board may be held without notice immediately
after the annual meeting of stockholders at the same place at which such meeting
was held. Notice need not be given of regular meetings of the Board. Any meeting
may be held without notice, if all directors are present, or if notice is waived
in writing, either before or after the meeting, by those not present.
<PAGE>
SECTION 3. COMMITTEES. The Board of Directors may, in its
discretion, by resolution passed by a majority of the whole Board, designate
from among its members one or more committees which shall consist of two or more
directors. The Board may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committees shall have and may exercise such
powers as shall be conferred or authorized by the resolution appointing them. A
majority of any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board shall have power at any time to change the membership of any such
committee, to fill vacancies in it, or to dissolve it.
SECTION 4. ACTION BY CONSENT. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent or consents thereto is signed by all members of the Board, or of such
committee as the case may be, and such written consent or consents is filed with
the minutes of proceedings of the Board or committee.
SECTION 5. COMPENSATION. The Board of Directors may determine,
from time to time, the amount of compensation which shall be paid to its
members. The Board of Directors shall also have power, in its discretion, to
allow a fixed sum and expenses for attendance at each regular or special meeting
of the Board, or of any committee of the Board. In addition, the Board of
Directors shall also have power, in its discretion, to provide for and pay to
directors rendering services to the Corporation not ordinarily rendered by
directors, as such, special compensation appropriate to the value of such
services, as determined by the Board from time to time.
ARTICLE III
OFFICERS
SECTION 1. TITLES AND ELECTION. The officers of the
Corporation shall be chosen by the Board of Directors and may include a Chairman
of the Board of Directors (who must be a director) and shall include a Chief
Executive Officer, one or more Vice Presidents (if so elected by the Board of
Directors), a Secretary and a Chief Financial Officer. The Board of Directors
also may appoint a Treasurer and such Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers as the Board of Directors
shall determine. Any two or more offices may be held by the same person. With
the exception of the Chairman of the Board of Directors, none of the officers
need be a director of the Corporation. None of the officers need be a
stockholder of the Corporation or a resident of the State of Delaware.
SECTION 2. TERMS OF OFFICE. Officers shall hold office until
their successors are chosen and qualify.
SECTION 3. REMOVAL. Any officer may be removed, either with or
without cause, at any time, by the affirmative vote of a majority of the Board
of Directors.
SECTION 4. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the Secretary. Such
resignation shall take effect at the time
<PAGE>
specified therein, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 5. VACANCIES. If the office of any officer or agent
becomes vacant by reason of death, resignation, retirement, disqualification,
removal from office or otherwise, the directors may choose a successor, who
shall hold office for the unexpired term in respect of which such vacancy
occurred.
SECTION 6. AUTHORITY AND DUTIES. Each of the officers of the
Corporation shall have such authority and shall perform such duties incident to
each of their respective offices and such other duties as may be specified from
time to time by the Board of Directors in a resolution which is not inconsistent
with applicable law, the Certificate of Incorporation or these Bylaws.
SECTION 7. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the
absence or disability of any officer of the Corporation, or for any other reason
that the Board may deem sufficient, the Board may delegate, for the time being,
the powers or duties, or any of them, of such officer to any other officer, or
to any director.
ARTICLE IV
INDEMNIFICATION
SECTION 1. ACTIONS BY OTHERS. The Corporation (1) shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
director or an officer of the Corporation and (2) except as otherwise required
by Section 3 of this Article, may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in
<PAGE>
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, agent of or participant in another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
SECTION 3. SUCCESSFUL DEFENSE. To the extent that a person who
is or was a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or Section 2 of this Article, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
SECTION 4. SPECIFIC AUTHORIZATION. Any indemnification under
Section 1 or Section 2 of this Article (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in said Sections 1 and 2. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
SECTION 5. ADVANCE OF EXPENSES. Expenses incurred by any
person who may have a right of indemnification under this Article in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he or she is entitled
to be indemnified by the Corporation pursuant to this Article.
SECTION 6. RIGHT OF INDEMNITY NOT EXCLUSIVE. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
<PAGE>
SECTION 7. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of or participant in
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article, Section 145 of the General
Corporation Law of the State of Delaware or otherwise.
SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The
invalidity or unenforceability of any provision of this Article shall not affect
the validity or enforceability of the remaining provisions of this Article.
ARTICLE V
CAPITAL STOCK
SECTION 1. CERTIFICATES. The interest of each stockholder of
the Corporation shall be evidenced by certificates for shares of stock in such
form as the Board of Directors may from time to time prescribe. The certificates
of stock shall be signed by the Chief Executive Officer or a Vice President and
by the Secretary, or the Chief Financial Officer, or the Treasurer, or an
Assistant Secretary, or an Assistant Treasurer, sealed with the seal of the
Corporation or a facsimile thereof, and countersigned and registered in such
manner, if any, as the Board of Directors may by resolution prescribe. Where any
such certificate is countersigned by a transfer agent other than the Corporation
or its employee, or registered by a registrar other than the Corporation or its
employee, the signature of any such officer may be a facsimile signature. In
case any officer or officers who shall have signed, or whose facsimile signature
or signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or certificates
may nevertheless be adopted by the Corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall have been used thereon had not
ceased to be such officer or officers of the Corporation.
SECTION 2. TRANSFER. The shares of stock of the Corporation
shall be transferred only upon the books of the Corporation by the holder
thereof in person or by his or her attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require.
SECTION 3. RECORD DATES. The Board of Directors may fix in
advance a date, not less than ten nor more than sixty days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to receive any distribution or
<PAGE>
allotment of such rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, and in such case only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting, or to receive payment
of such dividend, or to receive such distribution or allotment or rights or to
exercise such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
SECTION 4. LOST CERTIFICATES. In the event that any
certificate of stock is lost, stolen, destroyed or mutilated, the Board of
Directors may authorize the issuance of a new certificate of the same tenor and
for the same number of shares in lieu thereof. The Board may in its discretion,
before the issuance of such new certificate, require the owner of the lost,
stolen, destroyed or mutilated certificate, or the legal representative of the
owner to make an affidavit or affirmation setting forth such facts as to the
loss, destruction or mutilation as it deems necessary, and to give the
Corporation a bond in such reasonable sum as it directs to indemnify the
Corporation.
ARTICLE VI
CHECKS, NOTES, ETC.
SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money, may
be signed by the Chief Executive Officer, any Vice President, the Chief
Financial Officer or the Treasurer and may also be signed by such other officer
or officers, agent or agents, as shall be thereunto authorized from time to time
by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. OFFICES. The registered office of the Corporation
shall be located at 30 Old Rudnick Lane, Suite 100, Dover, County of Kent in the
State of Delaware, and said corporation shall be the registered agent of this
Corporation in charge thereof. The Corporation may have other offices either
within or without the State of Delaware at such places as shall be determined
from time to time by the Board of Directors or the business of the Corporation
may require.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation
shall be determined by the Board of Directors.
SECTION 3. CORPORATE SEAL. The seal of the Corporation shall
be circular in form and contain the name of the Corporation, and the year and
state of its incorporation. Such seal may be altered from time to time at the
discretion of the Board of Directors.
SECTION 4. BOOKS. There shall be kept at such office of the
Corporation as the Board of Directors shall determine, within or without the
State of Delaware, correct books and records of account of all its business and
transactions, minutes of the proceedings of its
<PAGE>
stockholders, Board of Directors and committees, and the stock book, containing
the names and addresses of the stockholders, the number of shares held by them,
respectively, and the dates when they respectively became the owners of record
thereof, and in which the transfer of stock shall be registered, and such other
books and records as the Board of Directors may from time to time determine.
SECTION 5. VOTING OF STOCK. Unless otherwise specifically
authorized by the Board of Directors, all stock owned by the Corporation, other
than stock of the Corporation, shall be voted, in person or by proxy, by the
Chief Executive Officer or any Vice President of the Corporation on behalf of
the Corporation.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENTS. The vote of the holders of at least a
majority of the shares of stock of the Corporation, issued and outstanding and
entitled to vote, shall be necessary at any meeting of stockholders to amend or
repeal these By-Laws or to adopt new by-laws. These By-Laws may also be amended
or repealed, or new by-laws adopted, at any meeting of the Board of Directors by
the vote of at least a majority of the entire Board; provided that any by-law
adopted by the Board may be amended or repealed by the stockholders in the
manner set forth above.
Any proposal to amend or repeal these By-Laws or to adopt new
by-laws shall be stated in the notice of the meeting of the Board of Directors
or the stockholders, or in the waiver of notice thereof, as the case may be,
unless all of the directors or the holders of record of all of the shares of
stock of the Corporation, issued and outstanding and entitled to vote, are
present at such meeting.
<PAGE>
Exhibit 4.1
EXECUTION COPY
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
INDENTURE
Dated as of January 20, 1999
---------------------
$36,001,321 aggregate principal amount at maturity
Series C Senior Discount Notes due 2008
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
@ENTERTAINMENT, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 20, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
----------- -----------------
<S> <C>
310(a)(1) ......................................................... 607
(a)(2) ......................................................... 607
(b) ......................................................... 608
312(c) ......................................................... 701
314(a) ......................................................... 703
(a)(4) ......................................................... 1008(a)
(c)(1) ......................................................... 102
(c)(2) ......................................................... 102
(e) ......................................................... 102
315(b) ......................................................... 601
316(a)(last
sentence) ......................................................... 101 ("Outstanding")
(a)(1)(A) ......................................................... 502, 512
(a)(1)(B) ......................................................... 513
(b) ......................................................... 508
(c) ......................................................... 104(d)
317(a)(1) ......................................................... 503
(a)(2) ......................................................... 504
(b) ......................................................... 1003
318(a) ......................................................... 111
</TABLE>
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Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES .............................................................................1
RECITALS OF THE COMPANY .............................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS ...................................................1
Accreted Value ..............................................................2
Acquired Indebtedness .......................................................3
Act .........................................................................3
Advent ......................................................................3
Affiliate ...................................................................3
Annualized Pro Forma Consolidated Operating Cash Flow .......................3
Asset Acquisition ...........................................................4
Asset Sale ..................................................................4
Average Life ................................................................5
Bankruptcy Law ..............................................................5
Board of Directors ..........................................................5
Board Resolution ............................................................5
Business Day ................................................................5
Cable Television Newco ......................................................5
Cable/Telecommunications Business ...........................................5
Capital Stock ...............................................................6
Capitalized Lease Obligation ................................................6
Cash Equivalents ............................................................6
Change of Control ...........................................................6
Commission ..................................................................7
Common Stock ................................................................7
Company .....................................................................7
Company Request or Company Order.............................................8
Consolidated Income Tax Expense..............................................8
Consolidated Interest Expense................................................8
Consolidated Net Income......................................................8
Consolidated Operating Cash Flow.............................................9
Corporate Trust Office.......................................................9
</TABLE>
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Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
<TABLE>
<S> <C>
Corporation..................................................................9
Cumulative Available Cash Flow...............................................9
Currency Agreement..........................................................10
Default.....................................................................10
Defaulted Interest..........................................................10
Depositary..................................................................10
Disinterested Director......................................................10
DTH Business................................................................10
ECO.........................................................................10
Entertainment/Programming Business..........................................10
Event of Default............................................................10
Exchange Act................................................................10
Exchange Offer..............................................................10
Exchange Offer Registration Statement.......................................11
Exchange Securities.........................................................11
Fair Market Value...........................................................11
Federal Bankruptcy Code.....................................................11
Generally Accepted Accounting Principles....................................11
GAAP........................................................................11
Global Security.............................................................11
guarantee...................................................................11
Holder......................................................................11
Incur" or "incur............................................................11
Indebtedness................................................................12
Indenture...................................................................13
Initial Securities..........................................................13
Interest Payment Date.......................................................13
Interest Rate Agreements....................................................13
Investment..................................................................13
Issue Date..................................................................13
Lien........................................................................13
Majority Owned Restricted Subsidiary........................................13
Management Agreement........................................................14
Management Company..........................................................14
Maturity....................................................................14
Moody's.....................................................................14
Net Cash Proceeds...........................................................14
Officers Certificate........................................................15
Opinion of Counsel..........................................................15
Organizational Contract.....................................................15
Outstanding.................................................................15
Overhead Agreement..........................................................16
Pari Passu Indebtedness.....................................................16
</TABLE>
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<TABLE>
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Paying Agent................................................................16
PCBV........................................................................16
PCI.........................................................................17
PCI Indenture...............................................................17
Permitted Holders...........................................................17
Permitted Indebtedness......................................................17
Permitted Investments.......................................................20
Permitted Liens.............................................................20
Person......................................................................23
Physical Note...............................................................23
Poltelkab...................................................................23
Predecessor Security........................................................23
Preferred Stock.............................................................23
Public Equity Offering......................................................23
Purchase Money Obligation...................................................23
Qualified Capital Stock.....................................................23
Qualified Institutional Buyer or QIB........................................23
Redeemable Capital Stock....................................................24
Redemption Date.............................................................24
Redemption Price............................................................24
Registration Rights Agreement...............................................24
Registration Statement......................................................24
Regular Record Date.........................................................24
Responsible Officer.........................................................24
Restricted Payment..........................................................24
Restricted Subsidiary.......................................................24
Rule 144A...................................................................24
S&P.........................................................................25
Securities..................................................................25
Security Register and Security Registrar....................................25
Senior Bank Indebtedness....................................................25
Service Agreement...........................................................25
Shareholder Registration Rights Agreement...................................25
Shelf Registration Statement................................................25
Significant Subsidiary......................................................25
Special Purpose Vehicle.....................................................25
Special Record Date.........................................................26
Stated Maturity.............................................................26
Subordinated Indebtedness...................................................26
Subsidiary..................................................................26
Total Consolidated Indebtedness.............................................26
Trust Indenture Act.........................................................26
Trustee.....................................................................26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Unrestricted Subsidiary.....................................................26
U.S. Dollar.................................................................27
U.S. Dollar Equivalent......................................................27
U.S. Government Obligations.................................................27
Vice President..............................................................27
Voting Stock................................................................27
Wholly Owned................................................................27
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS..........................28
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE........................28
SECTION 104. ACTS OF HOLDERS...............................................29
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY............................30
SECTION 106. NOTICE TO HOLDERS; WAIVER.....................................31
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS......................31
SECTION 108. SUCCESSORS AND ASSIGNS........................................31
SECTION 109. SEPARABILITY CLAUSE...........................................31
SECTION 110. BENEFITS OF INDENTURE.........................................32
SECTION 111. GOVERNING LAW.................................................32
SECTION 112. LEGAL HOLIDAYS................................................32
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY...............................................32
SECTION 202. RESTRICTIVE LEGENDS...........................................33
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS...............................................35
SECTION 302. DENOMINATIONS.................................................36
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING................36
SECTION 304. TEMPORARY SECURITIES..........................................38
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE ..........38
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES...................39
SECTION 307. SPECIAL TRANSFER PROVISIONS...................................41
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES..............44
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED................45
SECTION 310. PERSONS DEEMED OWNERS.........................................47
SECTION 311. CANCELLATION..................................................47
SECTION 312. COMPUTATION OF INTEREST.......................................47
SECTION 313. FORM OF RULE 144A CERTIFICATE.................................48
</TABLE>
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<TABLE>
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.......................48
SECTION 402. APPLICATION OF TRUST MONEY....................................49
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.............................................49
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT ...........51
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE ......................................................52
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM..............................53
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES ..54
SECTION 506. APPLICATION OF MONEY COLLECTED................................54
SECTION 507. LIMITATION ON SUITS...........................................55
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST .........................................56
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES............................56
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE................................56
SECTION 511. DELAY OR OMISSION NOT WAIVER..................................56
SECTION 512. CONTROL BY HOLDERS............................................57
SECTION 513. WAIVER OF PAST DEFAULTS.......................................57
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS..............................57
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS............................................58
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.....................................58
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES ...................................................60
SECTION 604. MAY HOLD SECURITIES...........................................60
SECTION 605. MONEY HELD IN TRUST...........................................60
SECTION 606. COMPENSATION AND REIMBURSEMENT................................60
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.......................61
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR ............61
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR........................63
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS ..63
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS..................64
SECTION 702. REPORTS BY TRUSTEE............................................64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS .........64
SECTION 802. SUCCESSOR SUBSTITUTED.........................................66
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS....................66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS ...........67
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS ..............67
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES..........................68
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.............................69
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT...........................69
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES ...........69
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.............................69
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST .........70
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY..............................70
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST .............70
SECTION 1004. CORPORATE EXISTENCE..........................................72
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS............................72
SECTION 1006. MAINTENANCE OF PROPERTIES....................................72
SECTION 1007. INSURANCE....................................................73
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT..........................73
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS................73
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS........................74
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS............................74
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES......................................77
</TABLE>
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<TABLE>
<S> <C>
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES...................78
SECTION 1014. LIMITATION ON LIENS..........................................79
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY
SUBSIDIARIES ................................................80
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL 80
SECTION 1017. LIMITATION ON SALE OF ASSETS.................................81
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES............................83
SECTION 1019. LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES ......84
SECTION 1020. LIMITATION ON LINES OF BUSINESS..............................84
SECTION 1021. WAIVER OF CERTAIN COVENANTS..................................84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION..........................................85
SECTION 1102. APPLICABILITY OF ARTICLE.....................................85
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE........................86
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED ...........86
SECTION 1105. NOTICE OF REDEMPTION.........................................86
SECTION 1106. DEPOSIT OF REDEMPTION PRICE..................................87
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE........................87
SECTION 1108. SECURITIES REDEEMED IN PART..................................88
ARTICLE TWELVE[RESERVED]
ARTICLE THIRTEENDEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE ..................................................88
SECTION 1302. DEFEASANCE AND DISCHARGE.....................................89
SECTION 1303. COVENANT DEFEASANCE..........................................89
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE .............90
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.....................92
SECTION 1306. REINSTATEMENT................................................92
</TABLE>
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x
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xi
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xii
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<TABLE>
<CAPTION>
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<S> <C>
TESTIMONIUM...................................................................93
SIGNATURES AND SEALS..........................................................93
</TABLE>
SCHEDULE A - Existing Management Contracts, Overhead Agreements and Service
Agreements
SCHEDULE B - Indebtedness Outstanding on the Issue Date
SCHEDULE C - Liens Existing on the Issue Date
SCHEDULE D - Agreements Not Restricted Under Section 1018
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered upon Termination of Restricted
Period
<PAGE>
INDENTURE dated as of January 20, 1999, between
@ENTERTAINMENT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company" or the "Issuer"), having
its principal office at One Commercial Plaza, 24th Floor, Hartford, Connecticut,
and BANKERS TRUST COMPANY, a New York state banking corporation, Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
Series C Senior Discount Notes due 2008 (herein called the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311,
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2
shall have the meanings assigned to them in the rules of the Commission
adopted under the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted on the Issue Date;
and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Accreted Value" as of any date (the "Specified Date") means,
with respect to each $1.00 principal amount at maturity of the Securities:
(i) if the Specified Date is one of the following dates (each
a "Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Semi-Annual
Accrual Date Accreted Value
------------ --------------
<S> <C>
ISSUE DATE ..... $ 0.27262
July 15, 1999 $ 0.29712
January 15, 2000 $ 0.32460
July 15, 2000 $ 0.35463
January 15, 2001 $ 0.38743
July 15, 2001 $ 0.42327
January 15, 2002 $ 0.46242
July 15, 2002 $ 0.50519
January 15, 2003 $ 0.55192
July 15, 2003 $ 0.60297
January 15, 2004 $ 0.65875
July 15, 2004 $ 0.68468
January 15, 2005 $ 0.71302
July 15, 2005 $ 0.74397
January 15, 2006 $ 0.77779
July 15, 2006 $ 0.81473
January 15, 2007 $ 0.85510
July 15, 2007 $ 0.89919
January 15, 2008 $ 0.94737
July 15, 2008 $ 1.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the sum of (a) the Accreted Value for the Semi-Annual
Accrual Date immediately preceding
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3
the Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date and (y) a fraction the numerator of which is the number of
days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180;
and
(iii) if the Specified Date is on or after July 15, 2008,
$1.00.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person becomes a Restricted Subsidiary or (b) assumed
in connection with the acquisition of assets from such Person, in each case,
other than Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary or such acquisition; PROVIDED that,
for purposes of Section 1010, such Indebtedness shall be deemed to be incurred
on the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Advent" means Advent International Corporation, a Delaware
corporation.
"Affiliate" means, with respect to any specified Person, (a)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (b) any other
Person that owns, directly or indirectly, 5% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Members" has the meaning specified in Section 306.
"Annualized Pro Forma Consolidated Operating Cash Flow" means
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (a) all Restricted Subsidiaries
of the Company on the date of the transaction giving rise to the need to
calculate "Annualized Pro Forma Consolidated Operating Cash Flow" (the
"Transaction Date") shall be deemed to have been Restricted Subsidiaries at all
times during such fiscal quarter and (b) any Unrestricted Subsidiary of the
Company on the Transaction
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4
Date shall be deemed to have been an Unrestricted Subsidiary at all times during
such fiscal quarter. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a PRO FORMA basis for the applicable fiscal
quarter to, without duplication, any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Company or a Restricted Subsidiary
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
fiscal quarter to and including the Transaction Date (the "Reference Period"),
as if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period.
"Asset Acquisition" means (a) any capital contribution (by
means of transfers of cash or other property to others or payments for property
or services for the account or use of others, or otherwise) by the Company or
any Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (b) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for security
purposes) or other disposition (that is not for security purposes) to any Person
other than the Company or a Restricted Subsidiary in one transaction or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary,
(b) any material governmental license or other governmental authorization of the
Company or any Restricted Subsidiary pertaining to a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business, (c) any
assets of the Company or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of the Company and
its Restricted Subsidiaries or (d) any other property or asset of the Company or
any Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
disposition of properties and assets of the Company that is governed under
Article VIII, (b) sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or the Restricted Subsidiary, as the case may be, (c)
for purposes of Section 1017, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series of
related transactions, either (i) involving assets with a Fair Market Value not
in excess of $500,000 (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) or (ii) as part of a Capitalized Lease Obligation, and (d)
any transfer by the Company or a Restricted Subsidiary of property or equipment
to a Person who is not an Affiliate of the Company in exchange for property or
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5
equipment that has a fair market value at least equal to the fair market value
of the property or equipment so transferred; PROVIDED that, in the event of a
transfer described in this clause (d), the Company shall deliver to the Trustee
an Officer's Certificate certifying that such exchange complies with this clause
(d).
"Average Life" means, as of the date of determination with
respect to any Indebtedness, the quotient obtained by dividing (a) the sum of
the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as
amended, or any similar United States federal or state law, or any similar law
of any other jurisdiction, relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or the city in which the Corporate Trust Office is located are authorized
or obligated by law or executive order to close.
"Cable Television Newco" means any Person (i) of whom the
Company or a Restricted Subsidiary owns the greater of 49% of the outstanding
Capital Stock or the maximum amount of the outstanding Capital Stock the Company
or such Restricted Subsidiary may own under applicable law and (ii) that holds
Capital Stock in a Management Company.
"Cable/Telecommunications Business" means any business
operating a cable or telephone or telecommunications or broadcasting system
(other than an Entertainment/Programming Business or a DTH Business), including,
without limitation, any business (other than an Entertainment/Programming
Business or a DTH Business) conducted by the Company or any Restricted
Subsidiary on the Issue Date and any programming guide or telephone directory
business.
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6
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations, rights in or
other equivalents (however designated) of such Person's capital stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Stock, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of this Indenture.
"Capitalized Lease Obligation" of any Person means any
obligation of such Person and its subsidiaries on a consolidated basis under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as
a capital lease obligation under GAAP, and, for the purpose of this Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500,000,000; (c) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-l by
Moody's; and (d) any Capital Stock of any mutual funds at least 95% of the
assets of which are invested in the foregoing.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and l3d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the Company; (b) the Company consolidates with, or merges with or into
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or
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7
exchanged at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of the Company) or is converted into or exchanged
for (A) Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (B) Voting Stock (other than Redeemable Capital Stock)
of the surviving or transferee corporation and cash, securities and other
property (other than Capital Stock of the Surviving Entity) in an amount that
could be paid by the Company as a Restricted Payment as described under Section
1011 and (ii) immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the surviving or transferee corporation; (c) during any
consecutive two year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by a vote of 66b% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (d) the Company is liquidated or
dissolved or a special resolution is passed by the shareholders of the Company
approving the plan of liquidation or dissolution other than in a transaction
which complies with Article VIII.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such Person's common stock or
ordinary shares, whether outstanding at the Issue Date, and includes, without
limitation, all series and classes of such common stock or ordinary shares.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
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8
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the provision for United States corporation, local, foreign and other
income taxes of the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of original issue discount, (ii) the net cost of Interest Rate
Agreements (including amortization of discounts), (iii) the interest portion of
any deferred payment obligation, (iv) accrued interest, (v) the consolidated
amount of any interest capitalized by the Company and the Restricted
Subsidiaries, PROVIDED that such amount will be limited for purposes of this
definition to the amount that would have been obtained if such interest had been
capitalized at the interest rate for the Securities and (vi) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, PLUS (b) the interest component of Capitalized
Lease Obligations of the Company and its Restricted Subsidiaries paid, accrued
or scheduled to be paid or accrued during such period, in each case as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (in
each case less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (in each case less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of
business, (c) the portion of net income (or loss) of any Person (other than the
Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in
which the Company or any Restricted Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash dividends or distributions
during such period, (d) net income (or loss) of any Person combined with the
Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) except with
respect to any encumbrance or restriction described in clause (ii) of Section
1018, the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and
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9
(f) any non-cash items of the Company and any Restricted Subsidiary (including
monetary corrections) increasing or decreasing Consolidated Net Income for such
period (other than items that will result in the receipt or payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by (in each case to the extent included
in computing Consolidated Net Income) the sum of (a) the Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries accrued according to GAAP
for such period (other than taxes attributable to extraordinary, unusual or
non-recurring gains or losses); (b) Consolidated Interest Expense for such
period; (c) depreciation of the Company and its Restricted Subsidiaries for such
period and (d) amortization of the Company and its Restricted Subsidiaries for
such period, including, without limitation, amortization of capitalized debt
issuance costs for such period, all determined on a consolidated basis in
accordance with GAAP PROVIDED that, if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, Consolidated Operating Cash Flow shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) by an amount equal
to (i) the amount of Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (ii) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at Four Albany Street, New York, New York 10006, except
that with respect to presentation of Securities for payment or for registration
of transfer or exchange, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"Cumulative Available Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
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10
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered into
by a Person that is designed to protect such Person against fluctuations in
currency values.
"Default" means any event that after notice or passage of time
or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means Euroclear System, its nominees and their
respective successors.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of Directors
is required to deliver a resolution of the Board of Directors under this
Indenture, a member of the Board of Directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of transactions.
"DTH Business" means the business of (i) developing, managing,
operating or providing services relating to direct to home satellite systems for
the distribution of subscription programming services directly to homes and
cable systems in areas covered by the "footprint" of the satellites utilized by
the Company and its Restricted Subsidiaries, and activities to accomplish the
foregoing (other than the Cable/Telecommunications Business or the
Entertainment/Programming Business) or (ii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified above.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"Entertainment/Programming Business" means a business engaged
primarily in the management, ownership, operation, acquisition, development,
production, distribution or syndication of general entertainment, sports,
movies, children's or other programming or publishing.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing
<PAGE>
11
buyer, as determined by the Board of Directors of the Company and evidenced by a
resolution thereof.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in effect in the United States on the
Issue Date.
"Global Security" has the meaning provided in Section 201.
"guarantee" means, as applied to any obligation, (a) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (b) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Incur" or "incur" means, with respect to any Indebtedness, to
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur such Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money (including
overdrafts) or for the deferred purchase price of property or services,
excluding any trade payables and other accrued current liabilities (including
outstanding disbursements) incurred in the ordinary course of business (whether
or not evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
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12
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of Sections 1010 and 1011 and the
definition of "Events of Default", in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of cash interest on the Securities.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements or arrangements
(including, without limitation, interest rate swaps, caps, floors, collars and
similar agreements) designed to protect against or manage exposure to
fluctuations in interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
such Person (by means of
<PAGE>
13
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock (including ownership of Capital
Stock through share leasing arrangements), bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary shall be deemed to be an "Investment"
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issue Date" means January 20, 1999.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Majority Owned Restricted Subsidiary" means a Restricted
Subsidiary (a) at least 66.66% of the outstanding Capital Stock of which is
beneficially owned directly or indirectly by the Company or PCBV and one or more
Wholly Owned Restricted Subsidiaries and (b) no outstanding Capital Stock of
which is owned, directly or indirectly (except through the Company), by any
shareholder or Affiliate of a shareholder of the Company.
"Management Agreement" means (a) any agreement between the
Company or a Restricted Subsidiary and a Management Company pursuant to which
the Management Company shall lease or otherwise employ assets of the Company or
a Restricted Subsidiary to operate a Cable/Telecommunications Business, a DTH
Business or an Entertainment/Programming Business and (b) any agreement or
instrument (i) governing Indebtedness of a Management Company to the Company or
a Restricted Subsidiary or (ii) governing corporate procedures or control of a
Management Company.
"Management Company" means any Person, a portion of whose
Capital Stock is held by the Company or a Restricted Subsidiary, that (i) holds
or has applied for a license or permit to operate a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business in the
Republic of Poland or elsewhere in Continental Europe and (ii) manages the
operations of a Restricted Subsidiary pursuant to a Management Agreement.
<PAGE>
14
"Maturity" means, with respect to any Security, the date on
which any principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds thereof in the form of cash or Cash Equivalents including payments
in respect of deferred payment obligations or escrowed funds, but only when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants, consultants and investment banks) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock as referred to under Section 1011 and the definition of "Permitted
Indebtedness", the proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such capital contribution, issuance or sale and net
of taxes paid or payable as a result thereof.
"Non-U.S. Person" means a person who is not a "U.S. Person"
(as defined in Regulation S).
<PAGE>
15
"Officers Certificate" means a certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Old Indenture" means the Indenture dated as of July 14, 1998
between the Issuer and Banker Trust Company, as trustee, as in effect on the
Issue Date.
"Old Notes means the Issuer's 14 1/2% Senior Discount Notes
due 2008 issued under the Old Indenture.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be acceptable to the Trustee.
"Organizational Contract" means any agreement to which the
Company or any Restricted Subsidiary is a party pursuant to which, among other
things, fees are paid to the Company or a Restricted Subsidiary in exchange for
organizational, consulting or similar services, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Organizational Contracts."
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
PROVIDED that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant
<PAGE>
16
to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands
the Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount at maturity of Outstanding Securities have given any
request, demand, authorization, direction, consent, notice or waiver
hereunder, and for the purpose of making the calculations required by TIA
Section 313, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in
relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned
shall be so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgees right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon
the Securities or any Affiliate of the Company or such other obligor.
"Overhead Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
costs are allocated among the parties thereto, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Overhead Agreements".
"Pari Passu Indebtedness" means Indebtedness of the Company
that is PARI PASSU in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Securities on behalf of the Company. The initial
paying agent shall be the Trustee.
"PCBV" means Poland Cablevision (Netherlands) B.V., a
Netherlands corporation.
"PCI" means Poland Communications, Inc., a New York
corporation and a Wholly Owned Subsidiary of the Company.
"PCI Indenture" means the Indenture dated as of October 31,
1996 between PCI and State Street Bank and Trust Company, as trustee, as in
effect on the Issue Date.
<PAGE>
17
"Permitted Holders" means, as of the date of determination,
(a) David T. Chase, Arnold L. Chase and Cheryl A. Chase (b) the family members,
estates and heirs of David T. Chase, Arnold L. Chase and Cheryl A. Chase and any
trust, partnership, corporation, limited liability company or other investment
vehicle principally for the benefit of any such persons or their respective
family members or heirs (including, without limitation, Polish Investments
Holding LP for so long as beneficial ownership thereof is held by Persons
meeting the requirements of clause (a) and (b) of this definition), (c) ECO and
any successor thereto that is owned by the Persons who beneficially own,
directly and indirectly, ECO on the Issue Date; (d) Advent International Corp.
and (e) any Person that is controlled by the Persons, individually or as a
group, described in clauses (a) through (d) above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Securities (or any guarantee
thereof) and this Indenture;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on Schedule B to this
Indenture;
(c) Indebtedness of the Company or any Restricted Subsidiary
(including PCI and any subsidiary of PCI that is a Restricted
Subsidiary) to the extent such Indebtedness constitutes "Permitted
Indebtedness" as defined in the PCI Indenture or the Old Indenture;
(d) (i) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or a Restricted Subsidiary and (ii) Indebtedness of
the Company owed to and held by any Restricted Subsidiary that is
Subordinated Indebtedness; PROVIDED that an incurrence of Indebtedness
shall be deemed to have occurred upon (x) any sale or other disposition
(excluding assignments as security to financial institutions) of any
Indebtedness of the Company or Restricted Subsidiary referred to in
this clause (e) to a Person (other than the Company or a Restricted
Subsidiary) or (y) any sale or other disposition of Capital Stock of a
Restricted Subsidiary which holds Indebtedness of the Company or
another Restricted Subsidiary such that such Restricted Subsidiary, in
any such case, ceases to be a Restricted Subsidiary;
(e) Obligations under any Interest Rate Agreement of the
Company or any Restricted Subsidiary to the extent relating to (i)
Indebtedness of the Company or such Restricted Subsidiary, as the case
may be (which Indebtedness (x) bears interest at fluctuating interest
rates and (y) is otherwise permitted to be incurred under Section
1010), or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be incurred by the
Company or a Restricted
<PAGE>
18
Subsidiary in the following 12 months after such Interest Rate
Agreement has been entered into, but only to the extent that the
notional principal amount of such Interest Rate Agreement does not
exceed the principal amount of the Indebtedness (or Indebtedness
subject to commitments) to which such Interest Rate Agreement relates;
(f) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (i) Indebtedness of
the Company or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under Section 1010) or (ii) obligations to
purchase assets, properties or services incurred in the ordinary course
of business of the Company or any Restricted Subsidiary; PROVIDED that
such Currency Agreements do not increase the Indebtedness or other
obligations of the Company and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness of the Company or any Restricted Subsidiary
in respect of performance bonds of the Company or any Restricted
Subsidiary or surety bonds provided by the Company or any Restricted
Subsidiary incurred in the ordinary course of business in connection
with the construction or operation of a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business;
(h) Indebtedness of the Company or any Restricted Subsidiary
to the extent it represents a replacement, renewal, refinancing or
extension of outstanding Indebtedness of the Company or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (b) of
this definition or the proviso of Section 1010; PROVIDED that (i)
Indebtedness of the Company may not be replaced, renewed, refinanced or
extended to such extent under this clause (i) with Indebtedness of any
Restricted Subsidiary and (ii) any such replacement, renewal,
refinancing or extension (x) shall not result in a lower Average Life
of such Indebtedness as compared with the Indebtedness being replaced,
renewed, refinanced or extended, (y) shall not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount
to be due and payable upon a declaration of acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing
or extension and such reasonable fees and expenses incurred in
connection therewith, and (z) in the case of any replacement, renewal,
refinancing or extension by the Company of Pari Passu Indebtedness or
Subordinated Indebtedness, such new Indebtedness is made PARI PASSU
with or subordinate to the Securities, at least to the same extent as
the Indebtedness being replaced, renewed, refinanced or extended;
<PAGE>
19
(i) Indebtedness of the Company having an aggregate principal
amount not to exceed, at any one time outstanding, two times (i) the
Net Cash Proceeds received by the Company after the Issue Date from the
issuance and sale of its Capital Stock (other than Redeemable Capital
Stock) to a Person that is not a Subsidiary, to the extent such Net
Cash Proceeds have not been used pursuant to clause (a)(3)(B), (b)(ii),
(b)(iii) or (b)(v) of Section 1011 to make a Restricted Payment and
(ii) 80% of the Fair Market Value of property (other than cash or Cash
Equivalents) received by the Company after the Issue Date from a sale
of its Capital Stock (other than Redeemable Capital Stock) to a Person
that is not a Subsidiary, the extent such sale of Capital Stock has not
been used pursuant to clause (b)(ii), (b)(iii) or (b)(v) of Section
1011 to make a Restricted Payment; PROVIDED, HOWEVER, that in
determining the Fair Market Value of property, if the estimated Fair
Market Value of such property exceeds $10.0 million, the Company will
deliver to the Trustee a written appraisal as to the fair market value
of such property prepared by an internationally recognized investment
banking or public accounting firm (or, if no such investment banking or
public accounting firm is qualified to prepare such an appraisal, by an
internationally recognized appraisal firm) and PROVIDED FURTHER that
such Indebtedness does not mature prior to the Stated Maturity of the
Securities and has an Average Life longer than the Securities;
(j) Subordinated Indebtedness of the Company not to exceed
$150 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any one time outstanding; and
(k) in addition to the items referred to in clauses (a)
through (j) above, Indebtedness of the Company having an aggregate
principal amount not to exceed $125 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) at any time
outstanding less the aggregate principal amount of any outstanding
Indebtedness incurred after the Issue Date under clause (c) of this
definition of Permitted Indebtedness.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans and advances to directors or employees made in the ordinary
course of business; (d) Interest Rate Agreements and Currency Agreements; (e)
bonds, notes, debentures or other securities received as a result of Asset Sales
permitted under Section 1017, PROVIDED that the Company or the Restricted
Subsidiaries, as the case may be, have received at least 75% of the aggregate
consideration therefrom in cash or Cash Equivalents; (f) Investments made in the
ordinary course of business as partial payment for constructing a network
relating principally to a Cable/Telecommunications Business or for supplying
equipment used or useful in the
<PAGE>
20
Cable/Telecommunications Business or the DTH Business; (g) Investments (other
than through share leasing arrangements) in any Person engaged in any business
in which the Company or any Restricted Subsidiary is engaged on the Issue Date
not to exceed $90 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) outstanding at any time; PROVIDED that immediately after
giving effect to any Investment made under this clause (g), the Company and its
Restricted Subsidiaries shall own at least 25% of the outstanding Capital Stock
of the Person in which the Investment was made; (h) Investments (other than
through share leasing arrangements) in any Person engaged in any business in
which the Company or any Restricted Subsidiary is engaged on the Issue Date not
to exceed $10 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) outstanding at any time; (i) Investments (other than through
share leasing programs) in the Capital Stock of any Person to the extent the
consideration therefor paid by the Company or any Restricted Subsidiary consists
of a lease or other right to use the capacity of a cable television network of
the Company or such Restricted Subsidiary and so long as the capacity leased or
used is used by such Person solely to provide telephony or Internet access
services; PROVIDED that the Board of Directors shall have determined (as
evidenced by a Board Resolution) that any such capacity is in excess of the
cable television network capacity required to operate the
Cable/Telecommunications Business of the Company or such Restricted Subsidiary
in the area in which such cable television network is located; (j) investments
by any Restricted Subsidiary in the Issuer; and (k) to the extent not covered in
clauses (a) through (j) above, any "Permitted Investment" as defined in the PCI
Indenture made by PCI or any subsidiary thereof in accordance with the terms of
the PCI Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary;
(b) Liens securing the Securities;
(c) Liens securing Acquired Indebtedness created prior to (and
not in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; PROVIDED that
such Lien does not extend to any property or assets of the Company or
any Restricted Subsidiary other than the assets acquired in connection
with the incurrence of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens
arising in the ordinary course of business of the Company or any
Restricted Subsidiary and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceeding;
<PAGE>
21
(e) Liens for taxes, assessments, government charges or claims
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with
the business of the Company or any Restricted Subsidiary incurred in
the ordinary course of business;
(g) Liens arising by reason of any judgment, decree or order
of any court so long as such Lien is adequately bonded and any
appropriate legal proceedings that may have been initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security;
(i) any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (h);
PROVIDED that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property or
assets;
(j) any interest or title of a lessor under any Capitalized
Lease Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI
incurred after the Issue Date under clause (c) of the definition of
Permitted Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of the Company incurred
pursuant to clause (i) of the definition of Permitted Indebtedness in
an amount having an aggregate principal amount not to exceed, at any
one time outstanding, 100% of the Net Cash Proceeds received by the
Company after the Issue Date from the issuance and sale of its Capital
Stock;
(m) Liens in favor of Polish governmental fiscal authorities
created without the knowledge of and without fault on the part of the
Company;
<PAGE>
22
(n) Liens existing on the Issue Date and listed on Schedule C
to this Indenture;
(o) Liens in favor of the Screen Actors Guild, the Writers
Guild of America, the Directors Guild of America or any other unions,
guilds or collective bargaining units under collective bargaining
agreements, which Liens are incurred in the ordinary course of business
solely to secure the payment of residuals and other collective
bargaining obligations required to be paid by the Company or any of its
Restricted Subsidiaries under any such collective bargaining agreement;
(p) Liens arising in connection with completion guarantees
entered into in the ordinary course of business and consistent with
then current industry practices, securing obligations (other than
Indebtedness for borrowed money) of the Company or any of its
Restricted Subsidiaries not yet due and payable;
(q) Liens in favor of suppliers and/or producers of any
programming that are incurred in the ordinary course of business solely
to secure the purchase or license price of such programming and such
directly related rights or the rendering of services necessary for the
production of such programming; PROVIDED, HOWEVER, that no such Lien
shall extend to or cover any property or assets other than the
programming or license and the rights directly related thereto being so
acquired or produced; and PROVIDED FURTHER that any payment obligations
secured by such Liens shall by their terms be payable solely from the
revenues that are derived directly from the exhibition, syndication,
exploitation, distribution or disposition of such item of programming
and/or such directly related rights;
(r) Liens on assets of PCI or any subsidiary of PCI securing
the PCI Notes; and
(s) Liens on assets or Capital Stock of a Special Purpose
Vehicle.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, S.A., SP.
Z O.O., trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Physical Note" has the meaning specified in Section 201.
"Poltelkab" means Poltelkab Sp. z o.o., a Polish limited
liability company.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular
<PAGE>
23
Security; and, for the purposes of this definition, any Security authenticated
and delivered under Section 306 in exchange for a mutilated security or in lieu
of a lost, destroyed or stolen Security shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of
Common Stock (which is Qualified Capital Stock) of the Company for cash pursuant
to a registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligation" means Indebtedness of the Company
or any Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of the Company or any Restricted Subsidiary or (b)
secured by a Lien on any assets of the Company or any Restricted Subsidiary
where the lender's sole recourse is to the assets so encumbered, in either case
to the extent the purchase or construction prices for such assets are or should
be included in "addition to property, plan or equipment" in accordance with
GAAP.
"Qualified Capital Stock" of any person means any and all
Capital Stock of such person other than Redeemable Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A.
"Redeemable Capital Stock" means any class or series of
Capital Stock that, either by its terms, by the terms of any security into which
it is convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; PROVIDED, HOWEVER, that Redeemable Capital Stock shall
not include any Common Stock the holder of which has a right to put to the
Company upon certain terminations of employment.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
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24
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 1 or July 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee,
means any officer in its corporate trust department or similar group, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Payment" has the meaning provided in Section 1011.
"Restricted Subsidiary" means a Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of
The McGraw-Hill, Inc. and its successors.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Bank Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of the Company or any Restricted Subsidiary.
"Series D Indenture" meas that certain indenture that shall be
dated within 30 days from the date hereof between the Company and Bankers Trust
Company, as trustee.
"Series D Notes" means those notes outstanding under the
Series D Indenture.
<PAGE>
25
"Service Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
the Company or a Restricted Subsidiary provides various services, which may
include administrative, technical, managerial, financial, operational and
marketing services, to the other party or parties thereto, including, without
limitation, the agreements listed on Schedule A to this Indenture under the
subheading "Service Agreements."
"Shareholder Registration Rights Agreement" means the
Registration Rights Agreement dated as of June 27, 1997 among PIHLP, ECO, Mr.
Freedman, Steele LLC, AESOP and CACMT (as such terms are defined in the
Company's C Notes Offering Memorandum dated January 20, 1999) in the form
existing on the Issue Date.
"Significant Subsidiary" means, at any particular time, any
Subsidiary that, together with the subsidiaries of such Subsidiary, (a)
accounted for more than 5% of the consolidated revenues of the Company and its
Subsidiaries for their most recently completed fiscal year or (b) is or are the
owner(s) of more than 5% of the consolidated assets of the Company and its
Subsidiaries as at the end of such fiscal year, all as calculated in accordance
with GAAP and as shown on the consolidated financial statements of the Company
and its Subsidiaries for such fiscal year.
"Special Purpose Vehicle" means a Person which is, or was,
established: (i) with separate legal identity and limited liability; and (ii)
for the sole purpose of a single transaction, or series of related transactions,
and which has no assets and liabilities other than those directly acquired or
incurred in connection with such transaction(s).
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable, and, when used with respect to any
other Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
that is expressly subordinated in right of payment to the Securities.
"Subsidiary" means (a) any Person a majority of the equity
ownership or Voting Stock of which is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries or by the Company and one or
more other Subsidiaries and
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26
(b) Poltelkab, PTK Operator Sp. z o.o., Cable Television Newco and any other
Management Company.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and its Restricted Subsidiaries outstanding as of the date of
determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (b) any subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company, subject to
the foregoing, may designate any newly acquired or newly formed Subsidiary
(other than a Management Company) to be an Unrestricted Subsidiary so long as
(i) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with respect to
any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1019, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing a board resolution with the Trustee giving effect to such designation.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under this Indenture
and the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 1010.
"U.S. Dollar" means United States currency.
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27
"U.S. Dollar Equivalent" means with respect to any monetary
amount in a currency other than U.S. Dollars, at any time for the determination
thereof, the amount of U.S. Dollars obtained by converting such foreign currency
involved in such computation into U.S. Dollars at the spot rate for the purchase
of U.S. Dollars with the applicable foreign currency as quoted by the National
Bank of Poland at approximately noon (New York City time) on the date two
business days prior to such determination.
"U.S. Government Obligations" has the meaning provided in
Section 1304.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Restricted
Subsidiary, such Restricted Subsidiary if all the outstanding Capital Stock of
such Restricted Subsidiary (other than any directors' qualifying shares) is
owned directly by the Company or PCBV and one or more Wholly Owned Restricted
Subsidiaries.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
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28
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. ACTS OF HOLDERS.
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29
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount at maturity and serial numbers of
Securities held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
PROVIDED that no such authorization, agreement or consent by the Holders on such
record date shall be deemed
<PAGE>
30
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Manager, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice.
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31
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Security Registrar and their successors hereunder and the Holders any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. This Indenture
shall be subject to the provisions of the Trust Indenture Act that are required
to be part of this Indenture and shall, to the extent applicable, be governed by
such provisions; and, if and to the extent that any provision of this Indenture
limits, qualifies or conflicts with any other provision included in this
Indenture which is required to be included in this Indenture by any of Sections
310 to 318, inclusive, of the Trust Indenture Act, such required provision shall
control.
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32
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or Maturity; PROVIDED that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
The Securities shall be known as the "Series C Senior Discount
Notes due 2008." The Securities and the Trustee's certificate of authentication
shall be substantially in the form annexed hereto as Exhibit A. The Securities
may have such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, notations, numbers or other marks of identification and such legends or
endorsements placed thereon as the Company may deem appropriate (and as are not
prohibited by the terms of this Indenture) or as may be required or appropriate
to comply with any law or with any rules made pursuant thereto or with any rules
of any securities exchange on which such Securities may be listed, or to conform
to general usage, or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of such
Securities. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. The Company shall approve the form of the Securities and any notation,
legend or endorsement on the Securities. Each Security shall be dated the date
of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture.
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33
Each of the Company and the Trustee, by its execution and delivery of this
Indenture, expressly agrees to the terms and provisions of the Securities
applicable to it and to be bound thereby.
Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued initially in the form of a single
permanent global Security in registered form, substantially in the form set
forth in Exhibit A (the "Global Security"), registered in the name of the
nominee of the Depositary, deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount at maturity of the Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Securities issued pursuant to Section 306 or Section 307 in
exchange for interests in the Global Security shall be in the form of permanent
certificated Securities in registered form in substantially the form set forth
in Exhibit A (the "PHYSICAL SECURITIES").
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until a Security is sold under an effective
Registration Statement each Global Security and each Physical Security shall
bear the following legend set forth below (the "Private Placement Legend") on
the face thereof until at least the 41st day after the Closing Date and receipt
by the Company and the Trustee of a certificate substantially in the form of
Exhibit B hereto.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER OF THIS SECURITY (1) REPRESENTS THAT IT IS (A) A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
("RULE 144A")) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN THE TIME
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34
PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED
VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM , OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENT OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
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35
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Security shall also bear the following legend on
the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR SYSTEMS ("EUROCLEAR"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF BANKERS TRUST COMPANY OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR
(AND ANY PAYMENT IS MADE TO BANKERS TRUST COMPANY OR SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, BANKERS
TRUST COMPANY, HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO EUROCLEAR OR NOMINEES OF EUROCLEAR OR TO A
SUCCESSOR OF EUROCLEAR OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF
THE INDENTURE.
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount at maturity of Securities which
may be authenticated and delivered under this Indenture is limited to
$36,001,321 except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 304, 305, 306, 801, 906, 1016, 1017 or 1108.
The Securities shall be known and designated as the "Series C
Senior Discount Notes due 2008" of the Company. The Stated Maturity of the
Series C Senior Discount Notes due 2008 shall be July 15, 2008. The Series C
Senior Discount Notes due 2008 are issued at a
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36
discount. Original issue discount will accrete from the Issue Date (January 20,
1999) until the stated maturity of the Securities on July 15, 2008. In addition,
except as otherwise set forth herein, the Series C Senior Discount Notes due
2008 will bear cash interest at the rate of 7% per annum on the principal amount
at maturity of $36,001,321 from January 15, 2004, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable on July 15, 2004 and semi-annually thereafter on July 15 and January 15
in each year and at said Stated Maturity, until the principal thereof is paid or
duly provided for. The principal of the Securities shall not accrue cash
interest until January 15, 2004, except in the case of a default in payment of
the amount due at Maturity, in which case the amount due on the Securities shall
bear interest at a rate of 18 1/2% per annum (to the extent that the payment of
such interest shall be legally enforceable), which shall accrue from the date of
such default to the date the payment of such amount has been made or duly
provided for. Interest on any overdue principal amount shall be payable on
demand.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 principal amount at maturity
and any integral multiple thereof; provided that at the Issue Date the
Securities may be issued in denomination of $1.00 principal amount at maturity
and any integral amounts thereof. The Company may convert, at its option and to
the extent practical, the Securities to denominations of $1,000 aggregate
principal amount at maturity so long as such conversion is not adverse to the
Holders.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
any of its Chairman, its President or a Vice President, the Chief Executive
Officer or the Chief Financial Officer under its corporate seal reproduced
thereon, the Chief Executive Officer or the Chief Financial Officer The
signature of any of these officers on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.
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37
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
SECTION 304. TEMPORARY SECURITIES.
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38
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.
The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount at maturity, upon surrender of the Securities to be exchanged
at such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall
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39
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 801, 906, 1016, 1017
or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Security initially shall (i) be registered in
the name of the Depositary for such Global Securities or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under any Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent
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40
Members, the operation of customary practices governing the exercise of the
rights of a beneficial owner of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees and, in part, in the circumstances
described in paragraph (d) hereof. Interests of beneficial owners in a Global
Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. Beneficial
owners may obtain Physical Securities (which shall bear the Private Placement
Legend if required by Section 202) in exchange for their beneficial interests in
a Global Security upon request in accordance with the Depositary's and the
Security Registrar's procedures at any time. In addition, Physical Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in the Global Security if (i) the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary for the Global Security or
the Depositary ceases to be a "Clearing Agency" registered under the Exchange
Act and a successor depositary is not appointed by the Company within 90 days or
(ii) an Event of Default has occurred and Holders of more than 25% in aggregate
principal amount of the Securities at the time outstanding represented by the
Global Securities advise the Trustee through the Depositary in writing that the
continuation of a book-entry system through the Depositary with respect to the
Global Securities is no longer required.
(c) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interest in the Global Security
to beneficial owners, upon receipt of written instructions from the Depositary,
the Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount at maturity of the Global Security in an amount
equal to the principal amount at maturity of the beneficial interest in the
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Physical Securities of like
tenor and amount.
(d) In connection with the transfer of the entire Global
Security to beneficial owners pursuant to paragraph (b) of this Section, the
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the Global Security an equal aggregate principal
amount at maturity of Physical Securities of authorized denominations.
(e) Any Physical Security delivered in exchange for an
interest in the Global Security pursuant to paragraph (b) or (c) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph (e) of
Section 307, bear the legend regarding transfer restrictions applicable to the
Physical Security set forth in Section 202.
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41
(f) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(g) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to Section 306(b), the Security Registrar shall reflect on its
books and records a decrease in the principal amount at maturity of the relevant
Global Security equal to the principal amount at maturity of such Physical
Securities and the Company shall execute and the Trustee shall authenticate and
deliver one or more Physical Securities having an equal aggregate principal
amount at maturity.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
(a) GENERAL. The provisions of this Section 307 shall apply to all
transfers involving any Physical Security and any beneficial interest
in any Global Security.
(b) CERTAIN DEFINITIONS. As used in this Section 307 only,
"delivery" of a certificate by a transferee or transferor means the
delivery to the Security Registrar by such transferee or transferor of
the applicable certificate duly completed; "holding" includes both
possession of a Physical Security and ownership of a beneficial
interest in a Global Security, as the context requires; "transferring"
a Global Security means transferring that portion of the principal
amount of the transferor's beneficial interest therein that the
transferor has notified the Security Registrar that it has agreed to
transfer; and "transferring" a Physical Security means transferring
that portion of the principal amount thereof that the transferor has
notified the Security Registrar that it has agreed to transfer.
As used in this Indenture,"Form of Regulation S Certificate"
means a certificate substantially in the form set forth in Section 313,
and Non-Registration Opinion and Supporting Evidence" means a written
opinion of counsel reasonably acceptable to the Company to the effect
that, and such other certification or information as the Company may
reasonably require to confirm that, the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(c) TRANSFERS PURSUANT TO REGULATION S.
Prior to the 41st say following the Closing Date, the
Registrar shall register any transfer of any Note to a Non-U.S. Person
upon the receipt of a certificate substantially in the form of Exhibit
A hereto from the proposed transferor.
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42
(d) DEEMED DELIVERY OF A RULE 144A CERTIFICATE IN CERTAIN
CIRCUMSTANCES. A Rule 144A Certificate, if not actually delivered, will
be deemed delivered if (A) (i) the transferor advises the Company and
the Trustee in writing that the relevant offer and sale were made in
accordance with the provisions of Rule 144A (or, in the case of a
transfer of a Physical Security, the transferor checks the box provided
on the Physical Security to that effect) and (ii) the transferee
advises the Company and the Trustee in writing that (x) it and, if
applicable, each account for which it is acting in connection with the
relevant transfer, is a qualified institutional buyer within the
meaning of Rule 144A, (y) it is aware that the transfer of Securities
to it is being made in reliance on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A, and (z) prior to
the proposed date of transfer it has been given the opportunity to
obtain from the Company the information referred to in Rule 144A(d)(4),
and has either declined such opportunity or has received such
information (or, in the case of a transfer of a Physical Security, the
transferee signs the certification provided on the Physical Security to
that effect); or (B) the transferor holds the Global Security and is
transferring to a transferee that will take delivery in the form of the
Global Security.
(e) PROCEDURES AND REQUIREMENTS. If the proposed transferor
holds:
(A) a Physical Security which is surrendered to the
Security Registrar, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate
and the proposed transferee requests delivery in the
form of a Physical Security, then the Security
Registrar shall (x) register such transfer in the
name of such transferee and record the date thereof
in its books and records, (y) cancel such surrendered
Physical Security and (z) deliver a new Physical
Security to such transferee duly registered in the
name of such transferee in principal amount equal to
the principal amount being transferred of such
surrendered Physical Security; or
(ii) delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the
proposed transferee receive a beneficial interest in
the Global Security, then the Security Registrar
shall (x) cancel such surrendered
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43
Physical Security, (y) record an increase in the
principal amount of the Global Security equal to the
principal amount being transferred of such
surrendered Physical Security and (z) notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
In any of the cases described in this Section
307(e)(A), the Security Registrar shall deliver to the
transferor a new Physical Security in principal amount equal
to the principal amount not being transferred of such
surrendered Physical Security, as applicable.
(B) the Global Security, and the proposed transferee
or transferor, as applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate
and the proposed transferee requests delivery in the
form of a Physical Security, then the Security
Registrar shall (w) register such transfer in the
name of such transferee and record the date thereof
in its books and records, (x) record a decrease in
the principal amount of the Global Security in an
amount equal to the beneficial interest therein being
transferred, (y) deliver a new Physical Security to
such transferee duly registered in the name of such
transferee in principal amount equal to the amount of
such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that
it approves of such transfer; or
(ii) delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee is or is
acting through an Agent Member and requests that the
proposed transferee receive a beneficial interest in
the Global Security, then the transfer shall be
effected in accordance with the procedures of the
Depositary therefor.
(f) EXECUTION, AUTHENTICATION AND DELIVERY OF PHYSICAL
SECURITIES. In any case in which the Security Registrar is required to
deliver a Physical Security to a transferee or transferor, the Company
shall execute, and the Trustee shall authenticate and make available
for delivery, such Physical Security.
(g) CERTAIN ADDITIONAL TERMS APPLICABLE TO PHYSICAL
SECURITIES. Any transferee entitled to receive a Physical Security may
request that the principal amount thereof be evidenced by one or more
Physical Securities in any authorized denomination or denominations and
the Security Registrar shall comply with such request if all other
transfer restrictions are satisfied.
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44
(h) TRANSFERS NOT COVERED BY SECTION 307(e). The Security
Registrar shall effect and record, upon receipt of a written request
from the Company so to do, a transfer not otherwise permitted by
Section 307(e), such recording to be done in accordance with the
otherwise applicable provisions of Section 307(e), upon the furnishing
by the proposed transferor or transferee of a Non-Registration Opinion
and Supporting Evidence.
(i) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture
and in the Private Placement Legend and agrees that it will transfer
such Security only as provided in this Indenture. The Security
Registrar shall not register a transfer of any Security unless such
transfer complies with the restrictions with respect thereto set forth
in this Indenture. The Security Registrar shall not be required to
determine (but may rely upon a determination made by the Company) the
sufficiency of any such certifications, legal opinions or other
information.
(j) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Security Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar
shall deliver only Securities that bear the Private Placement Legend
unless (i) the requested transfer is at least two years after the
original issue date of the Initial Security (with respect to any
Physical Security), (ii) there is delivered to the Security Registrar
an Opinion of Counsel in form reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act or (iii) such Securities are
exchanged for Exchange Securities pursuant to an Exchange Offer.
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount at maturity, bearing a number not contemporaneously outstanding.
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45
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; PROVIDED, HOWEVER, that each installment of interest may at the
Company's option be paid by (i) mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 310,
to the address of such Person as it appears in the Security Register at the
close of business on the Regular Record Date for such interest payment or (ii)
transfer to an account located in the United States maintained by the payee.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
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46
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in
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47
whose name such Security is registered as the owner of such Security for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Sections 305 and 309) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and none of the Company,
the Trustee or any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 311. CANCELLATION.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
SECTION 312. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 313. FORM OF REGULATION S CERTIFICATE.
Upon any transfer of the Securities pursuant to Regulation S,
the transferor of such Securities shall deliver to the Trustee a certificate in
the form of Exhibit A hereto.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
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48
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities expressly provided for herein or pursuant hereto and the
rights, powers, trusts, duties and immunities of the Trustee) and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 308) and (ii) Securities for whose
payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire Indebtedness on
such Securities not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest
on such Securities to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
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49
(3) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest on any Security
when it becomes due and payable and continuance of such default for a
period of 30 days;
(2) default in the payment of the principal of or premium, if
any, on any Security at its Maturity;
(3) default in the performance, or breach, of the provisions
described in Article Eight of this Indenture, the failure to make or
consummate a Change of Control Offer in accordance with the provisions
of Section 1016 or the failure to make
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50
or consummate an Excess Proceeds Offer in accordance with the
provisions of Section 1017;
(4) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a
default in the performance, or breach, of a covenant or warranty which
is specifically dealt with elsewhere in this Indenture) and continuance
of such default or breach for a period of 30 days after written notice
shall have been given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal
amount at maturity of the then Outstanding Securities, as the case may
be;
(5) (i) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Significant
Subsidiary aggregating $15 million or more, when the same becomes due
and payable at the stated maturity thereof, and such default or
defaults shall have continued after any applicable grace period and
shall not have been cured or waived or (ii) Indebtedness of the Company
or any Significant Subsidiary aggregating $15 million or more shall
have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly
scheduled required prepayment) prior to the stated maturity thereof;
(6) any holder or holders (or any Person acting on any such
holder's behalf) of any Indebtedness in excess of $15 million in the
aggregate of the Company or any Significant Subsidiary shall,
subsequent to the occurrence of a default with respect to such
Indebtedness, notify the Trustee of the intended sale or disposition of
any assets of the Company or any Restricted Subsidiary that have been
pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take action to retain in
satisfaction of any such Indebtedness, or to collect on, seize, dispose
of or apply, any such assets of the Company or any Restricted
Subsidiary pursuant to the terms of any agreement or instrument
evidencing any such Indebtedness of the Company or any Restricted
Subsidiary or in accordance with applicable law;
(7) one or more final judgments, orders or decrees of any
court or regulatory agency shall be rendered against the Company or any
Significant Subsidiary or their respective properties for the payment
of money, either individually or in an aggregate amount, in excess of
$15 million and either (i) an enforcement proceeding shall have been
commenced by any creditor upon such judgment or order or (ii) there
shall have been a period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect;
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(8) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Significant Subsidiary under the
Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days; and
(9) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT.
If an Event of Default (other than an Event of Default
specified in Section 501(8) or 501(9)) shall occur and be continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Securities then Outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee upon the
written request of such Holders, shall declare the principal of, premium, if
any, and accrued interest on all of the Outstanding Securities immediately due
and payable, and upon any such declaration all such amounts payable in respect
of the Securities shall become immediately due and payable. If an Event of
Default specified in Section 501(8) or 501(9) occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the Outstanding
Securities shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of either the Trustee or any Holder.
At any time after a declaration of acceleration hereunder, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding
Securities,
(B) all unpaid principal of and premium, if any, on
any Outstanding Securities that have become due otherwise than
by such declaration of acceleration, and interest thereon at
the rate borne by such Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal
at the rate borne by such Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of, premium, if any, or interest on Securities
that have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition
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53
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
and take such other actions, including participating as a member of any
official creditors committee appointed in the matter as it may deem
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
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54
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
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55
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment, as provided herein and in such Security of
the principal of (and premium, if any) and (subject to Section 309) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the
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56
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in principal amount at
maturity of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, PROVIDED
that
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(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount at maturity of the Outstanding Securities may, on behalf of the Holders
of all the Securities, waive any past defaults hereunder, except a default
(1) in the payment of the principal of, premium, if any, or
interest on any such Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
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THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default or Event of
Default hereunder, the Trustee shall transmit in the manner and to the extent
provided in TIA Section 313(c), notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; PROVIDED, HOWEVER,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Security, the Trustee shall be protected in
withholding such notice if a committee of its trust officers in good faith
determines that the withholding of such notice is in the interest of the
Holders; and PROVIDED FURTHER that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 30 days after the occurrence thereof.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other evidence in respect thereof is herein specifically
prescribed) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) shall
be entitled to receive and may require and, in the absence of bad faith
on its part, conclusively rely upon an Officers Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders
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pursuant to this Indenture, unless such Holders shall have offered to
the Trustee security or indemnity reasonably satisfactory to it against
the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(9) the Trustee shall not be deemed to have knowledge of any
default, breach or Event of Default or other matter upon the occurrence
of which it may be required to take action hereunder unless one of its
Responsible Officers has actual knowledge thereof.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk or liability is not reasonably
assured to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any
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Statement of Eligibility on Form T-1 supplied to the Company will be true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 604. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of investigating or defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify
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and hold harmless the Trustee shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture. As security
for the performance of such obligations of the Company, the Trustee shall have a
claim prior to the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the payment of principal of
(and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; PROVIDED, HOWEVER, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the
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manner provided for in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities. In case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee.
In all such cases such certificates shall have the full force and effect which
this Indenture provides for the certificate of authentication of the Trustee
shall have; PROVIDED, HOWEVER, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
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ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets substantially as an entirety to
any other Person or Persons, and the Company shall not permit any Restricted
Subsidiary to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis to any Person or Persons, unless:
(1) either (i) the Company shall be the surviving
corporation or (ii) the Person (if other than the Company) formed by
such consolidation or into which the
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Company or the Company and its Restricted Subsidiaries is merged or the
Person which acquires by sale, conveyance, transfer, lease or other
disposition, all or substantially all of the properties and assets of
the Company or the Company and its Restricted Subsidiaries, as the case
may be, (the "Surviving Entity") (x) shall be a corporation organized
and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia and (y) shall expressly
assume, by an indenture supplemental to this Indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, the
Company's obligations for the due and punctual payment of the principal
of (or premium, if any, on) and interest on all the Securities and the
performance and observance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately before and after giving effect to such
transaction or series of transactions on a PRO FORMA basis (and
treating any obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or
series of transactions on a PRO FORMA basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
latest fiscal quarter for which consolidated financial statements of
the Company are available prior to the consummation of such transaction
or series of transactions with the appropriate adjustments with respect
to the transaction or series of transactions being included in such PRO
FORMA calculation), the ratio of Total Consolidated Indebtedness to
Annualized Pro Forma Consolidated Operating Cash Flow of the Company
(or the Surviving Entity if the Company is not the continuing obligor
under this Indenture) would be less than or equal to such ratio of the
Company immediately before such transaction;
(4) if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 1014 are complied with; and
(5) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition and such supplemental indenture
comply with the terms of this Indenture.
SECTION 802. SUCCESSOR SUBSTITUTED.
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Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein. When a successor assumes all the
obligations of its predecessor under this Indenture and the Securities, the
predecessor shall be released from those obligations; PROVIDED that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal and interest on the Securities.
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS.
If, upon any such consolidation of the Company with or
merger of the Company into any other corporation, or upon any conveyance,
lease or transfer of the property of the Company substantially as an entirety
to any other Person, any property or assets of the Company would thereupon
become subject to any Lien, then unless such Lien could be created pursuant
to Section 1014 without equally and ratably securing the Securities, the
Company, prior to or simultaneously with such consolidation, merger,
conveyance, lease or transfer, will as to such property or assets, secure the
Securities Outstanding (together with, if the Company shall so determine any
other Indebtedness of the Company now existing or hereinafter created which
is not subordinate in right of payment to the Securities) equally and ratably
with (or prior to) the Indebtedness which upon such consolidation, merger,
conveyance, lease or transfer is to become secured as to such property or
assets by such Lien, or will cause such Securities to be so secured; PROVIDED
that, for the purpose of providing such equal and ratable security, the
principal amount of the Securities shall mean that amount which would at the
time of making such effective provision be due and payable pursuant to
Section 502 upon a declaration of acceleration of the Maturity thereof, and
the extent of such equal and ratable security shall be adjusted, to the
extent permitted by law, as and when said amount changes over time as
provided in Section 502.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
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(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; PROVIDED that such action shall
not adversely affect the interests of the Holders in any material
respect; or
(6) to secure the Securities pursuant to the requirements of
Section 1014 or otherwise; or
(7) to qualify, or maintain the qualification of, this
Indenture under the TIA.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Securities, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the Accreted Value
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any
Security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment
after the
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Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount at maturity of
the Outstanding Securities, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
(3) modify any of the provisions of this Section, Section 1021
or Article Five, except to increase the percentage of Outstanding
Securities required for such actions or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security, or
(4) amend, change or modify the redemption provisions of this
Indenture or the Securities or the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate an Excess Proceeds Offer with respect to
any Asset Sale or modify any of the provisions or definitions with
respect thereto.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
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SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Failure to provide such
notice shall not affect the validity of such amendment.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office
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of Bankers Trust Company at Four Albany Street, New York, New York 10006 shall
be such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 10:00 a.m. (New York City time) two
business days prior to the due date of the principal of (or premium, if any) or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal, premium
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
Each amount payable according to the preceding paragraph shall
be paid unconditionally by credit transfer in the payment currency and in same
day, freely transferable cleared funds no later than 10:00 a.m. (New York City
time) on the relevant day to such account at such bank as the Paying Agent may
from time to time specify for such purpose by written notice to the Company at
least two business days prior to the date on
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which the Company must effectuate such wire transfer. The Company shall before
10:00 a.m. on the second business day prior to the day on which the Paying Agent
receives payment, procure that the bank effecting payment for it confirm by
telex or SWIFT MT100 message to the Paying Agent the payment instructions
relating to such payment.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal, premium or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation
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in the Borough of Manhattan, The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a Lien upon the property of the Company or any Subsidiary; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. INSURANCE.
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The Company will at all times keep all of its and its
Subsidiaries properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year and within 45 days after the end of each
fiscal quarter (other than the last fiscal quarter of a year), a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1008(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an officers certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
file with the Commission (if permitted by Commission practice and applicable law
and regulations) the annual reports, quarterly reports and other documents which
are required to be filed with the Commission pursuant to such Section 13(a) or
15(d) or any successor provision thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
required by such Section 13(a) or 15(d) of the Exchange Act regardless of
whether the Company is required to file such documents. The Company shall also
in any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the Commission (i) transmit (or cause to
be transmitted) by mail to all holders of Securities, as their names and
addresses appear in the applicable Security Register, without cost to such
holders, and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the
Commission pursuant to the preceding sentence, or, if such filing is not so
permitted, information and data of a similar nature, and (b) if, notwithstanding
the preceding sentence, filing such documents by the Company with the Commission
is not permitted by Commission practice or applicable
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law or regulations, promptly upon written request supply copies of such
documents to any holder of Securities.
(b) The Company will disclose the current and accumulated
earnings and profits, if any, for any fiscal year in its annual report on form
10K so long as it is required to file such reports. Thereafter, the Company will
provide such information separately to the Holders who so request by written
notice to the Company.
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS.
(a) The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to incur, contingently or otherwise, any
Indebtedness, except for Permitted Indebtedness; PROVIDED that the Company will
be permitted to incur Indebtedness if after giving pro forma effect to such
incurrence (including the application of the net proceeds therefrom), the ratio
of (x) Total Consolidated Indebtedness outstanding as of the date of such
incurrence to (y) Annualized Pro Forma Consolidated Operating Cash Flow would be
greater than zero and less than or equal to 6 to 1.
(b) The Company will not incur any Subordinated Indebtedness
unless such Indebtedness by its terms expressly prohibits the payment by the
Company of any assets or securities (including Common Stock) to the holders of
such Subordinated Indebtedness prior to the payment in full of the Securities in
the event of a bankruptcy or reorganization.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not take, and will not permit any
Restricted Subsidiary to, directly or indirectly, take any of the following
actions:
(i) declare or pay any dividend or any other distribution on
Capital Stock of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the
Company (other than dividends or distributions payable solely in
Capital Stock (other than Redeemable Capital Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock
owned by the Company or a Restricted Subsidiary) or any Affiliate of
the Company (other than any Restricted Subsidiary);
(iii) make any principal payment on, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment,
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sinking fund payment or maturity, any Subordinated Indebtedness of the
Company (other than any Subordinated Indebtedness held by a Restricted
Subsidiary);
(iv) make any Investment (other than a Permitted Investment)
in any Person (other than an Investment by the Company or a Restricted
Subsidiary in either (1) a Restricted Subsidiary or the Company or (2)
a Person that becomes a Restricted Subsidiary as a result of such
Investment);
(v) create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than guarantees of any Indebtedness of
any Restricted Subsidiary by the Company or any Restricted Subsidiary);
or
(vi) declare or pay any dividend or any other distribution on
any Capital Stock of any Restricted Subsidiary to any Person (other
than (1) dividends or distributions paid to the Company or a Restricted
Subsidiary or (2) PRO RATA dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders, provided that
such dividends or distributions do not in the aggregate exceed the
minority stockholders' PRO RATA share of such Restricted Subsidiaries'
net income from the first day of the fiscal quarter beginning
immediately following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso of Section
1010; and (3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date would not exceed an amount equal to the sum of:
(A) the difference between (x) the Cumulative Available Cash
Flow determined at the time of such Restricted Payment and (y) the
product of (I) 1.5 and (II) the cumulative Consolidated Interest
Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the latest fiscal quarter for
which consolidated financial statements of the Company are available
preceding the date of such Restricted Payment (or if such difference
shall be a negative number, minus 100% of such number), PLUS (B) the
aggregate Net Cash Proceeds received by the Company from the issue or
sale (other than to a Restricted Subsidiary) of Capital Stock of the
Company (other than Redeemable Capital Stock) on or after the Issue
Date, excluding any Net Cash Proceeds that are, promptly following
receipt, invested in accordance with clause (ii), (iii) or (v) of
clause (b) hereof and except to the extent such Net Cash Proceeds are
used to incur Indebtedness pursuant to clause (i) of the
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definition of Permitted Indebtedness, PLUS (C) the aggregate Net Cash
Proceeds received by the Company on or after the Issue Date from the
issuance or sale (other than to a Restricted Subsidiary) of debt
securities or Redeemable Capital Stock of the Company that have been
converted into or exchanged for Capital Stock (other than Redeemable
Capital Stock) of the Company to the extent such securities were
originally sold for cash, together with the aggregate net cash proceeds
received by the Company (other than from a Restricted Subsidiary) at
the time of such conversion or exchange, plus (D) in the case of the
disposition or repayment of any Investment (other than through share
leasing arrangements) constituting a Restricted Payment made after the
Issue Date (other than in the case contemplated by clause (E) hereof)
an amount equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either case, less
the cost of the disposition of such Investment, plus (E) in the case of
Investments (other than through share leasing arrangements) made in any
Person other than a Restricted Subsidiary, an amount equal to the
lesser of the Fair Market Value of such Investment and the total amount
of such Investments constituting Restricted Payments if and when such
Person becomes a Restricted Subsidiary less any amounts previously
credited pursuant to clause (D).
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
(b) The provisions of this covenant shall not prohibit, so
long as, with respect to clauses (ii) through (ix) below, no Default or Event of
Default shall have occurred and be continuing (i) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof if at
such date of declaration such payment complied with the provisions of this
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, shares of Capital Stock of the Company (other than
Redeemable Capital Stock); (iii) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue or
sale (other than to a Restricted Subsidiary) of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company or (2) other Subordinated Indebtedness
so long as (A) the principal amount of such new Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) of the Subordinated Indebtedness being so purchased,
redeemed, defeased, acquired or retired, PLUS the lesser of the amount of any
premium required to be paid in connection with such refinancing pursuant to the
terms of the Subordinated Indebtedness being refinanced or the amount of any
premium reasonably determined by the
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Company as necessary to accomplish such refinancing, plus, in either case, the
amount of expenses of the Company incurred in connection with such refinancing,
(B) such new Subordinated Indebtedness is subordinated to the Securities to the
same extent as such Subordinated Indebtedness so purchased, redeemed, defeased,
acquired or retired and (C) such new Subordinated Indebtedness has an Average
Life longer than the Average Life of the Securities and a final Stated Maturity
of principal later than the Stated Maturity of principal of the Securities; (iv)
the extension by the Company and the Restricted Subsidiaries of trade credit to
Unrestricted Subsidiaries, represented by accounts receivable, extended on usual
and customary terms in the ordinary course of business; (v) Investments (other
than through share leasing arrangements) in any Person promptly made with the
proceeds of a substantially concurrent issue or sale of Capital Stock (other
than Redeemable Capital Stock) of the Company; (vi) payments made pursuant to
the Shareholder Registration Rights Agreement; (vii) the payment of reasonable
and customary regular compensation and fees to directors of the Company or any
Restricted Subsidiary who are not employees of the Company or any Restricted
Subsidiary; (viii) any "Restricted Payment" as defined in and permitted by the
PCI Indenture made by PCI or any Subsidiary thereof in accordance with the terms
of the PCI Indenture and (ix) any other Restricted Payments in an aggregate
amount not to exceed $1.0 million (or, if non-U.S. Dollar denominated, the U.S.
Dollar Equivalent thereof) at any one time outstanding.
In determining the amount of Restricted Payments permissible
under this covenant, amounts expended pursuant to clauses (i), (vi), (vii),
(viii) and (ix) above shall be included as Restricted Payments.
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES.
(a) The Company will not and will not permit any Restricted
Subsidiary to issue or sell any shares of Capital Stock of a Restricted
Subsidiary (other than to the Company or a Restricted Subsidiary); PROVIDED,
HOWEVER, that this covenant shall not prohibit (i) the issuance and sale of all,
but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary in compliance with the other provisions of this Indenture,
(ii) issuances or sales of Common Stock of a Restricted Subsidiary if (x) the
proceeds of such issuance or sale are applied in accordance with Section 1017
and (y) immediately after giving effect thereto, the Company and its other
Restricted Subsidiaries own no less than 51% of the outstanding Voting Stock of
such Restricted Subsidiary, (iii) issuances or sales of Capital Stock of
Restricted Subsidiaries that are subsidiaries of PCI that are permitted by the
terms of the PCI Indenture or (iv) the ownership by directors of directors'
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
<PAGE>
78
(b) The Company will not permit the direct or indirect
ownership of the Company or any Restricted Subsidiary in the Capital Stock of
any Management Company to fall below the lesser of (i) the maximum ownership
percentage permitted by applicable law and (ii) 51% of the outstanding Capital
Stock of such Management Company, PROVIDED that any increase in such ownership
of the Capital Stock of any Management Company required by any change in
applicable law shall not be required to be completed prior to 365 days from the
effective date of such change in applicable law, PROVIDED FURTHER that the
Company and the Restricted Subsidiaries may sell all, but not less than all, of
their Capital Stock of any Management Company in accordance with the provisions
of Section 1017.
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with, or
for the benefit of, any Affiliate of the Company (other than the Company or a
Restricted Subsidiary and after the Old Notes are no longer outstanding, a
Majority Owned Restricted Subsidiary) unless (i) such transaction or series of
related transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with unrelated third parties who are not
Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $10
million, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Directors of the Board of
Directors, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view (or if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20 million, the Company shall have delivered an officers'
certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above and such transaction or series of
related transactions has been approved by a majority of the Disinterested
Directors of the Board of Directors (assuming that at least two such Directors
exist), or in the event that at least two members of the Board of Directors are
not Disinterested Directors with respect to any transaction or series of
transactions included in this clause (iii), the Company shall obtain an opinion
from a nationally recognized investment banking firm (or if an investment
banking firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal
<PAGE>
79
firm or accounting firm) as described above; PROVIDED, HOWEVER, that this
provision will not restrict (1) any transaction by the Company or any Restricted
Subsidiary with an Affiliate directly related to the purchase, sale or
distribution of products in the ordinary course of business, including, without
limitation, transactions related to the purchase, sale or distribution of
programming, subscriber management services, transmission services and services
related to the publication of programming guides, (2) the Company from paying
reasonable and customary regular compensation and fees to directors of the
Company or any Restricted Subsidiary who are not employees of the Company or any
Restricted Subsidiary, including, without limitation, any such fees which the
Company has agreed to pay to any director pursuant to an agreement in effect on
the Issue Date and listed on Schedule A to this Indenture, (3) the payment of
compensation (including stock options and other incentive compensation) to
officers and other employees the terms of which are approved by the Board of
Directors, (4) any transactions pursuant to a Management Agreement, (5) the
Company or any Restricted Subsidiary from making any Restricted Payment in
compliance with Section 1011, (6) (x) transactions pursuant to any Management
Contract, Overhead Agreement or Service Agreement that is entered into prior to
the Issue Date and is listed in Schedule A to this Indenture; or (y)
transactions pursuant to any Organizational Contract, Overhead Agreement or
Service Agreement that is entered into after the Issue Date and has
substantially identical terms as, and is no less favorable to the Company or any
Restricted Subsidiary than, the Organizational Contracts, Overhead Agreements or
Service Agreements, as the case may be, listed in Schedule A to this Indenture,
or (7) amendments, modifications or alterations of Management Agreements,
Organizational Contracts, Overhead Agreements and Service Agreements under (b)
below.
(b) The Company will not, and will not permit any Restricted
Subsidiary to, amend, modify, or in any way alter the terms of any Management
Agreement, Organizational Contract, Overhead Agreement or Service Agreement in a
manner materially adverse to the Company other than (i) by adding new Restricted
Subsidiaries to a Management Agreement, (ii) substituting one Restricted
Subsidiary in place of another Restricted Subsidiary under a Organizational
Contract, (iii) amendments, modifications or alterations required by applicable
law, (iv) amendments, modifications or alterations made to increase the
Company's control over, or interest in, any Management Company or (v)
amendments, modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of the Company as not
materially adverse to the Company.
SECTION 1014. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind, except for Permitted Liens, on or with respect to any of
its property or assets, whether owned at the date of this Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or
<PAGE>
80
assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien and (y) in the case of any other Lien, the Securities are
equally and ratably secured.
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS BY SUBSIDIARIES.
(a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Securities by such Restricted
Subsidiary on a basis senior to any guarantee of Subordinated Indebtedness or at
least PARI PASSU with any guarantee of Pari Passu Indebtedness; PROVIDED that
this paragraph (a) shall not be applicable to (i) any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary or (ii) any guarantee of any Restricted Subsidiary of Senior Bank
Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the
Securities created pursuant to the provisions described in the foregoing
paragraph (a) shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person who is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by this
Indenture) (ii) the occurrence of any default or breach of any covenant or
agreement under any Indebtedness of the Company arising as a result of the
creation of such guarantee or (iii) the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness). In the event that clause (ii) of this paragraph (b) shall apply
immediately after the creation of such guarantee under paragraph (a) above, then
such guarantee need not be created.
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL.
If a Change of Control shall occur at any time, then each
holder of Securities shall have the right to require that the Company purchase
such holder's Securities, in whole
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81
or in part in integral multiples of $1,000 principal amount at maturity, at a
purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the Accreted Value of the Securities plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of Control Offer")
and the other procedures set forth in this Indenture.
Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Securities by first-class mail, postage prepaid, at
the address of such holder appearing in the Security Register, stating, among
other things, (a) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed, or such later date as is necessary to comply with requirements
under the Exchange Act; (b) that any Security not tendered will continue to
accrue interest or accrete original issue discount, as applicable; (c) that,
unless the Company defaults in the payment of the purchase price, any Securities
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and (d) certain other
procedures that a holder of Securities must follow to accept a Change of Control
Offer or to withdraw such acceptance.
The Company will comply with the applicable tender offer
rules, including Rule l4e-l under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer.
The Company will not enter into any agreement that would
prohibit the Company from making a Change of Control Offer to purchase the
Securities or, if such Change of Control Offer is made, to pay for the
Securities tendered for purchase.
SECTION 1017. LIMITATION ON SALE OF ASSETS.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the Fair Market Value of the shares or assets sold
(as determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution) and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 75% cash or Cash Equivalents.
Notwithstanding the preceding sentence, the Company and its Restricted
Subsidiaries may consummate an Asset Sale without complying with clause (ii) of
the immediately preceding sentence if at least 75% of the consideration for such
Asset Sale consists of any combination of cash, Cash Equivalents and those items
described in clause (b)(ii) or (b)(iii) below.
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82
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale, the Company may use the Net Cash Proceeds thereof, within 12 months
after the later of such Asset Sale or the receipt of such Net Cash Proceeds, (i)
to permanently repay or prepay any then outstanding Senior Bank Indebtedness of
the Company or a Restricted Subsidiary, any then outstanding Indebtedness of a
Restricted Subsidiary or any other then outstanding unsubordinated Indebtedness
of the Company, (ii) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection with
a Permitted Investment made under clause (g), (h) or (i) of the definition
thereof), make capital expenditures (including lease payments for one or more
capital assets) or invest in other tangible assets of the Company or any
Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of the Company and its Restricted
Subsidiaries (or enter into a legally binding agreement to do so within six
months of the date on which such agreement is executed) or (iii) to invest in
properties or assets that replace the properties and assets that are the subject
to such Asset Sale (or enter into a legally binding agreement to do so within
six months of the date on which such agreement is executed). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (ii) or (iii) (without regard to the parenthetical contained
in clauses (ii) or (iii)) above. The amount of such Net Cash Proceeds not so
used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15 million the Company
shall, within 30 business days, make an offer to purchase (an "Excess Proceeds
Offer") from all holders of Securities, on a PRO RATA basis (together with and
including any Notes that may be outstanding pursuant to the Series B Indenture),
in accordance with the procedures set forth below, the maximum Accreted Value of
Securities that may be purchased with the Excess Proceeds less the amount of
Excess Proceeds, if any, required to be applied under the PCI Indenture for the
repurchase of PCI Notes and applied under the Old Indenture for the repurchase
of the Old Notes. The offer price shall be payable in cash in an amount equal to
100% of the Accreted Value of the Securities plus accrued and unpaid interest,
if any (the "Offered Price"), to the date such Excess Proceeds Offer is
consummated (the "Offer Date"). To the extent that the aggregate Accreted Value
of Securities tendered pursuant to an Excess Proceeds Offer is less than the
Excess Proceeds relating thereto, the Company may use such additional Excess
Proceeds for general corporate purposes. If the Accreted Value of Securities
validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Securities to be purchased will be selected on a PRO RATA basis
(together with and including any Notes that may be outstanding pursuant to the
Series B Indenture). Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset to zero.
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83
(d) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Securities shall be purchased by the Company, at the
option of the holder thereof, in whole or in part in integral multiples of
$1,000 on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event the amount of Excess Proceeds is less
than the aggregate Offered Price of all Securities tendered.
(e) The Company will comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer.
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions to the Company or any Restricted Subsidiary on
or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (c) make loans or advances to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to the Company or any other Restricted Subsidiary, except in all such cases for
such encumbrances or restrictions existing under or by reason of (i) any
agreement or instrument in effect on the Issue Date and listed on Schedule D
attached to this Indenture, (ii) applicable law or regulation (including
corporate governance provisions required by applicable law and regulations of
the National Bank of Poland), (iii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (v) any mortgage or other Lien on real property acquired or improved
by the Company or any Restricted Subsidiary after the Issue Date that prohibits
transfers of the type described in (d) above with respect to such real property,
(vi) with respect to a Restricted Subsidiary, an agreement that has been entered
into for the sale or disposition of all or substantially all of the Company's
Capital Stock in, or substantially all the assets of, such Restricted
Subsidiary, (vii) the refinancing of Indebtedness incurred under the agreements
listed on Schedule B attached to this Indenture or described in clause (v)
above, so long as such encumbrances or restrictions are no less favorable in any
material respect to the Company or any Restricted Subsidiary than those
contained in the respective agreement as in
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84
effect on the date of this Indenture, (viii) any such customary encumbrance or
restriction contained in a security document creating a Lien permitted under
this Indenture to the extent relating to the property or asset subject to such
Lien, (ix) any agreement or instrument governing or relating to Senior Bank
Indebtedness (an "Indebtedness Instrument") if such encumbrance or restriction
applies only (X) to amounts which at any point in time (other than during such
periods as are described in the following clause (Y)) (1) exceed amounts due and
payable (or which are to become due and payable within 30 days) in respect of
the Securities or this Indenture for interest, premium and principal (after
giving effect to any realization by the Company under any applicable Currency
Agreement), or (2) if paid, would result in an event described in the following
clause (Y) of this sentence, or (Y) during the pendency of any event that
causes, permits or, after notice or lapse of time, would cause or permit the
holder(s) of the Senior Bank Indebtedness governed by the Indebtedness
Instrument to declare any such Indebtedness to be immediately due and payable or
require cash collateralization or cash cover for such Indebtedness for so long
as such cash collateralization or cash cover has not been provided, or (Z)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness and that do not individually, or together with all such
encumbrances or restrictions, detract from the value of property or assets of
the Company or any Restricted Subsidiary in any manner material to the Company
or any Restricted Subsidiary and (x) with respect to clause (d) above, any
license agreement entered in the ordinary course of business whereby the Company
or any other Restricted Subsidiary grants a license of programming or other
intellectual property to any other Person and such license agreement prohibits
or encumbers the transfer of the licensed property.
SECTION 1019. LIMITATION ON INVESTMENTS IN UNRESTRICTED
SUBSIDIARIES.
The Company will not make, and will not permit any of its
Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries
(other than Permitted Investments) if, at the time thereof, the amount of such
Investment would exceed the amount of Restricted Payments then permitted to be
made pursuant to Section 1011. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (a) will be treated as the making
of a Restricted Payment in calculating the amount of Restricted Payments made by
the Company or a Restricted Subsidiary (without duplication under the provisions
of clause (a) of paragraph (iv) of Section 1011 and (b) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (a)).
SECTION 1020. LIMITATION ON LINES OF BUSINESS.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, engage in any business other than the
Cable/Telecommunications Business, the
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85
Entertainment/Programming Business or the DTH Business or any business or
activity reasonably related thereto, including the operation of a subscriber
management or service business.
SECTION 1021. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1007 through 1020,
inclusive, if before or after the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 2004 on not less
than 30 or more than 60 days' prior notice at the redemption prices (expressed
as percentages of Accreted Value) set forth below, together with accrued
interest, if any, to the redemption date, if redeemed during the twelve-month
period beginning on July 15 of the years indicated below (subject to the right
of holders of record on relevant record dates to receive interest due on a
relevant interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
- - ---- PRICE
----------
<S> <C>
2004............................................................109.000%
2005............................................................106.000
2006............................................................103.000
2007 and thereafter.............................................100.000
</TABLE>
(b) The Company will redeem or purchase Series C Notes in
denominations of $1,000 principal amount at maturity and integral multiples
thereof in accordance with the
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86
terms of this Indenture unless the Series C Notes are in denominations of less
than $1,000 principal amount at maturity. In such events, the Series C Notes
will be redeemed or purchased in multiples of the denomination in which the
Series C Notes are then denominated.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee in writing of such
Redemption Date and of the principal amount of Securities to be redeemed and
shall deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE
REDEEMED.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee by such method as the Trustee shall
deem fair and appropriate; PROVIDED, HOWEVER, that no partial redemption shall
reduce the portion of the principal amount of a Security not redeemed to less
than $100.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
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87
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed at its registered address.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
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88
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest,
if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
<PAGE>
89
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR
COVENANT DEFEASANCE.
The Company may, at its option and at any time, with respect
to the Securities, elect to have either Section 1302 or Section 1303 be applied
to all Outstanding Securities upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1304 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due, (B) the Company's obligations with
respect to such Securities under Sections 304, 305, 308, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
SECTION 1303. COVENANT DEFEASANCE.
<PAGE>
90
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801 (3) and in Sections 1007
through 1020 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(4), but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably deposit or cause to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in United States Dollars, (B)
U.S. Government Obligations, or (C) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, or a nationally
recognized investment banking firm, to pay and discharge (i) the
principal of, premium, if any, and interest on the relevant Outstanding
Securities on the Stated Maturity (or upon redemption, if applicable)
of such principal, premium, if any, or installment of interest and (ii)
any mandatory redemption or analogous payments applicable to the
Outstanding Securities on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such
Securities; PROVIDED that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities. For this
purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or
<PAGE>
91
supervised by and acting as an agency or instrumentality of the United
States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States
of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, PROVIDED that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are
concerned, at any time during the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the
Company is a party or by which it is bound.
(4) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States stating that (x) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or (y) since
the effective date of the Registration Statement there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred.
(5) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the Holders of the Outstanding Securities
will not recognize income, gain or loss for federal income tax purposes
as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
<PAGE>
92
(6) The Company shall have delivered to the Trustee an Opinion
of Counsel in the United States to the effect that after the 91st day
following the deposit or after the date such opinion is delivered, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of the Securities
over the other creditors of the Company with the intent of hindering,
delaying or defrauding creditors of the Company.
(8) The Company shall have delivered to the Trustee an
Officers Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS
TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding s.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would
<PAGE>
93
then be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; PROVIDED, HOWEVER, that if the Company makes any payment of
principal of (or premium, if any) or interest on any following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
to receive such payment from the money held by the Trustee or Paying Agent.
<PAGE>
94
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, and their respective corporate seals to be hereunto affixed and, in
the case of the Company, attested, all as of the day and year first above
written.
@ENTERTAINMENT, INC.
[SEAL] By: /s/ROBERT E. FOWLER, III
------------------------
Title: CHIEF EXECUTIVE OFFICER
Attest: /s/DONALD MILLER JONES
----------------------
Title: CHIEF FINANCIAL OFFICER
BANKERS TRUST COMPANY
[SEAL] By: /s/IAN HANCOCK
--------------
Title:
<PAGE>
Note: In these Schedules to this Indenture, defined terms have the same meaning
as in the Offering Memorandum.
SCHEDULE A
EXISTING MANAGEMENT CONTRACTS,
OVERHEAD AGREEMENTS AND SERVICE AGREEMENTS
<TABLE>
<CAPTION>
DATE SERVICE AGREEMENTS
<S> <C>
04/01/96 Service Agreement among Poltelkab, WCCI and PCBV.
08/31/95 Service Agreement among ETV, PCBV and WCCI.
07/07/95 Service Agreement among PTK-Lublin, WCCI and PCBV.
07/01/95 Service Agreement among Elektrim TV Sp. Z 0.0., WCCI and PCBV.
05/26/95 Service Agreement among PTK-Inzynier (predecessor to
PTK-Szczecin), WCCI and PCBV.
01/01/94 Service Agreement among PTK, S.A., WCCI and PCBV.
01/01/94 Service Agreement among PTK-Katowice, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Krakow, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Warsaw, WCCI and PCBV.
01/11/95 Service Agreement among Telkat, WCCI and PCBV.
11/01/95 Service Agreement among WCCI and PCBV.
</TABLE>
<TABLE>
<CAPTION>
DATE MANAGEMENT AGREEMENTS
<S> <C>
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. Z 0.0.
<PAGE>
96
01/11/95 Management Agreement between WCCI and Telkat.
01/01/95 Management Agreement between WCCI and PTK-Warsaw.
01/01/95 Management Agreement between WCCI and PTK, S.A.
01/01/95 Management Agreement between WCCI and PTK-Krakow.
01/01/94 Management Agreement between WCCI and PTK-Katowice.
</TABLE>
<TABLE>
<CAPTION>
DATE CORPORATE OVERHEAD ALLOCATION AGREEMENTS
<S> <C>
As of
01/01/96 Corporate Overhead Allocation Agreement dated as of
January 1, 1996, among PTK, S.A., PTK-Warsaw, PTK-Ryntronik,
PTK-Krakow, PTK-Inzynier, PTK-Lublin, ETV, Telkat, WCCI and
PCBV.
As of
04/01/96 Letter Agreement Between WCCI, PCBV and Poltelkab
adding Poltelkab as a party to the Corporate Overhead
Allocation Agreement.
</TABLE>
<PAGE>
SCHEDULE B
INDEBTEDNESS OUTSTANDING ON THE ISSUE DATE
<TABLE>
<CAPTION>
Amount Outstanding
BORROWER Lender Exclusive of Amount of Loan
Accrued Interest
<S> <C> <C> <C>
Poland Communications, AmerBank-Bank $6,500,000.00 $6,500,000.00
Inc. Amerykanski w
Polsce S.A.
Szczecinska Telewizja Bank Rozwoju DM 3,204,900.00 DM 3,948,615.17
Kablowa Sp. Z o.o. Eksportu S.A.
Telewizja Kablowa Polski Bank $333,334.00 $500,000.00
Gosat Sp. Z o.o. Eksportu S.A.
</TABLE>
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc., the Indenture dated as of October 31, 1996
between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc. and the Indenture dated as of January 20, 1999 between
Bankers Trust Company, as Trustee, and @Entertainment, Inc.
<PAGE>
SCHEDULE C
LIENS EXISTING ON THE ISSUE DATE
PLEDGES OF CAPITAL STOCK
1. 2,514,291 shares of PTK-Krakow capital stock owned by PCBV,
subject to a Lien existing on this date, are pledged in favor
of AmerBank.
2. 2,400 shares of PTK-Lublin capital stock owned by Poltelkab
have been pledged to Amerbank.
3. 3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a
Lien existing on this date, are pledged in favor of Amerbank.
4. Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. Z
o.o. for the security of certain obligations undertaken by PTK
Szczecin Sp. Z o.o.
5. Lien on certain cable television fixed assets of Telewizja
Kablowa Gosat Sp. Z o.o. and pledge on insurance policies for
such assets in favor of Polski Bank Rozwoju S.A.
<PAGE>
SCHEDULE D
AGREEMENTS NOT RESTRICTED UNDER SECTION 1018
A) LIMITATIONS ON ABILITY TO PAY DIVIDENDS OR MAKE DISTRIBUTIONS ON
CAPITAL STOCK.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to pay dividends or make distributions on its capital
stock is limited by its Restated Certificate of Incorporation.
PTK-Operator's ability to pay dividends or make distributions on its
capital stock is limited by the convertible debt of PTK-Operator.
The Statutes, Notarial Deeds or Articles of Association of each of the
Polish Subsidiaries require shareholder vote to pay dividends or make
distribution on capital stock.
2) Limitations on the payment of indebtedness owed to the Company or any
Subsidiary.
The Indenture dates as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The statutes of PTK-Operator limit the payment on indebtedness owed to
the Company or any Subsidiary.
PCI's ability to make payments on indebtedness is limited by its
Restated Certificate of Incorporation.
PCBV and PCI have subordinated their right to receive payments on their
loans to PTK Warsaw, PTK-Krakow, and PTK-Lublin in favor of AmerBank.
<PAGE>
100
C) LIMITATIONS ON THE ABILITY OF A COMPANY TO MAKE INVESTMENTS IN THE
COMPANY OR ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to make investments in any Subsidiary is limited by its
Restated Certificate of Incorporation.
The Statutes, Notarial Deeds or articles of association of each of the
Polish Subsidiaries require shareholder vote to make certain
investments in the Company or any Subsidiary.
The PCBV Shareholders agreement limits the ability to make investments
in the Company or any Subsidiary.
4) LIMITATIONS ON TRANSFERRING PROPERTY OR ANY ASSETS TO THE COMPANY OR
ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to transfer property or assets to any Subsidiaries is
limited by the Company's Restated Certificate of Incorporation.
Certain Polish statutes restrict the transfer of property or any assets
to the Company or any Subsidiary or the conversion of convertible debt.
The PCBV shareholders agreement limits the ability to transfer property
or any assets to the Company or any Subsidiary.
2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to
a Lien existing on this date, are pledged in favor of AmerBank.
2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to AmerBank.
<PAGE>
101
3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of AmerBank.
Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. z o.o. for
the security of certain obligations undertaken by PTK Szczecin Sp.z
o.o.
Lien on certain cable television fixed assets of Telewizja Kablowa
Gosat Sp. z o.o. and assignment of insurance policies for such assets
in favor of Polski Bank Rozwoju S.A.
<PAGE>
102
<PAGE>
@ENTERTAINMENT, INC.
Series C Senior Discount Note due 2008
ISIN: XS 0094166096
Common Code: 9416609
No.1 $36,001,321
@ENTERTAINMENT, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to BT Globenet Nominees Limited, or its
registered assigns, the principal sum of THIRTY SIX MILLION ONE THOUSAND THREE
HUNDRED AND TWENTY ONE DOLLARS ($36,001,321) on July 15, 2008.
<TABLE>
<S> <C>
Issue Date: January 20, 1999
Issue Price of Note: $.27262 per $1.00 principal amount at
Maturity
Yield to Maturity: 18 1/2%
Accretion Period: Original issue discount will accrete from
Issue Date up to July 15, 2008.
Cash Interest Payment Dates: January 15 and July 15 of each year
commencing July 15, 2004.
Regular Record Dates: January 1 and July 1 of each year.
</TABLE>
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: January 20, 1999 @ENTERTAINMENT, INC.
By:
--------------------------------
Title:
By:
--------------------------------
Title:
<PAGE>
A-3
This is one of the Series C Senior Discount Notes due 2008 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE>
A-4
@ENTERTAINMENT, INC.
Series C Senior Discount Note due 2008
1. PRINCIPAL AND INTEREST
The Company will pay the principal of this Note on July 15,
2008.
Original issue discount will accrete from the Issue Date up to
July 15, 2008. In addition, the Company promises to pay cash interest on the
principal amount of this Note on each Interest Payment Date, as set forth below,
at the rate of 7% per annum on the principal amount at maturity of $36,001,321
commencing on July 15, 2004.
Cash interest will be payable semiannually (to the holders of
record of the Notes at the close of business on the January 1 or July 1
immediately preceding the Interest Payment Date) on each Interest Payment
Date, commencing July 15, 2004. Except in the case of a Registration Default
(as defined herein), the principal of this Note shall not accrue cash
interest until January 15, 2004, except in the case of a default in payment
of the amount due at Maturity, in which case the amount due on this Note
shall bear interest at a rate of 18 1/2% per annum (to the extent that the
payment of such interest shall be legally enforceable), which shall accrue
from the date of such default to the date the payment of such amount has been
made or duly provided for. Interest on any overdue principal amount shall be
payable on demand.
Cash Interest on this Note will accrue from the most recent
date to which interest has been paid on this Note or, if no interest has been
paid, from July 15, 2004; PROVIDED that, if there is no existing default in the
payment of interest and if this Note is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest of 7% will be calculated on the principal amount at maturity of
$36,001,321.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum of 18 1/2%.
<PAGE>
A-5
2. METHOD OF PAYMENT
The Company will pay cash interest (except defaulted interest)
on the principal amount of the Notes on each January 15 and July 15, commencing
July 15, 2004, to the persons who are Holders (as reflected in the Note Register
at the close of business on the January 1 and July 1 immediately preceding the
Interest Payment Date), in each case; PROVIDED that, with respect to the payment
of principal, the Company will make payment to the Holder that surrenders this
Note to any Paying Agent on or after July 15, 2008.
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Note Register). If a payment date is a date other than a Business Day at a place
of payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND NOTE REGISTRAR.
Initially, the Trustee will act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Note Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
January 20, 1999 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are senior unsecured obligations of the Company
ranking pari passu in right of payment with all other existing and future
unsubordinated obligations of the
<PAGE>
A-6
Company and senior in right of payment to any existing and future obligations of
the Company expressly subordinated in right of payment to the Notes. The
Indenture limits the aggregate principal amount at maturity of the Notes to
$36,001,321.
5. OPTIONAL REDEMPTION UPON A PUBLIC EQUITY OFFERING.
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after July 15, 2004 on not less than 30 or
more than 60 days' prior notice at the redemption prices (expressed as
percentages of Accreted Value) set forth below, together with accrued interest,
if any, to the redemption date, if redeemed during the twelve-month period
beginning on July 15 of the years indicated below (subject to the right of
holders of record on relevant record dates to receive interest due on a relevant
interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2004................................................... 109.000%
2005................................................... 106.000
2006................................................... 103.000
2007 and thereafter................................... 100.000
</TABLE>
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1.00 principal amount at maturity may be redeemed in
part in integral multiples of $1.00 principal amount at maturity. On and after
the Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) Upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Company purchase such holder's
Notes, in whole or in part in integral multiples of $1.00 principal amount at
maturity, at a purchase price in cash of 101% of the Accreted Value thereof on
the redemption date, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on relevant record dates to
receive interest due on relevant interest payment dates), and (b) upon the
occurrence of an Asset Sale, the Company may be obligated to make an offer to
purchase all or a portion of the outstanding Notes with a portion of the Net
Cash Proceeds of such Asset Sale at a
<PAGE>
A-7
redemption price of 100% of the Accreted Value thereof on the redemption date
plus accrued and unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in
denominations of $1.00 principal amount at maturity and any integral multiple
thereof. Under the Terms of the Indenture, the Company may convert, at its
option and to the extent practical, the Notes to denominations of $1,000
principal amount at maturity, so long as such conversion is not adverse to
Holders. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Note Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Note Registrar need
not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all
purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount at maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to,
<PAGE>
A-8
among other things, cure any ambiguity or inconsistency and make any change that
does not materially adversely affect the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
0Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount at maturity of the Notes then outstanding, by written notice to the
Company (and to the Trustee, if such notice is given by the Holders) may declare
all the Notes to be immediately due and payable and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes and
all such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
<PAGE>
A-9
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
<PAGE>
A-10
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or the end of the period referred to in Rule 144(k) under the
Securities Act, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the
Indenture.
<PAGE>
A-11
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date:
----------------------------
NOTICE: The signature to this
assignment must correspond with
the name as written upon the
face of the within-mentioned
instrument in every particular,
without alteration or any
change whatsoever.
Signature Guarantee:
------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:
---------------------------- --------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1016 or Section 1017 of the Indenture, state the
amount (in original principal amount) below:
$---------------------.
Date:
---------------------------------
Your Signature:
------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
--------------------------------------------
<PAGE>
A-13
EXHIBIT A
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATIONS S
To: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust Trustee Administration
Re: @Entertainment, Inc. (the "COMPANY")
SERIES C SENIOR DISCOUNT NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $36,001,321 aggregate
principal amount at maturity of Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no direct selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. The terms used in this letter have
the meanings set forth in Regulation S.
Very truly yours,
<PAGE>
A-14
[NAME OF TRANSFEROR]
By:
---------------------------------
Name:
Title:
Address:
Date of this Certificate:
--------------------------
<PAGE>
Exhibit4.2
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
@ENTERTAINMENT, INC.
TO
BANKERS TRUST COMPANY
Trustee
--------------------
INDENTURE
Dated as of January 27, 1999
---------------------
$256,800,000 aggregate principal amount at maturity
14 1/2% Senior Discount Notes due 2009
and
14 1/2% Exchange Senior Discount Notes due 2009
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
@ENTERTAINMENT, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1) .............................................................. 607
(a)(2) .............................................................. 607
(b) .............................................................. 608
312(c) .............................................................. 701
314(a) .............................................................. 703
(a)(4) .............................................................. 1008(a)
(c)(1) .............................................................. 102
(c)(2) .............................................................. 102
(e) .............................................................. 102
315(b) .............................................................. 601
316(a)(last
sentence) .............................................................. 101 ("Outstanding")
(a)(1)(A) .............................................................. 502, 512
(a)(1)(B) .............................................................. 513
(b) .............................................................. 508
(c) .............................................................. 104(d)
317(a)(1) .............................................................. 503
(a)(2) .............................................................. 504
(b) .............................................................. 1003
318(a) .............................................................. 111
</TABLE>
- - --------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES........................................................................................................ 1
RECITALS OF THE COMPANY........................................................................................ 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONSOF GENERAL APPLICATION
SECTION 101. DEFINITIONS...............................................................................1
Accreted Value..........................................................................................2
Acquired Indebtedness...................................................................................3
Act.....................................................................................................3
Advent..................................................................................................3
Affiliate...............................................................................................3
Annualized Pro Forma Consolidated Operating Cash Flow...................................................3
Asset Acquisition.......................................................................................4
Asset Sale..............................................................................................4
Average Life............................................................................................5
Bankruptcy Law..........................................................................................5
Board of Directors......................................................................................5
Board Resolution........................................................................................5
Business Day............................................................................................5
Cable Television Newco..................................................................................5
Cable/Telecommunications Business.......................................................................5
Capital Stock...........................................................................................6
Capitalized Lease Obligation............................................................................6
Cash Equivalents........................................................................................6
Change of Control.......................................................................................6
Commission..............................................................................................7
Common Stock............................................................................................7
Company.................................................................................................7
Company Request or Company Order........................................................................8
Consolidated Income Tax Expense.........................................................................8
Consolidated Interest Expense...........................................................................8
Consolidated Net Income.................................................................................8
Consolidated Operating Cash Flow........................................................................9
Corporate Trust Office..................................................................................9
- - ----------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
Corporation.............................................................................................9
Cumulative Available Cash Flow..........................................................................9
Currency Agreement.....................................................................................10
Default................................................................................................10
Defaulted Interest.....................................................................................10
Depositary.............................................................................................10
Disinterested Director.................................................................................10
DTH Business...........................................................................................10
ECO....................................................................................................10
Entertainment/Programming Business.....................................................................10
Event of Default.......................................................................................10
Exchange Act...........................................................................................10
Exchange Offer.........................................................................................10
Exchange Offer Registration Statement..................................................................11
Exchange Securities....................................................................................11
Fair Market Value......................................................................................11
Federal Bankruptcy Code................................................................................11
Generally Accepted Accounting Principles...............................................................11
GAAP...................................................................................................11
Global Security........................................................................................11
guarantee..............................................................................................11
Holder.................................................................................................11
Incur or incur.........................................................................................11
Indebtedness...........................................................................................12
Indenture..............................................................................................13
Initial Securities.....................................................................................13
Interest Payment Date..................................................................................13
Interest Rate Agreements...............................................................................13
Investment.............................................................................................13
Issue Date.............................................................................................13
Lien...................................................................................................13
Majority Owned Restricted Subsidiary...................................................................13
Management Agreement...................................................................................14
Management Company.....................................................................................14
Maturity...............................................................................................14
Moody's................................................................................................14
Net Cash Proceeds......................................................................................14
Officers Certificate...................................................................................15
Opinion of Counsel.....................................................................................15
Organizational Contract................................................................................15
Outstanding............................................................................................15
Overhead Agreement.....................................................................................16
Pari Passu Indebtedness................................................................................16
<PAGE>
Paying Agent...........................................................................................16
PCBV...................................................................................................16
PCI....................................................................................................17
PCI Indenture..........................................................................................17
Permitted Holders......................................................................................17
Permitted Indebtedness.................................................................................17
Permitted Investments..................................................................................20
Permitted Liens........................................................................................20
Person.................................................................................................23
Physical Note..........................................................................................23
Poltelkab..............................................................................................23
Predecessor Security...................................................................................23
Preferred Stock........................................................................................23
Public Equity Offering.................................................................................23
Purchase Money Obligation..............................................................................23
Qualified Capital Stock................................................................................23
Qualified Institutional Buyer or QIB...................................................................23
Redeemable Capital Stock...............................................................................24
Redemption Date........................................................................................24
Redemption Price.......................................................................................24
Registration Rights Agreement..........................................................................24
Registration Statement.................................................................................24
Regular Record Date....................................................................................24
Responsible Officer....................................................................................24
Restricted Payment.....................................................................................24
Restricted Subsidiary..................................................................................24
Rule 144A..............................................................................................24
S&P....................................................................................................25
Securities.............................................................................................25
Security Register and Security Registrar...............................................................25
Senior Bank Indebtedness...............................................................................25
Service Agreement......................................................................................25
Shareholder Registration Rights Agreement..............................................................25
Shelf Registration Statement...........................................................................25
Significant Subsidiary.................................................................................25
Special Purpose Vehicle................................................................................25
Special Record Date....................................................................................26
Stated Maturity........................................................................................26
Subordinated Indebtedness..............................................................................26
Subsidiary.............................................................................................26
Total Consolidated Indebtedness........................................................................26
Trust Indenture Act....................................................................................26
Trustee................................................................................................26
<PAGE>
Unrestricted Subsidiary................................................................................26
U.S. Dollar............................................................................................27
U.S. Dollar Equivalent.................................................................................27
U.S. Government Obligations............................................................................27
Vice President.........................................................................................27
Voting Stock...........................................................................................27
Wholly Owned...........................................................................................27
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.....................................................28
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE...................................................28
SECTION 104. ACTS OF HOLDERS..........................................................................29
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY.......................................................30
SECTION 106. NOTICE TO HOLDERS; WAIVER................................................................31
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.................................................31
SECTION 108. SUCCESSORS AND ASSIGNS...................................................................31
SECTION 109. SEPARABILITY CLAUSE......................................................................31
SECTION 110. BENEFITS OF INDENTURE....................................................................32
SECTION 111. GOVERNING LAW............................................................................32
SECTION 112. LEGAL HOLIDAYS...........................................................................32
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY..........................................................................32
SECTION 202. RESTRICTIVE LEGENDS......................................................................33
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS..........................................................................35
SECTION 302. DENOMINATIONS............................................................................36
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING...........................................36
SECTION 304. TEMPORARY SECURITIES.....................................................................38
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE......................................38
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES..............................................39
SECTION 307. SPECIAL TRANSFER PROVISIONS..............................................................41
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.........................................44
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED...........................................45
SECTION 310. PERSONS DEEMED OWNERS....................................................................47
SECTION 311. CANCELLATION.............................................................................47
SECTION 312. COMPUTATION OF INTEREST..................................................................47
SECTION 313. FORM OF RULE 144A CERTIFICATE............................................................48
<PAGE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE..................................................48
SECTION 402. APPLICATION OF TRUST MONEY...............................................................49
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT........................................................................49
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.......................................51
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE..........................52
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.........................................................53
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES..............................54
SECTION 506. APPLICATION OF MONEY COLLECTED...........................................................54
SECTION 507. LIMITATION ON SUITS......................................................................55
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST................56
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.......................................................56
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE...........................................................56
SECTION 511. DELAY OR OMISSION NOT WAIVER.............................................................56
SECTION 512. CONTROL BY HOLDERS.......................................................................57
SECTION 513. WAIVER OF PAST DEFAULTS..................................................................57
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.........................................................57
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.......................................................................58
SECTION 602. CERTAIN RIGHTS OF TRUSTEE................................................................58
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES...........................60
SECTION 604. MAY HOLD SECURITIES......................................................................60
SECTION 605. MONEY HELD IN TRUST......................................................................60
SECTION 606. COMPENSATION AND REIMBURSEMENT...........................................................60
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..................................................61
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR........................................61
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...................................................63
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS..............................63
<PAGE>
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.............................................64
SECTION 702. REPORTS BY TRUSTEE.......................................................................64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.....................................64
SECTION 802. SUCCESSOR SUBSTITUTED....................................................................66
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS...............................................66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.......................................67
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS..........................................67
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.....................................................68
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES........................................................69
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT......................................................69
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.......................................69
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES........................................................69
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.....................................70
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.........................................................70
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.........................................70
SECTION 1004. CORPORATE EXISTENCE.....................................................................72
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.......................................................72
SECTION 1006. MAINTENANCE OF PROPERTIES...............................................................72
SECTION 1007. INSURANCE...............................................................................73
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.....................................................73
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS...........................................73
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS...................................................74
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.......................................................74
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES...................................................................................77
<PAGE>
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES..............................................78
SECTION 1014. LIMITATION ON LIENS.....................................................................79
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES...................80
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL.........................................80
SECTION 1017. LIMITATION ON SALE OF ASSETS............................................................81
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES...........................................................................83
SECTION 1019. LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES..................................84
SECTION 1020. LIMITATION ON LINES OF BUSINESS.........................................................84
SECTION 1021. WAIVER OF CERTAIN COVENANTS.............................................................84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.....................................................................85
SECTION 1102. APPLICABILITY OF ARTICLE................................................................85
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE...................................................86
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.......................................86
SECTION 1105. NOTICE OF REDEMPTION....................................................................86
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.............................................................87
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE...................................................87
SECTION 1108. SECURITIES REDEEMED IN PART.............................................................88
ARTICLE TWELVE [RESERVED]
ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE............................88
SECTION 1302. DEFEASANCE AND DISCHARGE................................................................89
SECTION 1303. COVENANT DEFEASANCE.....................................................................89
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.........................................90
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.............................................................92
SECTION 1306. REINSTATEMENT...........................................................................92
</TABLE>
<PAGE>
viii
<PAGE>
ix
<PAGE>
x
<PAGE>
xi
<PAGE>
xii
<PAGE>
xiii
<PAGE>
xiv
<TABLE>
<CAPTION>
Page
<S> <C>
TESTIMONIUM.................................................................................................... 93
SIGNATURES AND SEALS........................................................................................... 93
SCHEDULE A - Existing Management Contracts, Overhead Agreements and Service Agreements
SCHEDULE B - Indebtedness Outstanding on the Issue Date
SCHEDULE C - Liens Existing on the Issue Date
SCHEDULE D - Agreements Not Restricted Under Section 1018
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered upon Termination of Restricted Period
</TABLE>
<PAGE>
INDENTURE dated as of January 27, 1999, between
@ENTERTAINMENT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company" or the "Issuer"), having
its principal office at One Commercial Plaza, 24th Floor, Hartford, Connecticut,
and BANKERS TRUST COMPANY, a New York state banking corporation, Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
14 1/2% Senior Discount Notes due 2009 (herein called the "Initial Securities"),
and 14 1/2% Exchange Senior Discount Notes due 2009 (the "Exchange Securities"
and, together with the Initial Securities, the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE>
2
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted on the Issue Date;
and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Accreted Value" as of any date (the "Specified Date") means,
with respect to each $1,000 principal amount at maturity of the Securities.
(i) if the Specified Date is one of the following dates (each
a "Semi-Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Semi-Annual
Accrual Date Accreted Value
<S> <C> <C>
ISSUE DATE (JANUARY 27,
1999)................... $ 389.43
AUGUST 1, 1999.......... 428.75
FEBRUARY 1, 2000........ 471.05
AUGUST 1, 2000.......... 517.53
FEBRUARY 1, 2001........ 568.59
AUGUST 1, 2001.......... 624.69
FEBRUARY 1, 2002........ 686.33
AUGUST 1, 2002.......... 754.05
FEBRUARY 1, 2003........ 828.45
AUGUST 1, 2003.......... 910.19
FEBRUARY 1, 2004........ $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the sum of (a) the Accreted Value for the Semi-Annual
Accrual Date immediately preceding the Specified Date and (b) an amount
equal to the product of (x) the Accreted Value for
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3
the immediately following Semi-Annual Accrual Date less the Accreted
Value for the immediately preceding Semi-Annual Accrual Date and (y) a
fraction the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the
Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is on or after February 1, 2004,
$1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person becomes a Restricted Subsidiary or (b) assumed
in connection with the acquisition of assets from such Person, in each case,
other than Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary or such acquisition; PROVIDED that,
for purposes of Section 1010, such Indebtedness shall be deemed to be incurred
on the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Advent" means Advent International Corporation, a Delaware
corporation.
"Affiliate" means, with respect to any specified Person, (a)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (b) any other
Person that owns, directly or indirectly, 5% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Members" has the meaning specified in Section 306.
"Annualized Pro Forma Consolidated Operating Cash Flow" means
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (a) all Restricted Subsidiaries
of the Company on the date of the transaction giving rise to the need to
calculate "Annualized Pro Forma Consolidated Operating Cash Flow" (the
"Transaction Date") shall be deemed to have been Restricted Subsidiaries at all
times during such fiscal
<PAGE>
4
quarter and (b) any Unrestricted Subsidiary of the Company on the Transaction
Date shall be deemed to have been an Unrestricted Subsidiary at all times during
such fiscal quarter. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a PRO FORMA basis for the applicable fiscal
quarter to, without duplication, any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Company or a Restricted Subsidiary
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
fiscal quarter to and including the Transaction Date (the "Reference Period"),
as if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period.
"Asset Acquisition" means (a) any capital contribution (by
means of transfers of cash or other property to others or payments for property
or services for the account or use of others, or otherwise) by the Company or
any Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (b) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer or lease (that has the effect of a disposition and is not for security
purposes) or other disposition (that is not for security purposes) to any Person
other than the Company or a Restricted Subsidiary in one transaction or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary,
(b) any material governmental license or other governmental authorization of the
Company or any Restricted Subsidiary pertaining to a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business, (c) any
assets of the Company or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of the Company and
its Restricted Subsidiaries or (d) any other property or asset of the Company or
any Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
disposition of properties and assets of the Company that is governed under
Article VIII, (b) sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or the Restricted Subsidiary, as the case may be, (c)
for purposes of Section 1017, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series of
related transactions, either (i) involving assets with a Fair Market Value not
in excess of $500,000 (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) or (ii) as part of a Capitalized Lease Obligation, and (d)
any transfer by the Company or a Restricted Subsidiary of property or equipment
to a Person who is not an Affiliate of the Company in exchange for property or
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5
equipment that has a fair market value at least equal to the fair market value
of the property or equipment so transferred; PROVIDED that, in the event of a
transfer described in this clause (d), the Company shall deliver to the Trustee
an Officer's Certificate certifying that such exchange complies with this clause
(d).
"Average Life" means, as of the date of determination with
respect to any Indebtedness, the quotient obtained by dividing (a) the sum of
the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as
amended, or any similar United States federal or state law, or any similar law
of any other jurisdiction, relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or the city in which the Corporate Trust Office is located are authorized
or obligated by law or executive order to close.
"Cable Television Newco" means any Person (i) of whom the
Company or a Restricted Subsidiary owns the greater of 49% of the outstanding
Capital Stock or the maximum amount of the outstanding Capital Stock the Company
or such Restricted Subsidiary may own under applicable law and (ii) that holds
Capital Stock in a Management Company.
"Cable/Telecommunications Business" means any business
operating a cable or telephone or telecommunications or broadcasting system
(other than an Entertainment/Programming Business or a DTH Business), including,
without limitation, any business (other than an Entertainment/Programming
Business or a DTH Business) conducted by the Company or any Restricted
Subsidiary on the Issue Date and any programming guide or telephone directory
business.
<PAGE>
6
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations, rights in or
other equivalents (however designated) of such Person's capital stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Stock, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of this Indenture.
"Capitalized Lease Obligation" of any Person means any
obligation of such Person and its subsidiaries on a consolidated basis under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as
a capital lease obligation under GAAP, and, for the purpose of this Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500,000,000; (c) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-l by
Moody's; and (d) any Capital Stock of any mutual funds at least 95% of the
assets of which are invested in the foregoing.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and l3d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the Company; (b) the Company consolidates with, or merges with or into
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of
<PAGE>
7
incorporation of the Company) or is converted into or exchanged for (A) Voting
Stock (other than Redeemable Capital Stock) of the surviving or transferee
corporation or (B) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation and cash, securities and other property
(other than Capital Stock of the Surviving Entity) in an amount that could be
paid by the Company as a Restricted Payment as described under Section 1011 and
(ii) immediately after such transaction, no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the surviving or transferee corporation; (c) during any consecutive two year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66b% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or a special resolution is passed
by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with Article VIII.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such Person's common stock or
ordinary shares, whether outstanding at the Issue Date, and includes, without
limitation, all series and classes of such common stock or ordinary shares.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
<PAGE>
8
"Consolidated Income Tax Expense" means, with respect to any
period, the provision for United States corporation, local, foreign and other
income taxes of the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of original issue discount, (ii) the net cost of Interest Rate
Agreements (including amortization of discounts), (iii) the interest portion of
any deferred payment obligation, (iv) accrued interest, (v) the consolidated
amount of any interest capitalized by the Company and the Restricted
Subsidiaries, PROVIDED that such amount will be limited for purposes of this
definition to the amount that would have been obtained if such interest had been
capitalized at the interest rate for the Securities and (vi) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, PLUS (b) the interest component of Capitalized
Lease Obligations of the Company and its Restricted Subsidiaries paid, accrued
or scheduled to be paid or accrued during such period, in each case as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (in
each case less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (in each case less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of
business, (c) the portion of net income (or loss) of any Person (other than the
Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in
which the Company or any Restricted Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash dividends or distributions
during such period, (d) net income (or loss) of any Person combined with the
Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) except with
respect to any encumbrance or restriction described in clause (ii) of Section
1018, the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and (f) any
non-cash items of the Company and any Restricted Subsidiary (including monetary
corrections) increasing or decreasing Consolidated Net Income for such period
(other than items that will result in the receipt or payment of cash).
<PAGE>
9
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by (in each case to the extent included
in computing Consolidated Net Income) the sum of (a) the Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries accrued according to GAAP
for such period (other than taxes attributable to extraordinary, unusual or
non-recurring gains or losses); (b) Consolidated Interest Expense for such
period; (c) depreciation of the Company and its Restricted Subsidiaries for such
period and (d) amortization of the Company and its Restricted Subsidiaries for
such period, including, without limitation, amortization of capitalized debt
issuance costs for such period, all determined on a consolidated basis in
accordance with GAAP PROVIDED that, if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, Consolidated Operating Cash Flow shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) by an amount equal
to (i) the amount of Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (ii) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at Four Albany Street, New York, New York 10006, except
that with respect to presentation of Securities for payment or for registration
of transfer or exchange, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"Cumulative Available Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered into
by a Person that is designed to protect such Person against fluctuations in
currency values.
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10
"Default" means any event that after notice or passage of time
or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of Directors
is required to deliver a resolution of the Board of Directors under this
Indenture, a member of the Board of Directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of transactions.
"DTH Business" means the business of (i) developing, managing,
operating or providing services relating to direct to home satellite systems for
the distribution of subscription programming services directly to homes and
cable systems in areas covered by the "footprint" of the satellites utilized by
the Company and its Restricted Subsidiaries, and activities to accomplish the
foregoing (other than the Cable/Telecommunications Business or the
Entertainment/Programming Business) or (ii) evaluating, participating or
pursuing any other activity or opportunity that is primarily related to those
identified above.
"ECO" means ECO Holdings III Limited Partnership, a Delaware
limited partnership.
"Entertainment/Programming Business" means a business engaged
primarily in the management, ownership, operation, acquisition, development,
production, distribution or syndication of general entertainment, sports,
movies, children's or other programming or publishing.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
<PAGE>
11
"Exchange Securities" has the meaning stated in the first
recital of this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Rights Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer, as determined by the Board of Directors of the
Company and evidenced by a resolution thereof.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in effect in the United States on the
Issue Date.
"Global Security" has the meaning provided in Section 201.
"guarantee" means, as applied to any obligation, (a) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (b) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Incur" or "incur" means, with respect to any Indebtedness, to
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur such Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and provided further that the
incurrence of any particular Indebtedness by the Company or any Restricted
Subsidiary shall occur only once and any obligation of any Restricted Subsidiary
arising under any guarantee supporting such Indebtedness shall be disregarded.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money (including
overdrafts) or for the deferred purchase price of property or services,
excluding any trade payables and other accrued current
<PAGE>
12
liabilities (including outstanding disbursements) incurred in the ordinary
course of business (whether or not evidenced by a note), but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in (but not
excluded from) the preceding clauses of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person, (g)
all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends and (h) any liability of such Person under or in respect of Interest
Rate Agreements or Currency Agreements. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of Sections 1010 and 1011 and the
definition of "Events of Default", in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning provided in the recitals
to this Indenture.
<PAGE>
13
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements or arrangements
(including, without limitation, interest rate swaps, caps, floors, collars and
similar agreements) designed to protect against or manage exposure to
fluctuations in interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
such Person (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock
(including ownership of Capital Stock through share leasing arrangements),
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means January 27, 1999.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Majority Owned Restricted Subsidiary" means a Restricted
Subsidiary (a) at least 66.66% of the outstanding Capital Stock of which is
beneficially owned directly or indirectly by the Company or PCBV and one or more
Wholly Owned Restricted Subsidiaries and (b) no outstanding Capital Stock of
which is owned, directly or indirectly (except through the Company), by any
shareholder or Affiliate of a shareholder of the Company.
"Management Agreement" means (a) any agreement between the
Company or a Restricted Subsidiary and a Management Company pursuant to which
the Management Company shall lease or otherwise employ assets of the Company or
a Restricted Subsidiary to
<PAGE>
14
operate a Cable/Telecommunications Business, a DTH Business or an
Entertainment/Programming Business and (b) any agreement or instrument (i)
governing Indebtedness of a Management Company to the Company or a Restricted
Subsidiary or (ii) governing corporate procedures or control of a Management
Company.
"Management Company" means any Person, a portion of whose
Capital Stock is held by the Company or a Restricted Subsidiary, that (i) holds
or has applied for a license or permit to operate a Cable/Telecommunications
Business, a DTH Business or an Entertainment/Programming Business in the
Republic of Poland or elsewhere in Continental Europe and (ii) manages the
operations of a Restricted Subsidiary pursuant to a Management Agreement.
"Maturity" means, with respect to any Security, the date on
which any principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds thereof in the form of cash or Cash Equivalents including payments
in respect of deferred payment obligations or escrowed funds, but only when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants, consultants and investment banks) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock as referred to under Section 1011 and the definition of "Permitted
Indebtedness", the proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for,
<PAGE>
15
cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted Subsidiary of
the Company), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such capital contribution, issuance or sale and net of taxes
paid or payable as a result thereof.
"Officers Certificate" means a certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Old Indenture" means the Indenture dated as of July 14, 1998
between the Issuer and Bankers Trust Company, as trustee, as in effect on the
Issue Date.
"Old Notes" means the Issuer's 14 1/2% Senior Discount Notes
due 2008 issued under the Old Indenture.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be acceptable to the Trustee.
"Organizational Contract" means any agreement to which the
Company or any Restricted Subsidiary is a party pursuant to which, among other
things, fees are paid to the Company or a Restricted Subsidiary in exchange for
organizational, consulting or similar services, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Organizational Contracts."
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
PROVIDED that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
<PAGE>
16
(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands the Securities are valid obligations
of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount at maturity of Outstanding Securities have given any request,
demand, authorization, direction, consent, notice or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgees right so to act with
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Overhead Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
costs are allocated among the parties thereto, including, without limitation,
the agreements listed on Schedule A to this Indenture under the subheading
"Overhead Agreements".
"Pari Passu Indebtedness" means Indebtedness of the Company
that is PARI PASSU in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Securities on behalf of the Company. The initial
paying agent shall be the Trustee.
"PCBV" means Poland Cablevision (Netherlands) B.V., a
Netherlands corporation.
<PAGE>
17
"PCI" means Poland Communications, Inc., a New York
corporation and a Wholly Owned Subsidiary of the Company.
"PCI Indenture" means the Indenture dated as of October 31,
1996 between PCI and State Street Bank and Trust Company, as trustee, as in
effect on the Issue Date.
"Permitted Holders" means, as of the date of determination,
(a) David T. Chase, Arnold L. Chase and Cheryl A. Chase (b) the family members,
estates and heirs of David T. Chase, Arnold L. Chase and Cheryl A. Chase and any
trust, partnership, corporation, limited liability company or other investment
vehicle principally for the benefit of any such persons or their respective
family members or heirs (including, without limitation, Polish Investments
Holding LP for so long as beneficial ownership thereof is held by Persons
meeting the requirements of clause (a) and (b) of this definition), (c) ECO and
any successor thereto that is owned by the Persons who beneficially own,
directly and indirectly, ECO on the Issue Date; (d) Advent International Corp.
and (e) any Person that is controlled by the Persons, individually or as a
group, described in clauses (a) through (d) above.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Securities (or any guarantee
thereof) and this Indenture;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on Schedule B to this
Indenture;
(c) Indebtedness of the Company or any Restricted Subsidiary
(including PCI and any subsidiary of PCI that is a Restricted
Subsidiary) to the extent such Indebtedness constitutes "Permitted
Indebtedness" as defined in the PCI Indenture or the Old Indenture;
(d) (i) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or a Restricted Subsidiary and (ii) Indebtedness of
the Company owed to and held by any Restricted Subsidiary that is
Subordinated Indebtedness; PROVIDED that an incurrence of Indebtedness
shall be deemed to have occurred upon (x) any sale or other disposition
(excluding assignments as security to financial institutions) of any
Indebtedness of the Company or Restricted Subsidiary referred to in
this clause (e) to a Person (other than the Company or a Restricted
Subsidiary) or (y) any sale or other disposition of Capital Stock of a
Restricted Subsidiary which holds Indebtedness of the Company or
another Restricted Subsidiary such that such Restricted Subsidiary, in
any such case, ceases to be a Restricted Subsidiary;
<PAGE>
18
(e) Obligations under any Interest Rate Agreement of the
Company or any Restricted Subsidiary to the extent relating to (i)
Indebtedness of the Company or such Restricted Subsidiary, as the case
may be (which Indebtedness (x) bears interest at fluctuating interest
rates and (y) is otherwise permitted to be incurred under Section
1010), or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be incurred by the
Company or a Restricted Subsidiary in the following 12 months after
such Interest Rate Agreement has been entered into, but only to the
extent that the notional principal amount of such Interest Rate
Agreement does not exceed the principal amount of the Indebtedness (or
Indebtedness subject to commitments) to which such Interest Rate
Agreement relates;
(f) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (i) Indebtedness of
the Company or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under Section 1010) or (ii) obligations to
purchase assets, properties or services incurred in the ordinary course
of business of the Company or any Restricted Subsidiary; PROVIDED that
such Currency Agreements do not increase the Indebtedness or other
obligations of the Company and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness of the Company or any Restricted Subsidiary
in respect of performance bonds of the Company or any Restricted
Subsidiary or surety bonds provided by the Company or any Restricted
Subsidiary incurred in the ordinary course of business in connection
with the construction or operation of a Cable/ Telecommunications
Business, a DTH Business or an Entertainment/Programming Business;
(h) Indebtedness of the Company or any Restricted Subsidiary
to the extent it represents a replacement, renewal, refinancing or
extension of outstanding Indebtedness of the Company or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (b) of
this definition or the proviso of Section 1010; PROVIDED that (i)
Indebtedness of the Company may not be replaced, renewed, refinanced or
extended to such extent under this clause (i) with Indebtedness of any
Restricted Subsidiary and (ii) any such replacement, renewal,
refinancing or extension (x) shall not result in a lower Average Life
of such Indebtedness as compared with the Indebtedness being replaced,
renewed, refinanced or extended, (y) shall not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount
to be due and payable upon a declaration of acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably
<PAGE>
19
determined prepayment premium necessary to accomplish such replacement,
renewal, refinancing or extension and such reasonable fees and expenses
incurred in connection therewith, and (z) in the case of any
replacement, renewal, refinancing or extension by the Company of Pari
Passu Indebtedness or Subordinated Indebtedness, such new Indebtedness
is made PARI PASSU with or subordinate to the Securities, at least to
the same extent as the Indebtedness being replaced, renewed, refinanced
or extended;
(i) Indebtedness of the Company having an aggregate principal
amount not to exceed, at any one time outstanding, two times (i) the
Net Cash Proceeds received by the Company after the Issue Date from the
issuance and sale of its Capital Stock (other than Redeemable Capital
Stock) to a Person that is not a Subsidiary, to the extent such Net
Cash Proceeds have not been used pursuant to clause (a)(3)(B), (b)(ii),
(b)(iii) or (b)(v) of Section 1011 to make a Restricted Payment and
(ii) 80% of the Fair Market Value of property (other than cash or Cash
Equivalents) received by the Company after the Issue Date from a sale
of its Capital Stock (other than Redeemable Capital Stock) to a Person
that is not a Subsidiary, the extent such sale of Capital Stock has not
been used pursuant to clause (b)(ii), (b)(iii) or (b)(v) of Section
1011 to make a Restricted Payment; PROVIDED, HOWEVER, that in
determining the Fair Market Value of property, if the estimated Fair
Market Value of such property exceeds $10.0 million, the Company will
deliver to the Trustee a written appraisal as to the fair market value
of such property prepared by an internationally recognized investment
banking or public accounting firm (or, if no such investment banking or
public accounting firm is qualified to prepare such an appraisal, by an
internationally recognized appraisal firm) and PROVIDED FURTHER that
such Indebtedness does not mature prior to the Stated Maturity of the
Securities and has an Average Life longer than the Securities;
(j) Subordinated Indebtedness of the Company not to exceed
$150 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any one time outstanding; and
(k) in addition to the items referred to in clauses (a)
through (j) above, Indebtedness of the Company having an aggregate
principal amount not to exceed $125 million (or, if non-U.S. Dollar
denominated, the U.S. Dollar Equivalent thereof) at any time
outstanding less the aggregate principal amount of any outstanding
Indebtedness incurred after the Issue Date under clause (c) of this
definition of Permitted Indebtedness.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans and advances to directors or
<PAGE>
20
employees made in the ordinary course of business; (d) Interest Rate Agreements
and Currency Agreements; (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under Section 1017, PROVIDED that
the Company or the Restricted Subsidiaries, as the case may be, have received at
least 75% of the aggregate consideration therefrom in cash or Cash Equivalents;
(f) Investments made in the ordinary course of business as partial payment for
constructing a network relating principally to a Cable/Telecommunications
Business or for supplying equipment used or useful in the
Cable/Telecommunications Business or the DTH Business; (g) Investments (other
than through share leasing arrangements) in any Person engaged in any business
in which the Company or any Restricted Subsidiary is engaged on the Issue Date
not to exceed $90 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) outstanding at any time; PROVIDED that immediately after
giving effect to any Investment made under this clause (g), the Company and its
Restricted Subsidiaries shall own at least 25% of the outstanding Capital Stock
of the Person in which the Investment was made; (h) Investments (other than
through share leasing arrangements) in any Person engaged in any business in
which the Company or any Restricted Subsidiary is engaged on the Issue Date not
to exceed $10 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) outstanding at any time; (i) Investments (other than through
share leasing programs) in the Capital Stock of any Person to the extent the
consideration therefor paid by the Company or any Restricted Subsidiary consists
of a lease or other right to use the capacity of a cable television network of
the Company or such Restricted Subsidiary and so long as the capacity leased or
used is used by such Person solely to provide telephony or Internet access
services; PROVIDED that the Board of Directors shall have determined (as
evidenced by a Board Resolution) that any such capacity is in excess of the
cable television network capacity required to operate the
Cable/Telecommunications Business of the Company or such Restricted Subsidiary
in the area in which such cable television network is located; (j) investments
by any Restricted Subsidiary in the Issuer; and (k) to the extent not covered in
clauses (a) through (j) above, any "Permitted Investment" as defined in the PCI
Indenture made by PCI or any subsidiary thereof in accordance with the terms of
the PCI Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary;
(b) Liens securing the Securities;
(c) Liens securing Acquired Indebtedness created prior to (and
not in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; PROVIDED that
such Lien does not extend to any property or assets of the Company or
any
<PAGE>
21
Restricted Subsidiary other than the assets acquired in connection with
the incurrence of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens
arising in the ordinary course of business of the Company or any
Restricted Subsidiary and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with
the business of the Company or any Restricted Subsidiary incurred in
the ordinary course of business;
(g) Liens arising by reason of any judgment, decree or order
of any court so long as such Lien is adequately bonded and any
appropriate legal proceedings that may have been initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired;
(h) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security;
(i) any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (h);
PROVIDED that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property or
assets;
(j) any interest or title of a lessor under any Capitalized
Lease Obligation or seller under any Purchase Money Obligation;
(k) Liens securing up to $45.0 million of Indebtedness of PCI
incurred after the Issue Date under clause (c) of the definition of
Permitted Indebtedness at any one time outstanding;
(l) Liens securing Indebtedness of the Company incurred
pursuant to clause (i) of the definition of Permitted Indebtedness in
an amount having an aggregate principal amount not to exceed, at any
one time outstanding, 100% of the Net Cash
<PAGE>
22
Proceeds received by the Company after the Issue Date from the issuance
and sale of its Capital Stock;
(m) Liens in favor of Polish governmental fiscal authorities
created without the knowledge of and without fault on the part of the
Company;
(n) Liens existing on the Issue Date and listed on Schedule C
to this Indenture;
(o) Liens in favor of the Screen Actors Guild, the Writers
Guild of America, the Directors Guild of America or any other unions,
guilds or collective bargaining units under collective bargaining
agreements, which Liens are incurred in the ordinary course of business
solely to secure the payment of residuals and other collective
bargaining obligations required to be paid by the Company or any of its
Restricted Subsidiaries under any such collective bargaining agreement;
(p) Liens arising in connection with completion guarantees
entered into in the ordinary course of business and consistent with
then current industry practices, securing obligations (other than
Indebtedness for borrowed money) of the Company or any of its
Restricted Subsidiaries not yet due and payable;
(q) Liens in favor of suppliers and/or producers of any
programming that are incurred in the ordinary course of business solely
to secure the purchase or license price of such programming and such
directly related rights or the rendering of services necessary for the
production of such programming; PROVIDED, HOWEVER, that no such Lien
shall extend to or cover any property or assets other than the
programming or license and the rights directly related thereto being so
acquired or produced; and PROVIDED FURTHER that any payment obligations
secured by such Liens shall by their terms be payable solely from the
revenues that are derived directly from the exhibition, syndication,
exploitation, distribution or disposition of such item of programming
and/or such directly related rights;
(r) Liens on assets of PCI or any subsidiary of PCI securing
the PCI Notes; and
(s) Liens on assets or Capital Stock of a Special Purpose
Vehicle.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, S.A., SP.
Z O.O., trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Physical Note" has the meaning specified in Section 201.
<PAGE>
23
"Poltelkab" means Poltelkab Sp. z o.o., a Polish limited
liability company.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" means an issuance, offer and sale of
Common Stock (which is Qualified Capital Stock) of the Company for cash pursuant
to a registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligation" means Indebtedness of the Company
or any Restricted Subsidiary (a) issued to finance or refinance the purchase or
construction of any assets of the Company or any Restricted Subsidiary or (b)
secured by a Lien on any assets of the Company or any Restricted Subsidiary
where the lender's sole recourse is to the assets so encumbered, in either case
to the extent the purchase or construction prices for such assets are or should
be included in "addition to property, plan or equipment" in accordance with
GAAP.
"Qualified Capital Stock" of any person means any and all
Capital Stock of such person other than Redeemable Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A.
"Redeemable Capital Stock" means any class or series of
Capital Stock that, either by its terms, by the terms of any security into which
it is convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; PROVIDED, HOWEVER, that Redeemable Capital Stock shall
not include any Common
<PAGE>
24
Stock the holder of which has a right to put to the Company upon certain
terminations of employment.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Initial Purchasers named therein, dated as
of January 27, 1999, relating to the Securities and the Company's 14 1/2% Senior
Discount Notes due 2009, a copy of which has been filed with the Trustee.
"Registration Statement" means the Registration Statement as
defined in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee,
means any officer in its corporate trust department or similar group, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Payment" has the meaning provided in Section 1011.
"Restricted Subsidiary" means a Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of
The McGraw-Hill, Inc. and its successors.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
<PAGE>
25
"Senior Bank Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary under one or more term loans or revolving credit or
similar facilities (which may include any guarantee, bonding or letter of credit
facility) with a bank or other financial institution which is not subordinated
to any other Indebtedness of the Company or any Restricted Subsidiary.
"Series C Indenture" meant the Indenture dated as of January
20, 1999 between the Issuer and Bankers Trust Company, as trustee, as in effect
on the Issue Date.
"Series C Notes" means the Issuers Series C Discount Notes
due 2008 issued under the Series C Indenture.
"Service Agreement" means any agreement to which the Company
or any Restricted Subsidiary is a party pursuant to which, among other things,
the Company or a Restricted Subsidiary provides various services, which may
include administrative, technical, managerial, financial, operational and
marketing services, to the other party or parties thereto, including, without
limitation, the agreements listed on Schedule A to this Indenture under the
subheading "Service Agreements."
"Shareholder Registration Rights Agreement" means the
Registration Rights Agreement dated as of June 27, 1997 among PIHLP, ECO, Mr.
Freedman, Steele LLC, AESOP and CACMT (as such terms are defined in the
Company's Offering Memorandum dated January 22, 1999) in the form existing on
the Issue Date.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any particular time, any
Subsidiary that, together with the subsidiaries of such Subsidiary, (a)
accounted for more than 5% of the consolidated revenues of the Company and its
Subsidiaries for their most recently completed fiscal year or (b) is or are the
owner(s) of more than 5% of the consolidated assets of the Company and its
Subsidiaries as at the end of such fiscal year, all as calculated in accordance
with GAAP and as shown on the consolidated financial statements of the Company
and its Subsidiaries for such fiscal year.
"Special Purpose Vehicle" means a Person which is, or was,
established: (i) with separate legal identity and limited liability; and (ii)
for the sole purpose of a single transaction, or series of related transactions,
and which has no assets and liabilities other than those directly acquired or
incurred in connection with such transaction(s).
<PAGE>
26
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable, and, when used with respect to any
other Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
that is expressly subordinated in right of payment to the Securities.
"Subsidiary" means (a) any Person a majority of the equity
ownership or Voting Stock of which is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries or by the Company and one or
more other Subsidiaries and (b) Poltelkab, PTK Operator Sp. z o.o., Cable
Television Newco and any other Management Company.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and its Restricted Subsidiaries outstanding as of the date of
determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (b) any subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company, subject to
the foregoing, may designate any newly acquired or newly formed Subsidiary
(other than a Management Company) to be an Unrestricted Subsidiary so long as
(i) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with respect to
any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of
<PAGE>
27
Section 1019, (iv) neither the Company nor any Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from persons who are not Affiliates of the Company and (v)
neither the Company nor any Restricted Subsidiary has any obligation (1) to
subscribe for additional shares of Capital Stock or other equity interest in
such Subsidiary or (2) to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing a board resolution with the Trustee giving
effect to such designation. The Board of Directors of the Company may designate
any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after
giving effect to such designation, there would be no Default or Event of Default
under this Indenture and the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1010.
"U.S. Dollar" means United States currency.
"U.S. Dollar Equivalent" means with respect to any monetary
amount in a currency other than U.S. Dollars, at any time for the determination
thereof, the amount of U.S. Dollars obtained by converting such foreign currency
involved in such computation into U.S. Dollars at the spot rate for the purchase
of U.S. Dollars with the applicable foreign currency as quoted by the National
Bank of Poland at approximately noon (New York City time) on the date two
business days prior to such determination.
"U.S. Government Obligations" has the meaning provided in
Section 1304.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Restricted
Subsidiary, such Restricted Subsidiary if all the outstanding Capital Stock of
such Restricted Subsidiary (other than any directors' qualifying shares) is
owned directly by the Company or PCBV and one or more Wholly Owned Restricted
Subsidiaries.
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the
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29
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Company stating that the information with respect to such factual matters is
in the possession of the Company, unless such counsel knows, or in the exercise
of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount at maturity and serial numbers of
Securities held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at
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30
its option, by or pursuant to a Board Resolution, fix in advance a record date
for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. Notwithstanding TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; PROVIDED that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Manager, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
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31
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Security Registrar and their
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32
successors hereunder and the Holders any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. Upon issuance of
the Exchange Securities or the effectiveness of a Shelf Registration Statement,
this Indenture shall be subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions; and, if and to the extent that any
provision of this Indenture limits, qualifies or conflicts with any other
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act,
such required provision shall control.
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or Maturity; PROVIDED that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
The Initial Securities shall be known as the "14 1/2% Senior
Discount Notes due 2009" and the Exchange Securities shall be known as the
"14 1/2% Exchange Senior Discount Notes due 2009". The Securities and the
Trustee's certificate of authentication shall be
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33
substantially in the form annexed hereto as Exhibit A. The Securities may have
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters,
notations, numbers or other marks of identification and such legends or
endorsements placed thereon as the Company may deem appropriate (and as are not
prohibited by the terms of this Indenture) or as may be required or appropriate
to comply with any law or with any rules made pursuant thereto or with any rules
of any securities exchange on which such Securities may be listed, or to conform
to general usage, or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of such
Securities. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. The Company shall approve the form of the Securities and any notation,
legend or endorsement on the Securities. Each Security shall be dated the date
of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture. Each of the Company and the Trustee,
by its execution and delivery of this Indenture, expressly agrees to the terms
and provisions of the Securities applicable to it and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A
shall be issued initially in the form of a single permanent global Security in
registered form, substantially in the form set forth in Exhibit A (the "Global
Security"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount at maturity of the Global Security may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Securities issued pursuant to Section 306 or Section 307 in
exchange for interests in the Global Security shall be in the form of permanent
certificated Securities in registered form in substantially the form set forth
in Exhibit A (the "PHYSICAL SECURITIES").
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for an
Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, each Global Security
and each Physical Security shall bear the following legend set forth below (the
"Private Placement Legend") on the face thereof.
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34
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE
144A")), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER
THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 (IF AVAILABLE), OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR
OTHER TRANSFERS OF THIS SECURITY UNDER (C), (D) AND (E) ABOVE ARE
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
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35
OFFERS, SALES OR OTHER TRANSFERS TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each Global Security, whether or not an Initial Security,
shall also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF
DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount at maturity of Securities
which may be authenticated and delivered under this Indenture is limited to
up to $256,800,000, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities pursuant to Section 304, 305, 306, 801, 906, 1016, 1017 or 1108.
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36
The Initial Securities shall be known and designated as the
"14 1/2% Senior Discount Notes due 2009" of the Company. The Exchange
Securities shall be known and designated as the "14 1/2% Exchange Senior
Discount Notes due 2009" of the Company. The Stated Maturity of the Initial
Securities and the Exchange Securities shall be February 1, 2009 and, except
as otherwise set forth herein, they shall bear interest at the rate of 14
1/2% per annum from February 1, 2004, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable on
August 1, 2004 and semi-annually thereafter on February 1 and August 1 in
each year and at said Stated Maturity, until the principal thereof is paid or
duly provided for. Except in the case of a Registration Default (as defined
in the form of Securities), the principal of the Securities shall not accrue
interest until February 1, 2004, except in the case of a default in payment
of the amount due at Maturity, in which case the amount due on the Securities
shall bear interest at a rate of 17 1/2% per annum (to the extent that the
payment of such interest shall be legally enforceable), which shall accrue
from the date of such default to the date the payment of such amount has been
made or duly provided for. Interest on any overdue principal amount shall be
payable on demand. The Securities are issued at a discount to their aggregate
principal amount at maturity and will generate gross proceeds to the Company
of $100,003,056 (and net proceeds of $96,752,957). Original issue discount
will accrete from the Issue Date (January 27, 1999) until February 1, 2004.
Based on the issue price thereof, the yield on the Securities is 17 1/2%
(computed on a semiannual bond equivalent basis) calculated from January 27,
1999.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 principal amount at maturity
and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
any of its Chairman, its President or a Vice President, the Chief Executive
Officer or the Chief
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37
Financial Officer, under its corporate seal reproduced thereon. The signature of
any of these officers on the Securities may be manual or facsimile signatures of
the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the
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38
Holders but without expense to them, shall provide for the exchange of all
Securities at the time Outstanding for Securities authenticated and delivered in
such new name.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.
The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount.
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39
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount at maturity, upon surrender of the Securities to be exchanged
at such office or agency. Whenever any Securities are so surrendered for
exchange (including an exchange of Initial Securities for Exchange Securities),
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive PROVIDED
that no exchange of Initial Securities for Exchange Securities shall occur until
an Exchange Offer Registration Statement shall have been declared effective by
the Commission and that the Initial Securities to be exchanged for the Exchange
Securities shall be cancelled by the Trustee.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 801, 906, 1016, 1017
or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Security initially shall (i) be registered in
the name of the Depositary for such Global Securities or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.
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40
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under any Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a beneficial owner
of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees and, in part, in the circumstances
described in paragraph (d) hereof. Interests of beneficial owners in a Global
Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. Beneficial
owners may obtain Physical Securities (which shall bear the Private Placement
Legend if required by Section 202) in exchange for their beneficial interests in
a Global Security upon request in accordance with the Depositary's and the
Security Registrar's procedures at any time. In addition, Physical Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in the Global Security if (i) the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary for the Global Security or
the Depositary ceases to be a "Clearing Agency" registered under the Exchange
Act and a successor depositary is not appointed by the Company within 90 days or
(ii) an Event of Default has occurred and Holders of more than 25% in aggregate
principal amount of the Securities at the time outstanding represented by the
Global Securities advise the Trustee through the Depositary in writing that the
continuation of a book-entry system through the Depositary with respect to the
Global Securities is no longer required.
(c) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interest in the Global Security
to beneficial owners, upon receipt of written instructions from the Depositary,
the Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount at maturity of the Global Security in an amount
equal to the principal amount at maturity of the beneficial interest in the
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Physical Securities of like
tenor and amount.
(d) In connection with the transfer of the entire Global
Security to beneficial owners pursuant to paragraph (b) of this Section, the
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and
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41
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary in exchange for its beneficial interest in the Global Security
an equal aggregate principal amount at maturity of Physical Securities of
authorized denominations.
(e) Any Physical Security delivered in exchange for an
interest in the Global Security pursuant to paragraph (b) or (c) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph (e) of
Section 307, bear the legend regarding transfer restrictions applicable to the
Physical Security set forth in Section 202.
(f) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(g) In connection with the execution, authentication and
delivery of Physical Securities in exchange for beneficial interests in a Global
Security pursuant to Section 306(b), the Security Registrar shall reflect on its
books and records a decrease in the principal amount at maturity of the relevant
Global Security equal to the principal amount at maturity of such Physical
Securities and the Company shall execute and the Trustee shall authenticate and
deliver one or more Physical Securities having an equal aggregate principal
amount at maturity.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
Unless and until (i) an Initial Security is sold pursuant to
an effective Registration Statement, or (ii) an Initial Security is exchanged
for an Exchange Security in the Exchange Offer pursuant to an effective
Registration Statement, in each case, pursuant to the Registration Rights
Agreement, the following provisions shall apply:
(a) GENERAL. The provisions of this Section 307 shall apply to
all transfers involving any Physical Security and any beneficial
interest in any Global Security.
(b) CERTAIN DEFINITIONS. As used in this Section 307 only,
"delivery" of a certificate by a transferee or transferor means the
delivery to the Security Registrar by such transferee or transferor of
the applicable certificate duly completed; "holding" includes both
possession of a Physical Security and ownership of a beneficial
interest in a Global Security, as the context requires; "transferring"
a Global Security means transferring that portion of the principal
amount of the transferor=s beneficial interest therein that the
transferor has notified the Security Registrar that it has agreed to
transfer; and "transferring" a Physical Security means transferring
that portion of the
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42
principal amount thereof that the transferor has notified the Security
Registrar that it has agreed to transfer.
As used in this Indenture,"Rule 144A Certificate" means a
certificate substantially in the form set forth in Section 313 and
"Non-Registration Opinion and Supporting Evidence" means a written
opinion of counsel reasonably acceptable to the Company to the effect
that, and such other certification or information as the Company may
reasonably require to confirm that, the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(c) [Intentionally Omitted]
(d) DEEMED DELIVERY OF A RULE 144A CERTIFICATE IN CERTAIN
CIRCUMSTANCES. A Rule 144A Certificate, if not actually delivered, will
be deemed delivered if (A) (i) the transferor advises the Company and
the Trustee in writing that the relevant offer and sale were made in
accordance with the provisions of Rule 144A (or, in the case of a
transfer of a Physical Security, the transferor checks the box provided
on the Physical Security to that effect) and (ii) the transferee
advises the Company and the Trustee in writing that (x) it and, if
applicable, each account for which it is acting in connection with the
relevant transfer, is a qualified institutional buyer within the
meaning of Rule 144A, (y) it is aware that the transfer of Securities
to it is being made in reliance on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A, and (z) prior to
the proposed date of transfer it has been given the opportunity to
obtain from the Company the information referred to in Rule 144A(d)(4),
and has either declined such opportunity or has received such
information (or, in the case of a transfer of a Physical Security, the
transferee signs the certification provided on the Physical Security to
that effect); or (B) the transferor holds the Global Security and is
transferring to a transferee that will take delivery in the form of the
Global Security.
(e) PROCEDURES AND REQUIREMENTS. If the proposed transferor
holds:
(A) a Physical Security which is surrendered to the
Security Registrar, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee requests delivery in the form of a
Physical Security, then the Security Registrar shall (x)
register such transfer in the name of such transferee and
record the date thereof in its books and records, (y)
cancel such
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43
surrendered Physical Security and (z) deliver a new
Physical Security to such transferee duly registered in
the name of such transferee in principal amount equal to
the principal amount being transferred of such surrendered
Physical Security; or
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the Global Security, then the
Security Registrar shall (x) cancel such surrendered
Physical Security, (y) record an increase in the principal
amount of the Global Security equal to the principal
amount being transferred of such surrendered Physical
Security and (z) notify the Depositary in accordance with
the procedures of the Depositary that it approves of such
transfer.
In any of the cases described in this Section 307(e)(A), the
Security Registrar shall deliver to the transferor a new Physical
Security in principal amount equal to the principal amount not being
transferred of such surrendered Physical Security, as applicable.
(B) the Global Security, and the proposed transferee or
transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee requests delivery in the form of a
Physical Security, then the Security Registrar shall (w)
register such transfer in the name of such transferee and
record the date thereof in its books and records, (x)
record a decrease in the principal amount of the Global
Security in an amount equal to the beneficial interest
therein being transferred, (y) deliver a new Physical
Security to such transferee duly registered in the name of
such transferee in principal amount equal to the amount of
such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer; or
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the Global Security, then the
transfer shall be effected in accordance with the
procedures of the Depositary therefor.
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44
(f) EXECUTION, AUTHENTICATION AND DELIVERY OF PHYSICAL
SECURITIES. In any case in which the Security Registrar is required to
deliver a Physical Security to a transferee or transferor, the Company
shall execute, and the Trustee shall authenticate and make available
for delivery, such Physical Security.
(g) CERTAIN ADDITIONAL TERMS APPLICABLE TO PHYSICAL
SECURITIES. Any transferee entitled to receive a Physical Security may
request that the principal amount thereof be evidenced by one or more
Physical Securities in any authorized denomination or denominations and
the Security Registrar shall comply with such request if all other
transfer restrictions are satisfied.
(h) TRANSFERS NOT COVERED BY SECTION 307(e). The Security
Registrar shall effect and record, upon receipt of a written request
from the Company so to do, a transfer not otherwise permitted by
Section 307(e), such recording to be done in accordance with the
otherwise applicable provisions of Section 307(e), upon the furnishing
by the proposed transferor or transferee of a Non-Registration Opinion
and Supporting Evidence.
(i) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture
and in the Private Placement Legend and agrees that it will transfer
such Security only as provided in this Indenture. The Security
Registrar shall not register a transfer of any Security unless such
transfer complies with the restrictions with respect thereto set forth
in this Indenture. The Security Registrar shall not be required to
determine (but may rely upon a determination made by the Company) the
sufficiency of any such certifications, legal opinions or other
information.
(j) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Security Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar
shall deliver only Securities that bear the Private Placement Legend
unless (i) the requested transfer is at least two years after the
original issue date of the Initial Security (with respect to any
Physical Security), (ii) there is delivered to the Security Registrar
an Opinion of Counsel in form reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act or (iii) such Securities are
exchanged for Exchange Securities pursuant to an Exchange Offer.
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45
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount at maturity, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; PROVIDED, HOWEVER, that each installment of interest may at the
Company's option be paid by (i) mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 310,
to the address of
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46
such Person as it appears in the Security Register at the close of business on
the Regular Record Date for such interest payment or (ii) transfer to an account
located in the United States maintained by the payee.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed
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47
payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 309) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. CANCELLATION.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
SECTION 312. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
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48
SECTION 313. FORM OF RULE 144A CERTIFICATE.
Upon any transfer of the Securities pursuant to Rule 144A, the
purchaser of such Securities shall deliver to the Trustee a certificate in the
form of Exhibit B hereto.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities expressly provided for herein or pursuant hereto and the
rights, powers, trusts, duties and immunities of the Trustee) and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 308) and (ii) Securities for whose payment money has
theretofore been deposited in trust with the Trustee or any
Paying Agent or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(b) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company,
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49
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire Indebtedness on
such Securities not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest
on such Securities to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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(1) default in the payment of any interest on any Security
when it becomes due and payable and continuance of such default for a
period of 30 days;
(2) default in the payment of the principal of or premium, if
any, on any Security at its Maturity;
(3) default in the performance, or breach, of the provisions
described in Article Eight of this Indenture, the failure to make or
consummate a Change of Control Offer in accordance with the provisions
of Section 1016 or the failure to make or consummate an Excess Proceeds
Offer in accordance with the provisions of Section 1017;
(4) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a
default in the performance, or breach, of a covenant or warranty which
is specifically dealt with elsewhere in this Indenture) and continuance
of such default or breach for a period of 30 days after written notice
shall have been given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in principal amount of
the then Outstanding Securities, as the case may be;
(5) (i) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Significant
Subsidiary aggregating $15 million or more, when the same becomes due
and payable at the stated maturity thereof, and such default or
defaults shall have continued after any applicable grace period and
shall not have been cured or waived or (ii) Indebtedness of the Company
or any Significant Subsidiary aggregating $15 million or more shall
have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly
scheduled required prepayment) prior to the stated maturity thereof;
(6) any holder or holders (or any Person acting on any such
holder's behalf) of any Indebtedness in excess of $15 million in the
aggregate of the Company or any Significant Subsidiary shall,
subsequent to the occurrence of a default with respect to such
Indebtedness, notify the Trustee of the intended sale or disposition of
any assets of the Company or any Restricted Subsidiary that have been
pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take action to retain in
satisfaction of any such Indebtedness, or to collect on, seize, dispose
of or apply, any such assets of the Company or any Restricted
Subsidiary pursuant to the terms of any agreement or instrument
evidencing any such Indebtedness of the Company or any Restricted
Subsidiary or in accordance with applicable law;
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51
(7) one or more final judgments, orders or decrees of any
court or regulatory agency shall be rendered against the Company or any
Significant Subsidiary or their respective properties for the payment
of money, either individually or in an aggregate amount, in excess of
$15 million and either (i) an enforcement proceeding shall have been
commenced by any creditor upon such judgment or order or (ii) there
shall have been a period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect;
(8) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Significant Subsidiary under the
Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days; and
(9) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT.
If an Event of Default (other than an Event of Default
specified in Section 501(8) or 501(9)) shall occur and be continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Securities then Outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee upon the
written request of such Holders, shall declare the principal of, premium, if
any, and accrued interest on all of the Outstanding Securities immediately due
and payable, and upon any such declaration all such amounts payable in respect
of the Securities shall
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52
become immediately due and payable. If an Event of Default specified in Section
501(8) or 501(9) occurs and is continuing, then the principal of, premium, if
any, and accrued interest on all of the Outstanding Securities shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of either the Trustee or any Holder.
At any time after a declaration of acceleration hereunder, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of and premium, if any, on any
Outstanding Securities that have become due otherwise than by
such declaration of acceleration, and interest thereon at the
rate borne by such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the
rate borne by such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of, premium, if any, or interest on Securities
that have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Company covenants that if
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53
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
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(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
and take such other actions, including participating as a member of any
official creditors committee appointed in the matter as it may deem
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
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Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
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56
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment, as provided herein and in such Security of
the principal of (and premium, if any) and (subject to Section 309) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
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No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in principal amount at
maturity of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, PROVIDED
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount at maturity of the Outstanding Securities may, on behalf of the Holders
of all the Securities, waive any past defaults hereunder, except a default
(1) in the payment of the principal of, premium, if any, or
interest on any such Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
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SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default or Event of
Default hereunder, the Trustee shall transmit in the manner and to the extent
provided in TIA Section 313(c), notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; PROVIDED, HOWEVER,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Security, the Trustee shall be protected in
withholding such notice if a committee of its trust officers in good faith
determines that the withholding of such notice is in the interest of the
Holders; and PROVIDED FURTHER that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 30 days after the occurrence thereof.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other
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59
evidence in respect thereof is herein specifically prescribed) and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) shall
be entitled to receive and may require and, in the absence of bad faith
on its part, conclusively rely upon an Officers Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee security or indemnity
reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(9) the Trustee shall not be deemed to have knowledge of any
default, breach or Event of Default or other matter upon the occurrence
of which it may be required to take action hereunder unless one of its
Responsible Officers has actual knowledge thereof.
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The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk or liability is not reasonably
assured to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility on Form T-1 supplied to
the Company will be true and accurate, subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 604. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
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(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of investigating or defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar foreign or domestic law; PROVIDED, HOWEVER, that to the extent
unpaid as such expenses, they shall be paid as provided in Section 506.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in
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62
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or
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consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities. In case
at that time any of the Securities shall not have been authenticated, any
successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases
such certificates shall have the full force and effect which this Indenture
provides for the certificate of authentication of the Trustee shall have;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
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CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets substantially as an entirety to
any other Person or Persons, and the Company will not permit any Restricted
Subsidiary to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis to any Person or Persons, unless:
(1) either (i) the Company shall be the surviving corporation
or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company or the Company and its
Restricted Subsidiaries is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially
all of the properties and assets of the Company or the Company and its
Restricted Subsidiaries, as the case may be, (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the
laws of the United States of America, any state thereof or the District
of Columbia and (y) shall expressly assume, by an indenture
supplemental to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, the Company's obligations for the
due and punctual payment of the principal of (or premium, if any, on)
and interest on all the Securities and the performance and observance
of every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately before and after giving effect to such
transaction or series of transactions on a PRO FORMA basis (and
treating any obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or
series of transactions on a PRO FORMA basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
latest fiscal quarter for which consolidated financial statements of
the Company are available prior to the consummation of such transaction
or series of transactions with the appropriate adjustments with respect
to the transaction or series of transactions being included in such PRO
FORMA calculation), the ratio of Total Consolidated Indebtedness to
Annualized Pro Forma Consolidated
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Operating Cash Flow of the Company (or the Surviving Entity if the
Company is not the continuing obligor under this Indenture) would be
less than or equal to such ratio of the Company immediately before such
transaction;
(4) if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 1014 are complied with; and
(5) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition and such supplemental indenture
comply with the terms of this Indenture.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein. When a successor assumes all the
obligations of its predecessor under this Indenture and the Securities, the
predecessor shall be released from those obligations; PROVIDED that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal and interest on the Securities.
SECTION 803. SECURITIES TO BE SECURED IN CERTAIN EVENTS.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1014 without equally and ratably securing the Securities, the Company, prior to
or simultaneously with such consolidation, merger, conveyance, lease or
transfer, will as to such property or assets, secure the Securities Outstanding
(together with, if the Company shall so determine any other Indebtedness of the
Company now existing or hereinafter created which is not subordinate in right of
payment to the Securities) equally and ratably with (or prior to) the
Indebtedness which upon such consolidation, merger, conveyance, lease or
transfer is to become secured as to such property or assets by such Lien, or
will cause such Securities to be so secured; PROVIDED that, for the purpose of
providing such equal and ratable security, the principal amount of the
Securities shall mean that amount which would at the time of making such
effective provision be due and payable pursuant to
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Section 502 upon a declaration of acceleration of the Maturity thereof, and the
extent of such equal and ratable security shall be adjusted, to the extent
permitted by law, as and when said amount changes over time as provided in
Section 502.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; PROVIDED that such action shall
not adversely affect the interests of the Holders in any material
respect; or
(6) to secure the Securities pursuant to the requirements of
Section 1014 or otherwise; or
(7) to qualify, or maintain the qualification of, this
Indenture under the TIA.
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SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Securities, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the Accreted Value
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any
Security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment
after the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date), or
(2) reduce the percentage in principal amount at maturity of
the Outstanding Securities, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
(3) modify any of the provisions of this Section, Section 1021
or Article Five, except to increase the percentage of Outstanding
Securities required for such actions or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security, or
(4) amend, change or modify the redemption provisions of this
Indenture or the Securities or the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate an Excess Proceeds Offer with respect to
any Asset Sale or modify any of the provisions or definitions with
respect thereto.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
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In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Failure to provide such
notice shall not affect the validity of such amendment.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of Bankers Trust Company at Four Albany
Street, New York, New York 10006 shall be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such
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71
sums shall be paid to such Persons or otherwise disposed of as herein provided
and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 10:00 a.m. (New York City time) on each
due date of the principal of (or premium, if any) or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal, premium or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security
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shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a Lien upon the property of the Company or any Subsidiary; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; PROVIDED, HOWEVER, that nothing in this
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Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1007. INSURANCE.
The Company will at all times keep all of its and its
Subsidiaries properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year and within 45 days after the end of each
fiscal quarter (other than the last fiscal quarter of a year), a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1008(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an officers certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1009. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
(a) Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
file with the Commission (if permitted by Commission practice and applicable law
and regulations) the annual reports, quarterly reports and other documents which
are required to be filed with the Commission pursuant to such Section 13(a) or
15(d) or any successor provision thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
required by such Section 13(a) or 15(d) of the Exchange Act regardless of
whether the Company is required to file such documents. The Company shall also
in any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to
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be filed with the Commission (i) transmit (or cause to be transmitted) by mail
to all holders of Securities, as their names and addresses appear in the
applicable Security Register, without cost to such holders, and (ii) file with
the Trustee copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the Commission pursuant to the
preceding sentence, or, if such filing is not so permitted, information and data
of a similar nature, and (b) if, notwithstanding the preceding sentence, filing
such documents by the Company with the Commission is not permitted by Commission
practice or applicable law or regulations, promptly upon written request supply
copies of such documents to any holder of Securities.
(b) The Company will disclose the current and accumulated
earnings and profits, if any, for any fiscal year in its annual report on form
10K so long as it is required to file such reports. Thereafter, the Company will
provide such information separately to the Holders who so request by written
notice to the Company.
SECTION 1010. LIMITATION ON ADDITIONAL INDEBTEDNESS.
(a) The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to incur, contingently or otherwise, any
Indebtedness, except for Permitted Indebtedness; PROVIDED that the Company will
be permitted to incur Indebtedness if after giving pro forma effect to such
incurrence (including the application of the net proceeds therefrom), the ratio
of (x) Total Consolidated Indebtedness outstanding as of the date of such
incurrence to (y) Annualized Pro Forma Consolidated Operating Cash Flow would be
greater than zero and less than or equal to 6 to 1.
(b) The Company will not incur any Subordinated Indebtedness
unless such Indebtedness by its terms expressly prohibits the payment by the
Company of any assets or securities (including Common Stock) to the holders of
such Subordinated Indebtedness prior to the payment in full of the Securities in
the event of a bankruptcy or reorganization.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not take, and will not permit any
Restricted Subsidiary to, directly or indirectly, take any of the following
actions:
(i) declare or pay any dividend or any other distribution on
Capital Stock of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the
Company (other than dividends or distributions payable solely in
Capital Stock (other than Redeemable Capital Stock) of the Company);
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(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock
owned by the Company or a Restricted Subsidiary) or any Affiliate of
the Company (other than any Restricted Subsidiary);
(iii) make any principal payment on, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness of the Company (other than any Subordinated
Indebtedness held by a Restricted Subsidiary);
(iv) make any Investment (other than a Permitted Investment)
in any Person (other than an Investment by the Company or a Restricted
Subsidiary in either (1) a Restricted Subsidiary or the Company or (2)
a Person that becomes a Restricted Subsidiary as a result of such
Investment);
(v) create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than guarantees of any Indebtedness of
any Restricted Subsidiary by the Company or any Restricted Subsidiary);
or
(vi) declare or pay any dividend or any other distribution on
any Capital Stock of any Restricted Subsidiary to any Person (other
than (1) dividends or distributions paid to the Company or a Restricted
Subsidiary or (2) PRO RATA dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders, provided that
such dividends or distributions do not in the aggregate exceed the
minority stockholders' PRO RATA share of such Restricted Subsidiaries'
net income from the first day of the fiscal quarter beginning
immediately following the Issue Date);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso of Section
1010; and (3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date would not exceed an amount equal to the sum of:
(A) the difference between (x) the Cumulative Available Cash
Flow determined at the time of such Restricted Payment and (y) the
product of (I) 1.5 and (II) the cumulative Consolidated Interest
Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the latest fiscal quarter for
which consolidated financial statements of the Company are available
preceding the
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date of such Restricted Payment (or if such difference shall be a
negative number, minus 100% of such number), PLUS (B) the aggregate Net
Cash Proceeds received by the Company from the issue or sale (other
than to a Restricted Subsidiary) of Capital Stock of the Company (other
than Redeemable Capital Stock) on or after the Issue Date, excluding
any Net Cash Proceeds that are, promptly following receipt, invested in
accordance with clause (ii), (iii) or (v) of clause (b) hereof and
except to the extent such Net Cash Proceeds are used to incur
Indebtedness pursuant to clause (i) of the definition of Permitted
Indebtedness, PLUS (C) the aggregate Net Cash Proceeds received by the
Company on or after the Issue Date from the issuance or sale (other
than to a Restricted Subsidiary) of debt securities or Redeemable
Capital Stock of the Company that have been converted into or exchanged
for Capital Stock (other than Redeemable Capital Stock) of the Company
to the extent such securities were originally sold for cash, together
with the aggregate net cash proceeds received by the Company (other
than from a Restricted Subsidiary) at the time of such conversion or
exchange, plus (D) in the case of the disposition or repayment of any
Investment (other than through share leasing arrangements) constituting
a Restricted Payment made after the Issue Date (other than in the case
contemplated by clause (E) hereof) an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such
Investment, plus (E) in the case of Investments (other than through
share leasing arrangements) made in any Person other than a Restricted
Subsidiary, an amount equal to the lesser of the Fair Market Value of
such Investment and the total amount of such Investments constituting
Restricted Payments if and when such Person becomes a Restricted
Subsidiary less any amounts previously credited pursuant to clause (D).
For purposes of determining the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
(b) The provisions of this covenant shall not prohibit, so
long as, with respect to clauses (ii) through (ix) below, no Default or Event of
Default shall have occurred and be continuing (i) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof if at
such date of declaration such payment complied with the provisions of this
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, shares of Capital Stock of the Company (other than
Redeemable Capital Stock); (iii) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue or
sale (other than to a Restricted Subsidiary) of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company or (2) other Subordinated Indebtedness
so long as (A) the principal amount of
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such new Indebtedness does not exceed the principal amount (or, if such
Subordinated Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or
retired, PLUS the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus, in either
case, the amount of expenses of the Company incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the
Securities to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and (C) such new Subordinated
Indebtedness has an Average Life longer than the Average Life of the Securities
and a final Stated Maturity of principal later than the Stated Maturity of
principal of the Securities; (iv) the extension by the Company and the
Restricted Subsidiaries of trade credit to Unrestricted Subsidiaries,
represented by accounts receivable, extended on usual and customary terms in the
ordinary course of business; (v) Investments (other than through share leasing
arrangements) in any Person promptly made with the proceeds of a substantially
concurrent issue or sale of Capital Stock (other than Redeemable Capital Stock)
of the Company; (vi) payments made pursuant to the Shareholder Registration
Rights Agreement; (vii) the payment of reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary; (viii) any
"Restricted Payment" as defined in and permitted by the PCI Indenture made by
PCI or any Subsidiary thereof in accordance with the terms of the PCI Indenture
and (ix) any other Restricted Payments in an aggregate amount not to exceed $1.0
million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
at any one time outstanding.
In determining the amount of Restricted Payments permissible
under this covenant, amounts expended pursuant to clauses (i), (vi), (vii),
(viii) and (ix) above shall be included as Restricted Payments.
SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES.
(a) The Company will not and will not permit any Restricted
Subsidiary to issue or sell any shares of Capital Stock of a Restricted
Subsidiary (other than to the Company or a Restricted Subsidiary); PROVIDED,
HOWEVER, that this covenant shall not prohibit (i) the issuance and sale of all,
but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary in compliance with the other provisions of this Indenture,
(ii) issuances or sales of Common Stock of a Restricted Subsidiary if (x) the
proceeds of such issuance or sale are applied in accordance with Section 1017
and (y) immediately after giving
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effect thereto, the Company and its other Restricted Subsidiaries own no less
than 51% of the outstanding Voting Stock of such Restricted Subsidiary, (iii)
issuances or sales of Capital Stock of Restricted Subsidiaries that are
subsidiaries of PCI that are permitted by the terms of the PCI Indenture or (iv)
the ownership by directors of directors' qualifying shares or the ownership by
foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law.
(b) The Company will not permit the direct or indirect
ownership of the Company or any Restricted Subsidiary in the Capital Stock of
any Management Company to fall below the lesser of (i) the maximum ownership
percentage permitted by applicable law and (ii) 51% of the outstanding Capital
Stock of such Management Company, PROVIDED that any increase in such ownership
of the Capital Stock of any Management Company required by any change in
applicable law shall not be required to be completed prior to 365 days from the
effective date of such change in applicable law, PROVIDED FURTHER that the
Company and the Restricted Subsidiaries may sell all, but not less than all, of
their Capital Stock of any Management Company in accordance with the provisions
of Section 1017.
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with, or
for the benefit of, any Affiliate of the Company (other than the Company or a
Restricted Subsidiary and after the Old Notes are no longer outstanding, a
Majority Owned Restricted Subsidiary) unless (i) such transaction or series of
related transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with unrelated third parties who are not
Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $10
million, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Directors of the Board of
Directors, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view (or if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $20 million, the Company shall have delivered an officers'
certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above and such transaction or series of
related
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transactions has been approved by a majority of the Disinterested Directors of
the Board of Directors (assuming that at least two such Directors exist), or in
the event that at least two members of the Board of Directors are not
Disinterested Directors with respect to any transaction or series of
transactions included in this clause (iii), the Company shall obtain an opinion
from a nationally recognized investment banking firm (or if an investment
banking firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm) as described above; PROVIDED,
HOWEVER, that this provision will not restrict (1) any transaction by the
Company or any Restricted Subsidiary with an Affiliate directly related to the
purchase, sale or distribution of products in the ordinary course of business,
including, without limitation, transactions related to the purchase, sale or
distribution of programming, subscriber management services, transmission
services and services related to the publication of programming guides, (2) the
Company from paying reasonable and customary regular compensation and fees to
directors of the Company or any Restricted Subsidiary who are not employees of
the Company or any Restricted Subsidiary, including, without limitation, any
such fees which the Company has agreed to pay to any director pursuant to an
agreement in effect on the Issue Date and listed on Schedule A to this
Indenture, (3) the payment of compensation (including stock options and other
incentive compensation) to officers and other employees the terms of which are
approved by the Board of Directors, (4) any transactions pursuant to a
Management Agreement, (5) the Company or any Restricted Subsidiary from making
any Restricted Payment in compliance with Section 1011, (6) (x) transactions
pursuant to any Management Contract, Overhead Agreement or Service Agreement
that is entered into prior to the Issue Date and is listed in Schedule A to this
Indenture; or (y) transactions pursuant to any Organizational Contract, Overhead
Agreement or Service Agreement that is entered into after the Issue Date and has
substantially identical terms as, and is no less favorable to the Company or any
Restricted Subsidiary than, the Organizational Contracts, Overhead Agreements or
Service Agreements, as the case may be, listed in Schedule A to this Indenture,
or (7) amendments, modifications or alterations of Management Agreements,
Organizational Contracts, Overhead Agreements and Service Agreements under (b)
below.
(b) The Company will not, and will not permit any Restricted
Subsidiary to, amend, modify, or in any way alter the terms of any Management
Agreement, Organizational Contract, Overhead Agreement or Service Agreement in a
manner materially adverse to the Company other than (i) by adding new Restricted
Subsidiaries to a Management Agreement, (ii) substituting one Restricted
Subsidiary in place of another Restricted Subsidiary under a Organizational
Contract, (iii) amendments, modifications or alterations required by applicable
law, (iv) amendments, modifications or alterations made to increase the
Company's control over, or interest in, any Management Company or (v)
amendments, modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of the Company as not
materially adverse to the Company.
<PAGE>
80
SECTION 1014. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind, except for Permitted Liens, on or with respect to any of
its property or assets, whether owned at the date of this Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (x) in the case of
any Lien securing Subordinated Indebtedness, the Securities are secured by a
Lien on such property, assets or proceeds that is senior in priority to such
Lien and (y) in the case of any other Lien, the Securities are equally and
ratably secured.
SECTION 1015. LIMITATION ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS BY SUBSIDIARIES.
(a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Securities by such Restricted
Subsidiary on a basis senior to any guarantee of Subordinated Indebtedness or at
least PARI PASSU with any guarantee of Pari Passu Indebtedness; PROVIDED that
this paragraph (a) shall not be applicable to (i) any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary or (ii) any guarantee of any Restricted Subsidiary of Senior Bank
Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the
Securities created pursuant to the provisions described in the foregoing
paragraph (a) shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person who is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by this
Indenture) (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
<PAGE>
81
the creation of such guarantee under paragraph (a) above, then such guarantee
need not be created.
SECTION 1016. PURCHASE OF SECURITIES UPON A CHANGE OF CONTROL.
If a Change of Control shall occur at any time, then each
holder of Securities shall have the right to require that the Company purchase
such holder's Securities, in whole or in part in integral multiples of $1,000
principal amount at maturity, at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of the Accreted Value of the
Securities plus accrued and unpaid interest, if any, to the date of purchase
(the "Change of Control Purchase Date"), pursuant to the offer described below
(the "Change of Control Offer") and the other procedures set forth in this
Indenture.
Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Securities by first-class mail, postage prepaid, at
the address of such holder appearing in the Security Register, stating, among
other things, (a) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed, or such later date as is necessary to comply with requirements
under the Exchange Act; (b) that any Security not tendered will continue to
accrue interest or accrete original issue discount, as applicable; (c) that,
unless the Company defaults in the payment of the purchase price, any Securities
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and (d) certain other
procedures that a holder of Securities must follow to accept a Change of Control
Offer or to withdraw such acceptance.
The Company will comply with the applicable tender offer
rules, including Rule l4e-l under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer.
The Company will not enter into any agreement that would
prohibit the Company from making a Change of Control Offer to purchase the
Securities or, if such Change of Control Offer is made, to pay for the
Securities tendered for purchase.
SECTION 1017. LIMITATION ON SALE OF ASSETS.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the Fair Market Value of the shares or assets sold
(as determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution) and (ii) the
<PAGE>
82
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 75% cash or Cash Equivalents.
Notwithstanding the preceding sentence, the Company and its Restricted
Subsidiaries may consummate an Asset Sale without complying with clause (ii) of
the immediately preceding sentence if at least 75% of the consideration for such
Asset Sale consists of any combination of cash, Cash Equivalents and those items
described in clause (b)(ii) or (b)(iii) below.
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale, the Company may use the Net Cash Proceeds thereof, within 12 months
after the later of such Asset Sale or the receipt of such Net Cash Proceeds, (i)
to permanently repay or prepay any then outstanding Senior Bank Indebtedness of
the Company or a Restricted Subsidiary, any then outstanding Indebtedness of a
Restricted Subsidiary or any other then outstanding unsubordinated Indebtedness
of the Company, (ii) to invest in any one or more businesses (including, without
limitation, in the Capital Stock of any Person that becomes a Restricted
Subsidiary as a result of such investment or that is received in connection with
a Permitted Investment made under clause (g), (h) or (i) of the definition
thereof), make capital expenditures (including lease payments for one or more
capital assets) or invest in other tangible assets of the Company or any
Restricted Subsidiary, in each case, engaged, used or useful in the
Cable/Telecommunications Business, the DTH Business or the
Entertainment/Programming Business of the Company and its Restricted
Subsidiaries (or enter into a legally binding agreement to do so within six
months of the date on which such agreement is executed) or (iii) to invest in
properties or assets that replace the properties and assets that are the subject
to such Asset Sale (or enter into a legally binding agreement to do so within
six months of the date on which such agreement is executed). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (ii) or (iii) (without regard to the parenthetical contained
in clauses (ii) or (iii)) above. The amount of such Net Cash Proceeds not so
used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds
$15 million the Company shall, within 30 business days, make an offer to
purchase (an "Excess Proceeds Offer") from all holders of Securities, on a
PRO RATA basis (together with and including any Series C Notes that may be
outstanding pursuant to the Series C Indenture), in accordance with the
procedures set forth below, the maximum Accreted Value of Securities that may
be purchased with the Excess Proceeds less the amount of Excess Proceeds, if
any, required to be applied under the PCI Indenture for the repurchase of PCI
Notes and applied under the Old Indenture and the Series C Indenture for the
repurchase of the Old Notes and Series C Notes, respectively. The offer price
shall be payable in cash in an amount equal to 100% of the Accreted Value of
the Securities plus accrued and unpaid interest, if any (the "Offered
Price"), to the date such Excess Proceeds Offer is consummated (the "Offer
Date"). To the extent that the aggregate Accreted Value of Securities
tendered
<PAGE>
83
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, the Company may use such additional Excess Proceeds for general
corporate purposes. If the Accreted Value of Securities validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Securities to be
purchased will be selected on a PRO RATA basis (together with and including the
Series C Notes that may be outstanding pursuant to the Series C Indenture). Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset to zero.
(d) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Securities shall be purchased by the Company, at the
option of the holder thereof, in whole or in part in integral multiples of
$1,000 on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event the amount of Excess Proceeds is less
than the aggregate Offered Price of all Securities tendered.
(e) The Company will comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer.
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions to the Company or any Restricted Subsidiary on
or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (c) make loans or advances to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to the Company or any other Restricted Subsidiary, except in all such cases for
such encumbrances or restrictions existing under or by reason of (i) any
agreement or instrument in effect on the Issue Date and listed on Schedule D
attached to this Indenture, (ii) applicable law or regulation (including
corporate governance provisions required by applicable law and regulations of
the National Bank of Poland), (iii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (v) any mortgage or other Lien on real property acquired or improved
by the Company or any Restricted Subsidiary after the Issue Date that prohibits
transfers of the type
<PAGE>
84
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.
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85
The Company will not make, and will not permit any of its
Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries
(other than Permitted Investments) if, at the time thereof, the amount of such
Investment would exceed the amount of Restricted Payments then permitted to be
made pursuant to Section 1011. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (a) will be treated as the making
of a Restricted Payment in calculating the amount of Restricted Payments made by
the Company or a Restricted Subsidiary (without duplication under the provisions
of clause (a) of paragraph (iv) of Section 1011 and (b) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (a)).
SECTION 1020. LIMITATION ON LINES OF BUSINESS.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, engage in any business other than the
Cable/Telecommunications Business, the Entertainment/Programming Business or the
DTH Business or any business or activity reasonably related thereto, including
the operation of a subscriber management or service business.
SECTION 1021. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1007 through 1020,
inclusive, if before or after the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 2004 on not
less than 30 or more than 60 days' prior notice at the redemption prices
(expressed as percentages of principal amount at
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86
maturity) set forth below, together with accrued interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below (subject to the right of holders of
record on relevant record dates to receive interest due on a relevant interest
payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
- - ---- PRICE
----------
<S> <C>
2004...................................................................108.750%
2005...................................................................105.833
2006...................................................................102.917
2007 AND THEREAFTER....................................................100.000
</TABLE>
(b) At any time or from time to time prior to February 1, 2002
the Company may redeem up to a maximum of 35% of the initially outstanding
aggregate principal amount at maturity of the Securities with some or all of the
net cash proceeds of one or more Public Equity Offerings at a redemption price
equal to 117.5% of the Accreted Value thereof on the redemption date, plus
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant interest payment dates); PROVIDED that immediately after giving effect
to such redemption, at least 65% of the originally issued aggregate principal
amount at maturity of the Securities remains outstanding. Any such redemption
shall be effected upon not less than 30 nor more than 60 days' notice given
within 30 days after the consummation of a Public Equity Offering.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the
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87
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
Securities to be redeemed and shall deliver to the Trustee such documentation
and records as shall enable the Trustee to select the Securities to be redeemed
pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE
REDEEMED.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee by such method as the Trustee shall
deem fair and appropriate; PROVIDED, HOWEVER, that no partial redemption shall
reduce the portion of the principal amount of a Security not redeemed to less
than $1,000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed at its registered address.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon
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88
surrender of such Security, the holder will receive, without charge, a
new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest,
if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
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89
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR
COVENANT DEFEASANCE.
The Company may, at its option and at any time, with respect
to the Securities, elect to have either Section 1302 or Section 1303 be applied
to all Outstanding Securities upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company,
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90
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 1304 and as more fully set forth
in such Section, payments in respect of the principal of (and premium, if any,
on) and interest on such Securities when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 304, 305,
308, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with respect
to the Securities.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801 (3) and in Sections 1007
through 1020 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(4), but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably deposit or cause to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in United States Dollars, (B)
U.S. Government Obligations, or (C) a
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91
combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants, or a nationally recognized investment banking firm, to pay
and discharge (i) the principal of, premium, if any, and interest on
the relevant Outstanding Securities on the Stated Maturity (or upon
redemption, if applicable) of such principal, premium, if any, or
installment of interest and (ii) any mandatory redemption or analogous
payments applicable to the Outstanding Securities on the day on which
such payments are due and payable in accordance with the terms of this
Indenture and of such Securities; PROVIDED that the Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to the
Securities. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of
America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt, PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are
concerned, at any time during the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the
Company is a party or by which it is bound.
(4) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States stating that (x) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or (y) since
the effective date of the Registration Statement there has
<PAGE>
92
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that,
the Holders of the Outstanding Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(5) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the Holders of the Outstanding Securities
will not recognize income, gain or loss for federal income tax purposes
as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(6) The Company shall have delivered to the Trustee an Opinion
of Counsel in the United States to the effect that after the 91st day
following the deposit or after the date such opinion is delivered, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of the Securities
over the other creditors of the Company with the intent of hindering,
delaying or defrauding creditors of the Company.
(8) The Company shall have delivered to the Trustee an
Officers Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS
TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and
<PAGE>
93
premium, if any) and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding s.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; PROVIDED, HOWEVER, that if the Company makes any payment of
principal of (or premium, if any) or interest on any following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
to receive such payment from the money held by the Trustee or Paying Agent.
<PAGE>
94
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and, in the case of the Company, attested, all as of the day
and year first above written.
@ENTERTAINMENT, INC.
[SEAL] By
-------------------------
Title:
By
-------------------------
Title:
BANKERS TRUST COMPANY
[SEAL] By
-------------------------
Title:
<PAGE>
Note: In these Schedules to this Indenture, defined terms have the same meaning
as in the Offering Memorandum.
SCHEDULE A
EXISTING MANAGEMENT CONTRACTS,
OVERHEAD AGREEMENTS AND SERVICE AGREEMENTS
<TABLE>
<CAPTION>
DATE SERVICE AGREEMENTS
<S> <C>
04/01/96 Service Agreement among Poltelkab, WCCI and PCBV.
08/31/95 Service Agreement among ETV, PCBV and WCCI.
07/07/95 Service Agreement among PTK-Lublin, WCCI and PCBV.
07/01/95 Service Agreement among Elektrim TV Sp. Z o.o., WCCI and PCBV.
05/26/95 Service Agreement among PTK-Inzynier (predecessor to
PTK-Szczecin), WCCI and PCBV.
01/01/94 Service Agreement among PTK, S.A., WCCI and PCBV.
01/01/94 Service Agreement among PTK-Katowice, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Krakow, WCCI and PCBV.
01/01/94 Service Agreement among PTK-Warsaw, WCCI and PCBV.
01/11/95 Service Agreement among Telkat, WCCI and PCBV.
11/01/95 Service Agreement among WCCI and PCBV.
</TABLE>
<TABLE>
<CAPTION>
DATE MANAGEMENT AGREEMENTS
<S> <C>
04/01/96 Management Agreement between WCCI and Poltelkab.
10/01/95 Management Agreement between WCCI and PTK-Inzynier
07/07/95 Management Agreement between WCCI and PTK-Lublin.
07/01/95 Management Agreement between WCCI and Elektrim TV Sp. Z o.o.
01/11/95 Management Agreement between WCCI and Telkat.
<PAGE>
96
01/01/95 Management Agreement between WCCI and PTK-Warsaw.
01/01/95 Management Agreement between WCCI and PTK, S.A.
01/01/95 Management Agreement between WCCI and PTK-Krakow.
01/01/94 Management Agreement between WCCI and PTK-Katowice.
</TABLE>
<TABLE>
<CAPTION>
DATE CORPORATE OVERHEAD ALLOCATION AGREEMENTS
<S> <C>
As of
01/01/96 Corporate Overhead Allocation Agreement dated as of January 1,
1996, among PTK, S.A., PTK-Warsaw, PTK-Ryntronik, PTK-Krakow,
PTK-Inzynier, PTK-Lublin, ETV, Telkat, WCCI and PCBV.
As of
04/01/96 Letter Agreement Between WCCI, PCBV and Poltelkab adding
Poltelkab as a party to the Corporate Overhead Allocation
Agreement.
</TABLE>
<PAGE>
SCHEDULE B
INDEBTEDNESS OUTSTANDING ON THE ISSUE DATE
------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
BORROWER LENDER EXCLUSIVE OF AMOUNT OF LOAN
ACCRUED INTEREST
<S> <C> <C> <C>
Poland Communications, Inc. AmerBank-Bank $6,500,000.00 $6,500,000.00
Amerykanski w
Polsce S.A.
Szczecinska Telewizja Bank Rozwoju DM 3,204,900.00 DM 3,948,615.17
Kablowa Sp. Z o.o. Eksportu S.A.
Telewizja Kablowa Polski Bank $333,334.00 $500,000.00
Gosat Sp. Z o.o. Eksportu S.A.
</TABLE>
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc., the Indenture dated as of October 31, 1996
between State Street Bank and Trust Company, as Trustee, and Poland
Communications, Inc. The Indenture dated as of January 20, 1999 between Bankers
Trust Company, as Trustee, and @ Entertainment, Inc. The Indenture dated as of
January 27, 1999 between Bankers Trust Company, as Trustee, and @Entertainment,
Inc.
<PAGE>
SCHEDULE C
LIENS EXISTING ON THE ISSUE DATE
PLEDGES OF CAPITAL STOCK
1. 2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to
a Lien existing on this date, are pledged in favor of AmerBank.
2. 2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to Amerbank.
3. 3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of Amerbank.
4. Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. Z o.o. for
the security of certain obligations undertaken by PTK Szczecin Sp. Z
o.o.
5. Lien on certain cable television fixed assets of Telewizja Kablowa
Gosat Sp. Z o.o. and pledge on insurance policies for such assets in
favor of Polski Bank Rozwoju S.A.
<PAGE>
SCHEDULE D
AGREEMENTS NOT RESTRICTED UNDER SECTION 1018
a) LIMITATIONS ON ABILITY TO PAY DIVIDENDS OR MAKE DISTRIBUTIONS ON
CAPITAL STOCK.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to pay dividends or make distributions on its capital
stock is limited by its Restated Certificate of Incorporation.
PTK-Operator's ability to pay dividends or make distributions on its
capital stock is limited by the convertible debt of PTK-Operator.
The Statutes, Notarial Deeds or Articles of Association of each of the
Polish Subsidiaries require shareholder vote to pay dividends or make
distribution on capital stock.
2) Limitations on the payment of indebtedness owed to the Company or any
Subsidiary.
The Indenture dates as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The statutes of PTK-Operator limit the payment on indebtedness owed to
the Company or any Subsidiary.
PCI's ability to make payments on indebtedness is limited by its
Restated Certificate of Incorporation.
<PAGE>
100
PCBV and PCI have subordinated their right to receive payments on their
loans to PTK Warsaw, PTK-Krakow, and PTK-Lublin in favor of AmerBank.
c) LIMITATIONS ON THE ABILITY OF A COMPANY TO MAKE INVESTMENTS IN THE
COMPANY OR ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
PCI's ability to make investments in any Subsidiary is limited by its
Restated Certificate of Incorporation.
The Statutes, Notarial Deeds or articles of association of each of the
Polish Subsidiaries require shareholder vote to make certain
investments in the Company or any Subsidiary.
The PCBV Shareholders agreement limits the ability to make investments
in the Company or any Subsidiary.
4) LIMITATIONS ON TRANSFERRING PROPERTY OR ANY ASSETS TO THE COMPANY OR
ANY SUBSIDIARY.
The Indenture dated as of July 14, 1998 between Bankers Trust Company,
as Trustee, and @Entertainment, Inc. and the Indenture dated as of
October 31, 1996 between State Street Bank and Trust Company, as
Trustee, and Poland Communications, Inc.
The Indenture dated as of January 20, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
The Indenture dated as of January 27, 1999 between Bankers Trust
Company, as Trustee, and @Entertainment, Inc.
<PAGE>
101
PCI's ability to transfer property or assets to any Subsidiaries is
limited by the Company=s Restated Certificate of Incorporation.
Certain Polish statutes restrict the transfer of property or any assets
to the Company or any Subsidiary or the conversion of convertible debt.
The PCBV shareholders agreement limits the ability to transfer property
or any assets to the Company or any Subsidiary.
2,514,291 shares of PTK-Krakow capital stock owned by PCBV, subject to
a Lien existing on this date, are pledged in favor of AmerBank.
2,400 shares of PTK-Lublin capital stock owned by Poltelkab have been
pledged to AmerBank.
3,583,457 shares of PTK-Warsaw S.A. owned by PCBV subject to a Lien
existing on this date, are pledged in favor of AmerBank.
Pledge of 1,818 shares of Szczecinska Telewizja Kablowa Sp. z o.o. for
the security of certain obligations undertaken by PTK Szczecin Sp.z
o.o.
Lien on certain cable television fixed assets of Telewizja Kablowa
Gosat Sp. z o.o. and assignment of insurance policies for such assets
in favor of Polski Bank Rozwoju S.A.
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.1 $200,000,000
@ENTERTAINMENT, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to CEDE & CO., or its registered assigns,
the principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000), on February 1,
2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C> <C>
Issue Date: January 27, 1999
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: @ENTERTAINMENT, INC.
--------------
By:
----------------------------
Title:
By:
----------------------------
Title:
<PAGE>
A-3
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
A-4
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on February 1,
2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. Thereafter the Company promises to
pay cash interest on the principal amount of this Note on each Interest
Payment Date, as set forth below, at the rate of 14 1/2% per annum (subject
to adjustment as provided below).
Cash Interest will be payable semiannually (to the holders of
record of the Notes (or any predecessor Notes) at the close of business on
the January 15 and July 15 immediately preceding the Interest Payment Date)
on each Interest Payment Date, commencing August 15, 2004. Except in the case
of a Registration Default (as defined herein), the principal of this Note
shall not accrue interest until February 1, 2004, except in the case of a
default in payment of the amount due at Maturity, in which case the amount
due on this Note shall bear interest at a rate of 17 1/2% per annum (to the
extent that the payment of such interest shall be legally enforceable), which
shall accrue from the date of such default to the date the payment of such
amount has been made or duly provided for. Interest on any overdue principal
amount shall be payable on demand.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th calendar day following the date of original issuance of the Notes,
(ii) the Exchange Offer Registration Statement is not declared effective on or
prior to the 130th calendar day after the date of original issuance of the
Notes, (iii) the Exchange Offer (as such term is defined in the Registration
Rights Agreement) is not consummated on or prior to the 160th calendar day after
the date of original issuance of the Notes or, as the case may be, a Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) with respect to the Notes is not declared effective on or prior to
the 160th day after the date of original issuance of the Notes or (iv) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable within the
applicable period as provided in the Registration Rights Agreement except
pursuant
<PAGE>
A-5
to Section 2(d)(ii) of the Registration Rights Agreement (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"), then
the Company will be required to pay additional interest in cash on each Interest
Payment Date in an amount equal to one-half of one percent (0.5%) per annum of
the applicable Accreted Value, with respect to the first 90-day period following
such Registration Default. The amount of such additional interest will increase
by an additional one-half of one percent (0.5%) per annum for each subsequent
90-day period until such Registration Default has been cured, up to a maximum of
one and one-half percent (1.5%) per annum. Such additional interest shall cease
to accrue when such Registration Default has been cured. Upon (x) the filing of
the Exchange Offer Registration Statement after the 70-day period described in
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 130-day period described in clause (ii) above or the period
during which it ceases to be effective or usable as described in clause (iv)
above or (z) the consummation of the Exchange Offer after the 160-day period or
the effectiveness of a Shelf Registration Statement after the 160-day period, as
the case may be, described in clause (iii) above or after the period during
which such Shelf Registration Statement ceases to be effective or usable as
described in clause (iv) above, and provided that none of the conditions set
forth in clauses (i), (ii), (iii) and (iv) above continues to exist, a
Registration Default will be deemed to be cured.
Cash interest on this Note will accrue from the most recent
date to which cash interest has been paid on this Note or the Note
surrendered in exchange herefor or, if no cash interest has been paid, from
February 1, 2004; PROVIDED that, if there is no existing default in the
payment of interest and if this Note is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, cash interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
2. METHOD OF PAYMENT
The Company will pay cash interest (except defaulted
interest) on the principal amount of the Notes on each February 1 and
August 1 commencing August 1, 2004 to the persons who are Holders (as
reflected in the Note Register at the close of business on the January 15 and
July 15 immediately preceding the Interest Payment Date), in each case, even
if the Note is canceled on registration of transfer or registration of
exchange after such record date; PROVIDED that, with respect to the payment
of principal, the Company will make payment to the Holder that surrenders
this Note to any Paying Agent on or after February 1, 2009.
<PAGE>
A-6
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Note Register). If a payment date is a date other than a Business Day at a place
of payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND NOTE REGISTRAR.
Initially, the Trustee will act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Note Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
January 27, 1999 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are senior unsecured obligations of the Company
ranking pari passu in right of payment with all other existing and future
unsubordinated obligations of the Company and senior in right of payment to any
existing and future obligations of the Company expressly subordinated in right
of payment to the Notes. The Indenture limits the aggregate principal amount at
maturity of the Notes to $256,800,000.
5. OPTIONAL REDEMPTION AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY
OFFERING.
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 2004 on not less than 30
or more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set
<PAGE>
A-7
forth below, together with accrued interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below (subject to the right of holders of record on relevant record
dates to receive interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
- - ---- ----------
<S> <C>
2004....................................................... 108.750%
2005....................................................... 105.833
2006....................................................... 102.917
2007 AND THEREAFTER........................................ 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% of the initially outstanding aggregate
principal amount at maturity of the Notes with some or all of the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
117.5% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates); PROVIDED that immediately after giving effect to such
redemption, at least 65% of the originally issued aggregate principal amount at
maturity of the Notes remains outstanding. Any such redemption shall be effected
upon not less than 30 nor more than 60 days' notice given within 30 days after
the consummation of a Public Equity Offering.
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1,000 principal amount at maturity may be redeemed in
part in integral multiples of $1,000 principal amount at maturity. On and after
the Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) Upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Company purchase such holder's
Notes, in whole or in part in integral multiples of $1,000 principal amount at
maturity, at a purchase price in cash of
<PAGE>
A-8
101% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates), and (b) upon the occurrence of an Asset Sale, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Notes with a portion of the Net Cash Proceeds of such Asset Sale at
a redemption price of 100% of the Accreted Value thereof on the redemption date
plus accrued and unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Note Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Note Registrar need
not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all
purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with
<PAGE>
A-9
any provision may be waived with the consent of the Holders of a majority in
aggregate principal amount at maturity of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any ambiguity
or inconsistency and make any change that does not materially adversely affect
the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
<PAGE>
A-10
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount at maturity of the Notes then outstanding, by written notice to the
Company (and to the Trustee, if such notice is given by the Holders) may declare
all the Notes to be immediately due and payable and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes and
all such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness
<PAGE>
A-11
represented by this Note, upon compliance by the Company with certain conditions
set forth in the Indenture.
<PAGE>
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
CUSIP No. 045920 AE 5
No.2 $56,800,000
@ENTERTAINMENT, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to CEDE & CO., or its registered assigns,
the principal sum of FIFTY SIX MILLION AND EIGHT HUNDRED MILLION DOLLARS
($56,800,000), on February 1, 2009.
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C>
Issue Date: January 27, 1999
Issue Price of Note: $389.43
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,357.77
Yield to Maturity: 17 1/2%
Initial Interest Rate: 14 1/2% per annum
Interest Payment Dates: February 1 and August 1 of each year,
commencing August 1, 2004
Regular Record Dates: January 15 and July 15 of each year
</TABLE>
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE>
A-13
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: @ENTERTAINMENT, INC.
----------------------------
By:
---------------------
Title:
By:
---------------------
Title:
<PAGE>
A-14
(Form of Trustee's Certificate of Authentication)
This is one of the 14 1/2% Senior Discount Notes due 2009 described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
A-15
@ENTERTAINMENT, INC.
14 1/2% Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST; SUBORDINATION.
The Company will pay the principal of this Note on February 1,
2009.
Original issue discount will accrete from the Issue Date
(January 27, 1999) up to February 1, 2004. Thereafter the Company promises to
pay cash interest on the principal amount of this Note on each Interest
Payment Date, as set forth below, at the rate of 14 1/2% per annum (subject
to adjustment as provided below).
Cash Interest will be payable semiannually (to the holders
of record of the Notes (or any predecessor Notes) at the close of business on
the January 15 and July 15 immediately preceding the Interest Payment Date)
on each Interest Payment Date, commencing August 1, 2004. Except in the case
of a Registration Default (as defined herein), the principal of this Note
shall not accrue cash interest until February 1, 2004, except in the case of
a default in payment of the amount due at Maturity, in which case the amount
due on this Note shall bear cash interest at a rate of 17 1/2% per annum (to
the extent that the payment of such interest shall be legally enforceable),
which shall accrue from the date of such default to the date the payment of
such amount has been made or duly provided for. Interest on any overdue
principal amount shall be payable on demand.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of January 27, 1999, between the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (the "Registration Rights Agreement"). In the event that (i) the
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 70th calendar day following the date of original issuance of the Notes,
(ii) the Exchange Offer Registration Statement is not declared effective on or
prior to the 130th calendar day after the date of original issuance of the
Notes, (iii) the Exchange Offer (as such term is defined in the Registration
Rights Agreement) is not consummated on or prior to the 160th calendar day after
the date of original issuance of the Notes or, as the case may be, a Shelf
Registration Statement (as such term is defined in the Registration Rights
Agreement) with respect to the Notes is not declared effective on or prior to
the 160th day after the date of original issuance of the Notes or (iv) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable within the
applicable period as provided in the Registration Rights Agreement except
pursuant
<PAGE>
A-16
to Section 2(d)(ii) of the Registration Rights Agreement (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"), then
the Company will be required to pay additional interest in cash on each Interest
Payment Date in an amount equal to one-half of one percent (0.5%) per annum of
the applicable Accreted Value, with respect to the first 90-day period following
such Registration Default. The amount of such additional interest will increase
by an additional one-half of one percent (0.5%) per annum for each subsequent
90-day period until such Registration Default has been cured, up to a maximum of
one and one-half percent (1.5%) per annum. Such additional interest shall cease
to accrue when such Registration Default has been cured. Upon (x) the filing of
the Exchange Offer Registration Statement after the 70-day period described in
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 130-day period described in clause (ii) above or the period
during which it ceases to be effective or usable as described in clause (iv)
above or (z) the consummation of the Exchange Offer after the 160-day period or
the effectiveness of a Shelf Registration Statement after the 160-day period, as
the case may be, described in clause (iii) above or after the period during
which such Shelf Registration Statement ceases to be effective or usable as
described in clause (iv) above, and provided that none of the conditions set
forth in clauses (i), (ii), (iii) and (iv) above continues to exist, a
Registration Default will be deemed to be cured.
Cash interest on this Note will accrue from the most recent
date to which cash interest has been paid on this Note or the Note
surrendered in exchange herefor or, if no cash interest has been paid, from
February 1, 2004; PROVIDED that, if there is no existing default in the
payment of cash interest and if this Note is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, cash interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
2. METHOD OF PAYMENT
The Company will pay interest (except defaulted interest)
on the principal amount of the Notes on each February 1 and August 1,
commencing August 1, 2004 to the persons who are Holders (as reflected in the
Note Register at the close of business on the January 15 and July 15
immediately preceding the Interest Payment Date), in each case, even if the
Note is canceled on registration of transfer or registration of exchange
after such record date; PROVIDED that, with respect to the payment of
principal, the Company will make payment to the Holder that surrenders this
Note to any Paying Agent on or after February 1, 2009.
<PAGE>
A-17
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Note Register). If a payment date is a date other than a Business Day at a place
of payment, payment may be made at that place on the next succeeding day that is
a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND NOTE REGISTRAR.
Initially, the Trustee will act as Paying Agent and Note
Registrar. The Company may change any Paying Agent or Note Registrar upon
written notice thereto. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Note Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
January 27, 1999 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are senior unsecured obligations of the Company
ranking pari passu in right of payment with all other existing and future
unsubordinated obligations of the Company and senior in right of payment to any
existing and future obligations of the Company expressly subordinated in right
of payment to the Notes. The Indenture limits the aggregate principal amount at
maturity of the Notes to $256,800,000.
5. OPTIONAL REDEMPTION AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY
OFFERING.
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 2004 on not less than 30
or more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set
<PAGE>
A-18
forth below, together with accrued interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below (subject to the right of holders of record on relevant record
dates to receive interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- - ---- -----------
<S> <C>
2004...............................................................108.750%
2005............................................................... 105.833
2006............................................................... 102.917
2007 AND THEREAFTER................................................ 100.000
</TABLE>
At any time or from time to time prior to February 1, 2002 the
Company may redeem up to a maximum of 35% of the initially outstanding aggregate
principal amount at maturity of the Notes with some or all of the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
117.5% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of redemption (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates); PROVIDED that immediately after giving effect to such
redemption, at least 65% of the originally issued aggregate principal amount at
maturity of the Notes remains outstanding. Any such redemption shall be effected
upon not less than 30 nor more than 60 days' notice given within 30 days after
the consummation of a Public Equity Offering.
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1,000 principal amount at maturity may be redeemed in
part in integral multiples of $1,000 principal amount at maturity. On and after
the Redemption Date, interest will cease to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) Upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Company purchase such holder's
Notes, in whole or in part in integral multiples of $1,000 principal amount at
maturity, at a purchase price in cash of
<PAGE>
A-19
101% of the Accreted Value thereof on the redemption date, plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates), and (b) upon the occurrence of an Asset Sale, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Notes with a portion of the Net Cash Proceeds of such Asset Sale at
a redemption price of 100% of the Accreted Value thereof on the redemption date
plus accrued and unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Note Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Note Registrar need
not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchan?ge of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with
<PAGE>
A-20
any provision may be waived with the consent of the Holders of a majority in
aggregate principal amount at maturity of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any ambiguity
or inconsistency and make any change that does not materially adversely affect
the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Subsidiary stock; (iv)
transactions with Affiliates; (v) Liens; (vi) guarantees of Indebtedness by
Subsidiaries; (vii) purchase of Notes upon a Change of Control, (viii) Asset
Sales and disposition of the proceeds thereof; (ix) dividends and other payment
restrictions affecting Subsidiaries; (x) investments in Unrestricted
Subsidiaries; (xi) merger and certain transfers of assets; and (xii) lines of
business. At the end of each quarter and fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
<PAGE>
A-21
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount at maturity of the Notes then outstanding, by written notice to the
Company (and to the Trustee, if such notice is given by the Holders) may declare
all the Notes to be immediately due and payable and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes and
all such amounts payable in respect of the Notes shall automatically become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. DEFEASANCE.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness
<PAGE>
A-22
represented by this Note, upon compliance by the Company with certain conditions
set forth in the Indenture.
<PAGE>
A-23
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- - -------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- - -------------------------------------------------------------------------------
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or __________________, the undersigned confirms that without utilizing
any general solicitation or general advertising that:
[CHECK ONE]
[ ](a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless
<PAGE>
A-24
and until the conditions to any such transfer of registration set forth herein
and in Section 307 of the Indenture shall have been satisfied.
Date:
--------------------
NOTICE: The signature to this
assignment must correspond with
the name as written upon the
instrument in every particular,
without alteration or any change
whatsoever.
Signature Guarantee:
-------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:
-------------------- ------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-25
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1016 or Section 1017 of the Indenture, state the
amount (in original principal amount) below:
$---------------------.
Date:
-------------------------
Your Signature:
----------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
-----------------------------------
<PAGE>
A-26
EXHIBIT B
FORM OF RULE 144A CERTIFICATE
To: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust Trustee Administration
Re: @Entertainment, Inc. (the "COMPANY")
14 1/2% SENIOR DISCOUNT NOTES DUE 2009 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate
principal amount of Notes, we confirm that such sale has been effected pursuant
to and in accordance with Rule 144A ("RULE 144A") under the Securities Act of
1933, as amended (the "SECURITIES ACT"). We are aware that the transfer of Notes
to us is being made in reliance on the exemption from the provisions of Section
5 of the Securities Act provided by Rule 144A. Prior to the date of this
Certificate we have been given the opportunity to obtain from the Company the
information referred to in Rule 144A(d)(4), and have either declined such
opportunity or have received such information.
You and the Company are entitled to rely upon this Certificate
and are irrevocably authorized to produce this Certificate or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
-------------------------------
Name:
Title:
Address:
Date of this Certificate:
-------------------------
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
COMPANY JURISDICTION
Poland Communications, Inc. New York
- - --------------------------------------------------------------------------------
Wizja TV Limited United Kingdom
- - --------------------------------------------------------------------------------
Wizja TV Sp. Zo.o Poland
- - --------------------------------------------------------------------------------
Poland Cablevision (Netherlands) B.V. Netherlands
- - --------------------------------------------------------------------------------
Wizja TV B.V. Netherlands
- - --------------------------------------------------------------------------------
@Entertainment Programming, Inc. Delaware
- - --------------------------------------------------------------------------------
Czestochowska TK Sp. z o.o. Poland (in liquidation)
- - --------------------------------------------------------------------------------
Wizja TV SP Sp z o.o. Poland
- - --------------------------------------------------------------------------------
ETV Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Gosat-Service Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Ground Zero Media Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
At Media Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
At Entertainment Services Limited United Kingdom
- - --------------------------------------------------------------------------------
Kolor-Sat Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Mazurska Telewizja Kablowa Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Opolskie TTT S.A. Poland
- - --------------------------------------------------------------------------------
Mozaic Entertainment, Inc. Delaware
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa Krakow S.A. Poland
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa Lublin S.A. Poland
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa Operator Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa S.A. Poland
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa Szczecin Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Polska Telewizja Kablowa Warszawa S.A. Poland
- - --------------------------------------------------------------------------------
Poltelkab Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Szczecinska Telewizja Kablowa Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
Telkat Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
TV Kabel Sp. z o.o. Poland
- - --------------------------------------------------------------------------------
TV-SAT Ursus Sp. z o.o. Poland (in liquidation)
- - --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10K FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,374
<SECURITIES> 0
<RECEIVABLES> 8,575
<ALLOWANCES> 2,419
<INVENTORY> 5,373
<CURRENT-ASSETS> 11,961
<PP&E> 137,088
<DEPRECIATION> (7,478)
<TOTAL-ASSETS> 524,931
<CURRENT-LIABILITIES> 24,440
<BONDS> 16,456
0
0
<COMMON> 0
<OTHER-SE> 273,810
<TOTAL-LIABILITY-AND-EQUITY> 524,931
<SALES> 0
<TOTAL-REVENUES> 62,461
<CGS> 0
<TOTAL-COSTS> 101,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,831)
<INCOME-PRETAX> (53,761)
<INCOME-TAX> (41)
<INCOME-CONTINUING> (53,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,853
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
